Radio age (Jan 1927-Jan 1928)

34 RADIO AGE for October, 1927 Independent Radio Manufacturers Start Battle By OSWALD F. SCHUETTE, Executive Secretary, Radio Protective Association THE case of the so-called "independent" radio manufacturers against the Radio Corporation of America rests upon a vital and fundamental principle that is important to all American industry. Ever since the Sherman Anti-Trust law passed in 1890, attempts have been made to evade its purpose by private corporations, under the pretext of patent ownership. The fundamental social doctrine of the United States, guarded zealously by its statutes and its courts, is that monopoly destroys both industry and democracy. There is voluminous evidence in the archives of Congress and in such text compilations as Vaughn's "Economics of our Patent System" (MacMillan, 1925) that the concentration of control over an industry under one balance sheet stifles and suppresses the art of the industry. Developments which threaten to make existing assets obsolete are placed on the shelf and inventors find it useless to deal with the one existing customer. Under the Constitution of the United States, the patent laws are written to promote the progress of science and the useful arts. The patent statutes are designed to stimulate invention and the use of patents to obtain a contrary effect is a perversion of these laws. Furthermore, the courts have held that patents do not give a license to any one to escape the prohibitions of the Sherman and Clayton Anti-Trust statutes, and have held therefore that the pooling of competing patents, resulting in the restraint of trade, is illegal. In this light, let us examine the position of the Radio Corporation of America and the independent radio manufacturers. Almost a year after the Armistice, in the turmoil still existing in the Washington departments of the government, the Radio Corporation of America came into being, and now the Radio Corporation claims it was created "at the request of the government." As a matter of fact, the report of the Federal Trade Commission on the Radio Industry, made in 1923 (page 16) reveals that Secretary Daniels refused to sanction the Radio Corporation plan, stating that he believed in government ownership of radio and that only Congress could sanction such a move. Apparently the officials of the War Department also refused to sanction this plan. According to this report, when the formation of the Radio Corporation of America was first discussed with navy officials in the spring of 1919 it was planned only to authorize the General Electric Company to buy existing Marconi patents and pool them with the General Electric Company's inventions. This was actually accomplished in October, 1919, and the Radio Corporation was incorporated. It was not until July, 1920, that the patents of the American Telephone and Telegraph Com pany and its subsidiary, the Western Electric Company, were put into the pool, and another year — in June, 1921 — that the patents of the Westinghouse Electric and Manufacturing Company and its subsidiary, the International Radio Telegraph Company, were absorbed under a series of agreements which practically divided the ownership and control of the Radio Corporation among the General Electric Company, the Westinghouse Company and the American Telephone and Telegraph Company. As a result, there were pooled in the hands of the Radio Corporation approximately 1,000 radio patents and the parent companies entered into a series of agreements with the Radio Corporation and with each other that are of the greatest significance and importance to the radio industry, and to which we will refer, in detail, hereafter. With reference to whether the patents so pooled were competing patents, let us consider here only a few radio circuit patents. The alleged superheterodyne, the tuned radio frequency, and the regenerative patents were among those pooled. David A. Sarnoff, Vice President of the Radio Corporation of America, in referring to the superheterodyne sets in a public statement declared that "it is the one element of our line that most distinguishes it from competitive radio equipment. Judge Thacher, in the Atwater Kent case, in supporting the contention of the Radio Corporation, held that the Westinghouse Company's Armstrong circuit, alleged to cover regeneration, was "utterly different" from the Alexanderson patent, owned by the General Electric Company, alleged to cover tuned radio frequency. It certainly should not be difficult for radio engineers to conclude that among 1,000 patents there must be a number of similarly interesting examples of competitive inventions. As conclusive evidence of the total disregard by the Radio Corporation of America and its parent companies of this fundamental and far-reaching principle of our anti-trust laws, we point to the clause recurring with startling and significant emphasis in all the agreements between the R. C. A. and the parent companies and between the parent companies themselves, providing for the pooling of "all future inventions." It is hard to imagine any future radio invention which would not be competitive with what has already been developed. Another important detail in these agreements was the careful division in the activities of the parent companies, whereby they eliminated competition among themselves. To the General Electric Company was apportioned 60 per cent of all the manufacture of commercial receiving apparatus, including tubes. To the Westinghouse Company was allotted 40 per cent. The American Telephone and Telegraph Company was given the exclusive right to all commercial activity in wireless telephony. What does this promise for the development of wireless telephony in the United States? We are still using telephone apparatus developed thirty years ago, although many improvements have been made in the art and have long been in use in Europe. Wireless telephone service is already installed on fast Qerman trains for the use of passengers. Now, after all these steps toward a monopoly, we find the Radio Corporation, according to Mr. SarnofFs statement, "licensing competitors under patents necessary for the type and character of set upon which they (the competitors) have built their business." Mr. Sarnoff has announced also that "it is the policy of the Radio Corporation to encourage legitimate competition." Mr. Sarnoff says that the terms of the licensing agreement are well known to the radio trade. What are they? In substance, a licensee agrees to pay a royalty of 7yi per cent of his invoice price of radio sets, including cabinets, speakers, socket power equipment or batteries, and other accessories, with a minimum guarantee of $100,000 for a period of four and one-half years; this, for the privilege only — and this is of the utmost importance — of making tuned radio frequency receivers. They are licensed to use only their present manufacturing facilities and the license agreement cannot inure to the benefit of assigns, successors or legal representatives of the licensee without the written consent of the R. C. A. In other words, consolidation and amalgamation by a licensee are at the option of the R. C. A. Mr. Sarnoff has said he intends to control the entrance of any new aggregation of capital into the radio business, and that is the meaning of this particular paragraph. The licensees, further, must license the Radio Corporation of America, or any of the parent companies, under any patents they may have or may obtain, in any field, during the term of agreement, at a reasonable price. And if one cannot be agreed upon, the value is to be fixed by the New York Statute of Arbitration. Another clause requires the licensee to purchase sufficient tubes from the Radio Corporation of America initially to actuate all the sets made by the licensee. In defending this clause, Mr. Sarnoff points out the importance of tubes in the operation of sets and adds that "the tube is the neck of the bottle in the modern radio set." Mr. SarnofFs metaphor is a particularly happy one : No bottle can rise higher than its neck! Under this clause in the license agreement, the Radio Corporation of America will control the type and efficiency of the sets manufactured by the licensee. Under this clause, the development and engineering of the sets of the