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In that situation you pose, as I understand the bill, the patent would be again extended for a term beginning, say, in 1951. Let us assume that the bill is passed this year. This extension granted to you would extend your patent from 1951 to 1954 to compensate you for the fact that there could be no operations for 1941 to 1945. During the intervening period I have been in business. I would now in 1951 be subject to a patent which I had every reason to believe had terminated in 1945.
Mr. WILLIS. In the illustration I gave you suppose you set yourself up in business to use that patent, and you spend $1,000,000 in setting yourself up in business for that purpose.
Mr. HOXIE. That would be tragic.
Mr. WILLIS. And if then from the date after the effectiveness of the act you cannot use it any more what happens to your investment?
Mr. HOXIE. It is a question, I should say. What would happen, I think, if the patent were a good patent, is that you would have to go around and pay the owner a negotiated royalty rate to stay in business, and you would be at the mercy of the patent owner as to whether he would allow you to stay in business, yet I think the courts would be very slow to grant injunctions in that kind of a case. I think they would say say to the patent owner let this man continue here, but you can charge him a reasonable royalty, and what is a reasonable royalty, of course, depends on the circumstances. It may be a very high royalty, and if the patent owner has a strong hold on the user of the invention he can charge him a large price.
Mr. WILLIS. But in the illustration I posed you could not treat with me in the usual way, could you?
Mr. HOXIE. No, if you insisted on your right of exclusion, I would have to have a court to help me out.
Mr. WILLIS. You could not treat with me on the basis of a royalty contract?
Mr. HOXIE. I would be in a rather weak bargaining position, but I do think the court would soften the blow to some extent if you tried to put me out of business by an injunction under the extended patent.
Mr. ROGERS. In your interpretation of either of these bills, is it conceivable that in the event a patent should have expired after the 4th day of November 1945-say it expired in 1950-that the Patent Office would then have authority if this bill was passed to extend it for a period of not to exceed 4 years?
Mr. HOXIE. Yes, and there would have been a period when you had no patent, and then you would have the patent coming back to life for a term, say, of 4 years.
Mr. ROGERS. That is, not to exceed 4 years?
Mr. HOXIE. Yes.
I took it this way just to consider how the bill would operate. Let us assume that you would not have any sort of a case unless for 1 year out of the wartime period you were really seriously affected. That may have been the first year. There were patents granted all the way from 1925 on, which had at least 1 year of life left in the period from 1941 to 1945. Everything granted before 1925 expired before 1942, so you have a group of patents, beginning with patents which were granted as far back as 1925, which have been expiring year by year from 1942 to 1951-that is a period of 9 years-which would be subject to revival under this bill. In other words, there are people who
assumed, through a period of 9 years, that as to this series of patents expiring from 1942 to 1951 they were free to operate after the normal termination of the patents without paying anything, and without worrying whether they could make any investment they wanted to make, since no one could interfere with them. If the patents were then extended, or "revived" as I prefer to say, those people would find themselves subject to a patent for periods of from 1 year up to 4 years. That is a rather serious situation, and it involves a great number of patents. As to the annual crop of patents, I would not want to give a figure for these particular years, but it is a large number. Multiplying that by 9 gives a lot of patents which would affect a lot of situations.
Mr. WILLIS. May I ask a question, Mr. Chairman?
Mr. BRYSON. Yes, Mr. Willis.
Mr. WILLIS. Is there any definition in the bill of normal return? What is the yardstick, and who is that left to?
Mr. HoXIE. The Commissioner of Patents, or a Board to be appointed by him, and the third point of our opposition to the bill is that the administrative difficulties seem to us too great.
Mr. WILLIS. You are coming that?
Mr. HOXIE. The administrative difficulties seem to us too great. First of all it puts the Patent Office into a field in which it has never been before. It would have to have economists, and rather expert economists. In effect it means the same thing as trying to predict the economic future. When you think of the normal return in any business, the outstanding fact is that it is fluctuating. It is a great deal like what the elder Mr. Morgan said when somebody asked him what he thought the stock market was going to do. He said, "The stock market will continue to fluctuate."
Fluctuation is the norm in the business world.
The patent owner might say that he had been doing a certain average amount of business during the 5 years preceding the war, and then that during the war he dropped down to 10 percent of that because of material shortages. Someone has got to pass on the question whether the business would have continued at its prewar average in those years, but for the war, and what those years would have been like economically if there had been no war.
I doubt that any economist would undertake to say that, and yet the Patent Office would be asked to make that ex post facto prediction as to what the economic life of this country would have been like in the year from 1941 to 1945 if we had not had a war.
We know that in that prewar base period we were coming out of the depression, and we had a few years in the later thirties, just prior to the forties, when the prospect of war had a big impact on our economic life. The economic situation was abnormal all through those years from the depression on. What the economic life of this country would have been, or what the business situation would have been in 1941 to 1945, if there had been no war, I think is a problem which you would not normally ask the Patent Office to decide. You might ask the Federal Reserve Board or some committee of experts in the Department of Commerce, or other branches of the Government. This bill would mean that the Patent Office would have to be staffed in a way which it has never been staffed in the past, and it would have to gear itself up for a period in which, under this bill, I think
it is a 6-month period in which these applications could be filed, it would have to pass on all of those involved economic questions. Mr. CRUMPACKER. Mr. Chairman.
Mr. BRYSON. Mr. Crumpacker.
Mr. CRUMPACKER. I would like to direct your attention for a moment to the differences between the two bills. As I understand it H. R. 323 is much broader in its provisions than H. R. 4054.
Mr. HOXIE. Yes.
Mr. WILLIS. You mean more liberal to the patentee.
Mr. CRUMPACKER. Yes.
As I understand H. R. 4054 the only reason for which an extension would be granted is the unavailability of materials during wartime ? Mr. HOXIE. That is right.
Mr. CRUMPACKER. While H. R. 323 contains that provision in broader terms, plus the additional grounds of granting a license to the United States Government without royalty, and a kind of a catch-all provision granting an extension where exploitation of the patent was delayed by any circumstances beyond the control of the patentee or due to the national emergency?
Mr. HOXIE. That is the all-embracing one.
Mr. CRUMPACKER. I assume from the testimony that you have given so far that your opposition to H. R. 323 would be even stronger than it is to H. R. 4054?
Mr. HOXIE. Yes, with this one qualification that there is at least more logic, if you are going into this matter of extending patents, to extend them for all circumstances beyond the patent owner's control and not simply for one wartime circumstance.
Mr. BRYSON. Go all out?
Mr. HOXIE. It is one of those logical extensions that leads you to something which is pretty bad
Mr. WILLIS. And thereby you hurdle the administrative procedure you have referred to?
Mr. HOXIE. No, because I think you would have always the question what the annual normal economic return would have been in a given period in the absence of those circumstances beyond the control of the patent owner, which impaired his return. You would always be trying to compare the situation as it was for a certain period of time with what it would have been in the absence of that circumstance.
Mr. CRUMPACKER. What about this specific item of granting licenses to the United States Government without royalty?
Mr. HOXIE. Our conclusion or comment on that was that we see no occasion for that at all.
The only reason for giving a license to the United States at no royalty or at a nominal royalty is your own free choice. You do it in some situations as a matter of contract. Some of the people who made such contracts during the war might feel that it was not wholly their free choice, but at least there was compensation for it. For instance, a common situation was that if the Government financed a research project for you and provided facilities, it very often included in the contract a provision that any inventions you made should be licensed to the Government at no royalty. That was considered a fair exchange.
Mr. CRUMPACKER. Is there anything in this bill that would except that particular case?
Mr. HOXIE. Under H. R. 4054 that could not arise at all.
Mr. HOXIE. Yes. The only other situation we could think of in which you might have given a free license to the Government was through patriotism. I know a man who did that, and I think there were a number of them during the war who simply said to the Government, you can use our patents without any charge during the war as long as it helps in the war effort. I do not think any one of those has asked for anything back from the Government.
Mr. CRUMPACKER. That brings me to my next question. Would you not possibly consider that as a reward for the patriotism of the man who did not choose to profiteer from the war that you might give him some benefits with a law of this nature?
Mr. HOXIE. He is a very worthy man. I was on a draft board during the war, and I am keenly aware of the fact that there were a tremendous number of people in this country who made contributions during the war for which they would be most worthy of some compensation, but most of them would not ask for it. They assumed that that was part of being a citizen. We cannot see why patent owners should be rewarded for their patriotism when others are not.
Mr. BRYSON. Are there any other questions from the members? Mr. HOXIE. I have just one further point in relation to H. R. 323, which is that it would become a continuing part of the patent law. As has been pointed out, that bill would cover a much greater number of situations of impairment of return, and it would affect vital interests. It would mean this, that you never would know from now on whether to plan on making investment in a business when a certain adverse patent was about to expire. You would never know whether you could plan to go into that business when that patent expired. Now, it very often happens when our clients have been avoiding a patent situation, that upon approaching the end of the 17-year term, they start getting ready to enjoy the public freedom at the end of that term. You would not know with that bill whether there was going to be an extension or a revival of the patent rights later, some years later.
Mr. WILLIS. If we set a precedent after World War II, with the threat of world war III, with the threat of all-out war hanging over our heads, do you think there would be any possibility, when you open the dooor, of not having it repeated? Mr. HOXIE. I think you would. situation-
What do you call the present
Mr. BRYSON. Some call it the Korean situation, I think.
Mr. HOXIE. Yes, but as to the impact on the economic life of our country we are having many of the features of a wartime economy right now, and they tell us there are more ahead, and logic would lean toward granting exceptions just as large after that.
Mr. WILLIS. Will you go back and repeat again what you said about precedent for this legislation? Did you say when you began that something of this sort was on the statute books formerly?
Mr. HOXIE. I was told by another lawyer that there had been a bill back in 1870 or 1880. I may be quite wrong in my recollection on that. Mr. Federico probably knows those things and can tell you about them.
Mr. WILLIS. I see; we have someone in the audience to cover that.
Mr. HOXIE. There was foreign experience with just such things previously. I understand that the experience in England with this type of statute related to wartime conditions rather than a general one on the order of H. R. 323 here, that the proceedings are very extensive and elaborate, and that that operates as a deterrent. The thing has actually not amounted to a great deal. The ordinary fellow cannot take advantage of it.
Mr. BRYSON. Mr. Hoxie, we appreciate your contribution very much. I am sorry that we are kind of pressed for time, and we have a number of out-of-town witnesses to hear.
Mr. HOXIE. I am afraid I have taken too much of the committee's time.
Mr. BRYSON. We were very glad to have your statement and to give you the opportunity to be present. We greatly appreciate your cooperation in making your statement.
Our next witness is Mr. Hitzeman.
Mr. HITZEMAN. May I be deferred in making my statement? There is a gentleman here from St. Louis, Mr. Steffens, who has to get away today.
Mr. BRYSON. All right.
Mr. HARRIS. Before Mr. Steffens testifies may I introduce a few statements into the record at this point, Mr. Chairman?
Mr. BRYSON. Do you have some statements that you would like to put in the record at this point, Mr. Harris?
Mr. HARRIS. Yes, sir.
I have a statement from the Patent Law Association of Chicago on H. R. 323 and H. R. 4054, which I offer for the record. (The matter referred to is as follows:)
THE PATENT LAW ASSOCIATION OF CHICAGO,
April 12, 1951.
Re Reed bill, H. R. 323
Members of Congress and the House Judiciary Committee:
The legislative committee and the board of managers of the Patent Law Association of Chicago have thoroughly considered the above bill which was introduced on January 3, 1951, and we wish to record our opposition to the bill for the following reasons:
(1) The bill is too broad and indefinite in its terms. For example, the bill proposes to permit the extension of the term of a patent where the use, exploitation, or promotion thereof was prevented, impaired, or delayed by causes due to war or other national emergency, but contains no definition or explanation of what constitutes a national emergency.
(2) The passage of this bill would cause unlimited confusion by making it impossible to determine the date on which a patent grant terminated without an investigation of the Patent Office file to find out if the patent had been extended under the provisions of this bill.
(3) The Patent Law Association of Chicago has repeatedly opposed this type of legislation on the ground that it is class legislation. We realize that a similar bill applying only to veterans of the last war was passed by Congress approximately a year ago. We believe, however, that legislation of this kind should not be passed and that the passage of the veterans' bill a year ago is no justification for changing our position with respect to this type of legislation.
(4) We recognize that there may be instances where a particular situation might warrant the extension of a patent beyond its normal 17-year term. Defeat of H. R. 323 will not preclude an extension warranted by particular facts. Congress always has the right to pass bills extending individual patents and in a meritorious case would doubtless give favorable consideration to anyone entitled to an extension.
A. C. AHLBERG, Vice President.