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I have a prepared statement that I would like to file for the record which sets forth most of our views.
Mr. BRYSON. We will be pleased to have you submit that for the record, and we will make it a part of the record at this point.
(The statement referred to is as follows:)
PREPARED STATEMENT OF ROBERT W. WAGSTAFF, EXECUTIVE VICE PRESIDENT OF THE VENDO Co., KANSAS CITY, Mo., IN RE H. R. 323
The Vendo Co. was formed by a group of Kansas City businessmen in 1937 in order that it might exploit the patents covering a unique mechanism that had been developed for the vending of bottled beverages. This mechanism was an innovation in the industry. It constituted a new method of merchandising Coca-Cola in particular and was a device that would fit upon an open cooler to convert it into a coin-operated vending machine.
The first few years of the Vendo Co.'s existence were spent in convincing the Coca-Cola bottlers that the vending mechanism was practical and educating them on the desirability of this device for the marketing of its products. It took nearly 5 years to accomplish this objective for it was in 1941 before there was definite acceptance of this machine and method of merchandising by the customer as evidenced by the following schedule showing units sold: 1937, 2,227; 1938, 6,167; 1939, 11,043; 1940, 17,846; 1941, 43,217.
Early in 1942 the Vendo Co. received a telegram from the War Production Board ordering it to cease its entire production of vending equipment, which it did, and it was not allowed to resume production until the termination of hostilities in 1945. Even after the termination of hostilities it was necessary to reconvert from war production to peacetime production, and thus it was not until 1947 that it was able to get back into fulltime production of its vending machines for the bottlers of Coca-Cola. In other words, it lost 5 years in the production of this patentable item which it was formed to produce.
Obviously, the loss of a 5-year period out of the life of a patent is an irreparable injury to any company, and in the Vendo Co.'s case this was particularly true because it was a company that was formed to produce this one patentable item and its very existence is tied in with the life of its patents. The damage in this respect is so obvious that I need not emphasize it. When the Government steps in, as it necessarily had to do in World War II, and makes it absolutely impossible for a patentee to use and sell his patentable devices for a prolonged period of time and does not extend the term of his patents for a commensurate period of time, it follows that an irreparable injury is inflicted upon the patentee in question.
Besides the loss of 5 years out of the life of its patents, the Vendo Co. also suffered what might be termed a secondary loss that was equally serious and irreparable. This was occasioned by the fact that it spent 5 years developing the market for vending machines in connection with the sale of Coca-Cola and educating the bottlers of Coca-Cola in this connection and then was not allowed to capitalize on this situation as it would have in a normal economy. In the ordinary situation of this sort the owner of a patent has almost an exclusive market for a considerable period of time after the patented item has gained acceptance and before competition can get into the field. This is probably one of the most valuable attributes of any patented item that proves successful.
Because the Vendo Co. was forced to cease production at the critical time when it had just developed its market, it was unable to reap the benefits from the market that it normally would have been entitled to; and, as a matter of fact, it was forced to stand by for five long years and during this interim competitive items were developed so that when the Vendo Co. was allowed to resume production and again sell to its customers, it found itself in a highly competitive field with five major competitors all trying to sell its customers vending machines for their products.
When the Vendo Co. ceased production of devices covered by its patents a vast amount of warehoused parts were on hand that could be used for nothing but the vending machines that it had theretofore manufactured. These parts were shifted to storage spaces remote from the premises of the company at a considerable expense and some of the parts were never used due to deterioration and loss. Tools, dies, and equipment peculiar only to the production of the patented vendng machines were also shifted from the plant to points of storage, and the expense of the operation and the storage amounted to a considerable figure.
Much raw material on hand and not usable in its defense work was either stored or sold as scrap. Much of this investment incident to the cessation of the production of its articles for domestic consumption could not be regained after the national emergency had ended and it became possible to produce its vending machines again.
During the war period the Vendo Co. converted 100 percent to war production and contributed materially to the war effort in which capacity it earned five Army and Navy E's. It is an industrial veteran in every sense of the word and it should be entitled to the same economic considerations that the veterans themselves are insofar as its patents are concerned.
Mr. WAGSTAFF. I would like to comment briefly and amplify my
I noticed that in Mr. Hoxie's statement he made quite a point of the fact that a patent was merely a protection against somebody else who had a similar inventive device. Now, I think it is more than that. It is a protective for a period of time which the inventor has the right to assume he is going to have to use that device exclusively.
Mr. WILLIS. Are you in favor of this legislation?
Mr. WAGSTAFF. Very much so.
The period of time, of course, is what is ital. A man has the privilege for 17 years. A company such as ours, which was formed to market a device, was organized with the thought that we were going to have the privilege for 17 years. The company was organized for that purpose. We received an order from the War Production Board in 1942, April of that year, that absolutely prohibited our continuing the manufacture of this device. We had no choice at all. We had to go out of business.
Now, it was almost 1947 before we could get back into business. We had to discontinue the manufacture in 1942. We could not manufacture the device through the war years, and then at the end of the war it took us approximately a year to convert and get established again and get back into business.
Our company was formed because we discovered this particular patent.
Mr. WILLIS. May I ask at this point this: You say that you were prevented from engaging in that business. Do you mean that phase of your business? Was that your total business? Did you close up shop? Did your corporation go out of business, or did you close that division or department?
Mr. WAGSTAFF. No, sir; we went out of business completely for a period of time. Then we scrambled around and got some war contracts and eventually reopened in different locations and in an entirely different type of business and were able to keep the corporate entity going during that period.
Mr. WILLIS. Taking the business of the corporation during the war years, and comparing your sales before and since the total business, the total volume, gross sales-did you suffer in gross sales?
Mr. WAGSTAFF. In gross sales?
Mr. WILLIS. Yes.
Mr. WAGSTAFF. That is an awful hard question to answer.
Mr. WAGSTAFF. In profit.
Mr. WILLIS. Before taxes or after taxes, either way you want to express it.
Mr. WAGSTAFF. We suffered in profits.
Mr. WILLIS. I am not talking about suffering from the loss of anticipated greater profits that you might have made if you had retained the patent. I am talking about comparing 4 years before the war with 4 years after the war with the four war years. Compare the two ends to the middle, to your total earnings. That is the question that I am directing myself to.
Mr. WAGSTAFF. The total, meaning net profits?
Mr. WILLIS. Yes.
Mr. WAGSTAFF. We suffered in that respect. You have to understand that a company such as ours was formed in 1937. We had this device. It entailed a whole new method of merchandising bottles of Coca-Cola. It took us 5 years before we could build up any substantial volume, which our sales records will indicate. It was 1941 before we got the bottlers of Coca-Cola to accept this device in any substantial way. Normally we would have had another period of time we could have had that market more or less exclusively because we had developed it. Nobody else realized it was there, and we had the device with which to handle it. As a result, we were stopped for 4 or 5 years and when we came back into production at the end of the war, big companies like Westinghouse and Jacobs and several others had seen the opportunity. They had developed similar devices that did not infringe upon our patents and we were irreparably injured. I think there is no question about it. Our company is one of those companies that through no fault of its own was absolutely prohibited from using what it thought was a device of its own.
Now, the difference between our little company and a lawyer who is practicing law, or a doctor, is that we are not asking that we be baled out of anything. We are not asking for compensation from the Government. We are merely asking for protection of what we thought was more or less a contractual right. We bought the patents based upon the assumption that we had 17 years to use them. We did not have 17 years to use them because of no fault of our own. We think we have the right to use them for 17 years. Our competitors will have 17 years to use theirs. Most of them got their patents at the end of the war.
Mr. WILLIS. This argument intrigues me, as a lawyer. I think that you and the gentleman who preceded you are making some very cogent arguments on the basis of contracts.
Mr. WAGSTAFF. A lawyer would be in a similar position if his license to practice was for 20 years. I am sure the lawyer that went into service, if he had a license for 20 years, the Government or the State or someone, would extend the period of time for the length of time he was in the service. We are talking about a period of 17 years, and anything that cuts the 17 years down is not fair. I think only equity should allow a person who owns that right to have some way of getting just compensation. I think that is the whole thing, and I think it is very important that inventors and small companies—and even large companies, because large companies have research departments that are full of small individuals and the value of the corporation is based upon the value of the patents to the corporation-I think that they should be entitled, as Mr. Foote said, to their day in court.
This is not something that is going to be arbitrary; it is going to be an opportunity for the individual, the small company, to come
before the Patent Office and explain the situation, and it will enable somebody to do equity. It is just as simple as that.
It is not anything that is going to cost the Government a lot of money. It is not going to revolutionize anything, but it is going to correct an injustice that is obvious and apparent.
I think that our company is very illustrative of why we need redress. Mr. WILLIS. I said that your legal argument is very forceful. On the other hand, I had in mind the economic argument when I asked you about the over-all profits that your corporation made during the war, and when I asked you for a comparison between your corporation and the doctor who goes to war. He loses everything. I am not talking about the legal end, but the economic end. He has lost everything; hence the significance of my question. I am trying to say that you did or did not lose more. I just wanted the facts. It does make a difference in the economy of things.
In other words, if, during the war, you were deprived of a contractual right which you maintain you had, to make additional profits, that is one thing. On the other hand, if, however, on the other phases of the business you still came out substantially with an over-all profit made before and after war, then I still say there is an economic difference between you and the doctor and the soldier that went to war. Mr. BRYSON. Mr. Foote recognized that because he referred to these big industries.
Mr. WAGSTAFF. We were able to exist during the war, and so was the doctor, provided that he was not injured and came back. What we are talking about is our right to future earnings based on things that we think we have a right to.
I think, of course, that the man who went into the service, the doctor and the lawyer, gave up a very important thing for his country, and you cannot do too much to compensate them. There is no question about that. We are not asking for compensation. We are asking merely that something we purchased in 1937 that the Government said would have 17 years to run, that we get 17 years of use out of it. I think that that is all that it boils down to.
There is this secondary loss that I think is important to us, and to other companies. That is, any inventor that has a new device, it takes him about 5 years to get it onto the market. As Mr. Foote pointed out, it took him 16 years.
Mr. WILLIS. This bill does not provide any relief for that.
Mr. WAGSTAFF. No; but that is the situation.
Mr. WILLIS. That has been the situation all along.
Mr. BRYSON. We are waiting for color television right now, we have been waiting for many years.
Mr. WAGSTAFF. It is compounding the person's injury that he has already suffered when you let his competitors step in and preempt the field as developed, and let them have 17 years. It just is not the way we Americans do business. That is the way it appears to me. Mr. WILLIS. As I pointed out a while ago, I am very much impressed with the force of your argument and that of the preceding witness.
Mr. Foote pointed out that we should develop general legislation and avoid private bills. He made that statement twice, I think. Let me say that I do not think that is so with respect to this committee,
not as long as I have been on it. We have passed no special bills here.
Mr. BRYSON. Except the soldiers' bill.
Mr. WILLIS. The soldiers' bill, but no private bills.
Mr. HARRIS. No, sir.
Not in recent years.
Mr. BRYSON. The only bill I remember was where a fraud was perpetrated, alleged to have been participated in by the court itself, regarding a cigarette lighter.
Mr. WAGSTAFF. I do not know. I am not a patent attorney.
Mr. ROGERS. Perhaps this is beside the point, but is there not some complaint against the manner and method in which you make your machine so that it only fits the Coca-Cola bottle; so that Pepsi-Cola and Dr. Pepper and what not cannot put their bottles in it? Is there a lawsuit pending?
Mr. WAGSTAFF. There is no litigation at all, sir. All of the business is competitive. Perhaps Pepsi-Cola does not like the job that our machines do for Coca-Cola, but there is not a contract even. is just a matter of Coca-Cola buying our equipment. The Pepsi-Cola bottle is a little bit too big and will not fit our machines.
Mr. BRYSON. Faye Emerson says it is better; more bounce to the
Mr. WAGSTAFF. We have plenty of competition in our end of the business. That, of course, is what we are fighting.
Incidentally, we were the first in it to any reasonable extent, and we have lost our position considerably, and naturally that hurts. When you hurt you come to Congress and your Government to present your case.
I thank you.
Mr. BRYSON. We are much obliged to you.
STATEMENT OF C. E. HOVEY, PATENT LAWYER AND MEMBER OF THE BAR OF KANSAS CITY, MO.
Mr. HOVEY. I have been in practice for approximately 30 years. I have a statement that I would like to submit for the record.
Mr. HOVEY. I am favoring both bills, and the reason for submitting my statement is the experience that is ours in that part of the country where we deal with the individual who is involved in either licenses emanating from patents or who is engaged in small manufacturing businesses, and directives from the Government during the last war were tantamount to closing down those businesses. Without identifying them, and I should be breaching a confidence were I to do that at this moment, I can say truthfully within my experience during those war years a large number of small businesses were completely cut off from their income by virtue of the fact that they were unable to get personnel or materials, or whatever it took to proceed, because of governmental directives.
My statement makes reference to that in a very brief way, and it should be brought to the attention of this committee.
I have also discussed the provisions of both bills with my fellow members of the bar, of the patent bar particularly. Last year I was chairman of the patent and trade-mark section of the Missouri State Bar Association, and this year Mr. Claude Fishburn, of Kan