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INVESTIGATION OF CONCENTRATION OF ECONOMIC POWER

FRIDAY, DECEMBER 16, 1938

UNITED STATES SENATE,

TEMPORARY NATIONAL ECONOMIC COMMITTEE,

Washington, D. C.

The committee met at 10:15 a. m., pursuant to adjournment on Thursday, December 15, 1938, in the old caucus room, Senate Office Building, Senator Joseph C. O'Mahoney presiding.

Present: Senators O'Mahoney (chairman), and King; Messrs. Henderson, Arnold, Berge, Peoples, and Coe (U. S. Commissioner of Patents); Representative Sumners.

Present also: Department of Justice staff for Temporary National Economic Committee study-counsel, H. B. Cox (Special Assistant to the Attorney General); Joseph Borkin, Ernest Meyers, Charles L. Terrel, Benedict Cottone, David Clarke, George Dession, Fowler Hamilton, H. C. Engelbrecht, Victor H. Kramer, J. M. Henderson, Monroe Karasik, Irving Glickfeld, Hyman Ritchin, Norman Bursler, and Seymour Lewis; also chief counsel for Federal Trade Commission Temporary National Economic Committee study, George W. Williams.

The CHAIRMAN. The committee will please come to order. We have convened this morning a little bit earlier than our usual hour, and I regret to say, Senator King, Mr. Peoples, and other members of the committee, the attendance is a little bit light this morning, Three of the members are suffering from colds and asked me to send word to proceed without waiting for them.

Have you your witness?

Mr. Cox. Mr. Safford. Mr. Pease.

Mr. Pease is another official

of Hartford. Mr. Pease has not been sworn.

The CHAIRMAN. Mr. Pease, do you solemnly swear that the testimony you are about to give in this proceeding shall be the truth, the whole truth, and nothing but the truth, so help you God? Mr. PEASE. I do, sir.

The CHAIRMAN. You may be seated.

TESTIMONY OF A. T. SAFFORD, SECRETARY AND COUNSEL, HARTFORD-EMPIRE CO., HARTFORD, CONN.-Resumed; AND A. M. PEASE, ASSISTANT TREASURER, HARTFORD-EMPIRE CO., HARTFORD, CONN.

Mr. Cox. Mr. Safford, I am going to hand you a document and ask you if it is a document that you are prepared to accept as a true and correct photostatic copy of an agreement between the HartfordEmpire Co. and the Lynch Corporation, dated August 23, 1933. Mr. SAFFORD. The agreement is not complete.

Mr. Cox. You are referring to a later amendment of the agreement? 1

1 The amended agreement, dated November 12, 1938, was subsequently entered as "Exhibit No. 152." See infra, p. 606.

Mr. SAFFORD. A later amendment; yes.

Mr. Cox. But this, prior to the amendment which was made of a date this year, and I will take that up in a moment, is a true and correct copy of the agreement?

Mr. SAFFORD. Yes; as executed.

Mr. Cox. I should like, before I offer this document for the record, to read one provision which is found in section 2 of the agreement, which reads as follows [reading from "Exhibit No. 150"]:

Lynch grants to Hartford a nonexclusive license to make for itself or have made for it, to sell, and lease forming machines of designs made or acquired by Hartford and embodying Lynch forming machine inventions, and to license others to use, but not to make and/or sell, any forming machines embodying Lynch licensed forming machine inventions.

Provided, That neither the grant herein to Hartford of the right to license others to use said inventions, nor any sublicense granted by Hartford thereunder, shall be extended by implication under any circumstances to include a right in Hartford's sublicensee to make any forming machine embodying Lynch licensed forming machine inventions.

The license granted in this section 2 shall be nonassignable except to the successor of the entire business of Hartford.

I should like to have this contract marked as an exhibit though it need not be printed in full in the record.

The CHAIRMAN. The document may be marked as an exhibit.

(The agreement referred to was marked "Exhibit No. 150" and is on file with the committee.)

Mr. Cox. Mr. Safford, will you tell us briefly what the Lynch Corporation is?

Mr. SAFFORD. The Lynch Corporation is engaged in the manufacture of forming machines and at the present time it is the largest manufacturer of forming machines, I believe, in the world.

Mr. Cox. Was it the largest in 1933 when the contract was made? Mr. SAFFORD. So far as I know; yes.

Mr. Cox. Now, Mr. Safford, will you tell us who Mr. Werbe is? Mr. SAFFORD. Mr. Werbe is president of the Lynch Corporation. Mr. Cox. I am now going to read to you a part of a letter which you addressed to Mr. Werbe under the date of September 20, 1933, and afterwards I will hand you this document and ask you if it is the letter which in fact you did send to Mr. Werbe.

The CHAIRMAN. Mr. Cox, may I inquire? You stated that the contract which you just had identified was amended.

Mr. Cox. That is correct.

The CHAIRMAN. I was wondering if that amendment in any way modified the contract.

Mr. Cox. It does, and I am coming to that. The reason I am taking the letter up first is because the letter antedates the amendment Mr. Safford spoke of [reading from "Exhibit No. 151"]:

This is in answer to your letter of September 13 regarding Universal and the procedure to be followed generally in granting forming machine licenses to those persons who wish to obtain forming machines from you. If Universal advised you that they had a forming machine license they are evidently laboring under some misconception as to the extent of their present license. This license is merely to cover six feeders in the production of principally milk bottles. We shall, however, send them a forming machine license some time this week, along with our form letter and such other information in regard to their particular situation as seems necessary.

I am going to omit the next two paragraphs, which are not germane [reading further from "Exhibit No. 151"]:

As our general procedure for dealing with each person who wishes one of your forming machines, we suggest the following: We shall send you a list of our feeder licenses and keep it revised for you. When you get an order for a forming machine you will advise us. If it is free from the feeder licensee we shall then forward to the licensee our standard forming machine license agreement adapted to the licensee's particular field of ware. This the licensee is to sign and return to us. If he is not a licensee, then you will decline to furnish the machine in such language as appears proper to you under the circumstances. If it is to a feeder licensee to whom we are sending a forming machine license, you will send your usual sales contract for execution. When we have advised you that our forming machine license is signed and you have a signed copy of your own contract, you can then make delivery of the machine.

Is this the letter which in fact you did send to Mr. Werbe? Mr. SAFFORD. Yes. I recognize that letter, Mr. Cox, and that letter may be capable of misconstruction. Under the Lynch forming-machine agreement, as I recollect it, there was a covenant on our part to extend the licenses of all our feeder licensees automatically, so that they without further payment would be entitled to use Lynch forming machines with a license from us. That appears from the agreement as written. Subsequently some misconception arose as to the meaning of the agreement. As a matter of fact, the Department of Justice itself raised the question of the construction of that contract and subsequently we wrote another letter clearing up that matter.

I might explain, Senator, that in 1935 some question came up by which the Department of Justice became interested in us. I have forgotten the exact details. At that time we voluntarily went to the Department, offered to let them have access to all our contracts, and we stated at that time we welcomed any suggestions which they might have with reference to our contracts. They sent an investigator to Hartford who did make such an investigation and raised various points which he felt made those contracts susceptible to misinterpretation. In those two or three instances, so far as I know, we modified the contracts accordingly, and after his visit we wrote again to the Department stating the original purpose of the visit of the investigator, and stating also that we welcomed any suggestions which they might make with reference to our contractual system.

Mr. ARNOLD. What year was this?

Mr. SAFFORD. I think that was 1935, Mr. Arnold. It was when Mr. Dickinson was Assistant Attorney General.

Mr. Cox. Have you finished, Mr. Safford? I point out to the committee that the answer was not responsive to the question, but I am prepared to let it stand and let the contract speak for itself and let the letter speak for itself, too, which I should like to offer now.

The CHAIRMAN. The letter may be received.

(The letter referred to was marked "Exhibit No. 151" and is included in the appendix on p. 793.)

Mr. Cox. So far as this particular letter is concerned and so far as section 2 is concerned, whenever the investigator of the Department may have visited you, you didn't modify that until November of this year, did you?

Mr. SAFFORD. I think your investigators took at least one letter from our files in which we wrote to the Lynch Corporation stating that there was a misconception of the meaning of that term, and we were stating what we felt was our meaning of the term, and also

stating the fact that the other parties to the contract were unwilling to modify it at that time.1

Mr. Cox. But you did modify the contract by a formal document in this year, did you not?

Mr. SAFFORD. We did.

Mr. Cox. I hand you a document entitled "Amended agreement between Hartford-Empire Co. and Lynch Corporation," dated November 12, 1938, and I ask you if that is a copy of the modification of that contract.

Mr. SAFFORD. Yes; it is.

Mr. Cox. Mr. Safford, was this contract in fact made on November 12, or is it merely dated November 12?

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

Mr. Cox. You are not prepared to answer that question?

Mr. GOODRICH. We are trying to get the date.

Mr. SAFFORD. I think that was the date it was signed.

Mr. Cox. You are quite sure about that?

Mr. SAFFORD. No; I am not. It can stand at that.

Mr. Cox. Very well; I offer this.

The CHAIRMAN. Is this for the record?

Mr. Cox. I prefer not to have that one printed unless the other is printed, but I would like to have both go in as exhibits.

The CHAIRMAN. It may be so received.

(The amended agreement was marked "Exhibit No. 152" and is on file with the committee.)

Senator KING. Mr. Cox, would it interfere with your program if I should ask him very briefly the difference between the first contract and the modification contract, not all the terms, but the point as to which you said there was a misconception? I am not clear as to just what that misconception was.

Mr. Cox. I am content to have the witness do that, but before he does I should like to say this: I have no doubt that the Department will not agree with his explanation of either contract. Since we are attempting under some difficulty to finish today, we are not going to go into that matter with the witness, but I would not wish the committee to think that we accept any statement he may make on that matter without qualification, merely because I do not examine him on it. With that qualification, I have no objection to Mr. Safford's making a statement.

Senator KING. If he is to be permitted to make a statement, he ought to do so.

Mr. Cox. All I want you to understand is that by my failure to ask the witness, I am not acquiescing.

Senator KING. I am not asking you to be bound by anything he states unless you want to be. Proceed.

Mr. SAFFORD. To be perfectly frank, Senator, I don't think the amending agreement does affect the question which Mr. Cox raised the first time. The misconception which might have arisen with reference to that contract, I think I am correct in stating, was cleared up by a letter in 1936, and it is not embodied in the amending agreement, and if Mr. Cox wants to produce the letter, I am willing to identify it.

1 Subsequently entered in record as "Exhibit No. 162." See appendix, p. 801.

Mr. Cox. I am not aware what the letter is, but I am perfectly willing to have it go in the record,1 if you have a copy of it.

Mr. SAFFORD. Perhaps Mr. Kramer can find the letter.

Mr. Cox. We will find the letter. I would rather not stop now. If you can give me a copy, I can put it in the record.

Mr. SAFFORD. We understand, then, it will go in the record?
Mr. Cox. I beg your pardon.

Mr. SAFFORD. I say, we understand from you it will go in the record.

Mr. Cox. Will the reporter read to Mr. Safford the remark I made two statements before the last?

The REPORTER. "I am not aware what the letter is, but I am perfectly willing to have it go in the record, if you have a copy of it." Mr. Cox. Is that quite clear, Mr. Safford?

Mr. SAFFORD. Yes; that is fine.

Mr. Cox. I may add for the committee's benefit, though, that we propose to demonstrate by another witness later this morning how this provision actually worked.

Mr. Safford, I am going to hand you a mimeographed copy of document entitled "Hartford-Empire Co. Analysis of Financial Statements," and ask you if that is a document which you have seen before, and which you have agreed to be substantially accurate.

Mr. SAFFORD. Yes; that is correct.

Mr. Cox. I should like to have this document marked.

The CHAIRMAN. How do you identify this document? What do you call it?

Mr. Cox. I read from the title at the top, "Hartford-Empire Co. Analysis of Financial Statements."

The CHAIRMAN. You asked that it may be marked and printed in the record?

Mr. Cox. Yes.

The CHAIRMAN. It may be so received.

(The document referred to was marked "Exhibit No. 153" and is included in the appendix on p. 794.)

Mr. Cox. Mr. Safford, I am going to hand you another document entitled "Hartford-Empire Co.," again "Analysis of financial statements," a one-page document, and I ask you if you have seen that and are satisfied as to its accuracy.

Mr. SAFFORD. That is correct.

Senator KING. Mr. Cox, that first offer embraced all these pages, did it not?

Mr. Cox. Yes. I should like to offer this one page. We don't have to mark that, Mr. Chairman, because it is included in the document which I have already offered.2

I call the committee's attention to the fact that the last page of the document which Mr. Safford identified contains two compilations with respect to the rate of return received by the Hartford-Empire Co. The fourth column from the left contains a percentage figure which is entitled "Return on total investment." The figure in the last column toward the right is a percentage figure entitled "Return on investment employed in operations."

1 Subsequently entered as "Exhibit No. 162." See appendix, p. 801. 2 See "Exhibit No. 153," appendix, p. 794 at p. 798.

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