costly, no company would go out and baldly violate an obvious patent in the hands of an individual.

The CHAIRMAN. Many complaints have been registered with this committee that that has been done in certain cases.

Dr. BUSH. We can come to that, if you wish. It is quite a story. To go on for a moment with your question, if I may, sir, it can approach the individual to buy that patent or to buy rights under it, whereupon the individual has a choice between selling to one customer at the price set by that customer, or of waiting until the fundamental patents in the hands of the group expire, whereupon he can deal with his patent as he wishes.

PATENT POOLS

Dr. BUSH. There is no doubt that a group which holds the patent control on a particular field may, in that way, acquire improvements from individuals at times at small cost, and then to thus increase its control and continue its monopoly. I believe that that usually occurs only in the case not of individual companies but of cases where there are patent agreements between practically all of the units in an industry, so that we come immediately to the question of patent pooling, which is a large question, but in the case of the individual company I am not so afraid of that, for the individual company is too vulnerable. There is too much chance that exactly what happened in the case of the vacuum tank may happen to them, so that in general the individual inventor still has an opportunity to make a reasonable arrangement with them instead of waiting for the expiration of their patent.

Senator KING. Aren't there analogous cases in real estate? I am diverting for a moment. Take in the mining industry, there are hundreds of cases in which the owner of a mining claim, through underground workings, has abstracted the ore belonging to a contiguous owner, and he has insisted, after he has committed the trespass, upon buying the property for nothing or refusing to pay for it, and has forced the person who has been deprived of his property to resort to the courts. You can't guard against that. A man can resort to the courts to meet the trespasses here as well as trespasses in real estate. There are many cases in which the owner of the property has "fudged," to use a common expression, on the property of his neighbor (the neighbor was a poor man) and insisted that it was his property, and the poor man has been compelled to go into court. There have been thousands of cases where there have been trespasses on the surface which compelled the poor man to defend himself in order to maintain his rights. You can't guard against everything. The poor man has the courts. He may resort to the courts.

Dr. BUSH. But the owner of a valid patent which is obviously valid on the face of it, for an improvement which is a very necessary and important improvement, is in an exceedingly strong position no matter what the industrial situation may be, provided the procedure in the courts is sufficiently facile so he may be supported in his rights. The CHAIRMAN. That is not the case now?

Dr. BUSH. Not in my opinion, sir.

Mr. DIENNER. Going back to the question of the temporary character of the monopoly, I believe you discussed the phase of overlapping patents owned by the same company, and you mentioned the question.

of pools. Will you please tell us the character of the pool which you consider to be undesirable, and a character of pool which might not be open to that objection?

Dr. BUSH. That is a very large question, sir. The simplest situation that arises is this, where two companies or two individuals hold the patents, neither one of whom is able to manufacture on the basis of the patents which he holds, so that it is necessary for them to get together in some way or other before the device can go into public use. Obviously in such cases it is to the public interest that they should interchange rights under the patents. That is the simplest situation.

We have the more complex situation, however, where units in an entire industry interchange patents, and we have then what we might call a patent pool. In my opinion some types of patent pools are necessary and beneficent, and other types are undersirable. It is a very large question. I can mention only one or two points on it unless you wish me to go ahead.

One undesirable feature, I think, is this. If the patents are interchanged among the units of an industry on the basis of no royalty, I think that is undesirable, because the incentive which is provided by the patent system for progress, for research, for invention, is effectively canceled out in that event.

I think, also, that a closed pool which has no provision whatever, no workable provision, for the entrance into it of a newcomer who brings with him an addition to the situation, is undesirable. I wish very much that a beneficent type of pool, a desirable type of pool, could be defined and given public support or governmental support in this country, for I think it is a thing that we very much need. Pooling is necessary and desirable if properly carried out.

Mr. DIENNER. We might say this, that pooling goes to the aspect of proper use, but it endangers the aspect of termination. Is that right?

Dr. BUSH. If it is complete it practically cancels the aspect of termination if it is in an advancing art. In a static art, of course, it

does not.

The CHAIRMAN. How does it cancel termination?

Dr. BUSH. If it is in an advancing art and if there is a complete interchange of patents between the units of an industry, and there is a provision so that new inventions as they arise may be brought effectively into the pool, then if inventions arise with sufficient frequency the monopoly in effect goes on and on, but of course if it is the type of pool that I just outlined, where there is an opportunity for the newcomer to enter into the pool, bringing with him his ideas or facilities, then it is not a monopoly in the real sense at all.

The CHAIRMAN. In other words, you object to the pool which excludes the newcomer, but the pool which would admit the newcomer you think would operate to the benefit of the people.

Dr. BUSH. I don't think we can draw it on that point alone. That is an important point.

The CHAIRMAN. What other points should be borne in mind?

Dr. BUSH. I think, for one thing, the one that I just mentioned. Reasonable royalties should be charged between the units of a pool in order that the incentive to progress be not canceled out. But there are several other ones. I think in general that pools are very

necessary in some fields, that they can be beneficial, and that if they have certain features which could be readily defined they are desirable and should be encouraged. Of course, the converse is also truethat I believe that pools very often have been disadvantageous in the past where they have not contained the desirable features.

The CHAIRMAN. Of course, that in turn raises the question of who should draw the regulations by which such a pool should operate. If the pool is one of very large corporations with a great many stockholders and many employees and deals in a product which is used widely by the public, then if the pool itself may, without any supervision, fix the regulations, the pool may impose its will upon the public. Is that not so?

Dr. BUSH. It could in an ideal case, yes.

The CHAIRMAN. I would scarcely use the word "ideal" in that connection.

Dr. BUSH. Having had a bit of mathematical training, I am likely to use the word "ideal" as meaning over-simplified.

Senator KING. You are familiar, are you not, with the testimony with respect to the pools by a number of manufacturers of automobiles, where the various companies, A, B, and C, to illustrate, had patents, and some were conflicting with the others, yet all of the patents aimed at the same thing, namely, the perfection of an automobile for the best interests of the public. They formed a pool, put all their patents in the pool, and A was permitted to use B's and C's patents, and B and C were permitted to use A's. Do you see any disadvantage in that?

Dr. BUSH. In general, that is certainly a desirable feature. It saves litigation and enables a product to be built, et cetera. If it is properly safeguarded, if there is an open pool, there is an opportunity for the newcomer to enter, it is not a monopoly, it is not closed, and I do not think that in that case there is any reason why it should be undesirable. I do think in the case of the automobile pool that it would have been better had they done certain other things. In fact, I disagree with their procedure with regard to the exchange of royalties. I think the automobile industry in this country would have gone ahead more rapidly if it kept the incentive of interchange of royalties on a higher plane.

Senator KING. You can't contend that it hasn't gone ahead rapidly when there are over 40,000,000 automobiles used by the public.

Dr. BUSH. Yes; but I notice that some of the very important advances in the automobile have come in Europe before they have come in this country, and as an American proud of our advance I prefer that they come here first.

Mr. FRANK. Dr. Bush, I quite understand that the patent system is highly desirable in enabling persons to obtain funds to exploit ideas which might not otherwise be exploited if there were no monopoly; yet I would like to ask, purely for information, the following question: As I understand you, nonprofit research organizations allow their patented inventions to be used on the basis of relatively small royalties and take out patents primarily to prevent the antisocial use of their inventions. That I understood to be the general point of view of such organizations. Now, bearing in mind what I said previously, that it is necessary to get funds through the patented monopoly in private industry in order to bring about the exploitation of new ideas, I would

like to ask this question: Would large corporations or small corporations which are profit-making organizations abandon their research work and their research laboratories if, when they procured patents on their inventions, they were obliged to give licenses on a modest royalty basis to all persons not intending to use the inventions antisocially?

TENDENCY OF COMPULSORY LICENSING TO DISCOURAGE INVENTION

Dr. BUSH. Some of them would; some of them would not. Some great research laboratories have other purposes than the mere production of patentable inventions. The research laboratory of the telephone company, for example, has many other functions and many other ideas. I can tell you that many would never come into existence and many research laboratories and many groups now and in the recent past striving to bring in new products would never have come about had there been any system of general compulsory licensing. I can tell you from my own experience that I was closely associated with the founding of several small companies in this country based on inventions, and no one of those would ever have come about had there been a system of general compulsion in licensing, so that having spent a great deal of money, they would have been obliged to license. their competitors at a small royalty.

Mr. FRANK. Then you think that the profit incentive connected or associated with the monopoly created by a patent is essential if we are to have the development and exploitation of new ideas.

Dr. BUSH. Some things would come into use without it, but there are many ideas for which it is essential. Here is one right here. I was associated many years ago in the development of a thermostat as a consulting engineer. The invention was made by a young chap who at that time was a machinist at the bench. That device has come into It has gone into some 10,000,000 flatirons for their control; it has been of public service. It certainly prevented a great many electrical and flatiron fires; it has kept employment, it has done many beneficial things. That would never have come into use had there not been the exclusive right for a considerable period, for, simple as that device looks, it required $100,000 of development before there was anything that could be used out of it. That thing is very interesting, Senator. You may have heard of it.

It is a piece of thermostatic metal which is just like the bottom of an oilcan and snaps back and forth, but since it is of thermostatic metal, if you change its temperature it will itself snap. It is a very simple idea, yet it proved to meet a great need. It is a difficult thing to produce a thermostat which will operate in a flatiron at the high temperatures and successfully break the electric current. This thing acts with such great abruptness that it can break a current even under very difficult circumstances, and hence it became used in that field. where it was not possible to use the prior devices.

The young man brought that out. There was a company formed around him holding a series of patents, and the company is still going and having its troubles. I consulted for it in its early days. This is supposed to operate at body temperature; except for the fact that my hands are cold this morning I could show you how it is supposed to

go. Thermostatic metal, you know, is two kinds of metal joined together in a sheet with different coefficients of expansion. That was old in the art before this work started. There were a number of expired patents on it, so it was public property, but the general scheme of making it in that little form was utterly new. There, for example, is a thing that never would have come into use if it hadn't been for the exclusive right.

Mr. DIENNER. What would you say the cost of developing that thermostat was?

Dr. BUSH. We spent about $100,000 on development before it went into any uses whatever. I have a couple more of those, I think. When I knew I was coming down here I looked in my desk and found that I had just four of those left.

The CHAIRMAN. I hope the witness doesn't believe the members of the committee should have something to play with.' [Laughter.]

Dr. BUSH. Mr. Chairman, I can assure you that that device at one time held up all procedure on the Boston Stock Exchange for 5 minutes.

The CHAIRMAN. Were they able to make them snap?

Dr. BUSH. Only practice and warm hands will make that snap properly.

Mr. DIENNER. Dr. Bush, in the use phase of the patent, that is introducing the invention into industry, we have this question of price control to consider; that is, there is price control under patents. Will you please explain a situation under which price control is a necessary requirement in introducing an idea into industry?

Dr. BUSH. It is a part, of course, of the situation that I just mentioned, where the introduction of an invention requires a large initial investment. The funds for that can be secured only if there will be a speculative profit, only if the individual who puts up the money ca expect that if the gamble is successful he will reap considerable profits. Now that procedure of putting the thing into use can occur either by the new company itself manufacturing or licensing for manufacture. If it licenses a single company for manufacture, it can give an exclusive license and collect a royalty. However, suppose that it licenses two companies. In order that there shall be at the outset a complete control, it is necessary that price restriction also be superimposed, otherwise competition will be produced between those units and the speculative profit which is necessary will not occur. The inclusive feature is necessary in order, in many cases, to bring the device into use, and there are circumstances, therefore, where price control is necessary in order to preserve the exclusive feature.

Mr. DIENNER. Then we might answer Commissioner Frank's question in some degree by pointing out that there is a necessary relation between speculative profit and exclusiveness.

I believe you have passed on the question of introduction, the possibility of using the patent situation for stimulation of new industries, and I believe you rendered a report to the Secretary of Commerce. I believe this report which you prepared as a member of the subcommittee of the Science Advisory Board is of sufficient significance that I should request its introduction as an exhibit in this case and that it be printed as an appendix in the record.

The CHAIRMAN. It is so ordered.

1 Referring to exhibit of thermostatic metal.