Paraflow and Paradox

A classic case history in what's wrong with U.S. patent laws was told to the Senate Patents Committee last week. Thurman Arnold's men, as usual, played up the Nazi angle, since the case grew out of the relationships between Standard Oil Co. (N.J.) and I.G. Farbenindustrie. But their real point was that U.S. patent laws restrain U.S. trade:

Standard had a patented product called Paraflow, which miraculously lowers the temperature at which oil ceases to flow. The original product was an I.G. synthetic lubricant, but it was a Standard engineer who had the wit to see in it the "pour point depressant" for which all U.S. oil companies had been searching for years,

Paraflow was a gold mine: it yielded Standard more than $1,000,000 a year, or a gross profit on sales of some 50%. It was so good, in fact, that Socony-Vacuum tried to save itself royalties by inventing a substitute. This was Santopour, which was sold at the same price but was, in some cases at least, more effective.

At this point Standard and Socony began to talk things over. The Senate committee was read memorandums of these conversations last week. One, from Socony's files, described what Standard Development's Frank Howard told Socony's D. R. Lamont. Mr. Howard "said that he had been informed that our product [Paraflow] could be made more cheaply than theirs [Santopour] and he felt that they [Socony] had no right whatever to put a basically higher priced material on the market when the only result obtained would be forcing us [Standard] to reduce the price of our material, when, in fact, we could finally reduce the price to such a point that they could not stay in the business at all ... that this was only a question of reputable business practice." There were other veiled threats of how Standard might retaliate. It all made Mr. Howard sound like a Standard Oil man of Ida Tarbell's day.

A deal was finally made in 1938: Standard retained 80% of the pour depressant market, collected royalties on the rest from Socony and Monsanto Chemical (which manufactured Santopour), and between them they stabilized potency, specifications, prices, etc., on all production. But the deal was made as a patent-licensing agreement. The Justice Department contends that this was merely a dodge to get around the anti-trust laws. Standard contends that it was convinced from the start that Santopour infringed the Paraflow patents. In any case neither company, after preliminary testings-of-strength, cared to risk the expense of an infringement suit. It was more businesslike to divide the market.

This, exploded Senator La Follette, was "the most startling exposure of prostitution of the patent laws . . . ever seen." Yet it was also, perhaps, a perfectly legal use of the monopoly that a patent grants to its owner. It floodlights the paradox of patent protection v. restraint of trade--and the lengths to which large corporations will go to avoid lawsuits and "destructive" competition.

To get the U.S. patent system out of such strait jackets and back to its original purpose--the encouragement of invention--the Patent Committee already has a Bill.

Main provisions:

> To make a patent available to the public if, after three years, its owner has failed to use or license it.

> To enable any "interested person" to ask the Patents Commissioner for a hear ing upon such disuse at any time.

> To make it unlawful for any patent license to prescribe prices, market areas, sales volume, etc. (This week the Supreme Court, in an 8-to-0 decision involving Univis Lens Co. patents, said flatly that this was already the law of the land. )

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