consulted on the subject who could picture themselves on the receiving end of information. For example, as a result of a meeting held under military auspices on July 21, 1943, the Manufacturers' Aircraft Association expressed the view that if its members gave out information, they preferred

to deal directly with our Government and look to the United States for any protection or reimbursement for use of such rights.

They added that

any continuing arrangement for postwar use should contemplate the negotiation of a private contract between the interested individuals following a businesslike evaluation of the private rights involved.

Hovering over the continued disagreement between the British and American negotiators was the cloud of confusion caused by British incomprehension of the ramifications of our antitrust laws. The reaction of some of the American firms to the proposed conditions reflected this difference in attitude toward monopoly. The Automotive Council for War Production, in September 1943, said that the release conditions seemed calculated "to create private monopolies of unpatentable material by the device of disclosure under the conditions proposed." They argued that the restraints on the company receiving the secret information would mean that this company could not exploit the product, while a competitor not bound by the conditions and learning the technique independently could go ahead. Thus, they alleged, "monopoly by disclosure" would serve to restrain only the recipients of the disclosure. Representatives of the United States Justice Department constantly called attention to the possibility of violation of the antitrust laws if the conditions were enforced.

This debate brought out the feeling that it is very difficult to keep a secret very long, anyway, since technicians everywhere tend to approach a goal at about the same speed. Many of the experts pointed out the great difficulty of defining the claims in patent litigation and in knowing where the original disclosure left off and improvements by the recipient of the information started. One industry representative expressed the fear that the release conditions might block off "an entire segment of each company's research program" because of fear that it was using the original information without express permission of the originator.

The files of the Committee and of the American members reveal only one industry representative who seemed unconcerned about the release conditions. One of the chemical firms stated that its operations were so diversified that it felt that it could just drop a line of research and production if it seemed to be transgressing one of the conditions. Most producers, however, are more limited in the range of their products, and could not ignore any part of the process without risking trouble.

The United States armed services reported that the proposed release conditions were duly accepted by a few American firms that received information from British sources. Many of them, bowever, refused outright, and in many more cases the issue never arose because the information was transmitted without any concern over postwar competition. The British representatives, through whom secret information originated by American firms was transmitted to producers in England, assured the Committee that agreements, along

the lines of the proposed release conditions, were exacted in all cases to protect the originators of the ideas against postwar commercial use without proper compensation.18 The American officials, of course, never asked for the kind of release conditions being sought by their British counterparts. Considering the amount of discussion the subject evoked in the regular meetings of the Joint Committee and in special meetings convened to deal with the conditions, and the failure throughout the war to agree on a course of action, it is remarkable that so much vital information flowed unimpeded between the two countries. The answer lay in the reluctance of anyone in either country to let concern over private rights in technical knowledge slow up the progress of the war effort. Whether the absence of agreement restricting postwar use of this know-how has done any significant harm to the commercial interests of firms in either country could not be ascertained without intensive investigation of what has happened since the fighting ended.

C. Oil refineries for Russia

During the critical days in World War II when the Soviet troops were allied with us in trying to defeat the Nazi attacks, the U. S. S. R. asked us to provide the equipment, technical information, and engineers needed for the effective production in the Soviet Union of the best gasoline for planes, tanks, trucks, and other vehicles. We agreed to do this, under the Lend-Lease Act and procedures. The project, as finally approved, involved the erection of four complete, modern refineries in the Soviet Union. Eight American companies participated, providing either equipment or technical advice, or both. Most of them made trained technicians available to go to the Soviet Union and supervise the erection and early operation of the plants. So fully did these American engineers cooperate with the Soviet officials in constructing and placing in operation the new refineries that one of them, at least, convinced the United States courts that he had become a bona fide resident of the U. S. S. R. for income-tax purposes during his 2 years in the Soviet Union.19

Each participating company entered into a contract with the United States through the Procurement Division of the Treasury Department, the agency that handled the acquisition of most industrial equipment under the lend-lease program. The Procurement Division itself operated through a management firm that acted as the Government's agent in finding the suppliers and making the engineering and other technical arrangements. The most critical problem, aside from the difficulties of supply inherent in wartime atmosphere, was the working out of the terms under which patented processes and the confidential know-how that had to supplement the published information would be made available.

The companies did not have any kind of patent protection in the Soviet Union. Once the refineries were constructed and placed in operation there, the American patent holders would have no legal basis for claiming compensation and no means of collecting from the Soviet Government. Accordingly, they sought royalties from the United States Government at rates consistent with their charges for the use of their patented process in this country.

18 Documents in the files of the Department of State. See also Bendix Aviation Corp. v. Smiths America Corp., 248 F. 2d 621 (D. C. 1957).

19 Fuller v. Hofferbert, 204 F. 2d 592 (6th Cir. 1953).

The only source of Government funds were the appropriations for lend-lease goods and services. These were provided by Congress to enable our allies to help defeat the common enemy. It was a measure to win the war. Every one assumed that the oil refineries being furnished to increase the Soviet fuel supplies would be in production for many years after the fighting ended, but payment for this postwar use of the refineries could not be made out of lend-lease funds appropriated only for wartime purposes. A very similar problem had been met by the Joint British-American Patent Interchange Committee when United States owners of British patents had been asked to give royalty-free licenses for wartime production in England of material covered by their patents. These licenses were very readily granted, but, as we have seen, many of the owners wanted an assurance of just compensation for any commercial sales that might take place when the fighting ended. This difficulty was resolved with a compromise by which the form of license that the owners were asked to execute referred to that provision of the P. I. A. which limited use of the patents "for the purpose of, and until the termination of, the war," but at the same time permitted disposal after the war of whatever had been produced under the license. This arrangement is described in the Stephens' Report,20 from which the following excerpts are taken:

With a view to facilitating the procuring and making available without cost, by one Government to the other, of patent rights, the Joint Committee agreed that a standard form of license should be adopted for use by both Governments. * * *

Another difficulty encountered in drafting a standard form was in respect of patent rights to cover the postwar use and disposition of articles manufactured by or for one of the Governments during the war. The United Kingdom Government had power to compel its nationals to grant patent licenses to the United States Government, including postwar use and disposition rights. The United States Government did not possess such power. Early in the operation of the Patent Interchange Agreement, the War and Navy Departments learned that, while many American patent owners were willing to grant to the United Kingdom Government royalty-free patent licenses for war purposes during the war, they took the position that, if there was to be postwar disposal by the United Kingdom Government of the articles manufactured which would interfere with their commercial position, they should be remunerated. Nevertheless, the patent owners did not wish to exact compensation on the mere possibility of such commercial disposition occurring. It was believed that in such cases special provision would have to be made in the patent licenses permitting postwar disposal on a fixed royalty basis, although this would involve an accounting difficulty for the United Kingdom Government.

After having failed to reach an agreement with respect to the long form of license, the British and American members of the Joint Committee finally agreed upon a short form. This was recommended by the American and British members of their respective Governments. They adopted it, and it was thereafter used by the two Governments in transferring patent rights pursuant to the terms of the Patent Interchange Agreement. The short form of license ran directly from the patent owner to the requisitioning Government. Because of variance between the laws of the United States and those of the United Kingdom, the license executed by a British licensor was slightly different in wording from that executed by an American licensor. ***

It was not possible, however, to adopt the same kind of licensing procedure for the U. S. S. R. oil refineries. There were too many differences between the Communist and capitalist ways of doing business and enforcing contractual rights.

The companies affected by the U. S. S. R. oil-refinery program realized that anything less than a commitment by the United States "See Final Report, note 13, supra, at pp. 28-43.

to pay royalties for the full period of useful life of the refineries, and even after, if other refineries were built to use the same processes, would leave them in danger of having no effective recourse for collecting their royalties. One of the problems that worried them about this risk was their commitment to licensees in the United States and other places not to charge lower rates of royalties to other users. Because of the urgent need, in the interest of the war effort, to get the program moving, a compromise was agreed upon. The United States Government contracted to pay each company a royalty in a lump sum at standard rates for a period of 18 months from the date when each of the refineries commenced operations. The Government also was given an option to continue licensed use thereafter, at the same rates, while hostilities continued. The license would terminate when the United States gave appropriate notice.

As it developed, the fighting in Europe ended before any of the refineries started production, the first having commenced on August 10, 1945. Some of the refinery equipment, in fact, was still stored in warehouses in the United States in the summer of 1947, shipment having been delayed by a difference of view between Congress and the executive branch over the propriety of continuing any deliveries of material in the lend-lease pipeline. The issues are described in the hearings before the Senate and House Appropriations Committees on the supplemental appropriation bill for 1948 21 and in the following excerpt from the 24th Report to Congress on Lend-Lease Operations:

22

Deliveries under the various pipeline agreements were suspended after December 31, 1946, as a result of the ruling of the Comptroller General, based on the action of the Congress in passing the Third Deficiency Appropriation Act, 1946, approved July 23, 1946 *** Under this act, the sum appropriated therein for the expenses of the Agriculture and Treasury Departments in completing pipeline deliveries were not to be used for any expense incident to the shipping abroad of any commodities after December 31, 1946. In an effort to carry out the agreements made with the various foreign governments pursuant to the authority of section 3 (c) of the Lend-Lease Act, the various governments were asked to deposit sufficient funds to pay the cost of the expenses for which the appropriated funds were not to be used. The sum of $873,211.98 was deposited pursuant to this request, and held in a special deposit account in the Treasury Department. The Comptroller General ruled, however, that these funds could not be used for this purpose unless the Congress indicated that such use would not violate the intent of the Third Deficiency Appropriation Act, 1946.

Following the ruling of the Comptroller General, officials of the Department of State appeared before the Appropriations Committees of the House and Senate to ask for a clarification of the intention of the Third Deficiency Appropriation Act, 1946. After extensive hearings, and following the submission of proposed legislation in a message from the President dated June 5, 1947, there was included in the Supplemental Appropriation Act, 1948, a provision appropriating $500,000 for liquidation expenses of the Treasury Department, including the completion of pipeline deliveries for Australia, Belgium, China, France, Saudi Arabia, Guatemala, Brazil, Peru, the United Kingdom, and the Netherlands. The omission of the Soviet Union from this list means that the pipeline material in storage and on order for delivery to the U. S. S. R. under the agreement of October 15, 1945, cannot be transferred. As a result, the material will be disposed of under the Surplus Property Act, and, subject to applicable laws, will be available to any purchaser and for any other programs of the United States Government. ***

21 Hearings before the Subcommittee on the Supplemental Appropriations Bill for 1948 of the House Committee on Appropriations, 80th Cong., 1st sess., pp. 750-910; hearings on European interim aid and Government relief in occupied areas, before the Senate Committee on Appropriations, 80th Cong., 1st sess., pp. 796-885 (1947).

22 Pp. 11-12.

Delivery of the remnant of the equipment for the Soviet Union, including the refinery parts, was finally prevented when authority was withheld in the Supplemental Appropriations Act, 1948.23

Nevertheless, in due course, the refineries all went into production, and the Soviet officials notified the United States of the start of operations. Just 18 months after receiving notice that production had begun, the United States Government, since the war was over, duly notified the companies here that the license arrangement was terminated. This notification was given in March 1947 for some of the plants, and at later dates for the remainder.

When in this way the licenses to the United States Government were terminated, the companies would normally, of course, have insisted on a license and royalty agreement with the actual users, the U. S. S. R. Because of the difficulties inherent in reaching agreement with Soviet officials in a cold-war atmosphere, the companies first tried to convince the United States Government officials to approve payment of royalties by the United States, which could then negotiate for reimbursement from the Russians. The companies cited section 7 of the Lend-Lease Act 24 as authority for their argument that payment of royalties out of lend-lease funds was legal. Section 7 reads as follows: The Secretary of War, the Secretary of the Navy, and the head of the department or agency shall in all contracts or agreements for the disposition of any defense article or defense information fully protect the rights of all citizens of the United States who have patent rights in and to any such article or information which is hereby authorized to be disposed of, and the payments collected for royalties on such patents shall be paid to the owner and holders of such patents.

The Government maintained, however, that its obligations under section 7 were fully discharged when it obtained from the Soviet Union the pledge contained in article IV of the Master Lend-Lease Agreement of June 11, 1942: 25

If, as a result of the transfer to the Government of the Union of Soviet Socialist Republics of any defense article or defense information, it becomes necessary for the Government to take any action or make any payment in order fully to protect any of the rights of a citizen of the United States of America who has patent rights in and to any such defense article or information, the Government of the Union of Soviet Socialist Republics will take such action or make such payment when requested to do so by the President of the United States of America.

It was the United States Government's position that the companies should press the Russians to pay them in accordance with the promise contained in the quoted article. The companies were not willing to accept this approach, and three of them took their claims to court. Houdry Process Corp. based its position partly on the provisions of section 7 and the master agreement, but chiefly on a clause in its contract with the United States that appeared to call for continued payments unless the Soviet Government met the claims. Because of the strength of the argument based on the special contract terms, the Department of Justice, with the concurrence of the lend-lease officials in the State Department, agreed to settle the case with a compromise payment. Houdry for its part agreed to press the claim against the U. S. S. R. and to pay to the United States all it received from the Russians up to the amount of the settlement.

Public Law 271, 80th Cong., approved July 30, 1947; 61 Stat. 610, 613 (1947). 2455 Stat. 33 (1941); 22 U. S. C. 416 (1946).

E. A. S. 253; 56 Stat. 1500 (1942).