this amount, Tibbals receives 4.25% and the Velocity Equipment Corporation of New York receives 15%. On Contracts numbered NOS-77894 and NOS-78817, dated October 12, 1940, and January 16, 1942, respectively, with billings totaling to date $119,056.05, involving a special mine cable cutter which is based on the principle of the velocity instrument, Mine Safety paid to the Velocity Equipment Corporation of New York and to Mr. Tibbals a royalty of $22,918.29. The percentage break-down of this figure to Velocity Equipment Corporation and to Mr. Tibbals is the same as on the previous Contract NOs-77200. On June 30, 1941, Contract No. 88744 was awarded to Mine Safety Appliances Corporation. This contract involved portable power actuated tools, based on the Temple patent. The total amount of this contract was $1,084,332.69 and the royalties that will be paid on this contract in accordance with the agreement already set forth will total about $200,000.

Originally, Robert Temple, Inc., owned the patents, Robert Temple, the father of the present employee of Mine Safety, being the inventor. They were sold to the New York Corporation for $55,000. The license agreement between Mine Safety Appliances Company and Temple Velocity Equipment, Inc., of New York is disciriminatory against the United States Government for it provides in section 6 and section 7 as follows:

"6. Licensee agrees to pay to Licensors for the manufacture and/or sale of the devices herein specified the following royalties, except if market conditions indicate that royalty reductions are necessary, in which case a new royalty schedule shall be mutually determined by the parties hereto :

"10% of the net selling price of all devices, projectile cartridges, repair and replacement parts, and

"15% of the net selling price on all blank cartridges sold by Licensee, and "5% of the net selling price of all connectors sold by Licensee.

"Net selling prices referred to in this paragraph shall be the list price of the device sold, less trade discount, commissions, and/or jobbers' discounts.

"7. Licensee shall pay to Licensors for the manufacture and/or sale of devices herein licensed to the United States Government and Government agencies a royalty on each device, projectile cartridges, connectors, and blank cartridges in a sum which shall be mutually agreed upon between the parties hereto for each particular sale, but in no event shall said royalty be less than fifteen percent (15%) of the net sales prices."

It is very hard to understand what consideration Clarence Tibbals gave for the huge royalty which he receives on this velocity equipment. The agreement with Mine Safety under which he receives his royalty reads as follows:

"In consideration of the mutual advantages accruing to each of the parties hereto, Party of the Second Part agrees to pay to the Party of the First Part, his heirs and assigns, five (5%) percent on the net selling price of all devices, projectile cartridges, blank cartridges, and connectors sold and/or leased, as covered by License Agreement, dated February 6, 1936, between Temple Velocity Equipment, Inc., Robert Temple, Inc., and Mine Safety Appliances Company."

When Mr. Beggy was asked by the Investigators just what advantage Mr. Tibbals, his salesman, had afforded Mine Safety Appliances Company in regard to this intricate instrument on which he received this large royalty, they were told to phrase a letter embodying this question to Mr. Stewart, Mine Safety's Attorney, and await Mr. Stewart's reply. This procedure was not followed.

The royalty payment record shows that the following payments were made by Mine Safety Appliances Company from the year 1937 to 1941, inclusive, to Robert Temple, Trustee for Velocity Equipment Corporation of New York:

This same record shows the following royalty payments were made to Clarence Tibbals on the same instrument:

It is interesting to note that the Temple instrument was patented in Japan, Patent No. 36507, dated June 3, 1920, for "Explosively actuated penetrating and affixing device."

On the submarine escape apparatus the patent was originally granted to Ferdinand C. Claudius. Claudius assigned to Tibbals his rights in the patent. The basis of the royalty as specified in the licensing agreement was to be $2.00 on each instrument with a provision that in particular cases a change in the amount of royalty might be made by mutual consent in writing by both parties. On Navy Contract NOS-75207, dated July 15, 1940, in the amount of $207,863.05, this royalty was increased to $3.00 per apparatus and the Government had to pay a total royalty amounting to $21,356.25. No explanation can be given for this increase in royalty except that the parties decided to take advantage of the tremendous need that the Navy had for his particular equipment at this particular time. The payment record shows that during the calendar years 1940-1941, both inclusive, Mine Safety Appliances Company paid Clarence Tibbals the following royalties on the submarine escape apparatus:

It should be noted that Mr. Tibbals on both instruments, that is, the velocity equipment and submarine escape apparatus, received royalties aggregating $148,526.82, as hereinabove detailed.

Dr. C. E. Earle, a civilian employee in the Bureau of Aeronautics, is the payee of a royalty on a double seated high pressure valve. This valve is used in the oxygen breathing apparatus. It was impossible to determine from the data which the company furnished the Investigators the amount of the royalty payments that were made to Dr. Earle on Navy business and the amount of the royalties that were paid on commercial business, but according to the oral statements made by Mr. James C. Curran, Cost Accountant for the company, to Committee Investigators the majority of these royalty payments were made on proprietary Navy business. There is a clause in the royalty agreement which discriminates against the Navy. The basis of the royalty is 67 cents per valve on Government business when the valve is sold on a proprietary basis at a price of $6.75 per valve or higher, while on ordinary commercial business the royalty is only 25 cents per valve. The following royalties were paid to Dr. Earle :

In regard to royalties on other instruments paid to men who are or were members of the Navy, that is, Messrs. W. P. Biggs, Monson, Frank Hobson, Sidney Monroe, Sidney Katz, and Harry A. Kuhn, the Investigators found that there was a provision in each licensing agreement that no royalty would be paid on Government business, and on making a test check on several checks and vouchers it was found that the royalties that were paid were for business with private enterprises.

EXHIBIT NO. 407

MINE SAFETY APPLIANCES Co.,
Pittsburgh, Pa., May 20, 1942.

EDMUND M. TOLAND, Esq.,

General Counsel, Naval Affairs Investigating Committee,
Room 527, House Office Building, Washington, D. C.

DEAR MR. TOLAND: I have your letter of the 18th inst. Upon the assumption the Frank Hobson you had in mind is the same individual as F. M. Hobson, Agent, I am herewith enclosing a statement of the royalties paid to F. M. Hobson, Agent for Charles B. Momsen, Clarence Tibbals, and Frank M. Hobson, and to F. M. Hobson, Agent for Frank M. Hobson and C. L. Tibbals, pursuant to agreements made on October 22, 1928, and May 21, 1932.

As I have heretofore advised you, other than the foregoing there have been no commissions or royalties paid to Frank Hobson.

Comparative Estimated and Actual Cost Analysis on 112,300 Canister Attachments and 12,200 Bails on Contract # NOS 69174.

PROFITS-MINE SAFETY APPLIANCES COMPANY OF PITTSBURGH, PENNSYLVANIA In connection with the investigation of the Mine Safety Appliances Company of Pittsburgh, Pennsylvania, an examination was made of the company's books of account and a number of exhibits and schedules were prepared which reflect the operations of the company, and show how the profits of the firm have increased tremendously from what may be termed "an average normal profit" in 1939 to a figure approximately seven times as great in 1941. This tremendous upswing in business is directly attributable to the increase in production of defense materials and by far the greater portion of this increase is due to U. S. Navy business. The results of this examination are presented below:

1. PROFITS ON NAVY CONTRACTS

Exhibit A attached reflects the gross profits of this company on principal Confidential and Restricted Navy Department Contracts. The average gross profit on the approximately 42 million dollars worth of Navy business shown, which constitutes over 55% of classified Navy business billed during 1940 and 1941, amounted to 81% on cost and varied from a high of 122% to a low of 38% on cost. On the two largest contracts, one for $2,034,000 and the other amounting to $899,731.88, the gross profits were 93% and 116% on cost, respectively.

The information shown on Exhibit A covers contracts on which actual cost data was complete. The company does not prepare cost data on individual contracts until the contract is completed; therefore, the investigators limited the scope of their examination to the contracts on which the actual cost data was complete. It should be noted that all the figures shown on this exhibit were supplied by the company, and the gross profit results are therefore based on their acknowledged figures.

Cost data was also supplied on contracts NO3 75665, NOs 77894 (NOs 78817). These contracts were not reflected on Exhibit A because certain costs applied in 1942, and the company had no actual overhead figures that could be used to apply against these contracts for 1942.

Exhibit B shows the net profits on the same contracts covered by Exhibit A. The general overhead has been distributed on the basis of manufacturing costs as shown by supporting schedules 1 and 2. The average net profit on the $4,546,301.22 worth of Navy business shown amounted to 45% on cost and varied from a high of 79% to a low of 17% on cost. On the two largest contracts, one for $2,034,000.00 and the other amounting to $899,731.88, the net profits were 55% and 63%, respectively.

2. PROFITS ON ND MASK CONTRACTS WITH THE U. S. NAVY

This company received initial contract NOS 69174 amounting to $181,061.00 for type ND mask on October 10, 1939. The unit price per mask not in drums was $13.63. On August 7, 1940, contract NOs 75776 amounting to $2,034,271.50 was