get, or under what conditions they sell, or what territory they serve. But when they come to output, and ask for a certain right and a certain extension, that whole question as to whether they can produce that and add to their use of the machines, or machinery, so that it might be to the disadvantage of somebody else, I think probably we make up our minds then and there either yes or no. I can't give you any general rule, Mr. Cox, because we haven't any.

Mr. Cox. When you spoke a moment ago about stabilization, did you have in mind any such thing as stabilization of price?

Mr. SMITH. No; we haven't anything to do with prices.

Mr. Cox. Did you have in mind any such thing as stabilization of the part of the total quantity of glass containers produced in terms of any particular individuals?

Mr. SMITH. No.

Mr. Cox. You have no interest in seeing that a particular manufacturer preserves his present position?

Mr. SMITH. Not as regards his particular position in the industry, but preserves his financial condition so that he can continue to pay us royalties.

Mr. Cox. To the extent that competition might weaken his financial condition so that he couldn't pay you royalties, you are not interested in competition?

Mr. SMITH. No; not a bit. We don't care where he sells his goods, what prices he gets for them, the terms he gets. We can't tell you. Mr. Cox. You wouldn't say that you were absolutely indifferent to competitive conditions in the industry, would you, Mr. Smith?

Mr. SMITH. Oh, in general, insofar as it might affect the soundness or might help the licensee; our income comes from the manufacturer. If a manufacturer can't make money he isn't going to be able to use our equipment, therefore he isn't going to pay us royalties. But what he does with the ware he makes on our machine is none of our business. We have never followed that up.

Mr. Cox. But you think that it is quite proper, do you, Mr. Smith, for you to use your patents and the rights thereunder to stabilize the glass container industry in the way you have described to us?

Mr. SMITH. Stabilized so far as the use of our machinery goes, not so far as their business goes, because we have nothing to do with their business.

Mr. Cox. Well, so far as your machinery relates to the manufacture of glass containers

Mr. SMITH (interposing). Anything that will keep the manufacturer producing at a low cost, and at the same time bring us the return in royalties, we are interested in.

Mr. Cox. Those things are sometimes a little inconsistent.

Mr. SMITH. I know.

Mr. Cox. Of course, the cost might be lower if they didn't pay you any royalties at all.

Mr. SMITH. If they didn't pay royalties they wouldn't have our equipment and they would be out of business.

Mr. Cox. Well, that is the first time today I have been able to get you to admit that if they didn't have your equipment they would be out of business.

Mr. SMITH. If we withdraw our equipment they have to go somewhere else.

Mr. Cox. They have to go out of business, is what you said a moment ago.

Mr. SMITH. Well, this is a very intricate business and when we say we are working for our licensees it is literally true. We are working for them and we are working for ourselves, and we try to keep them at a competitive cost. We are continually supplying means and methods so that they can increase their production with the equipment which we have.

Mr. Cox. Mr. Smith, I am going to show you a memorandum which we took from your files dated March 26, 1928, entitled, "Memorandum as to Hartford-Fairmont and Hartford-Empire History and Policy," and ask you if you will identify that as a document which was in fact taken from your files.

Mr. SMITH. This is a memorandum which I assume was written by Mr. Herbert Knox Smith. His initials are on it, on the typewriter. What date was that?

Mr. Cox. This is March 26, 1928.

I want to call your attention to the following statement which is found in this memorandum [reading from "Exhibit No. 124"]: "

Consequently we adopted the policy which we have followed ever since, of restricted licenses; that is to say, (a) We licensed the machines only to selected manufacturers of the better type, refusing many licensees who we thought would be price cutters; and (b) we restricted their field of manufacture in each case to certain specific articles with the idea of preventing too much competition; (c) in order to retain more complete control of the situation, we retained title to the machines and simply leased them for a definite period of years, usually 8 or 10 years, with the privilege of renewal for a smaller additional term.

The CHAIRMAN. Mr. Cox, before you propound the question, may I ask, for the benefit of the record, to whom the word "we" applies or refers?

Mr. Cox. I take it the word "we" applies to the Hartford-Empire Co. The memorandum is entitled "Memorandum as to the HartfordFairmont and Hartford-Empire History and Policy. I understand it was written by Mr. Herbert Knox Smith, to whom he referred this morning.

The CHAIRMAN. And it has been so identified by the witness?

Mr. SMITH. I think there is no question about that, Mr. Chairman. His initials are on it. He had a habit of writing, every once in awhile [laughter] dissertations which always more or less clarified certain things in policy, looking 'way ahead of here. Every once in awhile he would sit down and review things and see how far off the track you may be, and how well on the track.

The CHAIRMAN. If I may be permitted to make an observation, I should say he had a very lucid style.

Mr. Cox. I had no difficulty in understanding the passage I read.
Mr. SMITH. A very remarkable man; very remarkable.
Mr. Cox. That, in fact, was the policy of the company.

Mr. SMITH. Not necessarily.

Mr. Cox. Do you suggest that Mr. Smith was wrong?
Mr. SMITH. Let me read it again.

This isn't so bad as you are making out, Mr. Cox.
Mr. Cox. I am not making anything out.

1 Subsequently entered as "Exhibit No. 124," see appendix, p. 768. Ibid., at p. 769.

Mr. SMITH. We had a restricted policy for fields of ware. It is true in those earlier days that we were more anxious to obtain as licensees the most financially strong concerns, and it is true that we restricted, in those early days, when we felt that the industry was overproduced, in various lines of ware. All of that is true, as I have previously told you.

Mr. Cox. You think that is all right; it is just the way I read it, perhaps.

Mr. SMITH. I don't think it tells the whole picture or gives the whole reasons for certain policies. I think I could do as well, almost, if I had time.

Mr. Cox. I am sure you could.

I want to ask both you and Mr. Safford another question. I want you to consider it very carefully and give me your answer, and then I think I shall leave this topic.

Is it your considered position now that you have no interest in price cutting in the industry, and that you never take any action to discourage that sort of activity?

Mr. SMITH. I would say "yes," Mr. Cox.

Mr. Cox. With no qualification?

Mr. SMITH. Yes; I will make a qualification. A licensee may come to me, after a year and a half or 2 years, and say: "My heavens, licensee No. 87 is pretty bad. He is selling below cost. Can't you do something about it?"

I will say: "Why, no; of course we can't do anything about it; we have no control over that licensee." But the next time I happen to meet the president I may say to him, "Why, Bill”—Dick, Tom, or Harry "you know So-and-so is kind of disturbed. He thinks your prices are kind of bad." And that is all. We have no power over prices, we don't follow them, we don't know what people are charging. I couldn't tell you what a gross of bottles sells for today.

Mr. Cox. Mr. Safford, do you recall a man named Searcy who apparently lives in San Antonio, Texas?

Mr. SAFFORD. That is right.

Mr. Cox. Who is Mr. Searcy?

Mr. SAFFORD. He is an attorney who has represented us on various occasions.

Mr. Cox. Before I started this I should have asked: Did you concur in the answer I have just had from Mr. Smith?

Mr. SAFFORD. I do.

Mr. Cox. I am going to hand you what purports to be a copy of a letter which you wrote to Mr. Searcy on August 26, 1932, and ask if, in fact, you wrote such a letter to Mr. Searcy.

Mr. SAFFORD. Mr. Cox, the company referred to in this letter is the Three Rivers Glass Co.

Mr. Cox. Perhaps, before we go into that, I should have the letter back, because it is a little hard to tell what we are talking about. This letter is dated August 26, 1932, addressed to S. S. Searcy, attorney at law, San Antonio, Tex., and I understand it was a letter which you wrote.

Mr. SAFFORD. That is correct.

Mr. Cox. The passage to which I particularly call Mr. Safford's attention, and which he is about to explain, I hope, is a passage which reads as follows [reading from "Exhibit No. 123"]:

Three Rivers Glass Co. has been a perpetual thorn in the side of all the manufacturing companies. It won't assist the other manufacturers in any manner in maintaining general price levels. It isn't because they are more efficient than anyone else (which is a justifiable reason, of course, for lowering the price), but because they are just simply selling at an actual loss in order to stay in business. We should like, for reasons of the general commercial situation and also because we feel there is no hope of Three Rivers ever paying us as they should, to take the machinery out of their factory.

Mr. SAFFORD. Well, that statement, that letter, was written to Mr. Searcy as our attorney. If I recollect, the Three Rivers Glass Co. was well behind in its royalties. It had started as a real-estate proposition and had pretty nearly lost money from the start. I don't know how much in royalties the Hartford-Empire Co. lost as a result of that, and several times when we examined statements supplied by that company, it was apparent from the face of the statements that they were selling well below cost.

Mr. Cox. You did take the machinery out of their factory?

Mr. SAFFORD. We took the machinery out of their factory, but before that they were in bankruptcy.

Mr. Cox. But they were still manufacturing glass?

Mr. SAFFORD. That is a funny thing, Mr. Cox. We got the court order for the withdrawal of our machinery. I think that was in the winter of 1933, and they asked us if they could continue and use that machinery during the winter. Even at that time we saw no possibility of collecting royalties, but we allowed the machinery, as I recollect, to operate for 2 years more in order to keep up the employment, and I have forgotten in the end how much we failed to collect in royalties.

Mr. Cox. Now, what I would like to ask you is this, Mr. Saffordyou say "for reasons of the general commercial situation" you should like to take the machinery out of the factory: What did you mean by that?

Mr. SAFFORD. I have no recollection.

Mr. Cox. If I suggest to you what you meant by that, they were selling glass, as you state in the letter, at cut prices, would that refresh your recollection?

Mr. SAFFORD. They probably were selling below cost.

Mr. Cox. And you wanted to put a stop to that situation.

Mr. SAFFORD. Not necessarily, but they always were a low-price house-probably selling below cost. Their freight differentials were over 16 percent at all times, the average for the industry being 8 or 9, so some place they were taking up those freight allowances, and we always felt they were selling far below cost.

Mr. Cox. You had been suspicious of them on that ground for some time.

Mr. SAFFORD. Our royalties were behind. We naturally went into their financial situation rather carefully.

Mr. Cox. Was it your royalties you were thinking of?
Mr. SAFFORD. I think that was part of the picture; yes.

Mr. Cox. And price levels at which other manufacturers had to compete had nothing to do with it?

Mr. SAFFORD. It probably had something to do with it; yes. Mr. Cox. I should like to offer this letter in its entirety and have it printed.

The CHAIRMAN. It may be received and printed.

(The letter referred to was marked "Exhibit No. 123" and is included in the appendix on p. 767.)

The CHAIRMAN. Mr. Cox, did you offer for the record this document entitled "Memorandum as to Hartford-Fairmont and HartfordEmpire History and Policy"? 1

Mr. Cox. Yes; I would like to offer that, and I would like to have that printed.

The CHAIRMAN. Without objection, it is so ordered.

(The memorandum referred to was marked "Exhibit No. 124" and is included in the appendix on p. 768.)

Mr. Cox. May I inquire how long we are going to sit this afternoon? The CHAIRMAN. The practice will be to sit until 4 o'clock every afternoon.

Mr. Cox. Mr. Smith, you testified that certain of these licenses contain restrictions as to the amount of ware that might be produced with this machinery. What considerations have you taken into account in determining the amount of a particular line of ware which a licensee may produce?

Mr. SMITH. Those licenses that you call attention to, Mr. Cox, are very few and far between. It is not a real picture of a general licensing policy. Very few licenses have those restrictions as to the amounts of ware. A great many have restrictions as to kinds of ware, but not so many of that. For instance, we have 34 licensees in food, 31 in prescription and proprietary, 31 in liquors, 26 concerns making perfumery and toiletry, 27 pressure beverages, 32 beers, and so on down the line, so the restrictions that you have specifically called attention to really are not the general policy.

Mr. Cox. Those numbers you read to us are unrestricted as to quantities?

Mr. SMITH. Unrestricted as to quantity. I take that back. Most of them are; not every one.

Mr. Cox. They have an unrestricted right so far as the field of ware is concerned with respect to the field of ware which you read, but they are not unrestricted in many instances as to quantity; is that right? Mr. SAFFORD. In some instances.

Mr. Cox. Now, you have told us when a man wishes a license, as I understand it, the test in determining what field of ware a manufacturer may enter is what his business is when he applies to you for license. Do you have any same general test which you apply so far as quantity is concerned?

Mr. SMITH. No; I don't think so. I am not conscious of any. If they come along and want the license, the question is, What have you been making? What is the title of your business? What part of the industry do you serve? What customers must you produce for? Do you sell food containers, or do you sell perfumery containers, or do you sell the liquor trade, or do you sell beers and so forth; and gen

1 See supra, p. 417.