Mr. MACAULEY. Not at all.

The CHAIRMAN. Or the granting of the license.

Mr. MACAULEY. When we grant them at all we grant them on a uniform basis to anyone that may apply, generally speaking.

Representative REECE. They are granted on a uniform basis, so that you don't reserve to yourself the privilege of discriminating between various manufacturers as to whether you grant royalty free or not?

Mr. MACAULEY. There are very few cases of royalty free, so far as that goes. I am not perfectly sure that I have your question clearly in mind.

Representative REECE. If you charge a royalty, do you charge the same royalty to all manufacturers?

Mr. MACAULEY. That is generally true. Whether there are any exceptions to it or not I don't know. I don't remember any at the

moment.

Representative REECE. I was just going to make one further observation. Do you think you should have the right to grant the patent to one concern without royalty and to another concern with royalty, and to a third concern at a different royalty?

Mr. MACAULEY. Yes; I think we should have the right, if we want to do that.

Mr. Cox. In fact, in these cases you have spoken of, where the license has been granted royalty free, that hasn't been a situation. has it, where you licensed one person under the patent free, and licensed another person under the same patent and charged him & royalty?

Mr. MACAULEY. No.

Mr. Cox. So far as the particular patent is concerned, you treat all licenses alike.

Mr. TIBBETTS. May I explain that a little? Some of the details Mr. Macauley hasn't followed quite as carefully, if I may do this. We sometimes grant a license at a given royalty, and later on we find the patent is of more importance than we thought it was in the first instance, and later applicants are then willing to pay a greater royalty than the first one. We do grant, and have in a number of instances granted, licenses then at higher royalties. Sometimes we have granted licenses at lower royalties, in which case the first ones get the benefit of the lower royalties, because in nearly every license that we have granted, perhaps I could satisfy everyone, there is a clause, and most licensees granted it, what we call a favored-nation clause, which is that if a license is granted at a lower rate, a better rate later on, the first licensee will have the benefit of the better rate.

Mr. Cox. The provision operates so, I take it, that the licensees under a particular patent are all treated alike. There is no situation. where one licensee is paying a larger royalty fee for the same patent than another.

Mr. TIBBETTS. That depends somewhat upon the field also. This aircraft-engine field we speak of will frequently pay a higher royalty than the passenger car because of the difference in volume. One runs in the hundreds of thousands, and the other into a few hundred.

Mr. Cox. I will amend the question to say if the patent is used in the same field of use by two licensees, there is no situation in which one licensee is being charged a lower royalty than another.

Mr. TIBBETTS. Generally speaking, that is true.

Mr. Cox. Is it the policy of the Packard Co. to sue persons who use your patents without obtaining a license?

Mr. MACAULEY. We never have sued.

Mr. Cox. Has there ever been an occasion when you sued anyone for infringing your patents?

Mr. MACAULEY. We have never appeared except as a nominal plaintiff or complainant in three cases. We have never been the actual plaintiff or complainant.

Mr. Cox. Was that à situation where you had granted an exclusive license to a third party but you retained legal title to the patent, and the licensees were suing for infringement, and you were joined as a nominal party to the plaintiff?

Mr. MACAULEY. That is right.

Mr. Cox. So, although you grant licenses and obtain royalties if you can, if someone doesn't take a license and doesn't pay royalty fees, you don't sue him?

Mr. MACAULEY. No.

Mr. Cox. You are not saying you never would sue somebody? Mr. MACAULEY. No.

Mr. DOUGLAS. Why did you institute a policy different from the rest of the industry?

Mr. MACAULEY. I don't know. As a matter of fact, that is the policy of a good deal of the industry. Very few of the other companies have a patent we would like to use they don't charge us for. We have taken, as I recall it, 176 licenses from other companies—a very large number.

Mr. TIBBETTS. We have 49 licenses outstanding now. That is where we are receiving royalties.

Mr. MACAULEY. 176 on the one and 197 on the other, 176 licenses have been granted to us and 197 licenses on our patents have been granted to others.

Mr. Cox. Can you give us an idea of what your income from royalty fees amounts to?

Mr. MACAULEY. That is about how much, Mr. Tibbetts? What is that averaging?

Mr. TIBBETTS. It has averaged over the past 30 years approximately $125,000 or $130,000 per year.

Mr. Cox. You will tell us what the licenses which you have taken from others have cost you in license fees and royalty fees?

Mr. TIBBETTS. We have paid $553,000 in the past years. I haven't divided it up.

Mr. Cox. How many years does that cover?

Mr. TIBBETTS. The past 30 years, since I have been with the company. It is the entire life of the company, practically, because we had not paid prior to that time.

Mr. Cox. Are you often sued for infringing other persons' patents? Mr. MACAULEY. Very seldom.

Mr. Cox. Can you give us anything to indicate how often that happens?

Mr. MACAULEY. Four times. In one of those cases the suit was dismissed on our showing of the prior art to the complainant; in two cases there was a settlement, so the suits were withdrawn; and the other case is still in court.

Mr. Cox. Those four cases throughout the entire life of the company; is that correct?

Mr. MACAULEY. Yes.

Mr. Cox. Are you threatened with infringement suits from time to time?

Mr. MACAULEY. Yes.

Senator BORAH. Do you carry on research and development work in your organization?

Mr. MACAULEY. Yes; assiduously.

Mr. Cox. Do you have a special department that does that?

Mr. MACAULEY. Yes.

Mr. Cox. Do you spend substantial amounts of money in carrying on that work?

Mr. MACAULEY. Quite substantial.

Mr. Cox. If your company could not obtain a patent on the invention which it makes as a result of that development and experimental work, is it your opinion that that work would still be carried on? Mr. MACAULEY. Yes.

Mr. Cox. You think it wouldn't make any difference?

Mr. MACAULEY. I wouldn't say it wouldn't make any difference, but we would still carry it on-most of it. Certainly some of it we wouldn't. We very often start on a long blind trail. We don't know where it is going to come out, and we will pursue it if we think it is a novel field of endeavor that might be valuable to the public and to ourselves. We may follow that a long way at considerable expense, with the hope and expectation that at the end of it we will get a certain protection that will in a measure at least reward us for the expense we have undergone in following this long trail.

I am quite sure we wouldn't do that sort of experimental work if there were no patent at the end of it.

Mr. Cox. In a case of that kind, then, when you take out a patent, you don't take a patent purely for protective purposes.

Mr. MACAULEY. No; not altogether. We feel that if we can, if we have something to sell that somebody else wants, if they want to use this new thing we have devised, we have a right to get back a part of what it cost us to do the development work.

Senator KING. As a result of your investigations and experiments and expenditures, have you devised new practices?

Mr. MACAULEY. Yes; many.

Senator KING. And are they being used by any other automobile companies?

Mr. MACAULEY. Evidently, because we have issued a total of 197 live licenses to others and have received from others, as I said, 176 licenses-pretty nearly a balance there.

Mr. PATTERSON. Mr. Macauley, may I ask you this question: Has your company ever availed itself of any royalty licenses offered by the Ford Motor Co.; and if not, why not?

Mr. MACAULEY. We have contemplated it even recently. I don't recall that we ever did; no. To the best of my knowledge and belief, we never have.

Mr. Cox. Mr. Macauley, you were active in the motor-car industry in the early 1900's, were you not? When did you first become active in the industry?

Mr. MACAULEY. In 1899.

Mr. Cox. I will ask Mr. Tibbetts the same question. When did you first become active in the motor-car industry?

Mr. TIBBETTS. May, 1907.

Mr. Cox. Do either of you gentlemen have any recollection as to the patent policy followed by the Ford Motor Car Co. at its inception? I speak of the period before the Selden suit.

Mr. MACAULEY. I haven't.

Mr. TIBBETTS. I know nothing of it.

Mr. Cox. Are either of you gentlemen acquainted with the circumstances which led to the formulation of the first cross-licensing agreement by the Automobile Manufacturers Chamber of Commerce, in 1914?

Mr. MACAULEY. I haven't a very definite recollection of all the circumstances. I have a recollection of the Kardo incident.

Mr. Cox. Will you tell us about the Kardo Co., Mr. Macauley? Mr. MACAULEY. That was a long, long while ago; in 1914, this was. We had among our applications in the Patent Office one for rear-axle structures, and the American Ball Bearing Co. had another application in, and the Peerless Motor Car Co. had a third application, and they got into interference. We fought up hill and down dale for a while, and finally the interference was terminated. We, each of us, got a patent at any rate, and then the American Ball Bearing said to us that we were infringing their patent, and Peerless said we were infringing their patent, and we said, "Well, we have got one, too, and we think you are probably infringing ours," and that is the way it was for a little while. The two of them came to us and said they had got together, and proposed that we join in order to clear up the situation and to avoid their threat of infringement to us, their respective threats, and we did. We joined up.

We said, "All right, that is a good way to clear it up as far as we are concerned," and they organized what they called the Kardo Co., with a certain group of patents, all relating, however, to rear axles-front and rear; axles, anyhow-and that Kardo was organized and later granted a good many licenses to the industry.

Mr. Cox. That was a case where, after you three companies had been involved in long and, I presume, expensive interference proceedings in the Patent Office, and the patents had issued, you still didn't know what the respective scopes of the different patents were, and you were faced by a long period of litigation; is that right?

Mr. MACAULEY. I don't say we didn't know. We had our opinion about it, but it was somewhat easier to put in our patent with the others than to undertake expensive and troublesome litigation.

Mr. Cox. You decided to put all of the patents in the one company, really a sort of holding company for the patents?

Mr. MACAULEY. That is right.

Mr. Cox. Do you think that circumstance contributed in any degree to the execution of that first cross-licensing agreement?

Mr. MACAULEY. I don't definitely know that it did. I haven't any clear recollection on that.

Mr. TIBBETTS. I don't know, but I have always suspected that that was the principal reason for it.

The CHAIRMAN. It preceded the other agreement.

Senator KING. It was a sort of precedent.

124491-39-pt. 2——5

Mr. Cox. What do you think, Mr. Macauley, about the effect that cross-licensing agreement of the association has had with regard to the industry? Do you think it has been a good thing?

Mr. MACAULEY. I think it has been a good thing.

Mr. Cox. Do you think it is still a good thing, in the sense that it now makes very much difference?

Mr. MACAULEY. I think it is a good thing right today.

Mr. Cox. You think the patents included in the cross-licensing agreement are of any particular importance, or do you have an opinion about that?

Mr. MACAULEY. I have just an impression. I don't know of any outstanding ones, no, that are included. Of course, it is much more difficult today to get an outstanding patent or important patent or valuable patent than it was years ago when the industry was young. It has been refined and developed today so that, to a considerable extent, inventive talent is directed to the smaller features, not so important.

Mr. Cox. I think that will be all.

The CHAIRMAN. Mr. Macauley, does the Packard Co. use any of the 1,000 patents which are in the cross-licensing agreement?

Mr. MACAULEY. We have the 1,000. We use our own patents, if that is what you mean.

The CHAIRMAN. I am not asking about that. Of course, you use your own. Mr. Reeves just testified that at the present time there are some 1,000 patents in the cross-licensing agreement. Do you know whether or not the Packard Co. uses any of those patents? Mr. MACAULEY. Not to the best of my knowledge. Mr. Tibbetts would be a better authority on that than I.

Mr. TIBBETTS. I don't think we do, unless possibly it is some of those under which we are licensed by the companies which hold them. The CHAIRMAN. You do hold some special licenses? What I am trying to get at is some knowledge of to what extent the really basic patents of the automobile industry were the foundation of this crosslicensing agreement. It has been testified that, as the patents expire and therefore lapse, they pass out of the agreement, and that the association is not now making new patents the basis of the crosslicensing system, or bringing them in the cross-licensing system. What I am trying to find out is whether or not, at the time this crosslicensing agreement was first effected, there were any basic patents which were in the cross-licensing agreement which you didn't use.

Mr. MACAULEY. Well, I don't think there were an awful lot of important patents in it.

Mr. Cox. At any time?

Mr. MACAULEY. No.

Mr. Cox. Do you think that an agreement had any more beneficial effect in the period between 1914 and 1925, when it included all patents, including those thereafter to be acquired, than it has today? Do you understand that?

Mr. MACAULEY. Will you ask that again?

Mr. Cox. I will restate the question. What I wish to know is this: I assume from your previous answer that you think that, for the period between 1914 and 1925, the cross-licensing agreement had a beneficial effect upon the motorcar industry? Would you say that