Mr. Cox. Have to have special dies?

Mr. LEVIS. Yes. I think we paid $65,000 for the last 10-arm machine.

Mr. Cox. If a man wanted to go into business, to get a license from you and build a suction machine it would cost him about $65,000 to build one machine?

Mr. LEVIS. It might cost him more than that to build the first one. Mr. Cox. Returning for a moment to the use of patents to stabilize the industry, you said you were interested in that from time to time. In that kind of stabilization do you include elimination of price cutting, stabilization of prices on any line of ware?

Representative SUMNERS. Mr. Cox, at some time would you develop the cost of installing an efficient unit to produce these glass bottles? I mean to establish a business, a small business, but a business sufficiently complete to produce the finished article that would require some place to melt the sand and whatever goes with it. Mr. Cox. I will do that through these witnesses if I can, so far as their particular kinds of machinery are concerned, and through other witnesses as to other kinds of machines.

Representative SUMNERS. I wouldn't want to take too much time, but it would be interesting.

Mr. Cox. Perhaps Mr. Levis can tell us about that.

Mr. LEVIS. Very briefly, sir-we have always analyzed it-it costs about $500,000 per furnace to go into the glass-container business; that is, the furnace that melts the glass, the forming devices for making the ware, and the annealing ovens, with their buildings and packing-house facilities. Another $100,000 should be added to cover compressors and office facilities and machine shop, and about half a million dollars working capital, or $400,000 to make a round number, requiring about a million dollars invested capital, which you would turn once in the production from that furnace, about a million dollars in sales. That wouldn't make any difference, sir, whether that had our suction machine on it, or, say, we put two suction machines to draw 100 tons, or whether we put six or seven Hartford machines on to draw that same tonnage.

The CHAIRMAN. It would make a big difference, however, Mr. Levis, whether or not you had to pay any actual royalty.

Mr. LEVIS. Yes, sir; except that you would be paying the royaltywell, it is like a suit of clothes in the expense account; if you have to go through the development and work out the applications and work out the interferences in the patents, you spend it that way, or you pay Hartford a fee for their service.

The CHAIRMAN. I was comparing this typical plant which you have just described with your plant, and considering the position that it would occupy as a competitor of your company. When you were giving your figures on royalty a few moments ago, I was struck by the fact that as a rule you recited that about 212 million dollars will be charged against yourself as royalties, as an item of cost; in other words, you didn't actually pay that royalty.

Mr. LEVIS. We paid more than $600,000 of it to Hartford.
The CHAIRMAN. Yes; but 22 million, as I recall-

Mr. LEVIS (interposing). It is 5 percent of selling cost, roughly. The CHAIRMAN. This is the point I am getting at. Whatever it was, 2 million or 21⁄2 million, there was a substantial portion of

that royalty which actually never was paid to anybody. You charged it against yourself as an item of cost. Now I gather from an accounting procedure your purpose in doing that was to make certain that into the price of the article which you sold would go this element of royalties which your competitors were actually paying upon all their machines. Is that right?

Mr. LEVIS. Yes, sir; but if I might carry on briefly, we then credit that to a so-called holding division as income to that division, and then we charge that division for our experimental and development expense, and our patent and license expense, and our legal expense, and the holding division consumes that. In other words, we spent $1,811,000 of that $2,000,000 last year that we charged ourselves two million six for use in research and development alone.

The CHAIRMAN. I thought that you had practically shed yourself of that element.

Mr. LEVIS. Oh, not on the suction, sir. I tried to make it clear yesterday that we are always taking out patents on that.

The CHAIRMAN. So that of this two and a half million charged to yourself as royalties, but not actually paid as royalties, there were actually $1,800,000 expended in research or similar activities. Is that correct?

Mr. LEVIS. Yes, sir. We then paid, of that that we received

The CHAIRMAN (interposing). I am not interested in the exact figure, Mr. Levis. I was merely trying to determine whether or not that was an actual item of overhead, actually laid out or not.

Mr. LEVIS. No; we actually charged the bottle division of our parent company with royalty at 5 percent of their selling price, and if they owe Hartford something, the holding division, which we call it, pays Hartford the royalties, and it spends the rest of that money in research and development, patent and legal and general overhead. The CHAIRMAN. If the actual amount were computed only, instead of just this arbitrary amount of 5 percent, would that be smaller?

Mr. LEVIS. No; it would be about the same. It figures 5 percent. The CHAIRMAN. So that I would not be justified in drawing an inference that if you didn't make this charge for royalty on an arbitrary basis but charged only the actual expenditures for these various items, you would be in a position to sell your bottles cheaper. Mr. LEVIS. No; they are about the same, sir. In this million dollar mythical factory which I described, the royalty would be, roughly, $50,000. I don't believe that a small manufacturer today for $50,000 could have adequate engineering and patent counsel and other talent, such as they buy from Hartford for that fifty.

The CHAIRMAN. Are you in such a position with respect to royalties and your relations with the Hartford-Empire that you actually have an advantage over other licensees of Hartford in the production of glass containers?

Mr. LEVIS. That is a very difficult question to answer.

The CHAIRMAN. Of course, I would say it would be a perfectly natural thing for you to try to get into that position because you are in the business of producing bottles and making money, and if you can make money out of royalties that are paid by your com

petitors, that is a perfectly normal and natural thing for you to do. We are just anxious to find out whether that is actually the fact. Mr. LEVIS. I might answer that by saying this, sir-that the mythical factory I said would put up $500,000 for a furnace. I believe that the smaller manufacturers in the industry investment in their furnace is probably $300,000, while ours, sir, is about a million. We have elaborate machine shops and machine tools for doing precision work, and a trained personnel that can operate necessarily complicated machines. In fact, on the Pacific coast, where we have built a new plant, it cost us about $10,000,000. We have put in Hartford equipment, not because we don't believe our equipment would not be superior, but because we don't want to make the further investment for precision tools to make parts on the coast, and molds, and we aren't capable of training on the coast yet labor that can operate these complicated machines. Therefore, if we have an advantage, sir, it is because we have a different article for producing containers than Hartford licensees.

The CHAIRMAN. The whole glass industry is now in such a position with respect to demand and production and the number of plants that are going, and the method by which patents are operating, that it would be an extremely difficult thing for any new independent concern to break into the field. Is that a correct assumption? Mr. LEVIS. No, sir.

The CHAIRMAN. You think it would be possible?
Mr. LEVIS. I think they could get in; yes, sir.

The CHAIRMAN. Where would they get the license?

Mr. LEVIS. I don't think Hartford would object to granting them a license.

The CHAIRMAN. You think that Hartford, in the light of the testimony that was given here by Mr. Smith on the opening day,' would be willing to grant licenses to new concerns for the production of containers, of which you say there is now an overproduction?

Mr. LEVIS. I don't see that it would be anything to Mr. Smith's advantage. In other words, he can't get any more royalty and he might as well deal with others.

The CHAIRMAN. He testified very candidly that his purpose in managing the patents and the licenses was to prevent the ups and downs in the industry, to prevent depressions, to do for the glass industry what this committee is trying to find a way of doing for all industry, if it can be done, with the preservation of the anti-trust laws. So, in those circumstances, with that purpose in mind-to protect overproduction and thereby to prevent a dropping of price would it in all these circumstances permit a new competitor to enter the field? Mr. LEVIS. I don't know that he would, but I believe that the Hartford Co. have always been liberal in granting licenses to anybody who should be of a business type.

The CHAIRMAN. But liberal within these broad boundaries of maintaining the stability of the industry, which is a polite way of saying of maintaining the price and of maintaining the market and of preventing competition from coming in.

1 Testimony of Mr. F. Goodwin Smith, of Hartford-Empire Co., supra, p. 379 et seq.

Mr. LEVIS. No, sir; I don't think that is the fact, because the Glass Container Association have prepared a very interesting report on the industry, and they show that since 1920-that in 1920 there were 80 companies, and during the 18-year period 20 new companies came into the industry, 29 companies have failed or gone out of the industry, and 26 companies have been consolidated in other companies of the industry. So in 1938 we have 45 companies in the industry. All of these data that these gentlemen have prepared show schedules of this mortality, that these men who enter

Mr. OLIPHANT. How many went out of business?

Mr. LEVIS. Twenty-nine, sir.

Representative SUMNERS. Did any of the concerns use the old

method?

Mr. LEVIS. I couldn't answer that, but the report which I have a copy of here shows the mortality and the names, and from those names I could answer.

Mr. ARNOLD. Putting the same question a little differently, not in terms of guessing what Mr. Smith's policy might be or in terms of what your policy might be in case you changed it again, or some one else took your place, it is certainly true that these private companies have the power to do exactly what Senator O'Mahoney was speaking of; haven't they?

Mr. LEVIS. I don't know, sir.

Mr. ARNOLD. They have the power now to grant the licenses along the suggestions made in your letter of January 13, 1933. Now whether they do that or not is, of course, a guess, but they have the power.

Mr. LEVIS. They have the legal right not to license someone, I

presume.

Mr. ARNOLD. And so this power does exist in private hands to stabilize an industry with respect to price and with respect to production. Now, I understand that you believe in using that power liberally, but the power does exist there, doesn't it?

Mr. LEVIS. I don't believe that I can answer that, sir.

Mr. ARNOLD. Never mind, let me ask you another question with respect to the charge of $2,000,000 for royalties to yourself. It seems to almost equal the amount that you spent on research, doesn't it?

Mr. LEVIS. It is a little bit less than what we spent on research and pay to Hartford.

Mr. ARNOLD. Approximately they are equal then. Does that indicate that it would be a good patent policy as a matter of law to make the amount which could be collected on research about equivalent to the amount you collected in royalties where the invention was held by a group and where the question of equitably rewarding some particular inventor was not an issue?

Mr. LEVIS. I think, sir, you only have one qualification to that, a new business that is starting up couldn't survive with just that protection. An industry that has arrived in the stage of development that our industry has could probably consider adopting that policy. Mr. ARNOLD. Then, with that qualification, if it is a good policy for your industry-with the qualification that you mentioned-might it not be a good legislative policy?

Mr. LEVIS. I don't believe I can answer that, sir, unless you insist. Mr. ARNOLD. No, I wouldn't; it is an opinion. If you haven't any opinion, I wouldn't press you.

Senator KING. May I ask a question? licensed any of its patent devices?

Has your organization

Mr. LEVIS. Not since 1935; I mean, their only licenses were, as Mr. Cox explained, up to about 1914, and three small licenses were granted: One in 1917 and another in 1918, and another in 1918, and in 1932 the Hazel revision.

Mr. Cox. Of course, that was a revision of the existing license. That first license to Hazel was made before 1914. It was made about 1909.

Senator KING. Do you utilize your own devices in the manufacture of glass?

Mr. LEVIS. Exclusively, sir.

Senator KING. Do you regard them as comparable to the patents of the Hartford Co.?

Mr. LEVIS. We regard them as superior, sir.

Senator KING. Why did you not use your own devices-I think you explained it; pardon me for asking if it is a repetition-in the new plant which cost you $10,000,000 in California?

Mr. LEVIS. Because we didn't want to add further invested capital for the machine tools to take care of the necessary equipment, and we didn't have trained personnel for the operating of precision equipment.

Senator KING. What would it cost for the purpose of manufacturing necessary dies and constructing the plant?

Mr. LEVIS. Our investment has always been an investment of about a million. I believe the smaller manufacturer has an investment of $300,000. Our investment is approximately a million, and that difference between his $300,000 and our million is in this precision equipment, better working facilities in shops, which they engage on the outside. In other words, we manufacture corrugated boxes, they buy them; we make molds, they buy them; we make machine parts, they buy them.

Senator KING. Is it essential in the establishment of an industry to have a selling agency or to have an organization for the purpose of finding markets for the production; and, if so, state whether there is a considerable item of cost which must be taken into account in the launching of the firm?

Mr. LEVIS. Yes; we have always figured selling, administrative and general expense at about 10 percent, and we have always believed we should have our own branches which are manned by salaried people rather than commissioned employees.

Senator KING. But it would require a larger sum in the initial stages of the development of an organization than would be required later on after it had been running full blast.

Mr. LEVIS. I think it gets a little cheaper as you go along, sir.

Representative SUMNERS. I meant to ask you a question or two a moment ago, but my line of interrogation was interrupted. May I ask you this question? You speak of the installation of your factory. Do you have to make your own equipment, mechanical equipment, or is there some plant that manufactures it for the market?