Mr. Cox. It is true, isn't it, Mr. Smith-and perhaps we could get Mr. Parham to answer informally-that the machines now used by Owens, the suction machines, the improved machines, are covered by patents.

Mr. PARHAM. I understand you can build thoroughly good machines, if you happen to know how, under the old patents. That is my understanding.

Mr. Cox. Mr. Chairman, I am about to start on a new topic. Is it your practice to adjourn at noon now or do you wish to go on?

The CHAIRMAN. I think probably, unless there is objection, it would be well, if you have finished this line of examination, to take a recess until 2 o'clock.

(Whereupon, at 11:55 a. m., a recess was taken until 2 p. m. of the same day.)

AFTERNOON SESSION

The committee resumed at 2:08 p. m., on the expiration of the recess. Present in addition to those previously listed: Senator King, Mr. Oliphant.

The CHAIRMAN. The committee will please come to order. Are you ready to proceed, Mr. Cox?

Mr. Cox. Yes, I am, sir.

The CHAIRMAN. You may, then.

TESTIMONY OF F. GOODWIN SMITH, PRESIDENT, HARTFORD-EMPIRE CO., HARTFORD, CONN.-Resumed; TESTIMONY OF A. T. SAFFORD, SECRETARY AND COUNSEL, HARTFORD-EMPIRE CO., HARTFORD, CONN.-Resumed

Mr. Cox. Mr. Smith, a few questions about the Hartford-Empire Co. which I didn't ask this morning I would like to ask now. Will you indicate briefly what the capital set-up of your company is? I mean, what kinds of stock you have outstanding. If you prefer, I will have Mr. Safford do this.

Mr. SMITH. It is common stock, no par value.

Mr. Cox. Any preferred stock?

Mr. SMITH. None outstanding.

Mr. Cox. No bonds?

Mr. SMITH. No.

Mr. Cox. Is your stock listed on any of the exchanges?
Mr. SMITH. It is not.

Mr. Cox. Is it a widely held stock?

Mr. SMITH. No.

Mr. Cox. Do vou publish periodically your balance sheet?

Mr. SMITH. We do not.

Mr. Cox. Do you file a financial report either in the State of Connecticut with any State authority, or in the State of Delaware with any State authority?

Mr. SAFFORD. Only for tax purposes.

Mr. Cox. Can you tell us in a very brief way what kind of statement that is?

Mr. SAFFORD. For Connecticut it is the tax required under their business tax law, and I think it gives the balance sheet and the income statement as sent to the United States Treasury.

Senator KING. I suppose you file the Federal tax report in addition to the ones to the State.

Mr. SAFFORD. Yes, sir.

Mr. Cox. Do you know whether you file a similar report in the State of Delaware or not?

Mr. SAFFORD. It is not required.

Mr. Cox. Aside from those, whatever may be contained in your return to the State of Connecticut and the return which you file with the Department of Internal Revenue of the Treasury Department here, there is no disclosure of your balance sheet or your income statement. Is that correct?

Mr. SAFFORD. That should be qualified further; that is, in each State where the corporation is qualified to do business there are certain tax reports which you must file.

Mr. Cox. Will you tell us in how many States your corporation is qualified to do business?

Mr. SMITH. Seven or eight.

Mr. Cox. And in those States you file whatever reports are required to be filed by law?

Mr. SAFFORD. Yes.

Dr. LUBIN. Do any of the States make those reports public?
Mr. SAFFORD. I don't think so, Dr. Lubin.

Mr. Cox. No statement with repect to your company is contained in Moody's or Poor's or any of the other financial reports?

Mr. SAFFORD. No, sir.

Senator KING. Do the States treat your reports differently from reports filed by corporations doing business within a State?

Mr. SAFFORD. I think it puts us all in the same category. I think the figures are all confidential with the departments with which they are filed.

Senator KING. Who imposes confidentiality, if you permit that expression?

Mr. SAFFORD. It is under the statutes, sir, of the respective states. Senator KING. You conform with the State practice and the State officials follow the State requirements?

Mr. SAFFORD. Yes, sir.

Senator KING. So if they are treated as confidential is it at your request or in pursuance of the law which the State officials follow? Mr. SAFFORD. It is in pursuance of the law which the State officials follow.

Mr. Cox. Now, Mr. Smith, I would like to ask some questions about the licenses under which your patents are used. You said this morning that you had patents on the feeding machines, the forming machines and the lehr or annealing machine, and I assume in the case of each of those machines, when your company licenses under the patent which applies to the machine, you retain title. Is that correct?

Mr. SMITH. That is correct.

Mr. Cox. Do you have any patents on glass furnaces?

Mr. SMITH. We have.

Mr. Cox. Did you ever license a glass furnace?

Mr. SMITH. We have not as yet.

Senator KING. Have you declined?

Mr. SMITH. No; we haven't the experiments completed.

Mr. Cox. So that in the case of a man who licensed from you feeding machines and his forming machines and the lehr or annealing oven, the only part of the machinery, used in manufacturing glass which he owns outright is the furnace. Is that right?

Mr. SMITH. In some cases, yes; in some cases, no. We have title to the actual machines we ourselves built and licensed, but in a number of other cases we haven't actual title.

Mr. Cox. Even though you have licensed those?

Mr. SMITH. Yes.

Senator KING. And accept royalties?

Mr. Cox. That is again a case where the machine is not built in the first instance by your company and licensed?

Mr. SMITH. Correct.

Mr. Cox. In some of those cases where the machine was not in the first instance built by your company you have at a later date acquired title and then licensed it?

Mr. SMITH. Correct.

Senator KING. You can't become a purchaser of the patent over a licensee of the patent?

Mr. SMITH. I beg your pardon.

Senator KING. Do you become a purchaser of the patent under which the machine was constructed or a licensee of the patentee! Perhaps I didn't make myself clear. I understood that there were some machines which you didn't make.

Mr. SMITH. Actually build. When the courts decide a suit in our favor, if the manufacturer had infringed and wanted to license, he could either take our own machinery or keep his machinery. In some cases he took our machinery; in other cases he kept his machinery. Mr. Cox. In some cases where he kept his machinery you paid him a certain contribution for the title of the machinery?

Mr. SMITH. Yes.

Mr. Cox. In some cases you didn't buy title, he just took license? Mr. SMITH. Yes.

Mr. Cox. There are two different kinds of charges you made in connection with the license, are there not, a license fee and a royalty charge?

Mr. SMITH. Correct.

Mr. Cox. The license fee is a lump-sum payment made either at once or in installments which is a contribution to you for granting the license?

Mr. SMITH. Yes.

Mr. Cox. The royalty fee, on the other hand, is a fee which is paid for the use of the licensed machinery?

Mr. SMITH. Correct.

Mr. Cox. And that royalty fee is on a quantity basis, isn't it? Mr. SMITH. So much per gross, depending on the sliding scale, depending upon the weight of the article made.

Mr. Cox. Now taking up the license fees, in the first place can you, or Mr. Safford, tell us what the license fee is for the feeding machines? Mr. SAFFORD. $2,000.

Mr. Cox. And how long has it been $2,000?

Mr. SAFFORD. I would say within 2 or 3 years.

Mr. Cox. Isn't it about 1936 that it changed from $2,500 to $2,000?

Mr. SAFFORD. Yes.

Mr. Cox. Can you tell us what the license fee is for forming machines?

Mr. SAFFORD. $8,000 for the four mold forming machines.

Mr. Cox. And what is the license fee for the lehr?

Mr. SAFFORD. $2,500.

Mr. Cox. Do you have there a schedule of the royalty fees so we could avoid this? Just put it in.

(The schedule referred to was marked "Exhibit No. 114" and is included in the appendix on p. 763.)

Mr. Cox. This is on the feeding machine, isn't it?

Mr. SAFFORD. Yes.

Senator KING. What was the answer to the question?

Mr. SAFFORD. Yes.

Mr. Cox. If there is no objection, I should like to have this-
The CHAIRMAN (interposing). It may be admitted.

Mr. Cox. Those agreements usually provide for the payment of a minimum royalty fee, don't they?

Mr. SMITH. Yes.

The CHAIRMAN. This is a list of royalty rates and not of license fees?

Mr. Cox. That is right. As a matter of fact, we have a statement here which has been mimeographed, and which we might offer at this time, subject to check by the witnesses, showing the total gross amount received by way of royalties and license fees by the company for each year since 1923. This is a gross figure and does not represent a net income figure of the company. I would like to offer that subject to correction.

Mr. SMITH. That is all right.

The CHAIRMAN. It is not clear from the colloquy that has been going on at that end of the table whether this has been identified or not.

Mr. Cox. It has been identified as having been prepared from statements which were furnished to us by the company, and I am now about to offer it, subject to correction if any arithmetical errors are found.

The CHAIRMAN. This purports to be a statement of receipts from royalties and license fees by the Hartford-Empire Co., from and including the year 1923 to 1937, both inclusive?

Mr. Cox. That is correct.

The CHAIRMAN. It may be received.

(The statement referred to was marked "Exhibit No. 115" and is included in the appendix on p. 764.)

Senator KING. I would like to ask one question. I note that in 1923 the total received from royalties and license fees was $766,534; in 1937, $6,065,262. I am interested to ascertain whether or not that large increase in the licenses and in the royalties resulted from an increase in license fees and royalties, or was it an increase in production.

Mr. SMITH. Increase in the number of licenses. In '23 we had not established our patents; they had not been adjudicated. As our patents were adjudicated and established we took on more licensees each year, so that the royalty return came instead of from 15 or 20

licensees, from a great many more licensees. All told I think we had something like 86 licensees.

Senator KING. I understood from your testimony that the license fees or royalties were based in part at least upon production.

Mr. SMITH. All the royalties are based upon production.

Senator KING. Would any of this increase from $766,000 to $6,065,000 result from increased production?

Mr. SMITH. Oh, yes.

Senator KING. As well as from increased number of licensees and those from whom you were receiving royalties.

Mr. SMITH. Quite right. In some cases we have reduced the royalty rates.

The CHAIRMAN. I merely wanted to call the attention of the members of the committee to the fact that this morning we agreed to follow a rule of procedure which was originally suggested I think by Senator King, namely, that we would permit the Department to proceed with the original examination before asking our own questions. We are all violating this rule, Senator, but in the interest of orderly procedure it was felt it would be the best way to go along.

Senator KING. The Senator's statement is in part accurate but I will not challenge the inaccuracy.

Senator BORAH. Who is going to enforce the rule?

The CHAIRMAN. I shall attempt to ask the members of the committee to refrain.

Mr. Cox. While we are dealing with the matter of royalties and license fees, I should like to state that the Department has prepared a computation showing the percentage relationship between royalties and gross license fees, and the total gross income of the company from 1932 to date. This computation shows that the percentage relationship in 1932 was 91.2 percent; in 1933, 93.6 percent; in 1934, 96.2 percent; in 1935, 95.1 percent; in 1936, 93.7 percent; 1937, 94.5 percent. I am now going to give this computation to the witnesses so that they can check it, and we will make any corrections that may be necessary. I suggest that we do that over the evening, if that is convenient for you.

Mr. SMITH. I Would be very glad to, if we could.

Mr. Cox. You may keep that, and we will make any corrections that are necessary.

Now to revert to the license agreements, those license agreements, aside from containing the provision requiring the payment of royalties, contain certain other restrictive provisions, do they not? Mr. SMITH. Correct.

Mr. Cox. They contain restrictions as to the kind of ware which can be manufactured by the licensed machinery, is that correct? Mr. SMITH. Correct.

Mr. Cox. Do you now have outstanding any license which is absolutely unrestricted so far as the kind of ware which may be manufactured is concerned?

Mr. SMITH. In the container field, I think we have two such licenses, two unrestricted licenses.

Mr. Cox. That is, strictly in the glass container field there are two licensees, and only two, who are free to manufacture any kind of ware they please with the licensed machinery.