agreement prepared in accordance with the recommendation of the conference on
the preceding evening.
The chairman reported that an attempt to include the cross licensing of engines
under the terms of the cross-license agreement, as recommended by the conference
held on July 10, developed many difficulties of a practical nature, especially in r^ard
to the proper payments for the support of the proposed organization as between the
engine manufacturers and plane manufacturers. He reported that it had also been
suj^ested at the conference on July 11 that the advantages of cross licensing of engines
might better be realized through necessary modifications in the existing crosB-Ucense
agreement covering the automobile industry. He reported further that as a result
of these considerations members of the committee present at the conference on July
11 took action recommending the omission of engines from the terms of the cross-license
agreement and instructed Mr. Crisp and his associates to prepare the final draft of the
croaa-license agreement in accordance with this recommendation.
After consideration of this recommendation of the conference on July 11 and after
further consideration of all factors bearing upon the question the proposed draft of
cross-license agreement as submitted by Mr. Crisp was, on motion dul;y seconded,
unanimously approved and recommended to the executive committee for its approval.
At the meeting of the executive committee on July 12 the subcommittee on patents
submitted the approval draft of cross-license agreement, which the chairman stated
in its general terms and details had already received the informal approval of the air-
craft manufacturers, and this he submitted as the report of the subcommittee on patents
wiUi a recommendation for its approval by the executive committee.
On motion, duly seconded and carried, it was
*'Kesolved, That the report of the Patents Committee on the proposed cross-license
agreement be approved."
Under date of July 27 the chairman addressed letters to the Secretary of War and
the Secretary of the Navy reporting the solution of the patent question and inclosing
a copy of the cross-license agreement which had been accepted by the aircraft manu-
facturers and signed by them as members of a new ''Manuiacturers' Aircraft Associa-
432 WAB BXFBNDIXUBBS.
On the same date the chairman addressed a letter to the president of the Maniifac-
turers' Aircraft Association recommending the acceptance of the croes-Ucensa afs^ee-
ment by the association and its members and that aircraft manufacturers generally
be invited to subscribe to same in the interests of harmony and efficiency and to the
end that the industry may be enabled to expand freely in order to meet tne demands
of the Government for the quantity production of aircraft.
The subcommittee on patents was dischai^^ed on August 7, 1917.
THB WORK OF THB BUBCOMMITTBEB.
Following is an outline of the general work of the various subccmmittees du ng the
Aerial mail service: The subcommittee on aerial mail service was authorized by the
executive committee at the meeting on December 7, 1916, or the purpose o^ cooperat-
ing with the Post Office Department in accordance with the request of the Second
Assistant Postmaster General. The committee as originally organized cons sted of
Messrs. Squier (chairman), Marvin, and Stra ton, and on March 50, 1917, Me res. Claric
and Towers were added.
The conmiittee held a meeting on January 9, 1917, at which a representative of the
Post Office Department was present. A plan of cooperation was formulated and means
of overcoming difficulties confronting tne Post Office Department were discusped.
The committee advised the Post Office Department that in its opinion it would be
impractical at that time to place a contract for aerial mail ser\dce, and that therefore
the Post Office Department should take the initiative and establish such service
within its own organization, and that the first expermental route ^hould be selected
with a view to inaugurating the service under as favorable conditions a>^ possible.
The committee suggested that the first experimental route should be between Wash-
ington and Philadelphia or Washington and New York.
State of New York,
Secretary of State's Off.cb,
Albany, April It, 1918.
Hon. George E. Chamberlain,
Chairman Committee on Military AffairSy
United States SenatCf Washington^ J9, C.
Dear Sir: Replying to yours of the 10th instant, you are in''ormed that the follow-
ing i^ a list of the incorporators of the Manufacturers' Aircra t A soc^'ation (Inc.), in-
corporated July 18, 1917; location, Manhattan; Joseph S. Ames, Baltimore, Md!; W.
Benton Cusp, New York City, N. Y.; Albert H. Flint,'New York aiy, N. Y.; Geoise
H. Houston, New York City, N. Y.; John P. Tarbox, Buffalo, N. Y.
pRANas M. Hroo,
Secreary of State,
Department of Justicb,
Washingtony D. C, April 11, 191$,
Hon. C. S. Thomas,
United States Senate, Washington, D. C.
Dear Senator: Referring o your letter of the 10th instant, there s inclosed here-
with a copy of the opinion rendered by the Attorney General on October 6, 1917, to
the Secretary of War relative to the legal status of the Manufacturers* Airt^raft Aemo-
ciatlon, and involving iu particular the question whether the cross-l censing aitree-
ment entered into between that corporation and its subscribers is in any uniy in contra-
vention of the antitrust laws.
G. Carroll Todd,
Assistant to the Attorney GenenL
(For the Attorney Oeneim).)
October 6, 1917.
The honorable the Secretary op War.
Sir: I have the honor to acknowledge the receipt of your letter of September IT,
1917, in which you ask for my opinion concerning the legal status of the Mazinfac-
turers' Aircraft Association, incorporated under the laws of the State of New York,
and in particular whether the cross-license agreement entered into between that
corporation and its subscribers (stockholders) is in any way in contravention of the
antitrust statutes of the United States.
You submitted with your letter a copy of the croes-license aj^eement and a digest
of certain of the minutes of the National Advisory Committee for Aeronautics (here-
after referred to as Advisory Committee) relating to the subject. The other papers
and information necessary for determination of the questions involved were not imme-
diately available, but have since been furnished by that committee at various dates
from September 19 to 28.
The Manufacturers' Aircraft Association (Inc.) (hereafter referred to as Association
(Inc.)), was formed and the cross-license agreement entered into under the following
circumstances, as gathered from the data submitted :
The principal patents in the airplane industry were controlled by the Wright-
Martin Aircraft Corporation and the Curtiss Aeroplane & Motor Corporation. The
former, controlling what it claimed to be a basic patent, was demanding high rojralties
from all other aircraft manufacturers. The latter, controlling numerous important
patents, was likewise making demands for royalties upon the other aircn^ manu£&c-
turers. The patents controlled by these companies were of such a character as to
make it difficult for any aircraft manufacturer to construct any modern approved form
of airplane without infringing one or more alleged patents of each of these companies.
The result of these patent claims was not only to render the cost of airplanes to the
Government excessive, but also to make it difficult for the Government to get its orders
filled, because some of the airplane manufacturers, in view of impending patent litiga-
tion, were unwilling to make further expenditures upon their plants.
Confronted with this serious crisis, the War Department and the Navy Department
requested the Advisory Committee to investigate the situation and to suggest a solu-
tion for the unsatisfactory conditions existing in the airplane industry. Acting in
accordance with these requests, the Advisory Committee proceeded to make a careful
study of the situation, and after several months of investigation and numerous con-
ferences with all interests directly involved recommended the formation of an asso-
ciation of aircraft manufacturers with a fonn of cross-license agreement.
Pursuant to the recommendation of that committee, the Association (Inc.) was
fonned and the cross-license agreement now under consideration was entered into.
Practically all of the manu&cturers of airplanes have since become stockholders in
the Association (Inc.) and parties to the cross-license agreement. The ro3^1ties
to be paid under the cross-license agreement in respect to the patents of both the
Wright-Martin and Curtiss corporations are materially lower than those previously
demanded by the Wright-Martin Corporation alone. The arrangement will result in a
substantial saving to the Government.
You state in your letter:
**In accordance with the arrangement thus developed, the War Department now
desires to proceed with the placmg of contracts for airplanes with airplane manu-
facturers thus oi^ganized.''
The Federal antitrust laws prohibit every combination and agreement that produces
or tends to produce a monopoly in the interstate and foreign commerce of the United
States or that is otherwise unduly restrictive of competitive conditions in such com-
merce. Their fundamental purpose is to prevent unclue interference with the free play
of competition without prohibitmg normal and usual contracts and ageements entered
into for the purpose of promoting the legitimate interests of the trader or of the industrjr
in which he is engagea. The questions here involved must be determined in the light
of this fundamental purpose of the antitrust laws.
In considering the questions submitted I have examined the croes-license agreement,
the articles of incorporation, the by-laws, and the voting- trust a^ement of the
Association (Inc.), together with other data relating to that association furnished by
the advisory committee. I have also examined and considered the criticisms of the
arrangement in the "protest of the Aeronautical Societv of America against the for-
mation under Government auspices of an aircraft trust.
The cross-license agreement between the Association (Inc.), and such persons
(hereinafter called subscribers) as shall become stockholders therein was entered nto
on July 24, 1917. (Cro s-license agreement, p. 1.) The subscribers under that
To grant to each other licenses under all airplane paten s of the United States
(with unimportant exceptions) now or hereafter owned or controlled by them.
(Cro^-license agreement. Art. II, p. 2.)
To appoint the Association (Inc.) their agent with full power to grant the non-
exclusive licenses provided for in the agreement in the form attached thereto. (Art.
Ill, pp. 3, 15.)
Not to contract for rights under any airplane patents in such a way as to prevent the
owner from granting similar rights to other subscribers on the same terms, unless the
subscribers at the same time obtains the further privilege of itself granting right
434 WAK EXFBNDITUBES.
under the patent, which of itself shall have the effect of bringing the rights acquired by
the subscribers under the operation of the cro s-license agreement. (Art. Ill, pp. 3-4.)
Not to enter into any agreement in respect to the subscriber's privileges under any
airplane patent in such a way as to restrict the operation of the croas-lieenae agree-
ment in respect thereto. (Art. IV, p. 4.)
Not to grant licenses under airplane patents to others than subsrribere upon ower
terms of royalty than those provided for in the agreement in the case of : UDacriber?.
(Art. IV, p. 4.)
To submit claims or compensation in respect to aiip'ane patents or pa eni nghtB
hereafter acquired to a board of arbitrators, consisting of one member appointed by
the board of directors of the As ociation (Inc.), another by the subscnber malring
the claim, and a third by the other two, who shall determine the total amount ot
compensation, 1 any, to be paid for the same, and the rate of royalty to he paid toward
such compensation by any subsc ber den ring to take a license under such patent.
(Art. V, pp 4-5.)
To waive all claims as again'ft each other for infringements prior to July 1, 1917
(Art XIV, p. 13); to make various reports and to keep various accoun «», etc.
To pay to the Association (Inc.) sp^ecified amounts upon every ai* plane manufac-
tured and sold by the subscriber until the expiration of specified patents controlled
by the Wright-Martin and Curtiss Corporations, o until each of those corporations
shall have received the aggr^ate tum of $2,000,000, and to make other payments of
minor importance. (Art. VIII, pp. 8-9.)
The Association (Inc.) agrees:
To accept the appointment as agent of its subscribers for granting and enforcing
the license provided for in the agreement, and for enforcing the other obligations of
the subscribers under the agreement. (Art. II, p. 3.)
To make specified payments to the Wright-Martin and Curtiss corporations until
the expiration of designated patents or until each of those corporations sball have
received the aggr^^ate sum of $2,000,000, and to pay to the other subecriberB the
royalties, if any, to which they are entitled under the cross-license agreement.
(Art. IX, pp. 9-10.)
The cross-license agreement, as appears from its principal provisions sununarized
above, makes available to each subscriber of the Association (Inc.) the patents of
all the other subscribers, and thus in this important respect instead of restraining^
trade facilities competition among the subscribers of that association.
To thus make the patents of each available to all it was, of course, necessary to
provide special compensation for those controlling the more important patents in
the industry. This, as appears from the data submitted by the aavisory committee,
was the reason for the special payments to the Wright-Martin and Curtiss corparations.
The provision requiring these payments to be made to these corporations upon
every airplane manufactured and sold by the subscribers at first sight seems objec-
tionable as possibly designed to extend the patent rights of these corporations to
objects not covered by their patents.
However, the circumstances which led to the n^otiation of the cross-Hcense
agreement refute this. The numerous patents controlled by the Wright-Martin
and Curtiss corporations made it difficult for a manufacturer to construct an up-to-
date airplane without infringing one or more of the alleged patents of each of these
For this reason the advisory committee deemed it advisable to provide for a fixed
payment to be made to these corporations in respect to every airplane manufactured
and thus avoid the controversies which would almost inevitably arise if the payments
yirere made dependent upon the delicate question of which and how many of the
patents of the Wright-Martin and Curtiss corporations had been used in the maun-
facture of a particular airplane.
The provision requiring subscribers to submit claims for compensation in lesperi
to patents subsequently acquired by them to a board of arbitrators, and to license
each other under such patents at the rates of royalty fixed by that board might pos-
sibly be used to secure valuable inventions at unreasonable compensation. But
it serves the purpose of keeping the patents of each of the subscribers open to all,
and that doubtless was the pilrpose for which it was adopted. Its poanole abase,
therefore, scarcely justifies its condemnation in the absence of such abuse.
Not to go into further detail, the provisions of the cross-license agreement seen
to me to be reasonably adapted to secure cooperation among the parties to the s^iee-
ment in the interchange of their patent privileges without imposing by their nec-
essary effect any undue restriction of competition in violation of the Federal anii-
trust laws, but rather rendering competition freer by giving every responsible maav*
facturer of aircraft access to all the inventions in that field.
The by-lawB of the AsBociation (Inc.) authorizes anv responsible manulacturer or
prospective manufacturer of urplanes, or any manufacturer to whom the United
States has given a contract for the construction of 10 or more airplanes, or any owner
of United States patents relating to the same, to become a party to the cross -license
agreement upon subscribing for a shiore of the stock of that association and signing
the voting^trust agreement provided for in the b>^-laws.
The certificate of inconx)ration of the Association (Inc.) limits the stock of that
association to 100 shares of no nominal or par value, and authorizes it to issue and sell
the same from time to time at their fair market value. The subscription value of this
stock has since been fixed by the Association (Inc.) at $1,000 per share. The Associa-
tion (Inc.) under its certificate of incorporation enjoys broad powers not material
to the validity of the arrangement here under consideration.
The limitation of the number of shares of capital stock to 100, taken in connection
with other provisions ef the by-laws and cross -license agreement, has the effect of
limiting the number of aircraft manufacturers who may become pculies to the cross-
license agreement to 100. In the expansion of the industry this limitation may prove
objectionable, but the advisDry committee informs me that that number is far oeyond
the probable number of such manufacturers in the near future.
The voting-trust agreement, in effect, gives the management of the Association
(Inc.) for a period of five years to three voting trustees, to wit, a representative of
the Wright-Martin and Curtiss Corporations, a representative of the saialler manu*
facturers, and a member of the advisory committee.
The most Questionable provision in the entire arrangement is that requiring the
aircraft manu^turers who become stockholders in the Association (Inc.) and parties
to the cross licensa agreement to sign the voting- trust agreement. This provision,
however, in view of the circumstances noted 4>eiow, does not, in my opinion, con-
stitute a restraint of trade in violation of the Federal antitrust laws.
The primary functions of the Association (Inc.). so far as material to the arrange-
ment here under consideration, are to act as an agent for the parties to the cross-
license agreement in executing prescribed licenses, collecting and distributing royal-
ties, and appointing through its board of directors one of the arbitrators to pass upon
the value of patents acquired subsequent to the execution of the cross-license agree-
Under the arran^ent the interests of the Wright-Martin and Curtiss Corporations,
as owners of the principal patents and entitled to the bulk of the royalties provided
for in the agreement, are somewhat antagonistic to the interests of the smaller manu-
facturers wno have to pay these royalties. If all the manufacturers had been given
equal voice in the Association (Inc.), the smaller manufacturers together would have
been enabled to control the Association (Inc.), to wit, the agent of the parties on whose
responsibilitiy and vigilance the Wright-Martin and Curtiss Corporations are so vitally
interested. This conflict of interests accounts for the adoption of the votiog-trust
agreement under which the Wright-Martin and Curtiss Corporations named one
trustee, the smaller manufacturers another trustee, and a party not favorable to either
interest, namely, a member of the Advisory Committee, was elected for the third
Not to go into further detail, it suffices to say that upon the data submitted to me I
am of the opinion that the Association (Inc.), as now constituted, and the cross*
license aoreement under which it is now operated, are not in contravention of the
antitrust laws of the United States.
T. W. Grbqory,
Mr. Lea. Now, proceed with your objections.
Mr. Faubeb. I want to say that outside of this matter I want to
bring up a question that in mjr attendance here yesterday I saw
it was your duty as a Democratic member of the conmiittee to sort
of look aft«r the administration side of this question, and now 1 am
frfectly willing to go ahead, but I want to make this protest, that
believe it is the duty of the Republican members to have been
present at this meeting and see that the points of this thing are
properly brought out. I think that this committee is failing m its
duty. Now, I am not questioning your purpose, except that I do
criticize very severely the cross-license agreement as per the paper
I have filed here entitled '*A ^Within the Law' Conspiracy,'^ and
147155— la— VOL 1 20
436 WAK EXFBKDITUBBS.
if this committee is actually seeking for information on graft and
crime they ought to be on the job.
Mr. Lea. Am I to infer that you mean by that that you are in any
way hampered by me?
Mr. Fauber. I do not think so at all, and I am perfectly willing
to go ahead, but I realize your position, that you represent the
adimnistration side of the Government, which necessarily I must
criticize in this agreement.
Mr. Lea. I have no objection to your doing that at all. I asked
some questions in a way trying to sift the merits of your point, but
I want you to feel absolutely free to explain in your own way your
objections to this agreement, and show the viciousness of it, if it is
Mr. Fauber. It keeps nie figuring, not being a lawyer, whedier I
am being led into a one-sided explanation of the thmg.
Mr. Lea. Go ahead, and in your own way as briefly as you can
set forth your objections, and I will let you make your own statement.
Mr. Fauber. There is no objection on my part to your asking
questions, only I want to register a protest that the committee as a
whole should go into this matter, because of its great importance.
As I have said here in this printed statement, 'T would warn the
Members of Congress that an Aircraft Trust or a monopoly imperils
the safety of the United States."
Mr. Lea. Have you a pamphlet there, or a document, that sets
forth the essential features of your criticism of this agreement! If
you have, we will place that in the record.
Mr. Fauber. I have sent to the committee a copy of this 45-page
paper entitled '*A 'Within the Law' Conspiracy, which I believe
an hdnest and competent investigation will pronounce treason
Copies of that I will submit to the committee.
Mr. Lea. A 45-page document, of course, will be pretty big for
the record, but suppose you place that on file.
Mr. Fauber. It covers reasons which they ought to go into.
Mr. Lea. Can you not, in your own testimony, succinctly set forth
Mr. Faubee. I do not think that I ought to be compeUed to. I
think the duty of the committee in a matter as important as this is
such that they ought to be glad to hunt out all that, and if they
have not the time they ought to provide a board of patent experts
or iudges on patents to consider these things, because I do not
understand this committee is versed in patent law.
Mr. Lea. Well, I do not claim to be. I can not speak for the others.
Suppose you wait temporarily. [After a pause.l I will say that I
have triea to get in communication with Mr. Frear, but could not do
so at this time, and in view of your criticism of the Republican
members not being here I want to say that I have to meet the re-
sponsibility this morning for a square deal, both to you and the
Kepublican members, and I do not want to go ahead with an exam-
ination if there is any criticism of my conauct of it without their
being here, because I certainly do not want to put them in an embar-
rassing position. I have been conducting this examination at the
reauest of Mr. Frear this morning.
Mr. Fauber. I have a great deal of confidence in you peraonally.
Mr. Lea. I want you to have any opportunity you desire to pro-
'^ AVIATION. 437
sent this matter to the best advantage, your side of it, and I feel
particularly sensitive, as I feel my responsibility for a square deal
IS much greater than if I were not alone ; and the Republican members
have had confidence enough in me to trust this examination to me,
and I certainly feel responsible for a sauare deal here. If you do