Webb, president of the Ethyl Gasoline Corporation (copies were sent to
every member of its Board of Directors) as follows:
“I learned through our Organic Chemicals Division today that the Ethyl
Gasoline Corporation has in mind forming a German company with the I.
G. to manufacture Ethyl lead in that country.
“I have just had two weeks in Washington, no inconsiderable part
of which was devoted to criticising the interchanging with foreign
companies of chemical knowledge which might have a military value.
Such giving of information by an industrial company might have the
gravest repercussions on it. The Ethyl Gasoline Corporation would be no
exception, in fact, would probably be singled out for special attack
because of the ownership of its stock.
“It would seem, on the face of it, that the quantity of Ethyl lead used
for commercial purposes in Germany would be too small to go after. It
has been claimed that Germany is secretly arming. Ethyl lead would
doubtless be a valuable aid to military aeroplanes.
“I am writing you this to say that in my opinion under no conditions
should you or the Board of Directors of the Ethyl Gasoline Corporation
disclose any secrets or ‘know how’ in connection with the manufacture
of tetra-ethyl lead to Germany.”
Yet, in the face of this warning from duPont, on January 12, 1935,
Webb wrote the Chief of the Army Air Corps that “There is no technical
data of military importance known to us which would be involved in the
building of such a plant that has not already received wide publicity,
or is of common knowledge in the aviation field.”
This statement strikingly ignores the warning received from duPont
only one month earlier that such a disclosure would “doubtless” be
prejudicial to our national security. In this connection it should
not be overlooked that duPont and Dow were the sole producers of the
chemical components of tetraethyl lead and, as such, were the concerns
which alone possessed the essential know-how.
Why did Ethyl Gasoline disregard duPont’s warning? Webb himself has
supplied the answer in the final paragraph of his letter of January 12,
1935:
“There is, furthermore, an equally, if not more, important business
aspect to the German situation. We are owned by Standard Oil and
General Motors in equal shares. General Motors has important
investments in Germany, producing there in excess of 50 percent of
the motor cars. Standard Oil has large investments in all phases of
the petroleum business in Germany.... We feel ... for the reasons
specifically mentioned here, that it would be extremely unfortunate
for all concerned if we do not proceed to carry out the agreement with
I. G.... A refusal or undue delay on our part ... might bring on some
serious reprisal measures.”
This leaves nothing for surmise. It is not unfair to conclude, in
view of these facts, that for the directors of Ethyl Gasoline the
preservation of I. G. good-will conflicted with the maintenance of
good faith in dealings with their own government. Though duPont, from
the beginning, was opposed to the entire deal on grounds of patriotic
scruples, nevertheless it eventually deferred. In an inter-office memo
of the duPont Company appears the following:
“I think we should tell I.C.I. that the technical and engineering
information which we are giving I. G. in connection with Tetraethyl
Lead is being given them entirely at the request of the Ethyl Gasoline
Corporation. As they no doubt know, Ethyl Gas and I. G. set up some
arrangements whereby they are going to participate jointly in the
manufacture and sale of Ethyl Lead in Germany and we are turning over
our information to Ethyl Gas which they in turn can submit to I. G. as
part of the bargain in connection with this joint enterprise.”
The full extent of the dilemma in which cartel members are placed by
the conflict of their cartel commitments with national interest is
indicated in two statements made by a representative of one of the
world’s great industrial combines. In a letter written in 1939, after
the outbreak of war, a Standard Oil official stated:
“Pursuant to these arrangements I was able to keep my appointments in
Holland, where I had three days of discussion with the representatives
of the I. G. They delivered to me assignments of some 2,000 foreign
patents and _we did our best to work out complete plans for a modus
vivendi which would operate through the term of the war, whether or not
the U. S. came in_. All of the arrangements could not be completed,
but it is hoped that enough has been done to permit closing the most
important uncompleted points by cable. It is difficult to visualize
as yet just how successful we shall be in maintaining our relations
through this period without personal contacts.”
It is of significance also that this same representative of a cartel
group brilliantly expressed the cartel point of view when he said:
“Upon completion of that agreement, the war intervened because our
grouping of interested parties included Americans, British, Dutch,
Germans, and the war introduced quite a number of complications. _How
we are going to make these belligerent parties lie down in the same
bed isn’t quite clear as yet._ We are now addressing ourselves to that
phase of the problem and I hope we will find some solution. _Technology
has to carry on--war or no war_--so we must find some solution to
these last problems.”
It is in their very nature that cartels restrict the fullest
developments of new products and that they attempt to place rigid
handicaps on output. Very often they even adulterate the quality of
products in order to exact the greatest possible toll from the public.
Several examples may be used to indicate the practices and mental
attitude of monopoly groups in relation to the quality of material. The
following quotation concerning flashlight bulbs speaks for itself:
“Two or three years ago we proposed a reduction in the life of
flashlight lamps from the old basis on which one lamp was supposed to
outlast three batteries, to a point where the life of the lamp and the
life of the battery under service conditions would be approximately
equal. Sometime ago, the battery manufacturers went part way with us on
this and accepted lamps of two battery lives instead of three. This has
worked out very satisfactorily.
“We have been continuing our studies and efforts to bring about the
use of one battery life lamps. I think you will be interested in
the attached analysis which Messrs. Prideaux and Egeler have worked
up covering the various points involved in going to the one battery
life basis. If this were done, we estimate that it would result in
increasing our flashlight business approximately 60 per cent. We can
see no logical reason either from our standpoint or that of the battery
manufacturer why such a change should not be made at this time.
“Messrs. Parker and Johnson now have this matter up with the battery
manufacturers and I would urge that every assistance be given them to
put it over.”
Methyl methacrylate, the name of one of the best known plastics, is
used not only in the industrial field to make airplane windshielding
and many other structural materials, but it also has excellent
qualities for the making of dental plates or dentures. As a result of
the monopoly control of this material by the duPont Company and Rohm
& Haas, its uses were divided into two fields: industrial and dental.
At the time these firms were indicted a sharp difference in price was
maintained. When methyl methacrylate was sold for industrial purposes,
it cost 85 cents a pound, while the price to dental users was $45 a
pound. The dental profession soon learned that there was no difference
in the material, whether it was designed for industrial or dental use.
As a result they began to purchase their requirements from industrial
users, in order to gain the advantage of the cheaper industrial price
which, we could assume, might possibly be passed on to the dental
patient.
The monopoly clique considered this a form of bootlegging. On March 15,
1940, the Vernon-Benshoff Company (Pittsburgh), a member of the clique,
made various suggestions to the Rohm and Haas Company which, although
they were not placed in actual effect, offer valuable insight into the
shocking extremes to which monopolists will consider going:
“Our discussion of the Pure Food and Drug Law and pulling the acrylic
denture under it leads me to wonder if the manufacturers of the
commercial molding powders might not add an ingredient which would not
effect the molding properties, but which would disqualify it under the
act. Apparently a slight trace would suffice. Naturally it would be
omitted from the strictly denture powder.
“Recently I asked Dr. Johnson to suggest an addition which might
interfere with distillation of monomer or retard polymerization. He
could not think of anything that wouldn’t spoil the molding properties
or clarity of the powders. But there the quantity needed to accomplish
the result was the handicap.
“Under the very finicky regulations of the above act however, it may be
the slightest trace of the right agent, too little to constitute harm
to molding (or health either as a matter of fact) would suffice to have
bootleg products in bad.
“A millionth of one per cent of arsenic or lead might cause them to
confiscate every bootleg unit in the country. There ought to be a trace
of something that would make them rear up.”
In its reply the Rohm & Haas Company said that it was in agreement with
the general principles presented in the letter quoted above and that
it would ask its research department to work on the matter. This was
expressed in a letter of March 21, 1940 to the Vernon-Benshoff firm:
“With reference to your letter of March 15th, we shall be glad to
investigate whether denture materials come under the Pure Food and Drug
Act. We agree with you that if we could put some ingredient in our
commercial molding material which would disqualify it under the Pure
Food and Drug Act, this would be a very fine method of controlling the
bootleg situation. We shall take this matter up with our development
department and advise you whether any such material could be used.”
A striking way in which research can be perverted is illustrated by
another example. The dyestuffs industry is one which is basically
monopolistic and cartelized. A tight grip is maintained over its price
structure. This is especially true of dyestuffs for textiles. Recently
the duPont Company’s research laboratories developed a pigment which
can be utilized either in paints or as a dye for textiles. The duPont
research laboratories considered various ways to be sure that the
pigment could be limited in use to the paint and finishing field so as
not to disturb the price structure of the textile dyestuffs field. The
trend of duPont’s research thought on this subject was stated by the
director of one of its laboratories:
“Further work may be necessary on adding contaminants to ‘Monastral’
colors to make them unsatisfactory on textiles but satisfactory for
paints.”
After working on this problem for some time, duPont’s Jackson
Laboratory reported on its progress somewhat dolefully. (DuPont says
of Jackson Laboratory that it is “one of the largest organic chemical
research laboratories in the world.”) The particular task involved was
difficult, according to a report by the Jackson Laboratory dated June
26, 1940:
“Mr. Chantler was of the opinion that pigment mixtures, unsuitable for
textile printing would be very difficult to obtain.
“(B) _Agents Injurious to Textile Printing._--The suggestion was made
that certain compounds that were white under ordinary conditions but
that would be oxidized to give colored bodies when the prints are
subjected to chlorine bleach, could be used. A few experiments had
been made along this line using such compounds as Chlorostain N,
dianisidine and DuPont Oxy Black Base. Complete data on this work are
not available. Mr. Dahlen expressed the opinion that the addition of
such compounds probably would cause as much or more damage to the paint
trade as to textile printing.
“Such substances as ground glass and carborundum were suggested for
incorporation with the pigment. While these materials would undoubtedly
scratch printing rolls, there is considerable doubt as to their effect
in paints and lacquers.”
Two days later the problem was again attacked at a meeting between the
representatives of General Aniline Works and the duPont Company. Eight
possible methods of adulteration were considered. I quote a few from
the confidential memorandum of their discussion:
“1. A new type of copper phthalocyanine (CPC) for the paint and lacquer
trade which would be unsuitable for application textiles.
* * * * *
“The importance of solving these problems was recognized, and it was
agreed that both parties would work on promising ideas which resulted
from this discussion. The three problems are closely related, and it is
possible that the solution of one or two will automatically solve the
third. It was agreed that a powder would be the preferable standard.
After detailed discussion of various modes of attack, the following
appeared to be outstanding:
“1. (a) Mixtures of CPC with Lakes.--The most promising mode of attack
appears to lie in the formulation of a mixture of CPC with a lake,
especially a lake of CPC. Such a mixture should have fairly good
fastness to light and _yet be poor in wash fastness on textiles_ or
incompatible with the usual textile printing lacquers....
* * * * *
“(d) Deteriorate Cotton.--Compounds might be incorporated into CPC
which when applied to textiles and followed by bleaching or heating
treatment _might increase the deterioration of the cloth_. Compounds
such as chlorates or aliphatic halides which would produce hydrochloric
acid were specific examples.
* * * * *
“(g) Irritating Substances.--_It is known that certain resins and
solvents are irritating to the skin, often causing dermatitis. It might
be possible to formulate a CPC composition which will make textile
materials irritating to the skin._
“(h) Incorporation of Grit.--It seemed too dangerous to attempt to add
gritty material to CPC since, although it would interfere with the use
of the material for textiles, it would also offer serious disadvantages
in grinding on application of surface coatings.
“It was agreed that the mere dulling of the material would not be a
satisfactory solution since dull shades are often used in the textile
trade. Most of the above comments are often based on work on blue, and
many of the solutions would apply equally well to the green. In fact it
is believed that there is a larger market for the sale of green than
the blue.”
It seems to me that we cannot afford to place our sole reliance upon
monopolistic corporations whose interests have only too often been
divided, who have sought restricted production rather than full
employment of our resources and labor, and who have sought for monopoly
control rather than public welfare. We must learn by the bitter lessons
of the early years of this war which found us lacking both materials
and the know-how to make them, resulting from the restrictive practices
of monopolies which instinctively seek to produce as little as possible
for the greatest profit.
In war and peace alike technology is a vital factor in our national
life. The present war is being waged with weapons and equipment which
represent the last word in scientific development. Careful planning and
rigorous adherence to the plans enabled Germany to have, in 1939, the
most efficient war machine the world had ever seen. Now, after several
years of feverish activity, the United Nations have at last caught up
with and passed Germany in the race for armament superiority.
Now that our war effort has finally been put in high gear an entirely
different kind of problem seems to be emerging. Under the forced
draft of war urgency and unlimited government expenditure, materials
and products are being made the like of which we have not heretofore
known. The light metals, aluminum and magnesium, the wonder metal
beryllium, the miraculously efficient diamond tools and the tungsten
carbide tools, the plastics and dozens of other new developments will
unquestionably make the postwar world something entirely different from
that to which we have been accustomed. Many of the processes which can
revolutionize our mode of living are owned by the government. Some
are in the custody of the Alien Property Custodian. Others have been
developed with federal funds, either by government agencies or by
private concerns. No one will seriously dispute the wisdom of retaining
control of these government-owned processes and of fostering the
fullest possible use of them for the benefit of all.
There can be no denying that the war has resulted in a concentration
of productive facilities in the hands of a relatively small number
of gigantic corporations. Even before Pearl Harbor some of them were
enormous concerns capable of wielding irresistible power in the
competitive struggle with other, smaller companies. Today and after
the war the smaller competitors which have survived will find the odds
against them a great deal more disheartening than before. It is not in
the public interest to allow the small competitors to be killed off
in the uneven fight. Neither is it in the public interest to place
hampering restrictions upon the effects of the large companies to fully
utilize their research laboratories and technical experience for the
purpose of strengthening their competitive position.
Without doubt the sensible thing for us to do is to make research
and technology available to the little fellow as well as to his big
competitor. In agriculture this policy has amply demonstrated its
soundness. Experiment stations financed by state and federal funds
extend the benefits of their research to the small farmer as well as
to the large. It is doubtful that one could find a single intelligent
farm operator, large or small, who would voice the opinion that
governmentally financed agricultural research has not been worth many
times the money spent for it. The small industrialist has the same
right to expect that a government wishing him to continue to make his
contribution to the national welfare shall offer him those benefits
of research and expert advice which he cannot afford to provide for
himself but which can easily be provided by the government.
There are those who scoff at all mention of cartels and refer to them
as bogies conjured up to justify an attack on all big business. Such an
attitude is dangerous. Cartels present the greatest challenge to our
system of free enterprise.
In every cartel arrangement which has come to the attention of the
Antitrust Division of the Department of Justice technology has been
a vital factor. It is the responsibility of government to see that
technology remains free from artificial control and monopoly perversion.
Every instance of this sort is evidence of the possibility of service
to the public which might be expected if the government should see
fit to provide itself with an adequately financed and numerically
sufficient staff of technologists. It is my belief that the time has
arrived for the adoption of legislation which will adequately protect
and advance the public interest in technological development.
4
_Patents_
The importance and the position of patents in the American economy have
been sharply defined since the outbreak of the present war. While the
problem which patents have presented to our economy did not begin with
the attack on Pearl Harbor, our experience within the past few years
has crystallized many of the questions and issues at stake.
Patents are fundamental factors in the cartel problem because
patent agreements are quite frequently used as the basis of cartel
arrangements. The vital importance of control over technology and
research to the achievement of cartel power enhances the significance
of patents as the foundation stones of cartel structures. At the same
time, the effects of patent abuses upon the economy are magnified to a
critical degree.
We are all familiar with the historical background of the patent system
and with the intent of the authors of the Constitution in stating
that Congress shall have the power to promote the progress of science
and useful arts by the grant of a patent. It is no accident that the
original clause in the Constitution was phrased in careful terms. The
framers of the Constitution inherited a concern toward the grant of any
monopoly by government. They were specific in limiting the scope of
the patent monopoly because they did not wish the patent to become the
basis of a system of privilege.
When the American patent system was born, we were a frontier nation.
Pioneers in every branch of science had before them an inviting
horizon of discovery. The recognition of their contribution towards
the promotion of science and useful arts served as a stimulus to their
initiative and ingenuity. During this period the patent system served
our country well and acted as a major incentive in the making of
industrial America.
Our patent system was designed to “promote the progress of science and
useful arts.” In many respects it has done so, and has given proper
protection to inventors and enterprising businessmen. Where it operates
to carry out this purpose, there can be no just complaint. But in many
instances the patent system has been perverted to accomplish exactly
the opposite effect. The patent has become the principal power weapon
of modern monopoly, and the misuse of patents the major tactic of
industrial cartels. This perversion has become so widespread as to
jeopardize the whole patent system.
The patent problem as it exists today arises in an environment vastly
different from the handicraft era in which modern industry found its
beginnings. It is not the patent grant as such nor is it the operation
of the individual inventor that brings the patent system into question.
Invention today is a large-scale industry in a complex economy. In many
branches of industrial production vast monopolies exercise a dominating
influence over research. It is the abuse and misuse of patents by such
concentrated groups wielding tremendous economic power which have
brought patents into conflict with the fundamental purpose of the
patent law and with the Sherman Act.
Monopoly interests, which have violated the antitrust laws in the
course of their abuse of patents, have made the claim that the
Antitrust Division of the Department of Justice is endangering the
patent system by prosecuting restraints of trade based on patents. Many
honest and innocent bystanders have been confused and misled by this
propaganda. The fact of the matter is that danger to the patent system
arises not from enforcement of the antitrust laws but from the flagrant
abuses of those who use patents as the foundation stone of illegal
monopolistic control of industry. If the patent system is finally
wrecked we shall have to thank those who brought it into disrepute by
their unflagging attempts to use the patent grant in a manner contrary
both to the law and to the national interest.
Because patents have become an instrument of power-hungry and
power-seeking groups in industry, grave doubt now exists as to
whether our economy can longer tolerate and permit the control and
consolidation of patents by industrial oligarchies.
Among the many serious abuses to which patents have become subject
within the last few decades, it is necessary only to specify a few.
1. Patents have been used illegally to establish regimented systems of
industrial control by private groups.