[Congressional Record Volume 142, Number 30 (Thursday, March 7, 1996)]
[Extensions of Remarks]
[Pages E307-E308]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




         INTERNATIONAL TRADE AND PATENT AND ROYALTY ENFORCEMENT

                                 ______


                          HON. ROBERT MENENDEZ

                             of new jersey

                    in the house of representatives

                        Thursday, March 7, 1996

  Mr. MENENDEZ. Mr. Speaker, in the din of the battle over balancing 
the budget, reality can be lost in the shouting. If one accepts as an 
article of faith that it is of utmost importance that the Federal 
budget must be balanced, then it must follow that the monumental trade 
deficits must per force of the exact same logic have the same priority.
  Upholding the standard of free markets and free trade is not license 
to do nothing. The price of freedom is not without cost for either 
personal liberties or economic freedom. It is a constitutional right 
under the first amendment that our citizens may petition the Government 
for redress of grievances. It is also a constitutional prerogative 
under article 1, section 8, clause 8 ``To promote the progress of 
science and useful arts, by securing for limited times to authors and 
inventors, the exclusive right of their respective writings and 
discoveries.'' With this as a backdrop, I would like to explore a 
problem that a constituent of mine, Salvatore Monte has raised. Mr. 
Monte's problems involve fundamental questions about the role of our 
Federal Government in protecting the constitutional rights of our 
citizens in the context of international trade.
  Sal Monte is the president of Kenrich Petrochemical Inc., a family 
owned business founded after World War II and operating in Bayonne, NJ, 
since 1961. Sal Monte is an inventor in the proud New Jersey tradition 
of Thomas Edison and holds numerous patents. Mr. Monte's firm makes 
organo-metallic compounds. Organo-metallic compounds act as the 
molecular glue between organic and inorganic materials in the 
fabrication of complex substances. These chemical compounds are used in 
everything from rocket fuels, to ammunition, to tires, to cars, to 
multilayered printed circuit boards, to photocopiers. Mr. Monte's 
invention is responsible for the durability of videotape and audio tape 
used in our homes. Some of these chemicals make products biodegradable, 
others increase electrical conductivity, still others make steel more 
anticorrosive, plastics stronger, and tires safer. Toy manufacturers 
use them because they make thermoplastic processing significantly more 
energy efficient. There is even a national security concern, since Mr. 
Monte's chemicals are used to increase the effectiveness and safe 
handling by our Armed Forces personnel of new generation insensitive 
ammunition designed to prevent unplanned detonation in Army tanks and 
aboard Navy ships.
  Shortly after his products were introduced in the United States 
market in 1974, Mr. Monte was approached by officials of Ajinomoto Co. 
[Ajico] through a trading company named Nitto Shoji, LTD., about 
licensing his products in Japan. They signed a distributorship 
agreement on July 30, 1976 to import 46 different patented 
organometallics manufactured by Kenrich in the United States of 
America. Nitto Shoji claimed that it was imperative that the products 
be approved as environmentally safe, and had started the process for 
the environmental approval of the first Kenrich product to be sold in 
Japan, Ken-React KR TTS, on July 1, 1976. The KR TTS approval cost 
Kenrich $125,000. In accordance with the usual Japanese trade position, 
Ajinomoto officials impressed upon Mr. Monte the need to have a 
Japanese manufacturing partner to facilitate the environmental 
approvals, comply with extraordinarily difficult Japanese quality 
standards, and gain acceptance by Japanese keiretsu, industrial 
consumers of the product. Ajinomoto is a $20 plus billion food 
processing and fine chemical firm most noted in southeast Asia as the 
No. 1 producer of MSG--monosodium glutamate. As a result, on January 
28, 1980, 15 Kenrich chemicals were licensed for manufacture by the 
Ajinomoto Co. for exclusive sale in Japan, Taiwan, and South Korea.
  For the next 8 years, the Montes were given polite and respectful 
treatment. By 1984, they had transferred all of Kenrich's technology to 
Japanese licensing interests. Mr. Monte began to suspect that Ajinomoto 
was selling vast quantities of the Kenrich licensed product and 
underreporting sales to avoid paying royalties. Mr. Monte repeatedly 
requested sales reports, but only received a carefully contrived 
semiannual report which diminished in detail with each passing year. 
There are now over 900 patent applications issued to Japanese companies 
using the Kenrich products--almost 40 to Canon alone for copier toner, 
yet the sales are supposedly still under $1,000,000--even though the 
yen has doubled in value against the dollar during the contract period. 
After two decades of doing business in Japan, Kenrich is still 
receiving only a contract minimum of $50,000 a year in royalties.

  The coordinated assault on Kenrich would sound like paranoid Japan 
bashing were there not for the painstaking documentation filling dozens 
of file boxes, indicating the systematic, elaborate, and devious 
methods employed to deprive Mr. Monte of his intellectual property 
rights. Among the many efforts against Kenrich include:
  The development of knock-off titanate technology based on Kenrich 
technology by Ajinomoto, Nippon Soda Inc., Tokuyama Soda Ltd., Mitsui 
Mining and Smelting Ltd., and Kawaken Fine Chemcial Co., Ltd. The 
Japanese have used patent flooding as a technique to obfuscate original 
patented technology, thus making it difficult for the non-Japanese 
investor to defend his/her patent rights. Nippon Soda even copied 
Kenrich's detailed technical literature to explain their Titecoat 
knock-off product.
  An elaborate international exchange of bank securities resulted in 
the commercial paper of

[[Page E308]]

Kenrich being held by Dai-Ichi Kangyo Bank [DKB]. The DKB through CIT, 
promptly called in Kenrich's loans to precipitate a bankruptcy and gain 
control of Kenrich's patents used as collateral against the loan.
  Extraordinary measures have been taken by Ajinomoto to stack an 
arbitration panel as required under the 1952 United States-Japanese 
Arbitration. Moreover, it will require the case to be argued in Japan 
where patent laws are highly favorable to knock-off products.
  Improper recordkeeping and unauthorized sub-licensing by Ajinomoto 
for the manufacture of the chemicals to companies, such as Junsei 
Chemical Co., Ltd., and Kawaken Fine Chemicals Co., Ltd., made it 
impossible for Arthur Andersen Co. to conduct a proper audit under 
license agreement to determine royalties due Kenrich. The Andersen 
audit, initiated in October 1992, took 2 years and cost Kenrich 
$63,252. Andersen was stonewalled by Anjinomoto and hence, the audit 
was unusable.
  Ajinomoto withheld knowledge of patents filed by Japanese companies 
such as Sony Corp., on such products as videotape, prior to the 1980 
license agreement with Kenrich. This concealed the extensive value of 
Kenrich's technology to Japan's high technology industries.
  Patents were filed in 1995 by Mitsubishi Rayon for high performance 
carbon fiber advanced composites used in aerospace that contained one 
of Kenrich's chemicals not licensed to Ajinomoto. Kenrich had 
discontinued manufacturing this product 15 years ago. Who supplied the 
pirated chemical? It wasn't Kenrich.
  I do not believe that Mr. Monte's case is unusual. It shows how 
defenseless American small business is in international trade and how 
little the Federal Government does to protect fair trade. We should not 
resent the coordinated actions of the Japanese Government, banks, and 
industry, but we should learn from them. Predatory practices are 
actionable under American law and we must require that the rights of 
American citizens are freely and fairly insured in the arena of 
international trade. I intend to ask the U.S. Trade Representative and 
the U.S. International Trade Commission to launch an official 
investigation of this matter.

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