In-The-Ear Hearing Aids, Inv. 337-20

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# UNITED STATES TARIFF COMMISSION

IN-THE-EAR HEARING AIDS

Report on Investigation No. 337-20
Under the Provisions of Section 337
of the Tariff Act of 1930, as Amended

UNITED
COMMISSION

STATES TARIFP CO

TC Publication 182
Washington, D. C.
July 1966

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# UNITED STATES TARIFF COMMISSION

Paul Kaplowitz, Chairman
Glenn W. Sutton, Vice Chairman
James W. Culliton
Dan H. Fenn, Jr.
Penelope H. Thunberg
Donn N. Bent, Secretary

Address all communications to
United States Tariff Commission
Washington, D. C. 204 36

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## CONTENTS

Page

Introduction

1

Conclusions of the Commission

4

Description and use of hearing aids

5

U.S. production, sales, imports, and marketing of hearing aids:

Domestic producers

10

Production and sales

11

Imports

12

Distribution methods

13

Prices

13

Unfair methods of competition and unfair acts in the

importation and sale of in-the-ear hearing aids

14

Violations of patent

14

Element (g) of claim 4

17

Element (j) of claim 4

19

The industry in the United States:

The industry concerned

20

Efficiency and economy of operation of the industry

20

Effect or tendency of the unfair methods and unfair acts:

Statement of Commissioners Culliton and Fenn

22

Statement of Commissioners Sutton and Thunberg-

28

Appendix A. -- Section 337 of the Tariff Act of 1930, as amended-

32

Appendix B. -- Production of all types of hearing aids, by all U.S. producers; sales of all types of hearing aids and of in-the-ear hearing aids (1)

by all U.S. producers of in-the-ear hearing aids and (2) by Dahlberg, 1961-1965

34

(TC25457)

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S.L.
AUG 1 8 1968

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## UNITED STATES TARIFF COMMISSION Washington

July 29, 1966

In the matter of an investigation
with regard to the importation or
domestic sale of certain foreign-
manufactured in-the-ear hearing
aids.

Docket No. 20

Section 337

Tariff Act of 1930, as amended

### INTRODUCTION

On June 15, 1965, the Tariff Commission received a complaint under
section 337 of the Tariff Act of 1930, as amended (19 U.S.C. 1337), 1/
filed by Dahlberg Electronics, Inc., of Minneapolis. Complainant
alleged that Gaes, of Barcelona, Spain, induced. by Fidelity Electronics,
Ltd., Inc., of Chicago, was producing for importation by Fidelity a
substantially identical copy of Dahlberg's Miracle Ear in-the-ear hear-
ing aid, which copy (designated Fidelity model F-606) embodied or
contained the invention disclosed in complainant's United States Design
Patent No. 200,858. Complainant also alleged that these foreign-manu-
factured in-the-ear hearing aids imported into the United States by
Fidelity were being sold domestically without license from the patent
holder; that sales literature and promotional material were unlawfully
appropriated from Dahlberg and had been utilized by Fidelity; and that,
as a result, unfair methods of competition were being employed or un-
fair. acts committed having the effect or tendency to destroy or sub-
stantially injure an industry in the United States.

On July 1, 1965, the Commission initiated a preliminary inquiry to
determine (1) whether there was good and sufficient reason to institute

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a full investigation under section 337 and, if so, (2) whether the
Commission should recommend to the President the issuance of a temporary
order of exclusion from entry under section 337(f). 1/ In September,
the complaint was amended to include allegations that the in-the-ear
hearing aid imported from Gaes embodied, employed, or contained the
inventions disclosed in two mechanical patents newly issued to Dahlberg,
U.S. Patent Nos. 3,197,576 and 3,197,577.

On September 28, 1965, the Commission ordered a full investigation
under section 337 with regard to imported in-the-ear hearing aids made
in accordance with, embodying, employing, or containing the inventions
disclosed in the complainant's patents, and announced that a public
hearing in connection with its investigation would be held on December
7, 1965. 2/ The Commission did not recommend the issuance of a tempo-
rary order of exclusion.

On November 23, 1965, the Commission received a complaint from
Dahlberg Electronics that the Acousticon International Division of
Dictograph Products, Inc., of Danbury, Conn. was importing into the
United States a model of in-the-ear hearing aids (Acousticon Model
A-455) also manufactured by Gaes alleged to embody, employ, or contain

1 . Public notice regarding receipt of the complaint and initiation
☒
of the preliminary inquiry was published in the Federal Register of .
July 9, 1965 (30 F.R. 8739) and in the Treasury Decisions of July 8,
1965.

2/Public notice of the investigation and hearing appeared in the
Federal Register of Oct. 5, 1965 (30 F.R. 12693) and in the Treasury
Decisions of Oct. 7, 1965. The notice provided that persons who
entered an appearance in accordance with the Commission's rules would
be afforded an opportunity to produce evidence and to testify concern-
ing the subject matter of the investigation.

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the inventions disclosed by Dahlberg's U.S. Patent No. 3,197,576.
Until November, complainant had had no knowledge of the importation
of this model. As a result of this development, the Commission
amended the original notice of the investigation and postponed the
date of the hearing to January 18, 1966. 1/

The Commission was informed in a letter received on December 27,
1965, that Dahlberg and Fidelity had reached an agreement which "settled
all matters between the parties." Pursuant to the terms of the agree-
ment, Fidelity submitted a statement to the Commission reciting in
part that --

Fidelity intends to cease the importation of their Model
F-606 in-the-ear hearing aid and agrees to refrain from any
future importation of the F-606, or any other in-the-ear hear-
ing aid which infringe Dahlberg's patents D200,858, 3,197,576
and 3,197,577.

The public hearing, at which Dahlberg and Acousticon appeared,
was held January 18-20, 1966.

1
Public notice to this effect appeared in the Federal Register of
Dec. 2, 1965 (30 F.R. 14944 ) and Treasury Decisions for Dec. 2, 1965.

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# CONCLUSIONS OF THE COMMISSION

The Commission unanimously finds unfair methods of competition
and unfair acts in the importation and sale of in-the-ear hearing
aids manufactured in accordance with the claims and specifications
of U.S. Patent No. 3,197,576 (1965). The Commission is evenly
divided, however, with respect to whether the effect or tendency of
such unfair practices is to destroy or substantially injure an industry
in the United States. 1/ Commissioners Culliton and Fenn find that
the effect or tendency is to destroy or substantially injure an indus-
try, efficiently and economically operated, in the United Stated accord-
ingly, they recommend that the articles concerned be exclused from entry
into the United States. 2/ Commissioners Sutton and Thunberg find no
evidence that the effect or tendency of the unfair methods or acts is
to destroy or substantially injure an industry; hence, they do not
recommend that the imports here under consideration be excluded from
entry into the United States. 3/

Whenever the Commissioners voting are divided into two equal
groups on a question calling for findings of the Commission in con-
nection with any authority conferred upon the President by law to
make changes in import restrictions, and the members of each group
are unanimously agreed upon their findings and recommendations, the

1/ Chairman Kaplowitz abstained from voting, since the investiga-
tion had been concluded before he entered into office.

2/ Statement of Commissioners Culliton and Fenn begins on p. 22.

3/ Statement of Commissioners Sutton and Thunberg begins on p.28

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President may consider the result reached by either group as the find-
ings and recommendations of the Commission. 1/

# DESCRIPTION AND USE OF HEARING AIDS

A hearing aid is an instrument which amplifies the amount of sound
energy reaching the ear of the user. Modern instruments for aiding per-
sons with hearing losses consist almost exclusively of electronic hear-
ing aids; the in-the-ear aid is the most recent of the several types
currently being produced. In all electronic hearing aids, as in all
other devices for electrical communication of speech, the sound energy
is converted into electrical energy, which is amplified and converted into
sound energy. The basic components of this group of hearing aids are (1)
the microphone, which converts the sound energy into electrical energy;
(2) the amplifier (most models produced since the early 1950's for use
in hearing aids employ transistors); and (3) the receiver, which con-
verts the electrical energy back into sound energy. Every electronic
hearing aid is powered by a very small battery.

1/Sec. 330(d) (1) of the Tariff Act of 1930, as amended, provides that --

Whenever, in any case calling for findings of the Commission
in connection with any authority conferred upon the President by
law to make changes in import restrictions, a majority of the Com-
missioners voting are unable to agree upon findings or recommenda-
tions, the findings (and recommendations, if any) unanimously
agreed upon by one-half of the number of commissioners voting may
be considered by the President as the findings and recommendations
of the Commission: Provided, That if the commissioners voting are
divided into two equal groups each of which is unanimously agreed
upon findings (and recommendations, if any) the findings (and rec-
ommendations, if any) of either group may be considered by the
President as the findings (and recommendations, if any) of the Com-
mission. In any case of a divided vote referred to in this para- .
graph the Commission shall transmit to the president the findings
(and recommendations, if any) of each group within the Commission
with respect to the matter in question.

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Innovations involving the miniaturization of electronic components,
the development of transistors, and, more recently, the introduction of
integrated circuits (which consolidate several components into one),
introduced largely by the manufacturers of components for computers
and missile-control systems, have contributed greatly to the technology
of producing miniaturized hearing aids.

Four types of electronic hearing aids are in use today: (1) body
type, (2) eyeglass type, (3) behind-the-ear type, and (4) in-the-ear
type. The body type can be carried in a pocket, pinned to the clothing,
or worn in a special carrier, such as a tie clasp or hair barrette, and
is connected by a cord to the ear piece. The eyeglass type consists of
specially styled plastic eyeglass frames which house a complete hearing
aid. Sounds are carried from a miniature microphone in the temple sec-
tion through an almost invisible, plastic-covered wire to a receiver,
usually behind the ear. Sound amplification can be designed for one
or both ears. The twin aid (binaural) produces a stereophonic effect.
The behind-the-ear type is a small unit (about 2 inches long and weigh-
ing about 1/4 to 1/3 ounce) which fits snugly behind the ear. The
in-the-ear type, which is the most recent innovation in the market,
contains all the elements of the basic aid in a miniaturized instru-
ment (weighing generally 1/4 to 1/3 ounce); the complete instrument
is inserted into the ear and part of it extends into the ear canal.

The early models of in-the-ear aids were much more conspicuous
than those made recently. Market acceptance was at first unimpressive,

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and growth in consumption was slow. As the size of the in-the-ear type
was reduced, acceptance was greatly stimulated. By 1965, when almost
6 percent of the U.S. consumption of hearing aids consisted of in-the-ear
models, many manufacturers considered this type to have the greatest
growth potential.

There are two basic models of in-the-ear aids: custom-built and
standard. Before a custom-built model is produced, a dealer takes an
impression and sends it to a manufacturer, who in turn produces a
custom mold and places the hearing mechanism into the mold. A standard
model, on the other hand, is an instrument which is inserted into the
ear without the use of an ear mold. Generally, the tip of such a hear-
ing aid goes farther into the ear canal than does the tip of models
designed to be used with an ear mold.

The type of hearing aid most suitable for the particular user is
contingent on the nature and extent of his hearing loss. 1/The causes
of such loss are extremely varied; the chief factors are heredity, child-
hood diseases, repeated colds and sinus infections, allergies, head
injuries and otosclerosis, a disease that attacks the middle ear.
Advanced age may bring a hearing loss; older people frequently suffer
from arterial disease, which prevents blood from flowing freely through
all parts of the ear.

1 The choice of a type of hearing aid is often governed by the ap-
pearance of the product, and by the persuasiveness of the dealer or his
audiologist.

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Two kinds of hearing loss are common. If a weakening or blockage
of sound vibrations occurs in the outer or middle ear, the impairment
is called a conductive loss. In this type of disability the sound
becomes faint, but its quality does not change markedly; the source of
sound merely seems to be farther away than it actually is. If a mal-
functioning of the inner ear occurs, as in the nerve pathways to the
brain, the impairment is called a sensorineural loss. This malfunction-
ing alters the quality of what is heard, and causes the sound to appear
faint. Speech may become less intelligible, even though the sound is
loud enough to hear.

Persons with conductive loss or those with milder cases of sensori-
neural loss may regain adequate understanding of normal speech by use of
a proper hearing aid. However, an aid will not improve intelligibility
for persons with severe sensorineural loss, since the aid can only
amplify sound; it cannot correct the quality distortions which accom-
pany severe nerve damage.

Persons having severe hearing impairment are particularly limited
in their choice of aids. The only type that enables them to hear
reasonably well is the body type. Tests conducted by independent
research groups have shown that none of the in-the-ear models currently
being marketed is suitable for persons having more than a mild hearing
loss. Producers have yet to overcome entirely the problem of feed-
back, the squeal caused when sound from the receiver (the part that
delivers the sound to the ear) goes back into the microphone. Several

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companies provide a plastic ear mold, which completely covers the ear
opening, for use in conjunction with in-the-ear aids, to lessen the
feedback noise. The producers of in-the-ear hearing aids are sharply
divided as to whether an ear mold is needed to minimize feedback.
Some models are designed to be worn with or without an ear mold.

At least some of the current models of in-the-ear hearing aids
offer a higher acoustical gain than did the models predominating
several years ago. With improved technology, manufacturers will
further reduce the size of the instrument, and improve its perform-
ance. A number of major manufacturers are so confident of continuing
technical improvements that they predict that in-the-ear hearing aids
will be the largest selling type within 5 years.

As previously noted, the in-the-ear type is currently suitable
only for persons having a mild or moderate hearing loss. Such persons,
however, are less likely to buy a hearing aid than those having severe
hearing loss. (A similar situation affects the marketability of
behind-the-ear and eyeglass hearing aids.) Consequently, as higher
acoustical gain and further miniaturization are incorporated into
in-the-ear hearing aids, this type will attract increasing numbers
of hard-of-hearing persons.

Producers, importers, and dealers look forward not only to new
customers, but also to the replacement market. It is estimated chat
the average life of a hearing aid in daily use is about 2 to 3 years;
during this period the instrument will need to be serviced several
times.

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## U.S. PRODUCTION, SALES, IMPORTS, AND MARKETING OF HEARING AIDS

### Domestic Producers

There has been an increase in the number of firms engaged in the
manufacture of hearing aids in the United States in recent years, in-
cluding those that make in-the-ear aids. Currently there are about
40 domestic producers in all, 15 of which produce in-the-ear aids. A
few of the 15 firms also manufacture specialized equipment used to
measure and correct hearing deficiencies. Producers of hearing aids
generally make at least two of the four basic types of aids. Some of
the producers of in-the-ear hearing aids are diversified companies that
make a wide range of other electronic products having civilian and mili-
tary applications. The majority of the producers of in-the-ear hearing
aids, however, confine their operations exclusively or almost exclu-
sively to making and selling hearing aids, as does Dahlberg Electronics,
the complainant in this investigation.

About 80 percent of the domestic producers are in the northeast
and midwest sections of the United States; the remaining 20 percent
are scattered throughout the far western and southern sections.

Since 1965, at least two domestic producers have commenced market-
ing in-the-ear hearing aids of their own manufacture. One of them is
the Acousticon International Division of Dictograph Products, Inc., the
respondent in this investigation. The other is Sonotone Corp., of
Elmsford, N.Y.

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### Production and Sales

During most of 1961-65 Dahlberg was the leading producer of in-
the-ear hearing aids, and in 1964-65 it accounted for more than three-
fifths of the total domestic production of in-the-ear hearing aids.
Dahlberg's sales of in-the-ear hearing aids increased steadily from
about 1,800 units in 1961 to more than 13,000 units in 1965. All of
its output of such aids, in 1964-65, utilized the inventions disclosed
by U.S. Patent No. 3,197,576.

Domestic producers that furnished information in response to the
Commission's questionnaire 1/ indicated that they sold 4,534 in-the-ear
hearing aids in 1961 and 7,435 such aids in 1962. In 1963, only 5,219
in-the-ear aids were sold; in 1964, the units sold were more than twice
that number and in 1965, they totaled 22,490. 2/

The Hearing Aid Industry Conference (HAIC) reports that in the
period July 1, 1964-July 1, 1965, the share of U.S. sales supplied by
each type of hearing aid was as follows:

Percent of

total

Behind-the ear type

46.5

Eyeglass type

30.5

Conventional (body) type

17.5

In-the-ear type

5.5

Spokesmen of the HAIC interpret these data as indicating (1) the in-
crease in popularity of behind-the-ear aids (almost half the total
sales), (2) the continuing decline in eyeglass aids, and (3) the almost

1/Recipients of the Commission's questionnaire were instructed to
supply data only if they had produced in-the-ear hearing aids during
the period Jan. 1, 1961-Sept. 30, 1965. It is believed that producers
reporting data to the Commission accounted for all of the domestic pro-
duction of in-the-ear hearing aids during the period indicated and that
their output of all types of hearing aids accounted for about 65 percent
of the domestic production of all types of hearing aids.

2/ Annual rate of data reported for January-September 1965.

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unchanging share supplied by conventional models. In-the-ear aids
almost doubled their percentage over that in the previous reporting
period, although they still represent a very small part of total sales.
The trade anticipates that this type of aid will supply a growing share
of the market in the future.

### Imports

In-the-ear hearing aids were imported into the United States for
about 4 years before the issuance (in 1965) of the patent on which
Dahlberg based its complaint. In 1964, while the Dahlberg patent
application was pending, a small share of the imports of in-the-ear
aids consisted of a model found by the Commission to be made in accord-
ance with the claims and specifications of Dahlberg's patent. In 1965,
imports of in-the-ear aids were several times as large as those in any
previous year and nearly all of them consisted of two models found by
the Commission to have been made in accordance with the claims and
specifications of the Dahlberg patent. The two models were made by
Gaes, the manufacturer in Spain; one of the models (the F-606) was im-
ported into the United States by Fidelity Electronics, Ltd., Inc., and
the other (the A-455) was imported by the Acousticon International
Division of Dictograph Products, Inc.

In December 1965, Fidelity signed an agreement with Dahlberg to
discontinue the importation and sale of the F-606 in-the-ear hearing
aid. Acousticon, on the other hand, is still importing the model A-455

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and intends to continue doing so, at least until such time as it has
reached full-scale production of its recently introduced domestic
model.

### Distribution Methods

Hearing aids are marketed through several channels of distribution.
Approximately 90 percent of all sales of hearing aids are made through
outlets devoted to retailing hearing aids and accessories only. Some
of these "hearing aid centers" are owned by the manufacturer, but most
of them are privately owned businesses franchised by one or more do-
mestic producers and/or an importer. Almost all of these centers are
equipped to perform a variety of services including conducting audio-
meter tests, fitting the hearing aid, and furnishing minor repairs.
Hearing aids requiring major repairs are returned to the manufacturer
for service.

Two nationwide chain department stores, Sears Roebuck and Mont-
gomery Ward, sell private-brand hearing aids. Hearing aids are also
sold by individual department stores, usually on the basis of a lease
negotiated with a manufacturer for a certain period of time.

### Prices

During the course of its investigation the Commission obtained
data on prices of in-the-ear hearing aids from the leading domestic
producers and from all importers of such hearing aids. The data show
that in 1965 the prices to dealers of the models imported by Fidelity
and Acousticon were about equal to or below the prices of the Dahlberg

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patented in-the-ear aids, taking into account cooperative advertising
allowances offered. Prices of other domestically produced and imported
in-the-ear aids varied considerably, some being lower than the Fidelity
and Acousticon imported models and others being higher than the Dahlberg
patented articles.

# UNFAIR METHODS OF COMPETITION AND UNFAIR ACTS IN THE IMPORTATION AND SALE OF IN-THE-EAR HEARING AIDS

Past Commission action under section 337 of the Tariff Act of
1930, approved by the Court of Customs and Patent Appeals, has estab-
lished that the importation and sale of an article made in accordance
with, embodying, employing, or containing the inventions disclosed in a
current U.S. patent which has not been held invalid by a court of
competent jurisdiction may constitute an unfair method of competition
and an unfair act. 1/ This investigation involves both patent-associated
claims and allegations of misleading advertising in the sale of the im-
ported article.

# Violations of Patent

The sole patent under consideration here is Martin U.S. Patent
No. 3,197,576 (1965), issued on July 27, 1965, to Dahlberg Electronics,
Inc., as assignee of Richard T. Martin. 2/The invention discloses

1/ See In re Von Clemm, 43 C.C.P.A. (Customs) 56, 229 F. 2d 441, 443
(1955); In re Orion Co., 22 C.C.P.A. (Customs) 149, 71 F. 2d 458, 465
(1934); and In re Northern Pigment Co. ,22 C.C.P.A. (Customs) 166, 71
F. 2d 447, 455 (1934). See also Frischer & Co. v. Bakelite Corp.,
17 C.C.P.A. (Customs) 494, 39 F. 2d 247, 260, cert. denied 282 U.S. 852
(1930).

2/ As a result of the settlement reached with Fidelity Electronics,
Ltd., Inc., as discussed on p. 3 supra, the 576 patent is the only
patent under consideration in this investigation.

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improvements in an in-the-ear hearing aid, one object of which is to
provide a miniaturized aid which fits in the ear of the user.

The patent has been involved in three court suits, all instituted
by Dahlberg and all against alleged infringers. In two of these cases,
consent decrees have been entered. The third suit which is still pend-
ing involves Acousticon, a respondent in this investigation.

Acousticon concedes that its model A-455, imported from Gaes, in-
fringes claim 10 of U.S. Patent No. 3,197,576; 1/ claims 1-3 and 5-9

1/ The following exchange between counsel for complainant and
respondent's technical witness, Mr. Beizer, occurred at the hearing:
Mr. Edell: Does the A-455 hearing aid produced by Acousticon
infringe claim No. 10 of the patent?

Mr. Beizer: On the basis that we may not and will not question
the validity (of the patent) at this hearing, it
does infringe claim No. 10.

Claim 10 reads as follows:

10\. In an in-the-ear hearing aid having an elongated receiver
capable of producing acoustic energy from one end thereof and adapted
for insertion in the ear canal of the user with said one end adjacent
the eardrum, said receiver being covered by a soft resilient elongated
hollow boot having an aperture adjacent said one end of said receiver,
the improvement comprising:

a soft resilient tip removably fitted over said resilient
boot and fitted to the shape of the ear canal of the
user to hold said boot covered receiver therein.

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are not alleged to be infringed. Thus, consideration is limited to
claim 4 of the patent. 1/ Furthermore, Acousticon admits that 9 of
the ll elements comprising claim 4 of the patent are contained in the
imported in-the-ear hearing aid; consequently, the parties disagree
only on whether the Acousticon Model A-455 embodies elements (g) and
(j) of claim 4.

1/ Claim 4 reads as follows:

4\. An in-the-ear hearing aid comprising :

(a) a housing adapted to be fitted into the ear of the user;

(b) a first aperture through one of the walls of said housing;

(c) a microphone in said housing adjacent said first aperture;

(d) an amplifier mounted in said housing, said amplifier having
an input and an output;

(e) means connecting said microphone to the input of said
amplifier;

(f) a battery mounted in said housing and connected to said
amplifier to provide an energizing source therefor;

(g) a soft resilient elongated hollow boot having a second
aperture at one end thereof and a third aperture at the
opposite end thereof, said opposite end of the boot being
tapered and terminating in an external lip;

(h) an elongated receiver member capable of producing an
acoustic output from one end thereof, said receiver being
mounted inside of said hollow resilient boot so that the
acoustic output end of said receiver is adjacent the
second aperture of said boot, said boot and receiver
adapted for insertion in the ear canal of the user with
the second aperture adjacent the eardrum of the user;

(i) a fourth aperture through one of the walls of said housing,
said other end of the boot being positioned through said
fourth aperture;

(j) locking means connected to prevent withdrawal of said other
end of the boot from said fourth aperture;

(k) and conductor means extending through said third aperture
and connecting the output of said amplifier to said
receiver.

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Element (g) of claim 4

The meaning and scope of the term "tapered," as used in this claim
to modify "boot," is in dispute. Acousticon asserts that the receiver
end of the boot on its product is not tapered.

it is fundamental that claims are to be construed in the
light of the specifications and both are to be read with a view to
ascertaining the invention." 1/ The specifications of the Martin patent,
regarding the tapered part of the boot, are --

An elongated hollow boot 39 is formed from rubber,
or other suitable soft resilient material, and has
an aperture 40 at one end thereof and an aperture
41 at the opposite end thereof. Aperture end 41
of boot 39 has a tapered neck portion which termi-
nates in an external lip 42.

Plate 52 has an aperture 53 therethrough,
the diameter of aperture 53 being less than the
normal diameter of the exterior lip 42 of boot
39. Since boot 39 is highly resilient, the ex-
terior lip 42 can be compressed and forced
through aperture 53 of wall plate 52, boot 39
then being held in place by exterior lip 42. * * *
In the context of these specifications, the word "tapered" is not
limited solely by the dictionary meaning, "to diminish gradually"; 2/
the Commission construes the invention to be any reduction in size to
permit the boot to fit through the aperture in the housing and not ex-
clusively a gradual reduction. Since the Acousticon Model A-455 has a
reduction in size for this purpose, it effectively copies the invention
specified in the cited patent. The Commission's view that Acousticon

1
United States v. Adams, 383 U.S. 39, 49 (1966).

2/ The definition of taper is "1: to make or become gradually smaller
toward one end 2: to diminish gradually" (Webster's Seventh New Col-
legiate Dictionary, 1963).

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Model A-455 constitutes a fraud on the Dahlberg patent is reinforced
under the doctrine of equivalents; that doctrine, set out in Graver
Tank & Manufacturing Co. v. Linde Air Products Co., 339 U.S. 605,
607-08 (1950), is as follows:

But courts have also recognized that to permit imitation
of a patented invention which does not copy every literal de-
tail would be to convert the protection of the patent grant
into a hollow and useless thing. Such a limitation would
leave room for -- indeed encourage -- the unscrupulous copyist to
make mimportant and insubstantial changes and substitutions
in the patent wn, though adding nothing, would be enough
to take the copied matter outside the claim, and hence outside
the reach of law. One who seeks to pirate an invention, like
one who seeks to pirate a copyrighted book or play, may be
expected to introduce minor variations to conceal and shelter
the piracy. Outright and forthright duplication is a dull and
very rare type of infringement. To prohibit no other would
place the inventor at the mercy of verbalism and would be sub-
ordinating substance to form. It would deprive him of the
benefit of his invention and would foster concealment rather
than disclosure of inventions, which is one of the primary pur-
poses of the patent system.

The doctrine of equivalents evolved in response to this
experience. The essence of the doctrine is that one may not
practice a fraud on a patent. Originating almost a century
ago in the case of Winans v. Denmead, 15 How. 330, it has
been consistently applied by this Court and the lower federal
courts, and continues today ready and available for utiliza-
tion when the proper circumstances for its application arise.
"To temper unsparing logic and prevent an infringer from steal-
ing the benefit of an invention" a patentee may invoke this
doctrine to proceed against the producer of a device "if it
performs substantially the same function in substantially the
same way to obtain the same result." Sanitary Refrigerator Co.
v. Winters, 280 U.S. 30, 42 [ 3 U.S.P.Q. 40, 44 ].

The Commission finds that the boot of the Acousticon A-455 per-
forms substantially the same function in substantially the same way to
obtain the same result as described in the Dahlberg patent.

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0

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## Element (j) of claim 4

This element of claim 4 calls for a "locking means connected to
prevent withdrawal of said other end of the boot from said fourth
aperture." The Acousticon Model A-455 employs a silicone adhesive
sealant to prevent withdrawal of the boot from the housing; the Dahlberg
instrument employs a knot portion which is forced through the aperture
of the boot thereby locking the boot in position. The issue is whether
the use of the adhesive sealant constitutes a "locking means" within
the meaning of that phrase in element (j) of claim 4.

Respondent contends that its product has a boot which is fastened
and not locked, the distinction being that it is easier to remove the
boot from a locking device than from an adhesive connection. But in-
asmuch as Webster's Seventh New Collegiate Dictionary defines "lock"
to include "to hold fast or inactive," the term "locking means" is broad
enough to cover a fastening. Since the patent art in this area is un-
developed and uncrowded, the claim is entitled to a broad interpretation.

The record shows that the foreign manufacturer had requested and
received the Dahlberg Miracle Ear V prior to his production of in-the-
ear hearing aids (Fidelity F-606 and Acousticon A-455). It is evidence
of an intent by Gaes to duplicate the Dahlberg hearing aid. The means
Gaes has used to accomplish the duplication is less sophisticated and
less expensive than the Dahlberg original, but otherwise the same.

The Commission finds, therefore, that the Acousticon A-455 manu-
factured in Spain by Gaes is made in accordance with, embodies, employs,

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or contains the inventions disclosed in claims 4 and 10 of a current
U.S. patent which has not been held invalid by a court of competent
jurisdiction.

# THE INDUSTRY IN THE UNITED STATES

## The Industry Concerned

The "industry" in the United States under consideration in this
investigation is the industry legally entitled to manufacture and
sell in-the-ear hearing aids under U.S. Patent No. 3,197,576. Dahlberg
Electronics, Inc., the sole owner of the patent, manufactures in-the-
ear hearing aids under the aforesaid patent. It has recently licensed
three domestic companies to manufacture the same in accordance with
this patent, and is conducting negotiations with three other domestic
producers interested in licensing agreements.

## Efficiency and Economy of Operation of the Industry 1/

Dahlberg has been in the forefront of the commercial development
of in-the-ear hearing aids. Although it did not patent its first
model, it subsequently obtained patent protection on the Miracle Ear V,
which purportedly was the first "all-in-the-ear" hearing aid. The firm
launched a costly and successful campaign to promote the sales of the
Miracle Ear aid. Dahlberg, the largest producer of in-the-ear hearing
aids, has made new and useful contributions to the technology of
hearing-aid manufacture; the firm's production techniques apparently

1 This section does not necessarily reflect the views of Commissioner
Thunberg, who, having found no injury, considers it unnecessary to dis-
cuss the matter of efficiency.

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are as advanced as those employed by other producers of hearing aids.
Its sales of in-the-ear aids, and profits on such sales, have in-
creased in recent years. The industry under consideration, therefore,
is efficiently and economically operated.

월

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# EFFECT OR TENDENCY OF THE UNFAIR METHODS AND UNFAIR ACTS

## Statement of Commissioners Culliton and Fenn

The preceding findings agreed to by all the Commissioners partic-
ipating in this investigation recite only patent-associated unfair
methods of competition or unfair acts. But there are other elements
of unfair methods or acts alleged and manifested in the importations
and sales concerned, of which no disposition apparently is made by the
other Commissioners. For instance, evidence was introduced by complain-
ant (which was not contraverted) tending to show that both Fidelity and
Acousticon dealers on occasion copied portions of Dahlberg advertising,
and used these copies to advertise the Fidelity and Acousticon products.
It was not shown that by so doing these dealers appropriated something
in which Dahlberg had a proprietary interest. However, a result of such
conduct might be to confuse and mislead the public as to the origin of
the Fidelity and Acousticon products concerned, in the light of Dahlberg's
commanding position in the trade involved and its extensive advertising
of its product.

While these and other competitive facts in evidence, such as
switch selling, 1/ may not in this instance be sufficient to establish
an "unfair method of competition or unfair act" independent of the
patent-associated unfair practices, we find that they must be con-
sidered in conjunction with such practices in appraising fairness and
injury with respect to the importations and sales concerned.

1/ Transcript of the hearing, pp. 37-38 and 264-267.

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Apart from the absence of specific agreement among the Commissioners
on what constitutes evidence of unfair methods and unfair acts and apart
from an absence of a finding by Commissioner Thunberg of whether the do-
mestic industry is or is not efficiently operated, the fundamental issue
dividing the Commission is whether the unfair methods of competition and
unfair acts unanimously found to exist in this investigation have, within
the meaning of section 337, "the effect or tendency ... to destroy or
substantially injure" the domestic industry involved, i.e., the domestic
producers of in-the ear hearing aids manufactured in accordance with
U.S. patent 3,197,576. It is our opinion that such unfair methods and
acts do have both the tendency and the effect to substantially injure
the domestic industry.

The effects of patent-centered unfair acts must be examined with
specific reference to the product involved and the business and market-
ing conditions associated therewith.

The' manufacture and sale of hearing aids is characterized by a very
large markup at retail and a similar high gross margin at the manufactur-
ing level. These facts, however, do not automatically mean that profits
are assured. The price structure results from the nature of the product.
It is not one which the users buy with great joy -- they would rather not
have it; successful use of the product requires a large amount of personal
service, fitting and adjustment -- services for which customers do not like
to pay directly as charges and which, therefore, get included in the price
quoted for the product itself; furthermore, volume is relatively small
and many service costs are incurred with individuals who do not, in fact,
1
buy, and such costs -- as well as advertising, selling, and administrative
costs -- must be loaded heavily on the sales which are made.

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Put in other words, this means that in this kind of business the
fixed costs of being in business -- at any volume -- tend to be more highly
centered in administration and marketing than in manufacturing as would
be the case, say, in a basic steel company. The figures of the company --
which may not be released because of confidentiality -- show clearly a
high leverage of volume on profits where the fulcrum is not manufactur-
ing costs but selling and administrative costs.

Given these business facts, one effective selling impetus is a
growing number of satisfied customers. Here, new and improved products
(with improvement meaning not only better sound amplifying performance
but less conspicuous and/or more attractive instruments); attractive
sales and consultation offices; courteous and understanding service;
reliable instruments and, where necessary, prompt and efficient service
are all ingredients of the good will that is necessary to build a volume
of sales necessary to cover the required investment in sales capacity.
The results do not depend on doing one thing or even several things
right; they depend upon doing almost everything right or better than
right. It is in this context that violation of a patent (and accompany-
ing practices such as price cutting, misleading advertising, switch
selling and poor products -- especially of a new type -- ) becomes unfair
and injurious within the meaning of section 337.

The necessary investment in marketing and service becomes especially
meaningful in the case of a new and unusual item in this field, like the
in-the-ear product. Dahlberg found it necessary to lay a great deal of
groundwork -- advertising, training of dealers, demonstrations -- to develop

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the level of consumer acceptance they have now reached. In fiscal
1965, their general administrative and selling expenses with respect
to in-the-ear hearing aids were about 150 percent of the cost of sales.

Through unfair methods -- primarily, the use of Dahlberg's patent --
domestic competitors and importers were able to leap-frog the expensive
research and development stage and the time-consuming and costly process
of market cultivation. They were thus able to avoid the inevitable
business risks involved in launching a new product and establish a
strong competitive position much earlier than would otherwise have
been possible. 1/ We note, for example, that Acousticon has long
planned to introduce an in-the-ear product and that they specifically
worked out the contract with Gaes so they could establish themselves
in the market with such a product until such time as they were able
to build one of their own. Dahlberg has been robbed on the lead time
which it had every right to expect.

In addition, imports, which penetrated the market with ease be-
cause the ground had been prepared for them, reached approximately
one-fourth of production of the domestic industry concerned by 1965.
Even granting that a one-to-one replacement of the domestic product is
unlikely, one can hardly claim that a loss of sales of this dimension
is not injurious.

1/ In March 1965, in a letter to Gaes, the President of Fidelity
spoke of the "tremendous acceptance that we had had on the F-606." In
April he stated that: "The aids that you have shipped to us so far have
met by and large with resounding success with our dealers, who are now
able to compete with Dahlberg dealers and are finding a very substantial
market for the F-606. Naturally Dahlberg has been aware of relatively
heavy competition in some areas, notably in California, where Dahlberg
is heavily represented."

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Finally, Dahlberg is being harassed by unfair acts, requiring
the diversion of funds and management manpower to safeguard their
position. They have already been required to defend themselves twice
against offending importers. Now, the evidence in hand clearly in-
dicates that Gaes is in process of doing precisely what one would
expect him to do, since Fidelity has ceased importation and Acousticon
is planning to phase out its imports; he is aggressively looking for
another importer to take their place 1/ and Dahlberg will be forced
to move again. To protect an efficient domestic producer/industry
in this predicament is precisely the purpose of section 337.

The facts recited above constitute not the mere tendency to sub-
stantially injure -- the minimum standard required for an affirmative
determination under section 337 -- but, in fact and in law, substantial
injury to the domestic industry. In conclusion, we wish to make
explicit what has often been implicit, namely that under existing
law different standards for injury are applicable in situations
where unfair acts are involved than in those situations arising
from the normal pushing and pulling of business competition. This
position is supported by traditional American legal concepts and
interpretation of trade regulatory law -- witness, for example, the
assumption of injury in price-fixing cases; by the particular wording

1/ Subsequent to the public hearing the Commission obtained docu-
mentary evidence that Gaes is actively seeking new United States out-
lets for its production of in-the-ear aids made in accordance with
the claims and specifications of the Dahlberg patent.

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1\.

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of section 337 as contrasted to other legislation; 1/ and by Tariff
Commission precedent under section 337 as confirmed by the Court of
Customs and Patent Appeals. Since injurious consequences are often
inherent in the nature of an unfair act, the unfairness of the act
cannot be neatly cut apart from its "effect or tendency" to cause
injury, particularly when the offender wilfully and continuously
engages in the unfair act.

Respectfully submitted.

Jamu W. Gullitan
James W. Culliton, Commissioner

Dans H. Fern of
Dan H. Fenn, Jr., Commissioner

1/ Other statutes administered by the Commission require, among
other things, an assessment by the Commission of the effect upon
domestic industries of imports, but section 337 is unique in that
the effect or tendency to be determined is that of methods of com-
petition and acts which lie outside accepted modes of trade.

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## Statement of Commissioners Sutton and Thunberg

Acousticon's imported in-the-ear hearing aids appear to be made
in accordance with the claims and specifications of an unexpired U.S.
patent; l/ accordingly, their importation and sale in the United States
constitute an unfair method of competition or unfair act within the
meaning of section 337 of the Tariff Act of 1930. We find no evidence,
however, that the effect or tendency of these imports "is to destroy
or substantially injure" an efficiently and economically operated do-
mestic industry. According to the clear language of the statute, the
existence of "unfair methods of competition and unfair acts" alone is
not sufficient to warrant excluding the patent-violating imports from
the U.S. market. These acts must in addition cause -- or must in ad-
dition be likely to cause -- injury so substantial that the danger of
the destruction of a domestic industry is present. The record con-
tains no evidence of any such danger or any such injury.

It must be remembered that section 337 is not an extension of
the patent laws and is not designed to protect patent rights as such.
The Commission has been judicially instructed that it may not deter-
mine patent validity under section 337. 2/Accordingly, the injury
determination under the statute must be confined to economic con-
siderations appropriate to determining the impact of imports upon the
domestic industry.

1/ Whose validity must be presumed by the Commission although it is
☒
presently in litigation in the courts.

2/ Frischer & Co. v. Bakelite Corp., 39 F. 2d 247, (1930), cert.
denied 282 U.S. 852 (1930).

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The domestic "industry" under consideration in this investigation
is the firm legally entitled to manufacture and sell in-the-ear hear-
ing aids under U.S. Patent 3,197,576. Dahlberg Electronics, Inc.
owns and manufactures in-the-ear aids under this patent, and until
recently has been the sole manufacturer entitled to do so. Dahlberg
has been a leader in the development of in-the-ear hearing aids. The
company has made useful contributions to the technology of hearing-
aid manufacture; its production techniques are well advanced compared
with those employed by other producers of hearing aids. The number
of patented in-the-ear aids sold by Dahlberg in 1965 was nearly 80
percent greater than in 1964 and, despite a doubling in total domes-
tic production of in-the-ear aids and a nearly tenfold expansion of
imports of such aids in 1965, Dahlberg's gross and net profits grew.
The firm's profits on sales of in-the-ear aids have increased con-
sistently since 1963 without any softening of prices received.

Dahlberg has recently licensed several domestic firms to manu-
facture in-the-ear aids in accordance with Patent 3,197,576 and is
conducting negotiations with additional U.S. companies interested in
licensing agreements.

This expansion of Dahlberg's operations is evidence that the do-
mestic industry entitled to manufacture the patented hearing aid has
not been prevented from becoming established and that the industry is
not being injured substantially within the meaning of section 337.

Further, we find no evidence of a tendency toward destruction or
toward substantial injury to the industry in this case. The patent-
violating imports have been brought into the United States by two

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companies, by Fidelity Electronics, Ltd., Inc., as well as by the
Acousticon Division of Dictograph Products, Inc. In December 1965,
Fidelity undertook in an agreement with Dahlberg, inter alia, to
cease the importation and sale of in-the-ear hearing aids that vio-
lated Dahlberg's patent rights. Thus the impact on the industry of
Fidelity's imports of the hearing aids in question -- more than half
of such imports in 1965 -- has been eliminated.

Acousticon continues to import its model A-455, found by the
Commission to be made in accordance with Dahlberg's patent, but as
previously shown Dahlberg's business has continued to flourish
despite increasing competition from domestic sources as well as
from Acousticon. There is no direct evidence that Acousticon's
A-455 is in any way an inferior product, or that its dealers have
engaged in switch tactics. Nor is there any evidence that Dahlberg's
sales of in-the-ear aids have been affected by misleading advertising
by Acousticon dealers. In addition Acousticon is test-marketing an
American-made in-the-ear model of its own manufacture. Once certain
defects in the new model have been eliminated, the firm intends to
go into full-scale production and to phase out its importation of
the model A-455.

We recognize that the profits available at current price levels
provide an incentive to foreign manufacturers to seek replacement for
Fidelity and Acousticon as U.S. importers of in-the-ear hearing aids.
It is unlikely, however, that imported in-the-ear aids which violate
Dahlberg's patent rights can be marketed on a sustained basis in the

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.

\-

£

.

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United States in view of Fidelity's experience in attempting to market
the F-606 in this country and Acousticon's preference for manufacturing
an in-the-ear aid in the United States instead of continuing to import
the A-455. Meanwhile other domestic producers are reacting to the same
incentive by expanding production of in-the-ear hearing aids not sub-
ject to the Dahlberg patent or under license from Dahlberg. This ex-
pansion of output, if sustained, is likely to be followed by price
declines which in themselves will tend to inhibit further imports.

Respectfully submitted.

Glenn W. Sutton, Vice Chairman

Penelope H . Thushang

Penelope H. Thunberg, Commissioner

5

☒

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## APPENDIX A

# SECTION 337 OF THE TARIFF ACT OF 1930, AS AMENDED

SEC. 337. UNFAIR PRACTICES IN IMPORT TRADE.
1/

(a) Unfair Methods of Competition Declared Unlawful. -- Unfair
methods of competition and unfair acts in the importation of articles
into the United States, or in their sale by the owner, importer,
consignee, or agent of either, the effect or tendency of which is
to destroy or substantially injure an industry, efficiently and
economically operated, in the United States, or to prevent the
establishment of such an industry, or to restrain or monopolize
trade and commerce in the United States, are hereby declared unlaw-
ful, and when found by the President to exist shall be dealt with,
in addition to any other provisions of law, as hereinafter provided.

(b) Investigations of Violations by Commission. -- To assist the
President in making any decisions under this section the commission
is hereby authorized to investigate any alleged violation hereof on
complaint under oath or upon its initiative.

(c) Hearings and Review. -- The commission shall make such in-
vestigation and give such notice and afford such hearing, and when
deemed proper by the commission such rehearing, with opportunity to
offer evidence, oral or written, as it may deem sufficient for a
full presentation of the facts involved in such investigation. The
testimony in every such investigation shall be reduced to writing,
and a transcript thereof with the findings and recommendation of the
commission shall be the official record of the proceedings and find-
ings in the case, and in any case where the findings in such inves-
tigation show a violation of this section, a copy of the findings
shall be promptly mailed or delivered to the importer or consignee
of such articles. Such findings, if supported by evidence, shall be
conclusive, except that a rehearing may be granted by the commission
and except that, within such time after said findings are made and
in such manner as appeals may be taken from decisions of the United
States Customs Court, an appeal may be taken from said findings upon
a question or questions of law only to the United States Court of
Customs and Patent Appeals by the importer or consignee of such
articles. If it shall be shown to the satisfaction of said court
that further evidence should be taken, and that there were reason-
able grounds for the failure to adduce such evidence in the proceed-
ings before the commission, said court may order such additional
. evidence to be taken before the commission in such manner and upon
such terms and conditions as to the court may seem proper. The

1/The importation hereafter for use, sale, or exchange of a prod-
☒
uct made, produced, processed, or mined under or by means of a proc-
ess covered by the claims of any unexpired valid United States
letters patent, whether issued heretofore or hereafter, shall have
the same status for the purposes of section 337 of the Tariff Act
of 1930 as the importation of any product or article covered by the
claims of any unexpired valid United States letters patent.

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commission may modify its findings as to the facts or make new
findings by reason of additional evidence, which, if supported by
evidence, shall be conclusive as to the facts except that within
such time and in such manner an appeal may be taken as aforesaid
upon a question or questions of law only. The judgment of said
court shall be final.

(d) Transmission of Findings to President. -- The final find-
ings of the commission shall be transmitted with the record to the
President.

(e) Exclusion of Articles from Entry. -- Whenever the existence
of any such unfair method or act shall be established to the satis-
faction of the President he shall direct that the articles concerned
in such unfair methods or acts, imported by any person violating the
provisions of this Act, shall be excluded from entry into the
United States, and upon information of such action by the President,
the Secretary of the Treasury shall, through the proper officers,
refuse such entry. The decision of the President shall be conclu-
sive.

(f) Entry Under Bond. -- Whenever the President has reason to
believe that any article is offered or sought to be offered for
entry into the United States in violation of this section but has
not information sufficient to satisfy him thereof, the Secretary
of the Treasury shall, upon his request in writing, forbid entry
thereof until such investigation as the President may deem neces-
sary shall be completed; except that such articles shall be entitled
to entry under bond prescribed by the Secretary of the Treasury.

(g) Continuance of Exclusion .-- Any refusal of entry under this
section shall continue in effect until the President shall find and
instruct the Secretary of the Treasury that the conditions which led
to such refusal of entry no longer exist.

(h) Definition .-- When used in this section and in sections
338 and 340, the term "United States" includes the several States
and Territories, the District of Columbia, and all possessions of
the United States except the Virgin Islands, American Samoa, and
the island of Guam.

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# APPENDIX B

Production of all types of hearing aids by all U.S. producers; sales of all types of hearing
aids and of in-the-ear hearing aids (1) by all U.S. producers of in-the-ear hearing aids and
(2) by Dahlberg, 1961-65

Year

: Production

: Sales by U.S. firms producing : in-the-ear hearing aids :

: Sales by Dahlberg 1/

: by

: all : U.S. : producers

: A11 : types : of aids

: In-the-ear aids :

A11 types of aids

: In-the-ear aids

S : Number :

: : Percent of: : all aids

: Number :

: Percent of : all aids

: Units

: Units

: Units

: :

Units

: Units

:

1961

: : 2/

:

: -

: :

:

:

: 231,682

: 4,534

: 2.0 :

24,123

: 1,821

: 7.5

1962

: : 2/

:

:

: :

:

:

218,478 :

: 7,435

: 3.4 :

23,152

: 1,948

: 8.4

:

:

:

: :

:

:

1963

: 2/

: 214,010

: 5,219

: 2.4 :

23,890

: 2,246

: 9.4

:

:

:

: :

:

:

1964

: 4 387,000

: 230,648 :

: 11,336 :

: 4.9 :

29,969

: 5/ 7,644 -

: 25.5 :

:

: :

:

1965

: : 4 410,000

6 241,546 :

6/ 22,490 :

: 9.3 : :.

:6/ / 38,782

:5/ 6/ 13,100 :

: 33.8 :

I/
Included in the record with the express consent of Dahlberg Electronics, Inc.

2/
Not available.

3/
Estimated from data reported to the Tariff Commission by the producers.

4/
Estimated from data published in the " ... Annual Facts and Figures, "November 1964 and
November 1965 issues, respectively, of the National Hearing Aid Journal.

5/ All described by patents on which Dahlberg bases its complaint.

5/ Annual rate of data reported for January-September 1965.

Source: Compiled from questionnaires returned to the Tariff Commission except as noted.

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