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The CHAIRMAN. Mr. Schuette is here representing the Radio Protective Association. Mr. Schuette, will you please take a seat opposite the committee reporter, and give your full name and whom you represent?
STATEMENT OF OSWALD F. SCHUETTE, EXECUTIVE SECRETARY
RADIO PROTECTIVE ASSOCIATION, CHICAGO, ILL.
The CHAIRMAN. Mr. Schuette, you have been here during the most of our hearings, I believe.
Mr. SCHUETTE. Yes, sir.
The CHAIRMAN. At least, I have observed you in the audience from time to time.
Mr. SCHUETTE. Yes, sir.
The CHAIRMAN. We would be glad for you to make any statement you care to make.
Senator Dill. Mr. Schuette, I wonder if you would like to discuss this Von Bronck patent situation now, or would you rather wait until it comes in the regular line of your prepared presentation to the committee?
Mr. SCHUETTE. I just have a few notes jotted down here, and it would fit in better, perhaps, at a later time.
Senator DILL. We have just been discussing it with Colonel McMullen, and it would some in better right now, if you could jump to it at this time.
Mr. SCHUETTE. I will be glad to take it up right now and tell you what our interest in it has been.
The CHAIRMAN. Yes; it would be a continuity of the subject if you would take it up now.
Mr. SCHUETTE. I was going to take this bill up and discuss it from the beginning, on the basis of the necessity for a communications commission.
The CHAIRMAN. Suppose you discuss the patent situation, so it will fit in with Colonel McMullen's testimony.
Mr. SCHUETTE. I shall be glad to do that. The patent situation in the radio industry is based on the fact that the Radio Corporation of America and its affiliated companies claim to hold over 3,500 patents, and on that basis they pretend that they are in a position to monopolize the industry and to keep anybody else from getting into it or from remaining in it.
Senator Dill. You mean that they can not get into the business without taking out a license from the Radio Corporation of America and its affiliated companies?
Mr. SCHUETTE. Yes. And, of course, in that connection they will determine who may take out a license. As was stated earlier in the hearing to-day, it is not the patents that they hold, but the fact that behind them they have upwards of five billions of dollars in capitalization—in their own and affiliated companies-so that anyone who attempts to get into the art of radio in any phase, whether in manufacturing, communications, broadcasting, television, talking movies, or now even in the control of the motion-picture interests; I say, anyone who attempts to get into any of these phases of the art must face that $5,000,000,000 aggregation of capital.
The CHAIRMAN. Do you agree substantially with what Colonel McMullen said about it not being so much the validity of the patents as the capital behind the proposition?
Mr. SCHUETTE. Absolutely, because in the case of almost every patent suit, even if they lose, it takes two years to fight the case through to the Supreme Court of the United States, and at a cost of anywhere from $100,000 to $200,000, and by the time the litigation comes to an end, even if successful, the complainant may not get any real advantage, because of the great cost and the delay; even the parties bringing the suit may be dead. The Radio Corporation of America collected millions of dollars in royalties on the Armstrong patent, and it has been declared of no effect, but the people are out of business. Then they took up the Alexanderson patent, which is à basic patent on tuned radio frequencies according to their claim, and they succeeded in getting two United States district courts in this country, one in New York and one in New Jersey, to decide that the Alexanderson patent was a valid patent.
The CHAIRMAN. Was that a consent decree or was it after taking testimony?
Mr. SCHUETTE. No; it was not a consent decree, but after the taking of testimony. They got the same decision from the exchequer court in Canada, which has the same jurisdiction, against the Fada Co. In the two United States court cases, the defendant who lost surrendered and took out licenses. But in the Canadian case some of our members got behind the company that was fighting that case, and it was carried up to the Supreme Court of Canada, and that Supreme Court of Canada, by a unanimous decision, decided that the Alexanderson patent was invalid, and that court decreed that the valid patent in tuned radio frequency was the Schloemilch-Von Bronck patent.
Senator Dill. Which is owned by the Government of the United States?
Mr. SCHUETTE. Yes, sir,
Mr. SCHUETTE. Since that time, on the basis of these two United States district court adjudications, which were not appealed, and which were not appealable because of the surrender of the defendants in those cases; I say on the basis of those adjudications the Radio Corporation of America succeeded in getting 27 radio set makers in the United States to take out licenses under what they call their tuned radio frequency patents--without even naming the patentsand in return for that permission the set makers paid 7% per cent royalty, not on the cost of making the radio sets, but on the cost of everything that went with it-the cabinet, the loud speaker, the battery eliminators, and even the packing boxes.
The Chairman. Are the companies that you represent paying the Radio Corporation of America 772 per cent royalty?
Mr. SCHUETTE. No, sir; none of them has paid it.
Mr. SCHUETTE. Yes, sir. The case that was mentioned here a little while ago by Colonel McMullen, in which we tried to get the Government to intervene, is a case of one of our members, the Advance
Electrical Co., of Los Angeles. In that case we failed to get any evidence of Government interest in the Schloemilch & Von Bronck patent, but our attorneys presented that patent to the court, and argument was had on the 4th of January on a preliminary injunction, and the court has not yet decided the case, but it certainly looks hopeful.
The CHAIRMAN. You have never been enjoined by reason of not paying the 742 per cent, so far by any court?
Mr. SCHUETTE. Another of our members was sued in New Jersey, in the same district where the patent had been adjudicated, and the injunction has been held up there because in that court we raised the issue that they had no right to join four complainants under 11 different patents, of which this was one, against one defendant. that case they joined the American Telephone & Telegraph Co., the Radio Corporation of America, the General Electric Co., and the Westinghouse Electric & Manufacturing Co., in one suit against one defendant. The purpose was to make him face a $5,000,000,000 aggregation in one issue, instead of fighting out one patent at a time. The district court there decided that it was not a misjoinder, and the case is now on appeal to the United States Circuit Court of Appeals, Philadelphia, where it has not as yet been decided.
The CHAIRMAN. And the defendant is still operating? Mr. SCHUETTE. The defendant is still operating. The CHAIRMAN. Under bond, of course? Mr. SCHUETTE. Yes; having given bond. There is another adjudication against a dealer in Brooklyn, which is also in the New York jurisdiction, but that was against a company which stopped making tuned radio frequency sets.
The CHAIRMAN. What proportion of the radio industry is not paying the 7% per cent royalty?
Mr. SCHUETTE. Well, I doubt whether it represents more than 10 or 15 per cent, maybe 20 per cent at the outside.
Senator Dill. That is, the manufacturers of sets.
Mr. SCHUETTE. Yes. The 27 set makers that they licensed, plus the Radio Corporation of America itself and its affiliations, as testified in those tube proceedings, control about 85 to 90 per cent of the radio set business of the United States.
The CHAIRMAN. The organizations you represent, are they makers of radio sets?
Mr. SCHUETTE. They are makers of sets and parts, including tubes and accessories. They are manufacturers of —
The CHAIRMAN (interposing). Are they paying this 772 per cent royalty?
Mr. SCHUETTE. They are not.
The CHAIRMAN. What percentage of the radio industry do they represent?
Mr. SCHUETTE. I should say we represent the largest share of that 10 or 15 per cent I referred to a while ago.
Senator Dill. In the tube business the people you represent are making from 10 to 15 per cent of the tubes, would you say?
Mr. SCHUETTE. Oh, more than that. I thought you meant set makers. In reference to that, there was an announcement the other day by one of our members that they had agreed to pay the 77% per cent royalty, and I understand agreements are being rewritten for all other set makers as a result of that.
Senator Dill. Are they going to have to pay the 742 per cent royalty on packing boxes?
Mr. SCHUETTE. I understand they will take it off of packing boxes. The CHAIRMAN. But it will still be on the cabinets?
Mr. SCHUETTE. No; I understand they are going to reduce that to a nominal sum. So as a result of the fight we have made against this outrageous license charge, those set makers who last year paid royalties amounting to somewhere around $6,000,000, will get this benefit.
Senator WAGNER. How much will that benefit be?
Mr. SchuETTE. In some sets a difference, in the royalty I mean, of a reduction from $10 to $2.
Senator WAGNER. I thought you might have it in a lump sum.
Mr. SCHUETTE. Of the lump sum of $6,000,000 I should say it would be between $3,000,000 and $4,000,000.
Senator Dill. As I understand it, in reference to these radio set makers a few make the furniture, and I understand that one paid more to the Radio Corporation of America in royalties on the furniture for the sets and the packing case than on the sets covered by the patents, nearly $1,000,000.
Senator BROOKHART. If the United States Government would assert its right, and establish it, as was done in the Canadian court, it would stop all that, would it not?
Mr. SCHUETTE. We think it would. But, of course, with 3,500 patents and $5,000,000,000 to go on, if we beat them on any particular patent, and they spend $10,000,000 doing it, they are able to keep on fighting
Senator BROOKHART. But that would not be the same thing if they came to fighting Uncle Sam.
Mr. SCHUETTE. Oh, no. If Uncle Sam should get into the fight, then it is all over. All that we need is to have the Department of Justice take down the antitrust laws and dust them off, and prosecute these people, and it will be quickly at an end.
The CHAIRMAN. Why don't they do it?
Mr. SCHUETTE. That is a thing I have not been able to understand. I have a letter here from Attorney General Daugherty
Senator BROOKHART (interposing). Well, you knew why he would not do it.
Mr. SCHUETTE. That letter seems to have stayed in the files there.
The Chairman. Have you applied to other attorneys general since Daugherty's time?
Mr. SCHUETTE. Yes, sir; to Attorney General Sargent, and we have been trying to get Attorney General Mitchell interested. I noticed yesterday that the Department of Justice has finally appointed an assistant attorney general to take charge of antitrust prosecutions. We hope that when he gets in office he will take the matter up.
Senator DILL. Who is that?
Senator WAGNER. It is Mr. John Lord O'Brien, one of the most eminent lawyers of our State.
Senator BROOKHART. On which side of the trust question is he?
Senator WAGNER. Well, I will say that he is a very high class, conscientious citizen.
Senator BROOKHART. And you really think that he will do some business in these matters?
Senator WAGNER. I am not attempting to speak for him, but I had the honor to serve with him in the constitutional convention of New York, and in the State Legislature of New York, and know that he has always been highly esteemed.
The CHAIRMAN. You could not get Colonel Donovan interested in it?
Mr. SCHUETTE. They always said they had to investigate it. Every time we asked about it they would say they had not finished investigating it.
Senator BROOKHART. And just as soon as an investigator found out anything they dismissed him and got a new one. That was the Daugherty method. Mr. SCHUETTE. Well
, I will say that they had no trouble putting the candy racketeers in Chicago in jail, but they have not been able to get after the patent racketeers.
Senator WAGNER. Senator Brookhart, are you speaking for your party now?
Senator BROOKHART. I am speaking on the facts as they were brought out, no matter what the party may be that is affected.
Senator Dill. Since you have been speaking of these suits you might state your experience in regard to the tube provision of the contract.
Mr. SCHUETTE. I think there is evidence of the failure of the Department of Justice to act in the interest of private individuals, to go into court to protect them against flagrant violations of the antitrust statutes. In this set-makers' license, under which 27 set makers agreed to pay the Radio Corporation of America a 7% per cent royalty, there was a clause providing that they must buy from the trust the tubes necessary initially to actuate the sets. Up to that time all sets had gone from the factories without tubes, and the tubes were purchased from radio dealers and put in the sets. This clause put an end to all tube making, because it forced 27 set makers to insert R. C. A. tubes in sets before they sent them to radio dealers. That was a violation of the Clayton Act. We filed a suit in the United States District Court at Wilmington, Del., and Judge Morris decided that it was a violation. The suit itself was brought for a preliminary injunction. The Clayton law provides that in case of a violation, or charge of violation, the complainant may have a preliminary injunction, so that a small competitor fighting against a large one will not be destroyed while the Supreme Court of the United States is passing on the question. Despite the fact that this was a preliminary injunction granted in an emergency to protect the complainants, the radio trust succeeded in obtaining an appeal to the United States Circuit Court of Appeals a year ago last December. The appeal was argued in February before the United States Circuit Court of Appeals, and then that court handed down no decision. In the meantime all these tube makers were paralyzed, by reason of the act that no decision came down. So I called a meeting of our board of directors to take up the matter of the issue which was raised, by a hange in Supreme Court rules, whereby in a case of unusual delay in - he appellate court, in a matter involving public interest, the complainant might go direct to the United States Supreme Court for