As occasion has arisen, the executive branch of the United States Government has acted on the lines of policy embodied in these legislative provisions. In 1948, the United States obliged recipients of Marshall plan aid to accept commitments for the control of restrictive business practices similar in nature to those in its treaties of friendship, commerce, and navigation. Under these provisions it succeeded in preventing a number of incipient cartel arrangements which seemed harmful to European recovery.63 In the same year, the National Advisory Council decided with the President's concurrence that United States credits should not strengthen or extend business arrange- Restrictive arrangements in connection with the procurement of defense goods in Europe were struck down from time to time. The United States also played an active role in encouraging foreign legislation for the prevention of restrictive practices, a subject on which more will be said below. And the present administration has shown its own affinity to these policies with such Presidential pronouncements as the following: Our own interest clearly calls for a policy that will in time extend into the international field those principles of competitive enterprise which have brought our people great prosperity with freedom.64 There are a number of reasons for United States preoccupation with restrictive business practices abroad. Some of them are obvious: To the extent that we regard increased trade among nations as a strengthening and cohesive force, we are as much concerned with private barriers to trade as with those imposed by governments. Beyond this consideration, however, we have a deeper concern. In the years immediately following World War II, a number of countries flirted with the possibility of state ownership of industry and government regulation as a means of stimulating growth in their national economies; the United Kingdom went some distance in this direction, while France and other nations of Europe took similar measures of a less extensive sort. Today, this tendency-once widely regarded as an irresistible wave of the future-is receding. In its place there is a heightened respect in Western Europe for the vitality of private enterprise and the beginnings of an appreciation of the potentialities of competition.65 The overt evidence of this shift in sentiment has appeared in various quarters: in the adoption by the United Kingdom in 1956 of a statute against restrictive business practices; " in the adoption *7 and 66 67 63 These measures and others summarized in this paragraph appear in report of the Department of State, supra, note 60, at pp. 177-178. Unfortunately, the details of these cases are shrouded in official secrecy, presumably in order to protect the sensitiveness of governments who moved against their own nationals in response to United States pressures. 84 Economic Report of the President. p. 51 (1955). 05 Cf. testimony of Kalijarvi, hearings, supra, note 22, pt. 4. at pp. 1839-1843. 66 Restrictive Trade Practices Act, 1956, 4 and 5 Eliz. 2. ch. 68. The law creates a presumption against the validity of certain broadly defined restrictive agreements and sets out certain specified grounds on which the presumption may be overcome. It is too early to judge the effects of the law upon trade practices in the United Kingdon. Treaty Establishing the European Coal and Steel Community, arts. 65 and 66 (April 18, 1951). incipient enforcement of the unprecedented anticartel provisions of the European Coal and Steel Community Treaty; 68 in the unanticipated development of competition in the distribution channels of Switzerland, in Swedish measures canceling hundreds of restrictive business agreements, and in more limited action of this sort by the Dutch.70 69 This turn in sentiment has been apparent both on the right and on the left among Europe's major political parties. It was a Conservative government in the United Kingdom which secured the adoption of that country's statute against restrictive business practices. But the Conservatives were being egged on by the demands of the Labor Party as well. Harold Wilson, an outstanding Labor Party leader and erstwhile president of the United Kingdom Board of Tradethe rough equivalent of Secretary of Commerce in the United States Cabinet commented as follows on the need for effective legislation against restrictive business agreements: ***In the fierce and ruthless struggle for world markets we cannot move at the pace required, unless we firmly take the decision that these self-imposed and obsolete hobbles on industry and trade must go ** That decision *** has already been delayed too long and in our view can wait no longer."1 The German newspapers of April 4, 1955, reporting on a 6-hour debate in the Bundestag on the draft law against restraints of competition, listed the Social Democratic Party representative, Dr. Schoene, as a supporter of strict antitrust legislation. In this case, the opposition, who favored a much more limited anticartel law, came largely from business and industry. In Sweden, on the other hand, it has been the Conservatives who have been voicing their support for more competition. A typical statement is that of Jarl Hjalmarson, chairman of the Swedish Conservative Party: In order to improve conditions [in Sweden] the prerequisites of free competition must be reestablished, partly by abolition of regulations and partly by liberalization of foreign trade. The leading economic organizations must simultaneously attack monopolism." It may be that the shift in European opinion will not come to much; that the well-entrenched arrangements for continued cartelization of most Western European economies will dominate in the end. But if this should occur, then the risk of a reversion to socialism in Western Europe and the growth of an ideological barrier among the principal members of the Atlantic Community-will be greatly en Bok, The First Three Years of the Schuman Plan, Essays in International Finance, pp. 34-52 (1955), and speech of Rene Mayer, president of ECSC, High Authority, May 8, 1956, at pp. 27-29 (Strasbourg, 1956). Address by Gottlieb Duttweiler, Fifth International Conference of Green Meadow Foundation (mimeo, Zurich, 1956). 70 United States Report on European Productivity Agency Meeting on Restrictive Business Practices, April 25-27 (1957) (attachment B (typewritten)). The relevant passages read: As regards the Netherlands: "Actions under existing legislation have been taken against a number of cartels particularly in order to bring about a reduction of prices." As regards Sweden: "Of some 1,600 agreements which have been registered under the Swedish legislation, about 40 percent have been dissolved as being inconsistent with the law." Hansard's Parliamentary Debates in the House of Commons, July 13, 1955, p. 1962. Aftenposten. Oslo, Norway, March 7, 1950. hanced. This risk suggests the real stake of the United States in the development of competition abroad.73 These considerations have an obvious bearing on the United States attitude toward restrictive business practices based on patent license agreement. If existing indications are correct, agreements of this sort may well be fortifying the division of Western Europe today into a series of small national markets, each supporting industries which enjoy an oligopolistic position at home and which have neither the incentive nor the opportunity to specialize on a scale consistent with lowest-cost operations. The mitgration of these restrictions is almost as much our concern as it is that of the Western Europeans affected directly by them. C. FOREIGN INVESTMENT Over the years, the United States Government by word and action has offered its consistent support to the objective of stimulating the flow of United States capital to foreign countries. It has engaged indefatigably in the negotiation of bilateral treaties of friendship, commerce, and navigation with most of the world's major trading nations, in order to secure the rights of United States citizens and businesses operating abroad. It has used its lending power in the Export-Import Bank and its influence in the International Bank for Reconstruction and Development with an eye to triggering and stimulating private investment overseas. It has launched modest guaranty programs, as part of its larger programs of economic aid to foreign countries, designed to encourage private investment and the private exchange of technology by offering insurance against the risks of expropriation and currency inconvertibility. The support of the United States for foreign investment and technological interchange is based on a number of considerations: on the assumption that such investment will help to increase exports from the United States, and on the further assumption that such investment, by contributing to the economic growth of foreign nations, will support the political interests of this country." Accordingly, insofar as patents may be used to restrict investment in the various ways enumerated earlier, their use can be reckoned as being in conflict with United States foreign policy. This is not to suggest that every restriction created by patents is inimical to investment. Indeed, one must explicitly recognize the possibility that trade restrictions based on patent rights in some instances conduce to investment; and while it does not follow that all such investment is helpful to the country receiving it, nevertheless the possibility of its making a contribution is not foreclosed. Because reductions in trade may sometimes stimulate increases in investment, the possibility has to be recognized that the increased liberalization of international trade might be working at cross purposes with the increased international flow of technology and invest The same kind of problem exists in the uncommitted areas of the Far East, notably in India, where "private enterprise" and "exploitation" are commonly taken as synonymous concepts. But it is doubtful if much can be done directly in these areas for the present to change this point of view. The most effective course would be to demonstrate that private enterprise can operate dynamically and benignly elsewhere.. 74 Cf. Commission on Foreign Economic Policy, Report to the President and the Congress, pp. 25-26 (1954). ment. In fact, the issue has arisen from time to time both in the enforcement of the United States antitrust laws 75 and in the formulation of United States foreign policy. In both contexts, however, the United States has resisted the temptation to condone international trade restrictions because they might encourage international investment and technology; the object has been to secure the freer movement of goods, on the one hand, and capital and technology, on the other, without sacrificing one objective to the other. The evenhandedness of this approach is to be discerned in the postwar foreign economic programs of the United States. It was perfectly evident during the early 1940's at the time that the postwar foreign economic policy of the United States was being framed, that the preferential tariff system erected some years earlier by the British Commonwealth nations in favor of one another's trade had encouraged the flow of United States capital and skills to Canada and England. During the 1930's, United States enterprises had established plants in these countries as a way of overcoming the handicap which would have been applied by Commonwealth countries to goods originating outside the Commonwealth. Nonetheless, the United States attacked the Commonwealth's preferential tariff system hammer and tongs. A cardinal objective of its trade negotiations with the United Kingdom during World War II and in the immediate postwar period was the reduction and elimination of the preference system; and, as a result, a revolutionary principle was incorporated in the ITO Charter, obliging member nations by negotiation to reduce and eventually to eliminate these tariff preferences." 76 The choice between international investment and international trade was offered to the United States again in the 10 years immediately following World War II. During this period, tariff barriers were supplemented in many countries by import licensing systems, as nations sought to ration their scarce supplies of dollars for the purchase of the most essential foreign goods. Again United States investors met the difficulty by establishing branch plants in England and on the continent of Europe. Yet again the United States pushed aggressively to reduce these trade barriers, through its participation both in the General Agreement on Tariffs and Trade and in the International Monetary Fund, whatever the consequences might be for the export of investment and technology." United States determination to reduce the blocks to international trade, irrespective of the consequences for investment, were clearly evident also in the choice which it made in the negotiation of the articles of agreement of the International Monetary Fund. In this critical document the United States obtained agreement in principle that nations should be restrained in the application of exchange re 75 In the Timken Roller Bearing case, defense counsel contended that the territorial divisions and other restraints involved in the case were reasonable, partly because they were simply ancillary to the other arrangements involved, which included the exchange of know-how. Judge Freed in the district court dealt with these defenses specifically and at length, and overruled them, holding that these arrangements were incidental to a paramount purpose to restrain trade. For a discussion of the case and the problem it involves, see Report of the Attorney General's National Committee, supra, note 13, at pp. 81-83. U. S. Department of State, Publication No. 3206, Habana Charter for an International Trade Organization, art. 17 (1948). See the writer's America's Foreign Trade Policy and the GATT, Essays in International Finance, pp. 2-21 (1954). strictions affecting the movement of goods and services, while at the same time remaining free to maintain restrictions upon the international movement of capital. 78 There are exceptions to be found to this general approach, of course, but they are recognized as exceptions rather than as guiding principles as far as the United States Government is concerned. One such exception is crystallized in article XVIII of the General Agreement on Tariffs and Trade, wherein the United States subscribes to the principle that underdeveloped areas may at times have a temporary right to impose a new import restriction in order to give some nascent domestic industry the possibility to expand and to survive its infancy. But it is clear at the same time that the United States does not go so far in its support of the export of capital and technology as to foster the imposition of import restrictions by other nations for that pur pose. On the other hand, there is no doubt at all as regards the United States view toward licensing agreements which offer no clear fillip to the development and application of new technology and which at the same time stifle international trade and international investment. We have already indicated why many international patent interchange agreements may fairly be described in these terms. In such instances the United States position against the arrangements could be expected to be unequivocal.79 These considerations suggest that the United States position toward the encouragement of patent license interchanges would be qualified and selective. United States Government policy would frown on licenses which served principally as a device for the division of markets and only incidentally as a vehicle for the flow of new capital and technology; it would vigorously resist license agreements which stifled trade and investment. It could be expected, too, to take a dim view of continuing arrangements involving the automatic licensing of future patents, the automatic grant-back of improvement patents, the tie-in of raw material sales, or other elements of the agreement calculated to channel or to limit international trade. When any such arrangements were incident to a program regarded as desirable on balance, the exclusive and restrictive provisions of the licensing agreement would be accepted on sufferance, if at all, while the objective of an open competitive system in international trade and an uninhibited flow of capital remained unaltered. IV. RECOMMENDATIONS A. THE NEED FOR MORE ANALYSIS It is in the nature of studies of this kind that they should suggest the need for more study; for any reevaluation of a field as complex as international patent relations inevitably exposes areas in which surmise substitutes for fact and conjecture takes the place of judgment. This study is no exception to the typical pattern. Indeed, our review 78 Articles of Agreement of the International Monetary Fund, art. VI, sec. 3, and art. VIII. sec. 2. This is quite apart from the inconsistency of such agreements with our antitrust laws. Note the reaction of the State Department to various specific provisions in patent-licensing agreements proposed for guaranty under the Mutual Security Act, reported in the testimony of Hall in hearings, supra, note 22, pt. 4, at pp. 1825-1839. |