the "rule of reason" must be the guideline for determining patent misuse. As you also know, the concept of the U.S. patent system stems from the Constitution itself. The benefits of that concept-granting a legal monopoly to an inventor for a limited period of time-have been enormous, not only to inventors as individuals, but also to the Nation's total economic development and its world preeminence in many technical fields. There is a common misconception that patents are secretive devices that stifle competition because they apparently enable an inventor to withhold something. On the contrary, a patent enables an inventor to disclose his discovery, assured, for a limited time, that he can reap the benefits of his enterprise by using the invention or by licensing it to others. Almost all patent holders are willing to license patents. It is the policy of Westinghouse to license widely; for one thing, it helps spread the cost of prior research and development. As a result, the inventor benefits, his customers benefit, his licensed competitors benefit; and above all, the consumer and the country benefit. The whole idea that through research-the expenditure of time, money, and brainpower-one can develop productive ideas for the public benefit-for better living, health, safety, defense, and education and at the same time retain exclusive rights for a limited time is a fundamental American concept. The benefits paid the inventor are far exceeded by the benefits to society as a whole. The concept has proven sound; the evidence is overwhelming. I would like to give you a few examples from my personal knowledge that might help further public understanding of the patent system. The first is one dealing with the development of a special tube capable of amplifying very weak X-ray signals to levels that can be seen on a tube much like a TV picture tube. The invention permitted very substantial reductions in X-ray dose to the patient and in the exposure to the attending physician. It also permitted the detection of clinical symptoms heretofore invisible, and made practical X-ray movies and television. The patent 25223132 on this image amplifier was issued in 1950 and practically all tube builders of these types of tubes in the world were licensed under it. The benefits to society are highlighted in the article on page 51 in Time Magazine of May 10, 1971, showing the type of heart operations that now are carried out more or less routinely that would not have been possible without this invention. It is my opinion that if the patent system did not offer the kind of incentives it does, Westinghouse would either not have spent money for this type of research or would have been forced to be highly secretive about it and not spread the knowledge to other manufacturers. I believe either course would have materially slowed the public benefits. Another example is in the area of electrostatic air cleaning equipment which takes dust, pollen, and dirt out of the air. We call this a Precipitron which is used for general purpose air cleaning in homes, and commercial and industrial buildings. The teachings of this patent (2129783) created a new product for general use and all air cleaning methods of this type put into practical use were covered by it. Consequently it too was widely licensed. A third example is in the area of transformers. Two fundamental interacting challenges are associated with the design of transformers, cost and electrical losses. Costs for iron and copper can be reduced if transformers can be constructed to run at higher temperatures, but high temperature insulating materials are generally exorbitantly expensive. Therefore, inexpensive paper insulation had to be used at lower temperatures and this restricted overall transformer cost reduction. About 20 years ago a Westinghouse researcher discovered low cost additives which when used with paper insulation allowed operation at 45° higher temperatures. This resulted in considerable cost improvement for equivalent transformer performance. Similarly starting in the late 1930's Westinghouse pioneered in the application of a new improved magnetic steel called Hipersil. This new material allowed reduction in size and consequently cost of a transformer of a given rating. Our transformer designs using this new material proved to be exceedingly useful in military applications in World War II because of weight reductions as great as 25 percent. Designs for better electric utility and industrial type transformers were rapidly developed. The extensive patents resulting from this effort covered many different products and patents were filed in many different countries. Consequently licensing generally was done by country on a basis tailored to the product line breadth of individual licensees. The examples I have discussed are the successful ones. We must remember that there are many research efforts which fail. It's a gamble. And reasonable patent protection, tailored to the situation that develops, is the only assurance of a payoff when a researcher shouts "Eureka!" Let's look at the process from a business point of view for a moment. Invention usually stems from research. But research is a most expensive undertaking from a business viewpoint. You can put money in a bank and surely double it in less than 20 years. Many research programs don't come up with useful results for 15 or 20 years, however, and many never come through at all. Incentives to put money into research are the hopes that the fraction that are successful will payoff better long term than putting money in the bank. The knowledge that one's invention is protected has a further important beneficial effect. It encourages open discussion. The synergism of many people talking in the same area of interest stimulates a whole new overlay of innovation, leading to still more invention and a gathering momentum of technological progress. The work in the field of solid state electronics was like this. Much of the exchange that occurred in IEEE meetings of the type that I chaired. In my opinion, this would not occur without adequate patent protection. Before I close, I would like to touch on some of the questions raised in connection with licensing provisions such as fields of use and geographical territories covered by the Scott amendments. Patent rights which are a limited field, limited time, legal monopoly are the incentive for all the effort, money, and time spent in the quest of new useful inventions. We therefore believe that the inventor or his assignee should have full rights to license as many licensees as he can on patents with whatever restrictions on field of use or geography that maximize his return for the limited time. period of 17 years at most. When we apply for foreign patents within each country's unique patent system, the same rules should apply. Licensing agreements must be palatable to both licensors and licensees. Opponents of limited licenses talk as though all limitations were strong-arm tactics of the patent owner. That is not true. Westinghouse, for instance, is also a licensee. In that position, we normally want the license to cover only what we wish it to, and be licensed only where we know the license is necessary. Indeed, other uses may not even be known to us. Any licensor usually having made a considerable prior investment wants to maximize his return. To do so he generally has to find a sufficient number of licensees with the appropriate product manufacturing and geographic marketing capability to maximize the return for the full field of his patents and the countries in which he has obtained them. This is not restrictive, anticompetitive or monopolistic; it is adapting the patent system to the most efficient and beneficial use. Thank you, Mr. Chairman. I will be glad to try to answer any questions that you now or later may put to us. Senator MCCLELLAN. Thank you. Counsel? Mr. BRENNAN. Mr. Jones? STATEMENT OF MARVIN R. JONES, MANAGER OF RESEARCH ANT Senator MCCLELLAN. I did not have one before me. That is all right. Mr. JONES. I am prepared to make a written statement within a few weeks. Senator MCCLELLAN. Very well. You may proceed. Mr. JONES. Cameron Iron Works is a relatively small company. It manufactures steel, components for aircraft; it manufactures valves and it manufactures control equipment for drilling and producing oil. Since I first worked for Cameron in 1939, it has grown from approximately 80 employees to something just under 6,000. Its sales have grown from less than a million dollars per year to something in the order of $125 million per year. Some of its products are affecting the lives of almost any person in the room. For example, hardly any gallon of gas burned in your automobile has not had some contact with a Cameron product. You can hardly ride on an aircraft that does not have some parts made of Cameron steel. Cameron is unique among the companies represented here this morning because of its relatively small size. Its competitors include companies like Armco, FMC Corp., Rockwell Manufacturing Co., American Car & Foundry, to a limited extent U.S. Steel, and other companies of this sort. Cameron has managed to prosper over the years and make this growth primarily, I think, because of the protection afforded it by the patent system of the United States. It is unique that almost all of its earnings during this period of time have gone into new product development. During the past year, approximately 80 percent of the sales volume covered products not made or known 15 years ago, or even 10 years ago, perhaps. ways; The operation has benefited the public in a large number of for example, Cameron has always led the world in manufacturing blowout preventors, which prevent oil wells from blowing out, losing tremendous amounts of our natural resources, contaminating our environment. It has made chokes under patents, controlled by analog computing devices that kill a well automatically when it is attempting to blow out. It has made automatic safety valves which react to abnormal conditions by shutting wells in. All of these developments, and there are lots of other ones-we have made developments in steel alloys and we have made a large number of developments in forging processes and machine processeshave been made because of the attractiveness of the climate for investment in development and research. For this reason, Cameron has a considerable interest in the maintenance and the improvement of that climate. We are in the business of recovering whatever amounts we can recover from developments, whether we sell our know-how or patent right, our trade secrets. All of these have formed the basis for agreements with other companies and we, like some of the others here, have taken a large number of licenses ourselves. To us, and my own personal outlook may be a little clouded-I am the man at Cameron who is responsible for selling management on investing funds in new projects or product development throughout the company, it is necessary for us to prepare a cash-flow analysis that will show the company how, if we invest a certain sum of money in developing a product line, we will recover that money. We have to include all of the ways, whether it is going to increase our share of the market; we have to state whether or not we expect to and how much we expect to recover in patent licenses, know-how licenses, and that sort of thing. We have reviewed the Scott amendments and unlike some of the other gentlemen here, I am not a lawyer, I am strictly an engineer and not well versed in law; however, we think we understand the intent of the Scott amendments and we very much favor them. However, there are some other aspects of the thing that I would like to touch on from the standpoint of Cameron and from my own personal standpoint. And that is, we are very much in favor of having the law exist as statutes. As legal laymen, we can find and understand to a much higher degree what the law is if we have relatively clearly state statutes to work with than we can from any type of summary that we can get from our attorneys as to what case law is. In fact, lately, our attorneys seem to be almost as confused in situations involving case law as we are. Senator MCCLELLAN. You can never be quite sure what the Supreme Court is going to say the law is, can you? Mr. JONES. We never know, and we cannot plan ahead. It is hard to put down anything convincing enough to induce the management to turn loose its hard-earned capital if you do not know where the reward is going to come from, how you are going to get it back, at least. There is another disadvantage to us in case law. That stems from the fact that tremendous areas remain undefined while the lawyers are waiting for a test case to come to trial and to be litigated through the years until a final decision so that they can tell us what is going to be the situation. Take, for example, the extent of territorial jurisdiction of U.S. patent laws. Our attorneys tell us they do not know whether if you drill an oil well halfway between the United States and Cuba, whose patent laws will apply or how far out they go. We have had an instance of a competitor who for awhile infringed, in our estimation, a perfectly valid patent as far as we were concerned, but they did it at a location 90 miles off shore. They manufactured components, transported them to the site, and combined them to make the patented combination on the site. We did not know what to do about the thing. We talked to our attorneys. We did not know whether an ultimate infringement had been committed and we could not charge our competitors with inducement to infringe or charge them with contributing to an infringement unless we knew that an ultimate infringement occurred. So we did not do anything. We were stymied there and with a few exceptions as it affects the way that we plan our patent protection and draft our claims, this remains an area that is still undefined. Again, we find that case law applies to a more or less limited, specific set of circumstances and we are forced to speculate beyond all reason in deciding how they would apply to a different set of circumstances. And as laymen, we never have a real feel, and we find our attorneys give us opinions that differ considerably. Maybe they are in conflict. Lastly, we like statutory law because we have an innate feeling, perhaps justified, perhaps not, that there is a certain stability in statutory law that is not available to us in case law. Case law seems to us to change rapidly. So for our first point, we are tremendously in favor of enacting into the statutes the basic law that governs a patent situation. I mentioned before that Cameron and I personally like the intent of the Scott amendments. I do not think that any of our people other than our outside patent attorneys are qualified to discuss the wording or the technical aspects of this law. But anything that frees us to use this property-this is the only title that we have to some of our intellectual property-to use it in the way that benefits us and helps us recover most, as long as it does not, obviously, clearly go against public policy, makes an investment more attractive to the company and easier for me to sell. A large number of licenses that we have, or that we have taken for granted, are restricted as to territory. A large number of these |