and it must eventally create another giant bureaucracy for the administration of the Government's participation in the heretofore private enterprise of the Nation. We submit, Mr. Chairman, that none of these things constitutes a proper role of Government in our society.

On behalf of the Strategic Industries Association, I urge upon this subcommittee the preparation of legislation which simply reaffirms the right of the citizen to exclusive reward for his inventions and discoveries for a limited time, other Federal laws, regulations, or administrative practices to the contrary notwithstanding. Only such a simple, forthright re-declaration can salvage the constitutional guarantees now almost lost and return to the inventive citizen, so sorely needed in today's scientific battle, the rights granted him by his Founding Fathers.

I thank you.

We will meet at 9 o'clock tomorrow morning. I had not planned to go beyound 5 this evening. At that time we will hear the Lockheed witness.

(Whereupon, at 5 p.m., the subcommittee recessed until 9 a.m., Wednesday, December 9, 1959.)

PATENT POLICIES OF DEPARTMENTS AND AGENCIES

OF THE FEDERAL GOVERNMENT

WEDNESDAY, DECEMBER 9, 1959

U.S. SENATE

SUBCOMMITTEE ON MONOPOLY

OF THE SELECT COMMITTEE ON SMALL BUSINESS

Washington, D. C.

The subcommittee met, pursuant to recess, at 9:00 o'clock, a.m., in Room 457, Old Senate Office Building, Senator Russell B. Long, presiding.

Present: Senator Long (presiding).

Also Present: Walter B. Stults, staff director; Benjamin Gordon, economist; T. Peter Ansberry, counsel; Hamilton Richardson, legislative assistant to Senator Long.

Senator LONG. We will come to order.

We are pleased to have you here today. We are interested in knowing what information you can give us about the three nations interested in buying jet aircraft made by your company, and what your position is with regard to that.

We have your statement here, and I suggest you summarize it before I ask you questions.

STATEMENT OF BURT C. MONESMITH, VICE PRESIDENT, LOCKHEED AIRCRAFT CORP., GENERAL MANAGER, CALIFORNIA DIVISION, BURBANK, CALIF.; ACCOMPANIED BY L. V. KERBER, CORPORATE CONTRACT OFFICER; AND CHARLES D. WOODRUFF, LEGAL STAFF Mr. MONESMITH. I think I can summarize it.

Mr. Chairman and members of the subcommittee, my name is Burt C. Monesmith. I am a vice president of Lockheed Aircraft Corp. and general manager of its California division with headquarters în Burbank, Calif. Our company, as you undoubtedly know, has been engaged in production of commercial airplanes since 1932 and military airplanes since 1938.

In my official capacity I have had direct and personal knowledge of our contracts with the U.S. Air Force covering the design, development, and production of the F-104 Starfighter-dating back to 1952. And I actually participated in a great many of the negotiations and agreements with the Federal Republic of Germany during 1958 and 1959 covering its purchase of an all-weather fighter based upon the Starfighter concept.

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I believe that therefore I have first-hand knowledge of the matters of concern to you in your present investigation. To provide additional detail or clarification, I have brought with me today Mr. L. V. Kerber, our corporate contract officer, and Mr. Charles D. Woodruff, a member of our legal staff. In the event you need still more material, I can assure you that we will obtain or prepare it for you and furnish it promply.

It is our understanding that you are seeking information germane to the question of whether in the financial relationships and results of Lockheed's contracts with West Germany the interests of the U.S. Government are being properly served. I most certainly can assure you that we are in full sympathy with the objective of your current inquiry.

And I can tell you sincerely that we believe our agreements with the German Federal Republic are serving the best interests of the U.S. Government and people.

We believe they are in line with America's enlightened policy of cooperation with friendly foreign governments. They conform to our Government's defense goals of improving the ability of these friendly Governments to share the burden of global defense. They are contributing to the advance of American technology and lowering the cost of complete military systems to our own armed forces. They are generating tax revenues and improving the American balance of trade. And they are aiding the American economy by providing upward of $200 million to provide some 5,000 jobs in the United States-spread among our own company and more than 600 other American companies scattered throughout most of the United States that are partners with us in producing this new German plane.

I can summarize the history of the F-104 Starfighter very quickly. Our own design studies began in 1950, and we made our formal proposals to the Air Force at about the same time that the appearance of the Russian jet MIG's in the skies over Korea showed the need for a new American fighter with far greater performance than any our Nation had available at the time. Further design studies and negotiations culminated in March 1953, with the receipt of an official goahead from the Air Force to develop and flight-test two experimental prototype F-104's.

Contracts with the Air Force, originally calling for 724 planes with a value of more than half a billion dollars, were reduced later by cutbacks and terminations. Ultimately the U.S. Air Force contracts produced a net total of 296 airplanes in 4 different configurations. The total value, including spares and related equipment, is approximately $360 million.

Three years ago when the German Ministry of Defense began looking for a fighter airplane to fulfill its role in the mutual defense efforts of the western nations, it closely examined more than a dozen aircraft from the United States, Great Britain, and France. It conducted an unprecedented 2-year evaluation of several of these, including one French, one British, and at least one other American plane besides the F-104. Teams of German pilots and technical and manufacturing personnel visited our plants before selecting the F-104 type for their principal fighter aircraft.

Starting in December 1958, we began discussing the configuration and contractual matters with a German technical team. I want to stress that in these negotiations Lockheed followed the requirements of the U.S. State Department regarding licensing of implements of war to foreign governments. Beginning in December 1958, we submitted to the State Department copies of major drafts of the license agreement. We similarly kept the Department of Defense informed of the status of these negotiations. And final agreement was furnished to and approved by the State Department-after consultation with the Department of Defense-in March 1959.

The first of our two contracts with the Federal Republic of Germany provides that Lockheed will do two things. First, it will perform research and development and flight test for Germany of a new aircraft designated as the model 683-04-07. For convenient reference this new model aircraft being developed under the German contract is identified as the F-104G. But it will be substantially different from the F-104 models delivered to the U.S. Air Force. The U.S. model was a day superiority fighter. The German is an all-weather fighter with fighter-bomber capabilities. Development of this new single-seat airplane will require the expenditure of some $35 million by the Germans. This $35 million expenditure may be compared with the total development cost of $54.5 million paid to us by the U.S. Air Force on its single-seat F-104 models.

I should like to stress the fact that all of the $35 million development cost will be paid by the German Government. Our German contract provides that the U.S. Government will not in any event be required to pay any portion of this development cost.

Second, this contract with West Germany provides that Lockheed will manufacture in the United States and deliver to the German Government a substantial number of complete airplanes of this new type.

In its license agreement with the German Government, Lockheed grants it the right to manufacture this new model airplane in Germany. Lockheed also agreed to furnish technical data, manufacturing information or "know-how", and technical assistance necessary to enable the Germans to manufacture such aircraft. Lockheed did not sell the data or information as such but rather granted the Germans the right to use such information for a limited period of time. Upon completion of the license term on June 30, 1966, the German Government must return to Lockheed all of the data furnished to it. More specifically, Lockheed did not sell to the Germans, nor was any charge made to them for:

1. Technical data in the possession of the U.S. Government or in which the U.S. Government has a right to possession and regarding which there is no prohibition against use by the U.S. Government and disclosure to others (other than reasonable charges for reproduction, handling and mailing, and other similar administrative costs).

2. Royalties or amortization for patents or inventions in which the U.S. Government holds a royalty-free license.

Our license agreement specifically provides that there is no charge for such information. And in addition it specifically provides that all rights transferred by Lockheed to the Germans are "subject to existing rights of the U.Š. Government."

An initial fee and royalty payments provided in the license agreement are reimbursement to Lockheed for these following materials and services:

1. The furnishing by Lockheed, and the right of Germany to use, only technical data:

(a) to which the U.S. Government has no possession or right to possession;

(b) to which the U.S. Government has no right to use or disclose to others for use;

(c) to which the U.S. Government has no royalty-free license; and

(d) which is not in the public domain.

2. Within the framework of item (1) above, the right of Germany to use manufacturing techniques, procedures, and methods developed by Lockheed over many years of experience in the design and manufacture of aircraft.

3. The furnishing by Lockheed to Germany of general management advice and information relating to the manufacture of a complex, high performance aircraft.

4. The right to use Lockheed's trade names, trademarks, and other proprietary designations.

5. Certain warranties by Lockheed relating to the F-104G.

6. Patent indemnity to Germany for infringement of German patents in an amount up to $1 million.

7. The furnishing by Lockheed to Germany of assistance in obtaining materials from third parties.

8. The right to use certain Lockheed inventions in which the U.S. Government has no interest.

9. The furnishing by Lockheed to Germany of certain technical assistance.

10 Physical reproduction of the technical data.

11. Furnishing by Lockheed of office space, equipment, and services for the German representatives in Burbank.

In addition Lockheed undertook to give factory training to unlimited numbers of German personnel for another fee.

Lockheed has not granted any licenses relating to the F-104 to any German firm or corporation. We have two agreements with an organization known as ARGE-104, which represents the four German firms selected by the German Ministry of Defense to manufacture the F-104G. These contracts cover the purchase by ARGE on a regular commercial basis of tools, "knock-down" airplane kits, parts, and other equipment that may be required by the manufacturers in the initial phases of their program.

By a separate government-to-government transaction, the Federal Republic of Germany has purchased from the U.S. Government, with German funds, a quantity of U.S. Air Force F-104F two-place trainers. We are manufacturing these airplanes in the United States and delivering them to the U.S. Air Force, and in turn the United States is transferring them to the German Government. We have not contracted with Germany to grant it any rights in connection with this F-104F airplane.

I would like to emphasize that the technical assistance, knowledge, and data for which Lockheed is to receive payment from the Germans,