be covered into the Treasury as miscellaneous receipts under the settlement of war claims act of 1928:

The total amounts authorized to be deducted under section 2 (e) of the settlement of war claims act of 1928 from payments on account of the awards of the Mixed Claims Commission, United States and Germany, rendered under the agreement between the United States and Germany of December 31, 1928 (entered into under the authority of section 2 (j) of such act) are hereby made available for reimbursing Germany on account of the expenses incurred in connection with the adjudication by the commission of claims under the said agreement, and the Secretary of the Treasury is authorized and directed to pay the total amounts so deducted to such representative of the German Government as the Secretary of State may designate.

Pursuant to authority contained in section 2 (j) of the settlement of war claims act of 1928, the United States entered into an agreement with Germany on December 31, 1928, for the extension of the jurisdiction of the Mixed Claims Commission, United States and Germany, to include claims of the same character as those of which the commission had jurisdiction under the agreement between the two Governments signed August 10, 1922, which were not filed in time to be submitted to the commission under the terms of that agreement but which were filed with the Department of State prior to July 1, 1928. Section 2 (e) of the act provides that there shall be deducted from payments of awards of the Mixed Claims Commission as reimbursement for the expenses incurred by the United States in connection with the adjudication of the claims an amount equal to one-half of 1 per cent thereof, which it is provided shall be deposited in the Treasury as miscellaneous receipts.

It is proposed that the amount of one-half of 1 per cent which is authorized to be deducted shall, so far as the claims filed under the agreement between the United States and Germany of December 31, 1928, are concerned, be made available to the German Government for defraying such expenses as may be incurred by that Government in connection with the adjudication of such claims.

It is estimated that this deduction of one-half of 1 per cent will amount to approximately $50,000.

The proposed legislation is necessary to meet a contingency which has arisen since the transmission of the Budget for the fiscal year 1930, and its approval is recommended.

Very respectfully,

H. M. LORD,

Director of the Bureau of the Budget.

PROPOSED LEGISLATION

The total amounts authorized to be deducted under section 2 (e) of the settlement of war claims act of 1928 from payments on account of the awards of the Mixed Claims Commission, United States and Germany, rendered under the agreement between the United States and Germany of December 31, 1928 (entered into under the authority of section 2 (j) of such act), are hereby made available for reimbursing Germany on account of the expenses incurred in connection with the adjudication by the commission of claims under the said agreement, and the Secretary of the Treasury is authorized and directed to pay the total amounts so deducted to such representative of the German Government as the Secretary of State may designate.

O

2d Session

No. 695

EXTENSION OF JURISDICTION OF WAR CLAIMS ARBITER TO INCLUDE CERTAIN PATENT CLAIMS

FEBRUARY 17, 1930.-Committed to the Committee of the Whole House on the state of the Union and ordered to be printed

Mr. HAWLEY, from the Committee on Ways and Means, submitted the following

REPORT

[To accompany H. R. 9142]

The Committee on Ways and Means, to whom was referred the bill (H. R. 9142) to extend the jurisdiction of the arbiter under the settlement of war claims act to patents licensed to the United States, pursuant to an obligation arising out of their sale by the Alien Property Custodian, having considered the same, report it back to the House without amendment, with the recommendation that the bill do pass. The settlement of war claims act of 1928 provided, among other things, for the settlement of claims against the United States (arising out of events occurring in the United States during the World War) in respect of German-owned ships, title to and possession of which were taken by the United States; the radio station at Sayville, Long Island, bencficially owned by German nationals, which was taken by the United States; and certain patents (belonging to German, Austrian, or Hungarian nationals, seized by the Alien Property Custodian of the United States under the trading with the enemy act) which were used by or for the United States or which were sold or licensed to the United States by the Alien Property Custodian.

Proceedings in these cases are in progress before the war claims arbiter, appointed under the settlement of war claims act, and awards of fair compensation will be made by him in due course in favor of the German, Austrian, and Hungarian nationals, and payment of these awards will be made in the manner and in the order of priority prescribed by the act (secs. 4 and 7).

There remains but one class of patent claims for the Congress to pass upon. This class is covered by the pending bill. Certain of the patents which were seized by the Alien Property Custodian during the war were sold by him in 1919, 1920, and 1921 to the

Chemical Foundation (Inc.). This organization was chartered in Delaware on February 19, 1919. The first sale to it by the custodian was on April 10, 1919. At the time the settlement of war claims bill was first under consideration by your committee a suit brought by the United States Government in 1922 to set aside these sales was pending in the Federal courts. It was highly desirable not to interfere with the litigation. Accordingly, the settlement of war claims act excluded from its terms the licenses which the United States Government received from the foundation under the patents in question. These licenses were free, nonexclusive licenses. They were granted subsequent to April 10, 1919, the date of the first sale. They were granted by the Chemical Foundation in pursuance of an obligation arising out of the negotiations with the then Alien Property Custodian prior to the first sale. The charter of the Foundation empowered it to grant such licenses to the Government.

According to the information available to the committee there were 5,089 patents (including applications for patents) sold by the Alien Property Custodian to the Chemical Foundation. The aggregate consideration received by the Alien Property Custodian was $271,850. The proceeds are still in his hands. The Government instituted the aforesaid suit to set aside the sales, alleging, among other things, fraud and an inadequacy of consideration. The Supreme Court of the United States affirmed the dismissal of the suit (272 U. S. 1), holding, in effect, that the sales were valid, were made by the custodian in pursuance of the provisions of the valid trading with the enemy act, and were not tainted with fraud, and that the United States was not entitled to have them set aside. One of the facts relied on to considerable extent by the courts with respect to the adequacy of consideration was the obligation of the Chemical Foundation to grant to the United States Government the free, nonexclusive licenses under all the patents which it did grant.

Notwithstanding the specific provisions of the settlement of war claims act, excluding from the jurisdiction of the arbiter the licenses in question, the original owners of many of these patents filed their claims with the arbiter. The late Judge Edwin B. Parker (the first arbiter) held, in a very able opinion, that the act did not give him jurisdiction to determine the fair compensation to be paid for the licenses so received by the United States from the Chemical Foundation. This bill would confer such jurisdiction on his successor, Judge James W. Remick.

The settlement of war claims act now provides for the determination by the arbiter of the fair compensation to be paid by the Government for the use by or for the United States of the inventions covered by formerly enemy-owned patents prior to their license, assignment, or sale by the Alien Property Custodian and also for such patents which were sold or licensed directly by the Alien Property Custodian to the United States. This bill places the licenses received by the United States from the Chemical Foundation upon exactly the same plane as the licenses received by the United States directly from the Alien Property Custodian. It treats the transaction as if it were in law actually what it was in fact-a license to the United States by the custodian through the Chemical Foundation. It accords to the former owners of these patents exactly the same treatment heretofore accorded to the owners of other patents licensed directly by the cus

todian to the United States. The language is in general terms so that if others are in the same situation-although the information gathered by the committee discloses none-they will receive the same treatment. The bill also allows claimants 60 days within which to file their claims if not already registered, in order that those who correctly read the existing statute and therefore refrained from filing may not be without remedy.

The settlement of war claims act placed limitations on the liability of the United States under the aggregate awards of the arbiter of not to exceed $100,000,000 in the case of all German claims (ships, radio station, and patents) and not to exceed $1,000,000 in the case of all Austrian and Hungarian claims (patents). This bill does not change these amounts, and your committee is of the opinion that they should not be changed. It has been estimated that the awards in respect of the patents covered by the proposed legislation should not exceed $2,500,000. A letter from Colonel McMullen, of the War Department, who has furnished the committee considerable information in connection with the settlement of war claims act and the pending bill, follows:

Hon. WILLIS C. HAWLEY,

Chairman Committee on Ways and Means,

House of Representatives.

FEBRUARY 13, 1930.

DEAR MR. HAWLEY: Responding to your letter of the 11th instant concerning the license value of the Chemical Foundation patents, I have the honor to advise you that my further study of those patents has confirmed my original opinion that the value of the license to the United States Government is, as I originally estimated, $2,500,000. It can not, of course, be denied that the economic value to the United States of depriving the Germans of their ownership of the Chemical Foundation patents and creating an open market for the products covered by those patents is worth a much greater sum to the people of the United States, but it is my understanding that the arbiter is only to consider the value of the licenses to the Government and is without jurisdiction to consider the economic side of the question.

I trust that this will give you the information you desire.

Sincerely yours,

Jos. I. MCMULLEN, Lieutenant Colonel, Judge Advocate.

It was suggested to the committee that the original owners of these patents had assigned their claims and would not now benefit by the proposed legislation. Accordingly, your committee directed. that a special investigation be made into this phase of the matter. Information was obtained from eminently reliable sources and your committee is convinced that there has been no such assignment as was suggested. In fact, no information of any assignment or sale of any of the claims involved has come to the committee's attention. There should also be considered in connection with the matter of assignment the decision of Judge Parker (Administrative Decision No. I), page 18, the effect of which will be seen in the following paragraph:

The arbiter holds that when one who qualifies as a proper party claimant under the act appears to assert a claim which otherwise falls within the terms of the act, and such claimant is one other than the German (or Austrian or Hungarian) owner of the patent in question at the time of its unauthorized use by or for the United States or at the time it was seized or acquired by the custodian, then the burden will be on the claimant to prove that the claim has passed to and vested in him through involuntary succession, or by operation of law, or as an incident to the forming or the dissolution of a partnership, or

the incorporation of a partnership business, or the dissolution of a corporation, or the merging and consolidation of corporations, or the enforced segregation and disposition of corporate assets, and the like. But where it is made to appear that the claimant acquired the claim in question through ordinary barter, purchase, and assignment for speculation or profit subsequent to the use by or for the United States on which the claim is based, or subsequent to the time the patent in question was seized or acquired by the custodian, such claimant will not be entitled to present his claim to the arbiter.

The amendments to the existing law (the first sentence of paragraph (3) of section 3 (b) and the first sentence of paragraph (1) of section 6 (a) of the settlement of war claims act of 1928) proposed by the bill, are indicated as follows:

Any patent (or any right therein or claim thereto, and including an application therefor and any patent issued pursuant to any such application) which was licensed, assigned, or sold [by the Alien Property Custodian] to the United States (A) by the Alien Property Custodian or (B) pursuant to an obligation arising out of a license, assignment, or sale thereof by the Alien Property Custodian, but no award or tentative award shall be made under clause (B) of this paragraph unless a claim therefor is filed prior to the expiration of sixty days from the date upon which such clause becomes law.

A letter from the Secretary of the Treasury, reporting favorably upon the proposed legislation, and the decision of the Supreme Court in the Chemical Foundation case are reprinted herewith.

Hon. WILLIS C. HAWLEY,

Chairman Committee on Ways and Means,

House of Representatives.

JANUARY 25, 1930.

MY DEAR MR. CHAIRMAN: The Treasury has had under consideration for some time a proposed amendment to the settlement of war claims act. The effect of the amendment is to provide for the determination and payment of fair compensation to the former owners of certain patents (frequently referred to as the "Chemical Foundation" patents) which were sold by the Alien Property Custodian to private interests and which, under an undertaking by those interests in the negotiations of the sale, have been licensed without charge to the Government of the United States.

Judge Parker, the first arbiter appointed under the settlement of war claims act, held in a very able opinion (Administrative Decision No. I) that the act does not provide for the determination of the compensation to be paid the former owners of these patents for the licenses from the Chemical Foundation to the Government. In the opinion of the officials of the Treasury who assisted in the preparation of the legislation, the arbiter's decision is eminently sound and directly in accordance with the intent of Congress. At the time the legislation was first under consideration by your committee, the so-called Chemical Foundation case was pending in the Supreme Court of the United States and, of course, it was highly important that nothing be done to affect the status of the case. Although the decision of the Supreme Court, adverse to the contentions of the Government, was handed down prior to the final enactment of the legislation, your committee and the Committee on Finance (as evidenced clearly by the careful and accurate draft of the provision and its legislative history) concluded that time did not then permit the determination of a proper policy to be applied to these patents.

You will recall that the patents in question were sold to the Chemical Foundation by the Alien Property Custodian; that the United States, through the Department of Justice, brought an unsuccessful suit to set aside the sale, alleging among other grounds that the consideration paid to the Custodian was grossly inadequate; that, under oral agreements and understandings had prior to the sale, the Chemical Foundation was obligated to grant to the Government free nonexclusive licenses of all the patents involved; and that these licenses were granted shortly after the sale. The provision of the act in question provides compensation for sales or licenses of patents only if the patents were sold or licensed to the United States by the Alien Property Custodian. The patents in question were sold by