New Australian Agreement Affects N.Z.

Radio Record, Volume I, Issue 19, 25 November 1927, Unnumbered Page

New Australian Agreement Affects N.Z.

Litigation to Determine Validity of Patent Rights All New Zealand listeners must be interested in the possible outcome of a Press Association cablegram from Melbourne published on Friday last which intimated that a new agreement was being entered into between the Commonwealth Government and Amalgamated Wireless of Australia Ltd. This is a consummation arising out of the Royal Commission on Wireless, the recommendation of which we published some two months back. The outstanding feature of the new agreement that is of interest to New Zealand provides that action shall be taken by Amalgamated Wireless (Aus.), Ltd., to establish in New Zealand the validity of its patents. This will apparently bring te question the legislation passed by the New Zealand Parliament prior to the establishment of the present broadcasting service and as a condition of its inception. In view of the position as it now stands and of prospective developments, readers will best secure an understand-~ ing of the matter by our reproducing the major part of the section dealing with "Patent Royalties’? embodied in the Australian Commission’s report.

AUSTRALIAN ROYAL COMMISSION ON WIRELESS. PART V.-PATENT ROYALTIES. From the commencement of our inquiries the demands by Amalgamated Wireless (Australasia), Ltd., for patent royalties, both on broadcasting stations and on radio traders, were a constant subject of discussion. ‘Ihe evidence disclosed that the operations of this company extended over cvery field of radio, and in almost every instance have created friction and dissatisfaction, A widespread opinion prevails that, because the Commonwealth owns the majority of shares in Amalgamated Wireless (Australasia), Ltd., that company should control itself and its revenues on the same lines as a Government Department providing a public service. Indeed, an argument was addressed to us by a representative of the Victorian radio interests, based upon the language of Section 51 (vy) of the Commonwealth of Australia Constitution Act, and it was suggested that unless the company carried on its operations.on the same lines as the Commonwealth carried on the postal, telegraphic, and telephonic service, it was doubtful how far the Commonwealth could constitutionally be a shareholder in the company. The Commission expresses no opinion or this constitutional question, but it is obvious, from the terms of the agreement between the Commonwealth and. the company, that, except in the case of the matters expressly referred to in Clause 3 (vii), it was intended that the company should be managed on ordinary commercial lines. The evidence shows that the Right Hon. W. M. Hughes, P.C., when Prime Minister, instructed the Government directors, on their appointment, that they were expected to assist in managing the company on commercial lines, and, in view of the fact that there are 499,999 shares privately held, the attitude of the directors, as expressed by the chairman of directors of the company, cannot be ‘jnestioned, viz., that the duty of the directors is to conduct the management of the company on ordinary commercial lines. It seems impossible otherwise t> reconcile the interests of the private shareholders with those of the Commontwealth. LEGALLY POSSESSED OF PATENTS. The company has become legally entitled to a large number of patents concerned with wireless, and it has been claimed for it that no valve receiving set can be manufactured without utilising one or more of the company’s patents, and likewise no broadcasting transmitting station can be lawfully operated without a license from the company, ; Under these circumstances, the company has been brought into conflict with the dealers throughout the Com-

monwealth who are engaged in the sale of radio goods, and with several of the broadcasting companies. At this date the company is engaged in litigation in both New South Wales and Victoria-a suit for in. fringement of patent rights and an ac. tion for defamation having been commenced in Victoria, and two suits for infringement of patent rights and an action for recovery of royalties having been initiated in New South Wales. In every case the company is ihe plainut, The demands of the company for royalties have been based upon the princtple that it was entitled to demand from the public whatever it could get. The managing director of the company was asked whether the attitude of the company was that it was entitled to charge whatever it cofsidered fair, without regard to any other person’s sstimation of what was fair, and he answered: ‘‘Most certainly, when other traders want to use its property.’"?" He said that the Patents Act entitled the company to charge whatever it thought fit for the use of its patents, and that he took as his guide the patent grant itself. The chairman of directors gave evi- dence that the company should only ask for royalties what the public should fairly pay, but the directors of the company, at a meeting held on June 1, 1928, had authorised the managing director to fix the amount of ~"oyalty in connection with licences for the use of the company’s patents for broadcasting receivers at 12s. 6d. per valve socket, and to fix conditions of licenses and amounts of royalties for using the company’s patents for Lroadcasting transmitters, ‘‘as he considers best in the company’s interest.’’ The conduct of the managing director in carrying out the powers entrusted to him has created an atmosphere of. hostility and distrust that has been manifested to the Commission througlout the Commonwealth, DOUBTS AS TO VALIDITY. The conduct of the company with regard to patents claimed by it has caused a hona-fide doubt in the minds of those interested as to whether the company itself regarded the patents owned by it ds valid. The Commission has refrained from entering into the question of the validity of these patents, and nas assumed for the purpose of this report that all patents claimed by Amalgamated Wireless (Australasia), Ltd., are valid and enforceable. Notwithstanding that traders were refusing to sign the license form sulmitted by Amalgamated Wireless (Australasia), Ltd., and that goods were being sold in everv city of Australia which were, according to the manag: ing director of Amalgamated Wireless (Australasia), Ltd., an infringement of patents held by his company, tio steps were taken by the company to protect its rights until quite recently, and the litigation: commenced against Mel. bourne and Sydney firms has been al-

Jowed to. proceed in a leisurely fashion. THE NEW ZEALAND LEGISLA-: TION. In the meantime, the Parliament of the Dominion of New Zealand has passed legislation which was apparently intended to invite Amalgamated Wireless (Australasia), Ltd., to a contest co the question of the validity of the patents used in broadcasting stations. Evideuce has been given that radio dealers in New Zealand are, in some instances, carrying on the sale of goods employing patents of which Amalgamated Wireless (Australasia), Ltd., claims .to be the owner, without any attempt on the part of that company to protect its rights. If Amalgamated Wireless (Australasia), Ltd., were in a position to commence litigation against residents of the Commonwealth in respect of infringements of its patent rights, it is difficult to understand why it was not equally prepared to defend its rights in New Zealand. As a result of the company’s acts and omissions, the company is regarded with suspicion, and its business methods disapproved throughout Australia. Its own selling agent in Western Australia said, "I know that Amalgamated Wireless (Australasia), Ltd., is undoubtedly the worst hated firm in Australia "’ TERMS FOR TRADERS. Not only has the company made demands on radio dealers which, in the opinion of the Commission, ere excessive, but they have sought to impose terms and conditions on their licenses which are oppressive and unfair. The managing director of the company has described the proposals of his company as being merely bases for discussion, and stated that it was open to the proposing licensee to suggest and negotiate for better terms. This attitude is better appreciated when it is realised that the license form is a stereotyped printed document, and that the licensee is aware when asked to sign it that, in effect, if Amalgamated Wireless (Australasia), Litd., chooses, it can prevent him from earrving on his business. Moreover, the printed license form includes a list of about 150 patents, the existence and validity of which the licensee is asked to bind himself not to challenge, ‘The evidence before the Commission shows that at least twenty of these patents have expired, and a considerabl number of them have no relation to wireless receiving sets. ‘here is no doubt, in the opinion of the Commissioners, that the conduct of the company in relation to its patent rights has been high-handed and overbearing. It seems of first importance, therefore, that the Commonwealth should see that the validity of the patents claimed by Amaigamated Wireless (Australasia), Ltd., in which company it is the largest shareholder, should be established at the earliest possible moment, This will not only have the effect of allaying the distrust ‘which has

been created, but will also enable an appraisement to be made of the real value of the patent rights owned by the company. HOW PATENTS WERE SECURED. The history of the acquisition of these tights by the company would seem to indicate that the £90,000 which it paid in shares for these rights im 1913 was arrived at by way of compromise, and not on any carefully considered basis of real value. . Light is thrown on the value of these patents by the evidence of the managing director, that for £3000 the company bought the rights of the patents of the General Electric Company of America-the Radio Corporation of America-up till about 1950, and similar rights of two French companies, the Compagnie General Telegraphic Sans Fil and the Societe General Radio Tilectrique, and that some of these are important patents used in the mianufacture of their own radio sets. Even in cases where the Amalgamated Wireless (Australasia), Ltd., has sold and erected transmitting stations to broadcasting companies, the contract insisted upon the Amalgamated Wireless (Australasia), Ttd., has included an obligation on the part of the broadcasting company to pay royalties on patents employed in the articles sold and erected by Amalgamated Wireless (Australasia), Ltd., and in respect of which it has already received a handsome profit. ROYALTY ON LISTENERS. The royalty demanded by Amalgamated Wireless (Australasia), Ltd., from "4" class broadcasting stations is 5s. for every listeners’ license, emounting to 20 per cent. of the station’s gross revenue from license fees. In the year 1926 the actual cash paid or demanded by Amalgamated Wireless (Australasia), Ltd., in respect of this class of royalty was £38,100. ‘he cost price of the patent rights of Amalgamated Wireless (Australasia), Ltd., are shown in the books as £93,000, and reference has already been made to the item of £90,000, constituting the major part of that total. In addition to the royalties of £88,100 received from broadcasting stations, nearly £4000 was received in that year from royalties on receiving sets. The sum received from receiving sets was only a small proportion of what the company would be entitled to, assuming its patents are valid, and that royalties had been paid on all receiving sets sold in the Commonwealth. ROYALTIES ON SETS, The representative of the Victorian tadio interests estimated that 60,000 was a fair estimate of the number of sets that would be sold in the Commonwealth in one year, and on the average these sets would contain four valve socket holders. ‘The Commission is of opinion that 50,000 is an excessive estimate, and prefers to assume a sale of 25,000. On this basis the company would have been entitled to (Sontinued on Page 2.)

New Australian Agreement Affects N.Z.

Continued from Page |

royalties to the amount of £62,500 on xeceiving sets per annuin. ‘Further, the company has demanded from "B’? class broadcasting stations up to 25 per cent, of the gross revenue of ‘the stations; but the Commission jhas‘no definite evidence as to the am‘onnt, if- any, reccived by the company from "B" class stations. | Moreover, the royalty demanded from. "4? class broadcasting stations is en--tirely out of proportion to the capital cost of the equipment in respect of which it-is demanded, ‘The following table shows the amounts paid to Amai.gamated Wireless (Australasia), Ltd., for plant by some of the broadcasting» stations, and the royaities demanded or paid to that company in, 1926 :--

ROYALTIES ON VALVES. Vurther friction has arisen from the attitude of Amalgamated Wireless (Australasia), Ltd., with regard to royalty .charges on valves sold separately from ‘sets. On December 28, 1923, the managing director stated to a trader: "With reference to valves sold otherwise than with licensed receivers, it is not our desire to in any way restrict the sale of a valve which does rot infringe our patent rights; but, at the saine time, we think it is advisable to inform you that, in our opinion, it is not possible to sell a valye suitable for broadcasting receivers without infringing one or more of our patents: If you manufacture or sell a valve which does not infringe any of cur patent rights, no restriction on any such manufacture or sale will be made undez our license to you; but, of course, if you import, manufacture, sell, cr use a ‘valve which is subsequently proved to be an infringement of our patents, we must hold you responsible * such infringement, unless such sale is covered by our license.’ If you wish to take advantage of this offer we are prepared to alter the terms of your >:nse by eliminating clause 2 (0) altogether, and altering clause 3 (b) to read as foliows :- " ‘Nothing herein contained «hall authorise "the Hcensee to manufacture or import thermionic valves of any kind,

‘nor to’ sell thermionic valves, except! one valve with each vaive-holder, in re spect of which royalty is paid in accordance with sub-clause (j) of clause’ 2 hereof.’ "" ; In, January, 1927, the chairman of | directors of this company caused to be: published in various newspapers a notice, in which the following passages occur:- ~ "Judging by the reports appearing in the Press, the position has been greatly misrepresented, and the claims for royalties by the Amaigamated Wireless Company have been distorted and exerated. . "The Amalgamated Wireless Company is the’ holder of exclusive rights in‘ Australasia to many vital. patents for appliances of principles necessary to be used in wireless reception by valve sets, and in all wirefess’ broadcasting’ transmission. ‘This has involved ex-. penditure by the company of very large sams; further, in the cost of research work, organisation, and continuing patént* office fees-facts which appear to be overlooked. "Statements have been made that. the purchaser of a receiving set requir | ing to renew the valves wonld again have to pay a royalty charge.. Such is" not the case. ‘The ¢ompany has not ‘claimed royalty on valves. There is. one royalty only on a receiving set, charged upon tlie number of vaive sockets, not upon the number of valves the set may ultimately nse."’ Turthermore, in the course of evidence before the Commission, tlre managing director stated that the notice of January, 1927, was only intended to convey an intimation to the public that up to that moment Amaigamated Wireless (Australasia), Ltd., had not -laimed rovalty on separate yalves, but reserved the right to do so. Such a claim should be made to extend retrospectively for the period allowed by | the Statute of Limitations. The Cominission is "ef: opinion that the notice did not fairly convey such an intimation to the public, and was. ‘misleading, and the company should forthwith abandon any claim fex past rovaitics on separate valves. The conditions of the printed form of license offered to the traders are, in our opinion, too stringent. .+ . QUESTION OF LITIGATION. It has been stiggested that the traders had it in their power, under Sections 87 and 91 (a) of the Patents Act, 1903-1909 (appendix No, 2) to test the teasonableness of the demands made by Amalgamated Wireless (Austral- asia), Ltd., and also the validity of the patents in question. Tiowever, the managing director of the company himself edmitted that the patent posttion was a most complicated one, that litigation of the character suggested would be long and costly, end would involve investigation and the tcking of evidence in otlier parts of the world. It was natural, therefore, that no

{ trader, however substantial his business in other departments, could be_expected to embark upon such litigation. The tradiug accounts of representative traders, given in évidence before the Com-' mission in the various capital cities, are suffivient indication. that there is. no incentive to any individaet trader to undertake any substantial risk of as- | tablishing a radio department, , In view of the foregoing state of things, the Commission is of opinion | that a change is imperatively necessary in the attitude and practices of the company in ‘relation to the licensing by it of radio traders, and -n relation _te its demarids on broadcasting stations, which, if satisfied, are passed on to and met by the public, PROPOSED REMEDIES. Various remedies have been suggested to the Commission. It was urged that the Commonwealth } should acquire the ‘patents under. Section 93’of the Patents Act {sée appendix No, 2). } Amongst ‘ther objections to this course is, firstly, the fact that the validity of the patents, which under that section would need to be valued, : has not beer established, and it is at least doubtful because of tke fact that the Commonavealth is already sub-] ‘stantially a part-owner of these -atents would be . magnified. ‘Thirdly, tlie precedent created would be extremely dangerous, as it would be difficult to draw the line between patents for wireless apparatus and patents nsed in other public services. Fourthly, the Amalgamated Wireless (Australasia), Ltd., does not own, or claim to own, j all the patents which might be necessary to make a first-class receiving set, | and, therefore, cither the Commanwealth sould not fully control the sitnation, or would be forced into. fur- 3 ther acquisition of patents. TFifthly, the position of the Commonwealth as owner of patents in this relation with the various inventors in other parts of the world would be doubtful. BUY UP THE SHARES. Another remedy suggested was that the Commonwealth should utilise the right or power referred to in Clause 21 of the agreement of March 28, 2922, betwech the Amalgamated Wireless (Australasia), Ltd., and the Commen‘wealth of Australia, which is is the following terms :-‘‘Nothing in this agreement sha!l be construed to: prejudice or limit in any way any right or power to the Commonwealth to acquire on just terms, compulsorily or other-: wise, any share or interest of any person in the company.’ This is a r:eans which the Commonwealth imay he ultimately driven to adopt, but showld } not, in our opinion, be availed of, except as a last resort. Many of the objections set out in reference to the first suggestion dealt with above apply in this case also, but there are, however, additional objections. This scheme would involve the acquisition by the Commoimvealth of the whole of the assets of Amalgamated Wireless ‘\ustralasia), Lid., which would include the mannfacturing and trading business-ships’ installations, ete., as well as a number of patents which would be of no value to the Commonwealth, ‘The Commission, however, has given grave consideration to the necessity of adopting this course in connection with other matters arising for decision, and is of opinion that, provided the course hereinafter recommended is found, for any‘reason, to be impracticable, the Commonwealth should acquire the private shares se --- mt ome Semen owe on

far as it constitutionally cam, and that the value of the shares for the purposes of compensation should be ascertained as at the date of the day before the publication of this report. Still another remedy suggested was that legislation shonld be introduccd te : limit the royalties demandable by, the Amalgamated Wireless {Australasia), ‘Ltd., in. respect of the patents owned by. it. This, in our opinion, is objec« tionable, as creating a dangerous precedent, whiiclh would seriously affect Ause tralian inventions in other parts of the world, and would almost certainly react ¢letrimentally te the people of. the Commonwealth. FINAL RECOMMENDATIONS, Having taken all these matters into consideration, the Commission is of opinion :- 1. That -the charges made by Amale gamated Wireless (Australasia), iitd., on broadcasting: companies are excessive, and that they should be reduced to a royalty of -2s. on each listener’s license. 2. That the charges made by Amal. gamated Wireless (Australasia}, Ltd., on radio dealers are also excessive, and detrimental to the development of wireless services within the Commonweaith, and that they should be reduced to a royalty of 5s. on cach valveholder, such rovalty io include one valve for each valve-holder. 3. That the attitude of the company with regard to claims for royalty on separate valves should be immediately Jefined, and that the claims against traders ‘in respect thereof should be abandoned; se far as transactions on or previous to the date of publication of this report are concerned. 4. Phat the charges made by Amalgamated Wireless (Australasia), Ltd., on reyenue-earning ‘B" vlass broadcasting stations should be limited to 10 per cent. of the #ross revenue of each station. Your Cummissioners recommend, therefore- ’ 1, That the Commonwealth Government should request Amalgamated Wireless (Australasia), Ltd., to comply with the requirements, contained in the foregoing four paragraphs. 9, That, failing compliance with the foregoing requirements, the Commonwealth should take steps to acquire the shares priyately held in the company om jist terms to the private shareholders. 3. That prior to the acqnisition of shares, the company should be directed to take all steps to obs tain an early decision on the validity of its patents. 4, That the recommendations of the Commission as to royaltices and . patents should be given effeet to, both as to future and also as to current licenses as froin the date of the publication of this report.

THE NEW AGREEMENT The text of the Press Asseciatiom message of November is & as follows:- . The Prime Minister (Mr. » M. Bruce} introduced. in the House of Representajives a Bill to amend the agreement between the Com: monwealth Government and Amakgamated Wireless of Aus‘ralasia rights to licensed broadcasting stations, radio dealers, and. listeners:. in from Amalgamated Wireless, with a "payment to Amalgamated Wireless by ‘the Commonwealth Government of 3d. per month on behalf -of ‘each licensed Hstener (the old rate was 5d. per month or 5s. per annum),‘and the, retentiom by Amalgamated Wireless of- the stations which it at present owns. The new agreement is t remain operative for five Fears. The Com: monwealth and the cempamy must agree on a form of license te be. signed by the users of patents. The Bil provides for: iree patent. The company agrees to grant a. license, free. of royalty, te every newspaper and every broadcasting svation in the Commonwealth for the purpose of receiving official news bulletins from Britain. The company agrees to prosecute expeditiously possible actions which have already been instituted for the infringement of patent, righisit is agreed that the actions are to be for rights important to broad: casiing-uniess these actions are finished within tweive menths in favour of the company. The agreement provides that the company wil commence corres: ponding actions in New Zealand. The provision dealing with the retention of sta‘tens by Amalgam: ated Wireless includes a clause that all equipment shall be modern: ised and the stations reorganised. Payments te the Pestmaster-Gener-al’s Department in respect ef mesSages handled by the Post Office are eliminated, while the Common: wealth promises to previde the company with the necessary land: line connections and internal communications at the usual rates. The company is not allowed to transmit or receive inland messages unless required by the Common: wealth to do so in cases of inter: ruption of line circuits, but will be entitled to establish and operate commercial wireless services between Australia and ships at sea, with aircraft, and between territories and other countries.

— Se a Station. Broadcasting Contpany of Australia Proprietary, Ltd. (3L0)..... Farmer and Compauy, Ltd. (2FC) w... Broadcasters (Sydney), Ltd. (2BL) wc... eee Queensland Radio Service (40G) .......... Westralian Farmers, Etd. (GWE)... Central Broadcasters, Ftd. (SCL) wecccsserseces al Price of plant , supplHed by Amal- Royal- ' gamated tiess deWireless manded {Austral- or pid 14,900 11, 102 asia), Ltd. in 1926, £& & |