patents, many of them old, all put together to complete a motor vehicle, that it worked very well.

Representative SUMNERS. Of course, if you just used second-hand patents that were worn out, it didn't hurt anybody or do anybody very much good; but to the degree that you did have some valuable patents and it was a good thing-well, I think I won't press it. Well, I don't know; I am not getting much information on the point that I am particularly concerned about. What I want to know is what we are going to do about it and what we ought to do about it.

Mr. REEVES. We have got to get a good deal more evidence in from all the companies.

Representative SUMNERS. I don't believe we will get a smarter witness here before we get through.

Mr. REEVES. I hope I will bear that out.

Mr. ARNOLD. Could I direct your attention possibly to an industry by an industrial approach to the facts, using this analogy. I presume under some circumstances a corporate merger would be a reasonable restraint of trade. Under other circumstances, the use of that same device would be an unreasonable restraint of trade. You would agree there, would you not?

Mr. REEVES. Yes.

Mr. ARNOLD. Isn't it true that by the same token the use of another legal privilege, the patents, might be in some circumstances a completely unreasonable restraint in the development of an industrial art and in other circumstances it might be mere compensation for development work, and that that might be treated as a question of fact which would differ in different industries? Would that that would be a possibility?

you think Mr. REEVES. I should think that would be more of a legal question and I wouldn't have the ability to answer, Mr. Arnold.

Mr. ARNOLD. I wasn't intending to make it a legal question. I was only intending to ask you whether as a businessman you conceived of the use of the patent being not in a legal sense but in an economic sense, an unreasonable restraint of trade if it were used in such a way that it did create a monopoly privilege, and reasonable in a business sense if it were used in such a way that it only compensated for the development for the inventor, and so on, and that determination of whether it was economically reasonable or unreasonable might be a question of fact which varied in different circumstances. Mr. REEVES. I should think that would be true.

Senator KING. The purpose of the constitutional provision and of the law itself is to give a monopoly to the patentee. Now, he may or may not use that patent. He may hide it under a bushel or he may exploit it, as he sees fit, and in the utilization of the patent per se he is not violating the Sherman antitrust law because he has a monopoly on that patent.

Mr. ARNOLD. I would not wish to discuss the law on that. I would only indicate that from an economic point of view, the use of any legal privilege in such a way that it actually restrains the development of industrial arts might be a question of fact and conceivable machinery might be set up to treat the patent problem much as you treat the merger problem. I don't wish to take any position; I am only suggesting that in answer to Congressman Sumner's query as to where this particular hearing might be leading us.

The CHAIRMAN. That is a question of policy, is it not, Mr. Arnold? Mr. ARNOLD. Yes; and it is a hearing directed somewhat at questions of that kind.

Mr. Cox. Mr. Reeves, I would like to ask you some questions about the state of affairs while the agreement was in the form which existed between 1914 and 1925. Is it not a fact that if any of the companies who were parties to the agreement at that time bought a patent from an inventor or some other person outside the cross-licensing agreement, that patent had to be put in under the agreement? Mr. REEVES. Yes.

Mr. Cox. So that a company presented with an opportunity for purchasing a patent from an inventor could get no competitive advantage by that purchase as against his competitors who were parties to the cross-licensing agreement?

Mr. REEVES. Yes.

Mr. Cox. Do you think that situation was a healthy one from the point of view of the inventor who was trying to sell a patent to someone?

Mr. REEVES. I think Mr. Arvedson can answer that.

Mr. Cox. I want you to answer it.

Mr. REEVES. He said "yes" and I rather agree with him.

Mr. Cox. Do you think an inventor in that situation was really peddling his invention in a competitive market?

Mr. REEVES. He didn't have to sell it, you know. He could have licensed them. He could have licensed them and he couldn't license them exclusively. He had to license everybody that wanted a license. That was his protection.

Mr. Cox. Didn't it present an opportunity for all of the members of the cross-license agreement to agree even as to the license fee which they paid to the inventor?

Mr. REEVES. It might, but there were no such instances that came up. The provision was that if a manufacturer took a license he couldn't take an exclusive license, which would bar the other members in the agreement from having the same kind of agreement with the inventor, so the inventor had the entire industry to deal with, and under those circumstances he certainly wouldn't want to sell patents to one company unless he got a very high price for it. Mr. Cox. The inventor couldn't have given anyone an exclusive license under that situation, because no one would have taken it from him.

The CHAIRMAN. But it can be done now with respect to new patents, and the only distinction you make between the old policy and the new policy is that modern patents are not particularly important. Mr. REEVES. There haven't been so very many, but you never can tell when something new and fine is going to come out.

The CHAIRMAN. You were unwilling to express an opinion as to what should be done if an important patent should develop.

Mr. REEVES. I think that is for the man who has the patent to decide.

The CHAIRMAN. What I had in mind was to get the benefit of your judgment as a man who has been intimately associated with the use of this policy as to whether or not in your opinion it is a policy that ought to be maintained.

Mr. REEVES. In view of the fact that the industry has always been more of an industry of competition in manufacturing and selling, with patents not considered so important, I think that members of the industry might say that they think it was fine if they all had an opportunity to make use of it.

The CHAIRMAN. You may recall when Mr. Ford was on the stand I asked him whether he cared to make a statement to the committee as to whether or not he would recommend this free licensing policy to other industries.1 Would you care to answer that question?

Mr. REEVES. I think it would depend on the industry. I think it is well worth their making a study of it, in view of the way it is operating in our industry.

The CHAIRMAN. But your testimony to this committee is that so far as it has gone it has been beneficial.

Mr. REEVES. That is right.

Mr. PATTERSON. One other point upon which I am not quite clear is this: Are the companies in this cross-licensing arrangement under agreement not to offer their patents to companies who are not included in this group?

Mr. REEVES. Oh, no. They can offer their patents to anybody they want to. All they are doing is granting a license to those who grant licenses to them.

Mr. PATTERSON. No verbal understanding?

Mr. REEVES. Not a thing; oh, no-nothing of that kind.

Mr. Cox. They can grant a license to someone outside a crosslicensing agreement?

The CHAIRMAN. It is an agreement for mutual exchange without any restrictions upon the other users.

Mr. REEVES. And without any exchange of money. There is no money royalty involved of any kind. It is a quid pro quo. A man puts in all he has and he gets all the others have, and the percentage is very much in his favor when it is done that way.

Representative SUMNERS. Mr. Reeves, I didn't exactly understand your answer to one of Mr. Cox's questions. Here is an inventor. He has devised something of value to the automobile industry. There are 30 persons, each of whom might want that. This agreement excludes from the possibility of making a deal with him all except one, because if one makes it, he buys it for the benefit of all. Is that right?

Mr. REEVES. If he buys it; but if he only takes a license under it, then every other manufacturer, in order to compete, would have to take a license from him. No manufacturer can take an exclusive license for himself, barring the other manufacturers who are in the agreement, and that is in the old agreement. In the new agreement he can do anything he wants to.

Representative SUMNERS. But each manufacturer would have to go to the same source for his right.

Mr. REEVES. The inventor has the right to grant licenses to 50 manufacturers if they all want it.

The CHAIRMAN. Was there any discussion in the organization at the time the policy was changed as to the merits of these two different policies?

Mr. REEVES. I don't think that anything came up except the fact that

1 See supra, p. 284.

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.

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.