a great deal of development work was going on. Everybody hoped that they would have something that would be a little better than somebody else's, so they said: "We will renew the agreement with the patents that are now in"; but at the end of 5 years, when they had looked over all the patents that had come out during that period, they said, "There is nothing here that is so important but what we all ought to put them in"; and they did; so the agreement affected patents over a 15-year period; and it was then, in the next agreement that came along, where they said: "New developments are going on, and it seems only fair that companies that are spending great sums of money in development work and testing and things of that kind might be entitled to some special rights under it"; so they agreed to go along with the agreement as it was, with nothing new coming in.

The CHAIRMAN. Well, then, are we to understand that these automobile manufacturers are abandoning this policy?

Mr. REEVES. No, indeed. The present agreement does not expire until 1940.

The CHAIRMAN. But I mean with respect to all patents which are not included within that policy you are abandoning it.

Mr. REEVES. They may, in 1940, when that comes up, decide to put them all in.

Mr. DOUGLAS. They abandoned it in 1935, when you didn't include them in the new agreement.

Mr. REEVES. Yes; for the future patents. All the old patents are in. The CHAIRMAN. That is a very important factor of this original agreement. Your original agreement extended to existing patents and to all future patents. Now your agreement extends only to existing patents.

Mr. REEVES. Right.

Senator KING. Did it extend to all future patents for an indefinite period, or was it not circumscribed or limited by a 5-year period? Mr. REEVES. Ten-year.

Senator KING. It was only for 10 years, not for all time?

Mr. REEVES. That's right.

Mr. Cox. It is a fact, isn't it, Mr. Reeves, that the patents that are in the cross-licensing agreement today are not important patents? Mr. REEVES. I think Mr. Arvedson is a better judge of that.

Mr. ARVEDSON. I don't know.

1

Mr. REEVES. He says he doesn't know.

Senator KING. They have been important, have they not, in the development of the industry?

Mr. REEVES. There has been that feeling; yes.

Senator KING. And they are being utilized now?
Mr. REEVES. I think so.

Senator KING. Some of them are primary patents, in contradistinction to subsidiary patents, accessory to or appendages to the primary patents?

Mr. REEVES. I think some of the later witnesses can tell you how many patents they are using under the cross-licensing agreement and owned by other manufacturers, and how many are using their patents. Mr. Cox. Could you tell us now, Mr. Reeves, from any material you have there, how many of all the patents that are issued relate to the automotive industry? Does your book have any figures on that?

1 George C. Arvedson, chief of Patent Section, Automobile Manufacturers Association.

Mr. REEVES. I think Mr. Arvedson can give us those figures.
Mr. Cox. Look on page 43.

Mr. REEVES. Total automotive patents to date is 298,000. Nineteen percent of all the patents issued are automotive patents. With 1,564,000 patents, 298,000 plus are automotive patents.

Senator KING. You understand there are only about 700,000 patents still alive. Do you know what proportion of that 700,000, assuming I am correct in giving that figure, are still alive?

Mr. REEVES. I couldn't tell that, sir.

Senator KING. How many of the patents that are still alive are owned or involved in your cross-licensing-19 percent, did you say? Mr. REEVES. One thousand fifty-eight live patents are in the crosslicensing agreement at the present time.

Mr. Cox. I may say it is a little difficult to compare that figure, but it appears from the figures which have been prepared by Mr. Reeves' organization that there are probably roughly about 175,000 patents in existence today which relate to the automotive industry.

The CHAIRMAN. It would be interesting to know how many of those are merely accessory patents in which manufacturers were not interested when they were making this cross-licensing agreement and how many of them are patents applying to parts used in the manufacture of motor cars and trucks.

Mr. REEVES. I don't think there has ever been any check on that. The CHAIRMAN. Obviously, the ten-hundred-odd patents which are in the cross-licensing agreement are only a small proportion of the number of patents which have been actually issued.

Mr. REEVES. Right. It had to do only with the members of the association.

The CHAIRMAN. Oh, I see. The total figure, in excess of 170,000, applies to the patents of all kinds issued to all sorts of persons, individual inventors, and so on, not necessarily engaged in the manufacture of automobiles.

Mr. REEVES. That is right.

Mr. Cox. They are all patents which relate to the automotive industry in one way or the other.

I believe, since this question as to the number of patents has been raised, that it might be well to offer for the record one page from a publication of the Automobile Manufacturers Association entitled "Automobile Facts and Figures, Edition for 1938." The page shows the number of patents issued year by year since 1899 and percentage of those patents each year as related to the automotive industry.

The CHAIRMAN. You want that inserted in the record at this point?
Mr. Cox. Page 43 of the booklet I have just described.
The CHAIRMAN. Without objection, it is so ordered.

(The page of the booklet referred to was marked "Exhibit No. 99" and is included in the appendix on p. 684.)

Mr. REEVES. It is a book distributed annually to anybody who is interested in the industry.

Mr. Cox. In order to save time, I should also like to have you identify this schedule and ask you whether it is an accurate statement of the number of manufacturers who belong to the cross-licensing agreement.

Mr. REEVES. Yes, sir.

Mr. Cox. And is this an accurate statement of the names of the companies?

Mr. REEVES. Yes.

Mr. Cox. With the chairman's permission, I should like to have those marked.

The CHAIRMAN. They may be marked as exhibits.

(The two schedules referred to were marked "Exhibits Nos. 100 and 101," respectively, and are included in the appendix on pp. 685, 691.) Mr. Cox. I think I have probably concluded with the witness.

Mr. PATTERSON. What advantage has the A. M. A. cross-licensing arrangement over the free and unrestricted policy of the Ford Co. as outlined by Mr. Ford this morning? In other words, your system over the Ford system?

Mr. REEVES. The difference between the Ford system of licensing and the A. M. A. system of licensing?

Mr. PATTERSON. I want the advantages, Mr. Reeves, if that is a fair question.

Mr. REEVES. The advantages of the A. M. A. system over the Ford system?

Mr. PATTERSON. The unrestricted licensing policy.

Senator KING. That is the difference between a patent system and having no patent system.

Mr. REEVES. Mr. Ford said they reciprocate with anybody on patents, and that is what this is, a reciprocal arrangement. The only thing is that Mr. Ford participates with one company. It is held to that, whereas this provides that a member signing the agreement enjoys the patents of all the other companies.

The CHAIRMAN. The Chair has been advised that the next witness that Mr. Cox planned to call is very anxious to conclude this evening and leave, so if it is agreeable to you, Mr. Cox

Mr. Cox (interposing). I have finished with Mr. Reeves.

The CHAIRMAN. If there are no other questions by members of the committee

Mr. DOUGLAS (interposing). Have you got for the record, Mr. Reeves, an income statement of the association, showing how much its annual income is and how much its annual expenditures are? 1 Mr. REEVES. Yes, sir. I will be glad to file it.

Mr. Cox. Do you have it here now?

Mr. REEVES. NO; I will be very glad to get a copy and file it.

1

The CHAIRMAN. We are very much indebted to you, Mr. Reeves, for your testimony.

Mr. REEVES. Thank you gentlemen very much for your courtesy. Thank you, Mr. Cox.

(The witnesses were excused.)

The CHAIRMAN. Now, Mr. Cox, if you will call the next witness. Mr. Cox. I think here again you might swear Mr. Macauley and Mr. Tibbetts at the same time.

The CHAIRMAN. Do you and each of you solemnly swear the testimony you are about to give in this proceeding will be the truth, the whole truth, and nothing but the truth, so help you God? Mr. MACAULEY. Yes, sir.

Mr. TIBBETTS. I do.

1 Mr. Reeves subsequently submitted a statement of income and expense for the year ended June 30, 1938, which was entered in the record at hearings on February 28, 1939, as Exhibit No. 302, and is included in the appendix, infra, p. 802.

TESTIMONY OF ALVAN MACAULEY, PRESIDENT, PACKARD MOTOR CAR CO., DETROIT, MICH.; AND MILTON TIBBETTS, VICE PRESIDENT AND PATENT COUNSEL, PACKARD MOTOR CAR CO., DETROIT, MICH.

Mr. Cox. Mr. Macauley, will you give your name and address to the reporter?

Mr. MACAULEY. Alvan Macauley, Detroit, Mich.

Mr. Cox. And Mr. Tibbetts?

Mr. TIBBETTS. Milton Tibbetts, Detroit, Mich.

Mr. Cox. Mr. Macauley, you are president of the Packard Motor Car Co.

Mr. MACAULEY. Yes.

Mr. Cox. How long have you been connected with the Packard Motor Car Co.?

Mr. MACAULEY. Twenty-eight years; twenty-eight and a half, to be exact.

Mr. Cox. Is your company a member of the Association of Automobile Manufacturers?

Mr. MACAULEY. Yes, sir.

Mr. Cox. How long has it been a member of that association? [No response.]

Mr. Tibbetts, will you tell us what your present occupation is?

Mr. TIBBETS. I am at present vice president and patent counsel of the Packard Motor Car Co. I have been with the company since 1907. Mr. Cox. Have you ever been a party to the cross-licensing agreement administered by the association?

Mr. MACAULEY. No.

Mr. Cox. Will you tell us briefly now why you have never been a party to that agreement?

Mr. MACAULEY. Well, my best recollection is that at the time it was proposed, for years back of that, we had been doing a great deal of engineering and development work. We were one of the very early companies in the business, our operations having begun in a formal way about 1898, 40 years ago, or something like that, and we had acquired and devised a number of patents of considerable value in those early days, and measuring what we had against what the other fellows had combined we felt it wasn't a good thing for us to go into. Mr. Cox. And you have adhered to that opinion in the interval of time since?

Mr. MACAULEY. At any rate we haven't joined.

Mr. Cox. Can you tell us now how many patents your company owns at the present time?

Mr. MACAULEY. About a thousand active live patents.

Mr. TIBBETTS. Ten hundred thirty-eight.

Mr. MACAULEY. We own, however, 1,485, all but 1,038 of which have expired.

Mr. Cox. What is your primary purpose in taking out patents? Mr. MACAULEY. I say it is a defensive measure. If we conceive and perfect a bit of mechanism or device useful in an automobile, and we don't take out a patent on it, it is very likely to happen that somebody later will devise that same thing or substantially the same thing. The later deviser would take out patents on it and we would expect to be notified of an infringement of a device which we had first devised.

THE LICENSE-ROYALTY SYSTEM

Mr. Cox. Do you grant licenses to others under your patents?
Mr. MACAULEY. Yes.

Mr. Cox. Are those licenses granted royalty free, or do you charge them royalty?

Mr. MACAULEY. Usually we charge royalty.

Mr. Cox. Is there any case where you have granted a license royalty free that you recall?

Mr. MACAULEY. Yes; I do remember some.

Mr. Cox. It has always been a policy of your company to collect royalties under your licensing agreements?

Mr. MACAULEY. Yes, sir.

Mr. Cox. When you grant those licensing agreements is it your policy to include any provisions which restrict the licensee as to the amount of his production or any restrictions as to price?

Mr. MACAULEY. No; there has never been any of that.

Mr. Cox. Are there any restrictive provisions of any kind that you put in?

Mr. MACAULEY. We have sometimes differentiated between the use of a patent in automobiles on the one hand and perhaps an airplane motor on the other hand.

Mr. Cox. That is a restriction as to the field of use?

Mr. MACAULEY. Yes.

The CHAIRMAN. By that do you mean you would permit it in one field and not in another?

Mr. MACAULEY. Yes; that might happen, too; but in any event it would probably be that the royalty in the one hand would be larger than in the other. We had a very recent negotiation in which the royalty for the use of this device in an automobile engine was something like $2, but when applied to a modern high-powered aviation engine it was $148.

The CHAIRMAN. I get the impression from what you say, or rather the manner in which you say it, that the distinction in your mind is merely one of royalty and not one of the manner in which the patent is used.

Mr. MACAULEY. You are right about that.

Representative REECE. Mr. Chairman: On what theory, Mr. Macauley, do you grant some patents royalty free and others not? Mr. MACAULEY. One that I have in mind was

Representative REECE (interposing). I am not interested in a particular patent, but in the theory upon which you grant some royalty free and others not.

Mr. MACAULEY. We might have a patent on it, but if it were a trivial sort of thing Mr. Tibbetts would recommend that no charge be made.

Mr. Cox. It largely depends on the value of the patent, then?
Mr. MACAULEY. Yes.

The CHAIRMAN. Would you grant a license to a competitor?

Mr. MACAULEY. Yes.

The CHAIRMAN. And you have done so?

Mr. MACAULEY. Many times.

The CHAIRMAN. So the question of competition with you doesn't enter into the determination of the royalty?