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Title: Cartels: challenge to a free world
Author: Wendell Berge
Release date: March 1, 2026 [eBook #78077]
Language: English
Original publication: Washington: Public Affairs Press, 1946
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*** START OF THE PROJECT GUTENBERG EBOOK CARTELS: CHALLENGE TO A FREE WORLD ***
Transcriber’s Note
This file uses _underscores_ to indicate italic text. Small capitals
changed to all capitals.
CARTELS
Challenge to a Free World
_By_ WENDELL BERGE
_Assistant Attorney General of the United States_
_Public Affairs Press_
WASHINGTON, D. C.
_To My Father_
GEORGE W. BERGE
_who throughout his life and in his public career was
guided by the conviction that the people’s rights
are not won without struggle and will not
be maintained without vigilance_.
_Public Affairs Press, 2153 Florida Ave., Washington, D. C._
_Copyright, 1946, by American Council on Public Affairs_
_M. B. Schnapper, Executive Secretary and Editor_
_Preface_
Plastics, television, new chemical and electrical techniques are but a
few of the instruments which will furnish the stuff for the pioneers of
a new age. The challenge of housing will excite bold minds to action,
on a scale never before attempted, to wipe out slums and give dwellers
in country and city alike a new and higher standard of living. Not
only at home, but also abroad, the opportunities for daring enterprise
which will be offered by the needs of world reconstruction will surpass
anything ever before known.
How are we going to meet this challenge? At the outset, we must face
frankly the greatest obstacle to making the most of our opportunity.
It is the threat of cartel control of major world industries. Unless
this threat is understood and dealt with decisively, our opportunity
to realize the great potential benefits of a free economy will be
lost. And worse still, the hope of maintaining democratic political
institutions will be seriously impaired.
The pattern of cartel operations has been clearly revealed in recent
years by antitrust investigations. From public records in antitrust
proceedings and congressional hearings, information about cartel
operations is now available. The public should be familiar with the
facts. As head of the Antitrust Division of the Department of Justice,
I have frequently been called upon to discuss cartel problems before
congressional committees, trade associations and civic groups. Since
my testimony and speeches received varying degrees of public notice
at the time they were given, the casual reader of newspaper reports
necessarily obtained only an impressionistic picture of the far-flung
ramifications of the subject. Something more is needed for thorough
understanding.
With this thought in mind, a number of friends and associates have
suggested from time to time that my material should be woven together
in book form. This I have undertaken to do in the present volume.
Merely to make assertions about the evil effect of cartels is a simple
matter. But I believe that the real usefulness of this book will depend
upon its fairly detailed explanation of the operation of particular
cartels, with direct quotations from letters, memoranda and other
documents.
While I have not tried to compile a complete source-book, I have
striven to make this discussion as non-technical as possible. The
factual material is drawn largely from the documents of the Kilgore,
Truman and Bone Senate Committees, and from the public records of
antitrust cases.
The investigations which unearthed the facts cited in this book were,
of course, the work of a great many men and women in the Antitrust
Division extending over a period of years. Acknowledgment of credit to
all of them would be impossible. Many of the men who have developed
these facts are now serving their country in the armed forces.
I cannot praise too highly the ability, energy and devotion to public
service of the men and women of the Antitrust Division. It is a
privilege to head such a splendid staff, as it is to serve under such
an able and distinguished Attorney General as Francis Biddle, who
has maintained at all times an extremely deep interest in our cartel
work and has given it his fullest support. Attorney General Biddle
has repeatedly impressed upon me his own conviction that the vigorous
enforcement of the antitrust laws against cartels is an indispensable
condition to the maintenance of a free competitive economy in this
country.
In the preparation of this book I am particularly indebted to Joseph
Borkin of my staff, who is in my opinion one of the best informed men
in America on the activities of international cartels. For more than
five years Mr. Borkin has devoted his great resourcefulness and energy
to investigation and study of cartel problems. His contribution in this
field has been invaluable.
I also want to acknowledge my deep obligation to my First Assistant,
Edward H. Levi, with whom I have spent many hours discussing the legal
and economic problems of cartels, and on whom I have relied so heavily
in the practical administration of the Antitrust Division. And I am
greatly indebted to Myron W. Watkins, Charles A. Welsh, Ernest S.
Meyers, George P. Comer, Herbert A. Berman, Bartholomew Diggins, Robert
Hunter, and Heinrich Kronstein of the Antitrust Division staff, all of
whom have been of great assistance in the preparation of this book and
in the cartel work of the Division. Professor Walton Hamilton of Yale,
who has been a part-time member of the staff, has also worked closely
with me on these matters and has made a signal contribution to our work.
Mr. M. B. Schnapper, Executive Secretary of the American Council of
Public Affairs, has been of greatest assistance in the planning of this
book and in the editorial work which it has involved.
WENDELL BERGE
CONTENTS
_1_: Trusts to Cartels 1
_2_: Enterprise Eclipsed 10
_3_: Technology 19
_4_: Patents 36
_5_: Medicines 52
_6_: Synthetic Hormones 58
_7_: Vitamins 82
_8_: Quebracho Extract 112
_9_: Titanium 124
_10_: Optical Instruments 142
_11_: Miscellaneous Products 176
_12_: The Webb Act 192
_13_: Private Governments 208
_14_: Freedom or Control? 233
_Appendix I_: Recent Cases 250
_Appendix II_: Bibliography 257
Index 261
1
_Trusts to Cartels_
The problem of monopoly is no longer a distinctively domestic and
national phenomenon. It has come to encompass the wide world. Like a
parasite upon its host, monopoly has grown with the marketplace. Today
hardly a corner of the world remains free from the malignant influence
of its latest and most sinister form, the cartel. Diamonds discovered
in Arkansas may prompt agitated conferences within 48 hours in London
and the Belgian Congo; a lawsuit in New York challenging the aluminum
monopoly brings simultaneous outbursts of oratory in the House of Lords
and of vituperation on the Axis radio.
For over half a century, the Sherman Act has stood as a positive
expression of the inflexible will of the American people to preserve
freedom of economic opportunity. When this measure was enacted the oil,
whiskey, and sugar trusts had placed barriers directly athwart the
arteries of commerce and were exacting tolls for every gallon or pound
of product permitted to pass. Since nation-wide industrial monopoly of
a comparatively stable character first took the form of a simple trust
agreement the Sherman Act came to be designated an antitrust statute.
But its thrust was positive: the maintenance of free, competitive
markets and a democratic system of industrial control.
If such an Act were passed today, I am quite sure it would be called an
“Anti-Cartel Act.” For our attention is at the present time focused on
industrial monopoly in a different form, operating in a wider orbit.
But our basic concern is the same. We are as determined today as were
our grandfathers, two generations ago--indeed, as were the founders of
the republic--to countenance no infringement of the right to engage
in any legitimate enterprise and to conduct business without let or
hindrance from any self-constituted group presuming to monopolize trade
or industry.
The Sherman Act has proved an effective instrument no less for
dealing with the cartel problem than for curbing the trusts. It must
be conceded, however, that, in default of proper implementation and
appropriate supplementation, it has not fully realized the salutary
object for which it was designed. In particular, our policies with
regard to patents, trademarks, the tariff, monetary and credit matters,
interstate commerce, and foreign trade, all have a direct bearing
upon competition and the pattern of industrial organization. They
are important factors conditioning the efficacy of a free market for
performing its basic economic functions. To our comparative neglect of
the incidence of these policies on the problem of maintaining healthful
competitive conditions in industry must be attributed a large share
of the responsibility for the difference between antitrust goal and
business practice.
In these circumstances, cartels--which, in effect, are trusts magnified
to an international scale--have been able by clandestine means to
impress their sinister mark upon our economy. In mobilizing for war, we
discovered, almost too late, that they were responsible for shortage
after shortage of vital materials. The fact is that they have retarded
technological advance and the introduction of improved devices and
products, whenever such developments seemed to threaten their vested
interests despite the fact that thereby national security might be
jeopardized. They have, indeed, obstructed and in no small measure
thwarted the declared foreign policies of the American government,
placing their own business interests above the public interests.
In peace time, their high-price, restricted-output strategy has
impeded the advance of our living standards and general economic
well-being. Through the abuse of our patent system, cartel controls
have been established over large segments of technology. With this
leverage, industrial monopolies of international compass have at times
deliberately brought about the deterioration of quality standards.
When it might be to their advantage in maintaining or exploiting
their monopoly position, they have adulterated their products to an
extent and in a manner endangering the health, and even the lives, of
consumers. Almost incredible as these assertions may be, they are not
subject to contradiction--the incontrovertible facts are clearly set
forth in Congressional investigations and in the evidence in antitrust
cases of the Department of Justice.
Cartels are in essence private governments which threaten to subvert
and even engulf duly constituted authority. In Germany, Kaiserism and
later Nazism received enormous impetus, indeed decisive support, from
the regimented, cartelized structure of the national economy.
Totalitarianism represents simply the ultimate consummation of
cartelism--the final, full expression of the reactionary forces
stemming from special privilege. In totalitarian states all industrial
enterprise is subservient to the predatory interests and fear-dominated
will of a government which openly flouts the democratic principle of
consent of the governed. In the economic sphere, the investment of
fresh capital, the volume of production, the prices to be charged, the
markets to be served, are determined by arbitrary decrees. Risk-taking,
managerial discretion, bargaining freedom, the essential elements
of the capitalistic system as we have known it, are absent. One can
neither start a new industry, launch a new enterprise, or change one’s
occupation without first obtaining official consent. It is in the
nature of cartels that they should operate in a similar fashion, even
if in their application the devices used for consolidating the vested
interests of established concerns and throttling the dynamic forces
which economic freedom would release may lack something of the rigor
they exhibit under totalitarian “leadership.” In order to maintain
their control over production and prices cartels must determine who may
enter the industry, how they shall operate and where they may sell.
The basic American concept of free enterprise is the antithesis of a
cartelized market. Yet, all too frequently, some of our industrialists
have had the effrontery to attempt to promote a pro-cartel policy by
a specious appeal for free enterprise. The pretension is that freedom
to compete in trade must encompass freedom to suppress competition! As
though the right to start a fire in order to heat a house must include
the right to burn down the house in complete disregard of the peril to
the whole community! The common sense of ordinary men has no difficulty
in distinguishing between the right to start a fire and the “right” to
commit arson.
Unless I am greatly mistaken, the American public will no more tolerate
a cartel-sanctioning abrogation of the antitrust laws in the name of
“free enterprise” than they would countenance a repeal of the laws
against arson in the name of “freedom of self-preservation”--the right
to keep warm!
It is significant, and deserves thoughtful reflection that Germany, the
“classic land of the cartel,” where regimented economic restrictionism
is the accepted “way of life,” has in the course of two generations
farrowed Kaiserism and Hitlerism--the natural offspring of militarism
and cartelism. Even in times of peace, the militarists and industrial
monopolists of Germany found cartel restrictions an excellent means
for conducting covert warfare. In this way industrial “colonies”
were acquired and prospective victims “softened up.” Back in 1883,
Joseph Chamberlain, as a member of the British Cabinet, declared, in
sponsoring a bill designed to forefend the sub-rosa “invasion” tactics
of imperialistic Germany:
“It has been pointed out especially in an interesting memorial
presented on behalf of the chemical industry that under the present law
it would have been possible, for instance, for the German inventor of
the hot blast furnace, if he had chosen to refuse a license in England,
to have destroyed almost the whole iron industry of this country and to
carry the business bodily over to Germany. Although that did not happen
in the case of the hot blast industry, it had actually happened in the
manufacture of artificial colors connected with the coal products, and
the whole of that had gone to Germany because the patentees would not
grant a license in this country.”
A quarter century later, Lloyd George, introducing a more drastic bill
for curbing these insidious depredations on strategically vital British
industries, pointed out:
“Big foreign syndicates have one very effective way of destroying
British industry. They first of all apply for patents on a very
considerable scale. They suggest every possible combination, for
instance, in chemicals, which human ingenuity can possibly think of.
These combinations the syndicates have not tried themselves. They are
not in operation, say, in Germany or elsewhere.... A good many of
these patents have been taken out not for the purpose of working the
patents in this country, _but for the purpose of preventing their being
worked_.”
The “big foreign syndicates” to which George referred were, of course,
the German cartels.
The adroit strategy of stealthily sapping the industrial foundations
of the national security of countries capable of resisting the German
_drang nach_ all-points-of-the-compass has been relentlessly pursued
and resourcefully developed, through thick and thin, decade after
decade. If the cartels are thwarted in the use of the patent system as
a weapon for disarming potential competitors abroad, they may inveigle
the intended victims of German aggression to a ‘simulated’ love-feast
at which the latter are gorged with the poisoned food of production
quotas, technology restrictions, market-territory limitations, and
pricing inhibitions. What these tactics accomplished in the way of
immobilizing French industry is now a familiar story. To cite the
record of only three of the most strategic industries, through cartel
manipulations the Germans succeeded in (a) reducing the relative output
of French steel from substantial equality with German output in 1926
to 40 percent thereof in 1938, (b) retarding the growth of French
aluminum production to a rate which fell short of doubling the output
in the same period, while German production was increasing five-fold,
and (c) restricting the French dyestuffs industry in such fashion that
its output in 1937 was barely two-thirds of what it had been in 1924,
whereas German production, even according to official estimates (none
too reliable though they are) had increased five percent in the same
period.
Nor were the European countries alone the “potential enemies” whose
vital economic defenses were thus impaired by subtly imposed cartel
restrictions. In this hemisphere, likewise and not least of all in our
own country, the cartel device was sedulously--and effectively--used
for the same ulterior purpose. As President Woodrow Wilson declared
shortly after the first World War,
“Our complete dependence upon German [dyestuffs] supplies before the
war made the interruption of trade a cause of exceptional economic
disturbance. The close relation between the manufacture of dyestuffs
on the one hand and of explosives and poisonous gases on the other,
moreover, has given the industry an exceptional significance....
It will ... be a policy of obvious prudence to make certain of the
successful maintenance of many strong and well-equipped chemical
plants. German chemical industry, with which we will be brought into
competition, was and may well be again _a thoroughly knit monopoly,
capable of exercising a competition of a peculiarly insidious and
dangerous kind_.”
Despite this warning in 1919, we were only slightly better off,
relatively, in respect of the arts of organic chemicals manufacture
twenty years later, when Germany decided the time was ripe for another
attempt at world conquest, than we had been in 1917. In the matter of
synthetic rubber technique, today the most strategically critical of
all these processes, I. G. Farbenindustrie had succeeded, through its
cartel arrangements with the leading American firms in the petroleum
and chemical fields, in keeping this country in an extremely vulnerable
position--as all the world now knows. Partly through persistent
stalling tactics, partly through playing one American firm off against
another, partly through cajolery, and partly through deliberate deceit,
the German cartelists had not only stifled the development of American
technology in this field, even by their “partners” on this side of
the Atlantic, but had done even better, from their standpoint. They
had obtained the German patent rights and the essential know-how for
the most signal contributions of American technicians to the art of
synthetic rubber manufacture. And, incredible though it may seem, they
had obtained these advantages without divulging a single significant
detail of their own carefully guarded know-how!
As the President’s Office of Facts and Figures ruefully summed up the
situation in 1942:
“[The enemy] has worked for many years to weaken our military
potential. Through patent controls and cartel agreements he succeeded
in limiting American production and export of many vital materials.
He kept the prices of these materials up and the output down. He was
waging war, and he did his work well, decoying important American
companies into agreements, the purpose of which they did not sense.”
Thus, sixty years after a member of the British Cabinet first testified
to its awareness of the menace in the insidious penetration of German
cartels in the international sphere, a branch of the American Executive
confirms the continuing pertinence of his observations.
How, in the face of this record, in the light of this evidence of
the persistence of the cartel movement and of its chronic tendency
to pervert the processes of industrial production to ulterior ends
leading indefeasibly to the devastation and slaughter of war can it be
contended that cartels represent a promising way to order the post-war
world economy? Is it not plain, rather, that “if we would guide by the
light of reason,” we must reaffirm our pledge of democratic equality
of opportunity for all in trade and industry, and resolutely set about
the task of putting our house in order in accordance with that basic
principle of American life? Is it not plain, too, that monopolistic
industrial control in the domestic sphere cannot be completely achieved
without the uprooting of the foci of cartel infection in German
industry? Once German industry is purged of its cartel hook-ups and
monopolistic animus and all non-German industry is released from the
haunting fears and seductive temptations which go so far to explain
these international industrial alliances, I am confident that the
prospects for the restoration of genuine freedom of enterprise and
healthy competitive markets will be good. While I am not sanguine of
the goal being reached forthwith and easily, “at one bound” as it were,
I have an abiding faith that the dynamism of economic freedom will
enable us, in the end, to surmount every obstacle erected by special
privilege or vested interest on the highroad to full utilization of
resources. A truly great adventure is ahead.
2
_Enterprise Eclipsed_
It is the determination of our people not only to gain victory over the
military power of aggressors, but to establish securely the lasting
conditions of peace. We know that beyond victory we shall have to face
a multitude of perplexing economic problems. We must also realize that
we shall meet new dangers to those free institutions on which our
national economy is based. If the problems of peace are to be solved,
we shall have to come to grips with these difficulties in the same
spirit of resolution with which the war has been waged.
It seems abundantly clear that America can never have a foreign policy
based on the principles of democracy and international good will as
long as international trade is dominated by cartels. It does not seem
possible that the Atlantic Charter, the Good Neighbor policy, and
the reciprocal trade pacts can effectively prevail if the special
privileges of cartels dominate trade and politics in the postwar world.
In many respects cartels form one of the central issues of the present
period. The greatest threat to our success in achieving full production
and full employment at home, and friendly cooperation with other
nations abroad, is the philosophy and practice of privilege embodied in
cartels. If there is to be a free and productive economy in the United
States, or a free exchange of goods in world markets, the power of
cartels must be broken.
It is essential to understand that cartels seek to divide and rule
world industry on the basis of economic privilege. If cartels are
successful in gaining a foothold in the postwar period, it will almost
be impossible for this nation to maintain a high level of peacetime
production or to cooperate in the reconstruction of world trade.
In general, cartels restrict rather than promote trade. Cartels
typically engage in such practices as dividing fields of operation
and market areas between members so as to eliminate competition,
restricting production by agreement, and fixing prices so as to
avoid price competition. They also promote various kinds of patent
licensing contracts which enable them to control and limit the use
of new inventions and thus restrict the benefits of technological
advance. The effects of these practices include reduced production and
employment, higher prices and profits, retarded spread of technological
improvements and a lower standard of living.
The conduct of cartels before and during this war has been one of the
tragic pages of our history. The shortages of aluminum and magnesium
resulting from cartel restrictions forced us to strip the kitchens of
America and scar our public squares with scrap piles. The scarcity of
rubber is a never-ceasing threat to our productive effort. Our armed
forces plead with us to contribute our binoculars. The lack of vital
drugs and medicines has jeopardized our men fighting in fever stricken
areas. In fact, almost wherever there was a cartel there was a shortage.
But cartels have an even more serious aspect. These private governments
threaten the sovereignty of democratic nations. The political
implications of cartel activity threaten to subvert future national
public policy of the United States.
There is a close relation between a country’s economic policies and
its foreign relations. It is generally recognized now that economic
freedom cannot be attained at home if private groups are permitted to
acquire monopoly power over industry. Likewise, it must be equally
recognized that friendship and cooperation between this country and
other nations cannot be established without the free exchange of goods
and services. Reciprocal trade treaties and good neighbor policies can
have little effect if private cartels can shut off American markets to
foreign producers or prevent American producers from selling abroad.
The Good Neighbor policy is one of the fundamental principles of our
relations with Latin America. While our Government was bending every
effort to bring about the conditions of sound and mutually advantageous
cooperation, cartels were systematically undermining these efforts.
Latin America was turned over by private cartels as a colony to hostile
foreign interests. By giving German industry virtually a free hand in
Latin America, and by agreeing not to compete, American cartelists made
possible the creation of a German sphere of influence. Nazi propaganda,
espionage, and subversive activity all stem directly from this
unhampered German penetration. When South Americans sought to purchase
drugs, metals, precision equipment, and munitions from the United
States, private cartel treaties had already provided that American
concerns could not engage in this trade. Not only was the healthy
development of South American trade and industry checked, but even
today we struggle desperately to overcome the political consequences of
cartel activity.
We have long cherished the principle of open covenants openly arrived
at. In fact, this policy is an essential part of America’s conduct
of foreign affairs. Every treaty commitment made by this country is
debated publicly by the people’s representatives. Without the agreement
of two-thirds of the Senate and the President, no treaty may be made.
Yet agreements have been made in international industry affecting
both the American economy and our foreign policy which were secretly
contrived and clandestinely arrived at. The American people had no
voice, but they bore the burden of these private treaties.
Make no mistake--the war has not interfered with cartel plans. Cartel
agreements invariably provide for the contingency of war. Long before
the war, cartels worked out a modus vivendi--a method of continued
existence--for they felt that their relations must be preserved, war
or no war. Thus we find American and British cartelists agreeing to
preserve the German position in Latin American markets after the war.
Agreements between the cartel members of countries now at war provide
for a resumption at the war’s close. In case legislation or government
action interfere, then they will cooperate to adapt their relations, as
one agreement states, “in the spirit of the present agreements.”
Therefore, the necessity for vigorous action in keeping open the
channels of trade becomes apparent when we consider that those who
create cartels hold themselves above the law or seek to control
legislation and Government policy in the many countries where they
operate.
These same groups are making their own postwar plans. Because they have
found the enforcement of the Sherman Act a hindrance in the past they
have expressed a desire to have the antitrust laws repealed.
It should be recalled that the political deal which Munich represented
had its economic counterpart in one made at Dusseldorf, in which the
Federation of British Industries and the German industrial overlords
expressed their intention of stabilizing and rationalizing world trade.
As indicated at Dusseldorf, cartel groups regard governments as handy
instruments to be used in working out their schemes of restriction.
Although the peace of Munich has received considerable public
consideration, little attention has been given to the peace of
Dusseldorf, a peace which, while obscured in the welter of political
and military crises, epitomized the spirit and the power of
international industrial monopoly.
On March 15 and 16, 1939, immediately after Hitler’s invasion of
Czechoslovakia, representatives of the Reichsgruppe Industrie of
Germany and of the Federation of British Industries held an intensive
conference at Dusseldorf. At the conclusion of the conference
representatives of German and British industry issued the following
joint declaration:
“The Reichsgruppe Industrie and the Federation of British Industries,
having concluded a general discussion on Anglo-German trade relations,
issue the following agreed statement:
“1. The two organizations welcome the opportunity which these
discussions have given of developing still further the friendly
relations which have existed between the two bodies for so many years.
* * * * *
“4. The two bodies are agreed that the objective to be attained is that
the export of all countries should be conducted in such a way as to
ensure a fair return for the producers of those countries. Hence it is
agreed that it is essential to replace destructive competition wherever
it may be found by constructive cooperation, designed to foster the
expansion of world trade, to the mutual benefit of Great Britain,
Germany and all other countries.
“5. The two organizations are agreed that it is desirable that
individual industries in both countries should endeavor to arrive at
industrial agreements which will eliminate destructive competition,
wherever occurring, but prices must be fixed at such a level as not to
diminish the buying power of the consumers.
“6. The two organizations realize that agreements upon prices or other
factors between Germany and Great Britain are only a step, although a
most important step, towards a more ordered system of world trade. They
would welcome the participation of other nations in such agreements.
* * * * *
“8. The two organizations realize that in certain cases the advantages
of agreements between the industries of two countries or of a group
of countries may be nullified by competition from the industry in
some other country that refuses to become a party to the agreement.
In such circumstances it may be necessary for the organizations to
obtain the help of their governments and the two organizations agree to
collaborate in seeking that help.
“9. The two organizations agree that it is their objective to ensure
that as a result of an agreement between their industries unhealthy
competition shall be removed. Their aim is to secure as complete
cooperation as possible throughout the industrial structure of their
respective countries.
“10. The two organizations have agreed to use their best endeavors to
promote and foster negotiations between the individual industries in
their respective countries. They are encouraged in this task owing to
the fact that a considerable number of agreements between individual
German and British industrial groups are already in existence. There
is thus available a large body of experience which inspires confidence
that an immediate extension of this policy is both practicable and
advantageous.
“They are glad to state that approximately a further fifty industrial
groups have already signified their willingness in principle to
negotiate at an early date.
“They also report with satisfaction that negotiations have already been
started and are now taking place between ten industrial groups.”
The spirit exemplified in the above declaration is not dead. It is
awaiting the moment of peace to step in and resume control of those
very industries which are most essential to the rehabilitation of a
war-torn world, to the fullest use of our labor and resources.
Surely we must realize now that if the program of Dusseldorf prevails
in the postwar world it will produce World War III. Surely we must
recognize that we cannot build a free world without a free economy.
The close and constant cooperation of the United Nations after the
war is all-important. This cooperation should rest, among other
things, on active and healthy international trade. We want to see that
trade grow unhampered by private restrictions. In attacking these
illegal activities the Government of the United States is aiming at a
condition which obstructs healthy international trade and threatens the
effectiveness of governmental foreign policies.
To combat the influence of monopoly groups, the United States has two
effective weapons: (1) the vigorous enforcement of the Sherman Act, and
(2) the power which Congress possesses to investigate and make public
the hidden dealings of cartel interests.
It is significant that in Great Britain increasing interest in the
purposes and activities of cartels is being manifested--principally as
the result of American antitrust investigations which have revealed
that British industry, no less than our own industry, has suffered the
burden of restrictive practices imposed by cartel arrangements.
Moreover, there has been developing in Canada a substantial interest
in the cartel problem. Thus, the _Ottawa Journal_ recently stated
editorially that “it is fairly clear to all that cartels, large
combinations of industries parcelling out territories among themselves,
controlling patents and fixing prices, may be a menace to the general
well-being, and what is more vital, a menace to world peace.”
And the _Winnipeg Free Press_ declared not long ago that “it is
gradually dawning upon Britain that rationalization of industry has
its dangers. They are discovering that monopolies can and do develop
evil practices.... Thus there is arising there [in Great Britain] a
demand for control of monopolies, the breaking down of cartels and
the restoration of competition between the great industrial giants.”
After pointing out some of the evils that flow from monopoly control,
_Winnipeg Free Press_ went on to say: “National monopolies which
restrain trade are bad enough of themselves. But when combined with
international cartels they are intolerable. The Canadian government
should pay particular attention to the antitrust proceedings in the
United States. They reveal a most unhealthy state of industrial health
and if the economy of this country is to be saved from disaster steps
will have to be taken to break up the evil monopolies and their
cartels.”
It would certainly be in the mutual interest of Great Britain and
ourselves if we could take a joint stand against private restrictive
arrangements in the postwar world and together seek to stamp them out.
There is ample reason to believe that American exposure of secret
cartel practices may have its effect on the public policy of other
countries and promote common understanding that certain types of
activity should be outlawed in other countries as well as here. But
irrespective of the extent to which other governments adopt policies
similar to ours, there can be no doubt that American business can
thrive in competition with foreign cartels if it does not enter into
cartel restrictions. If freed of cartel shackles, American enterprise
should well be able to expand in world markets and render foreign
cartel control ineffective. It is doubtful, indeed, whether any major
international cartel can effectively control world markets without the
participation and cooperation of the American segments of the industry.
There is a real question whether foreign cartels can long survive in
many industries if American cooperation is not extended to them.
If and when some measure of control and regulation becomes economically
necessary on an international scale in a particular industry, a
question is presented for governmental action--not for private cartel
action. If, for example, in a particular industry it seems necessary
to control production in order to avoid waste of a scarce natural
resource, the solution of such a problem is properly a responsibility
of national or international governmental action. Where control is
needed, it must be by public authority. If international restrictive
agreements are ever needed, they must be determined upon by
governments--not by private cartels.
But the situation where control would be required on an international
scale is decidedly the exception. Most foreign trade in the postwar
world can be conducted on a competitive basis if we give competition
a chance. The period following the war will present an unprecedented
challenge to the ingenuity of mankind. Men of brains and imagination
should have a chance to rebuild the world, to take risks, to engage in
foreign trade and to win in competitive struggle, unhampered by private
decrees. The world is not a private hunting preserve which can be
divided at will among monopolists who think they have gained squatters’
rights.
3
_Technology_
In the days of Adam Smith it was possible to measure the wealth of
nations in terms of mineral resources, possession of fertile lands and
control of strategic geographical areas. Today we have a new index to
the wealth and security of nations. Technology and applied science have
become principal instruments in the maintenance of a high standard of
living and for the protection of national interests. In fact, when
we speak of the balance of power in the modern world, we must take
into account the extent and quality of industrial and technological
resources as a dominant factor in national welfare. The horizons
which have been opened by applied science and research offer to the
world, and to our own nation in particular, new industries, greater
opportunities for our youth, higher levels of health and comfort, and
the attainment of that genuine social security which comes with all
great advancements in human knowledge.
Technology--its direction, its applications, and its enjoyment--is
today a primary concern of government. In a system based upon freedom
of enterprise, access to technology is the fundamental condition of
rapid advancement toward the goals for which our nation is striving.
The power that goes with the development of modern technology has
been perverted in totalitarian countries to provide instruments of
aggression. Because totalitarian states have regimented science and
have made it subservient to imperial ambitions, it has been used to
destroy rather than to create. One of the principal problems which
the United Nations will encounter in the peace to come will be
the prevention of any abuse of new discoveries for the purpose of
establishing war machines which can threaten the peace of the world.
The control of vital areas of research by monopolistic interests is a
condition which cannot be tolerated. Monopoly control seeks to protect
vested interests and to perpetuate its grip on the advancement of
science and technology. It retards the introduction of new goods and
services and the maintenance of full employment in time of peace.
Our experiences in this war have demonstrated conclusively that
monopolistic control of critical sectors of industrial research has a
paralyzing effect on mobilization of our national strength. One of the
most difficult problems we have encountered in arming this country has
been the domination and restriction of technology by small privileged
groups. It has required strenuous efforts on the part of government and
industry alike to overcome the stifling effects of complacent monopoly.
With rare exceptions industrial research at the present time can only
be carried on by large numbers of scientists and technicians combining
their ingenuity to resolve the complex problems of both pure and
applied science. In the last fifty years technology has moved at such
a rapid pace that no longer is the small businessman in a position to
maintain laboratories of sufficient size. Today we witness the gigantic
research organizations of all major corporations, and no one desires to
impair their efficiency.
There is, nevertheless, a gap between the promise of organized research
conducted on a huge scale by great corporations and the fulfillment
as measured by accomplishments for the public interest. So that there
shall be no misunderstanding, I should like to pay tribute to the vast
army of scientists and research workers who have done such remarkable
work in the years of peace as well as in the years of war in bringing
forth a multitude of amazing discoveries. It is not their fault that
their contributions have not been fully realized. The trouble is that
in many instances the misuse of research by monopolistic and cartelized
groups has resulted in the restricting of production, withholding new
products, and fencing in and blocking off new developments.
One of the ablest and clearest statements of the effect of restrictive
arrangements upon research was made by Dr. F. B. Jewett, vice-president
of the American Telephone & Telegraph, and chief of Bell Laboratories.
In discussing an agreement between his company and other parties, he
stated:
“Broadly speaking, the practical effect of the agreement is to limit
the field of possible development of each party to its present major
activities....
“Thus, while a casual reading of the agreement by one not thoroughly
conversant with all the factors may appear to establish the basis
for an enlarged free development in most of the fields, this is not
actually the case.
* * * * *
“The far-reaching effect of the proposed agreement on the character and
scope of our research and development work is apparent. Viewed both
from the standpoint of the research worker in our laboratories and
from the standpoint of those responsible for the expenditures incurred
by the Laboratories, the inevitable result would be a narrowing of
the field of activity and failure to undertake anything which at the
outset is not clearly directed to the field of our current business.
From the standpoint of the man who has a brilliant idea which in its
first nebulous form seems to be applicable outside our business, there
will be little or no urge to go ahead in the face of a situation where
he knows that the results of his work have been sold in advance outside
of the Bell System. From the standpoint of management there will
likewise be no incentive, but quite the reverse, to urging him on and
appropriating money for his investigations.”
A member of a monopoly or cartel group all too often finds itself in
a position where it must choose between the national interest on the
one hand and its cartel obligations on the other. This difficulty is
accurately stated in a document taken from the Standard Oil Co. (N. J.)
files with reference to the development of 100 octane gasoline, one of
the most vital materials of modern warfare:
“This possibility is, of course, extremely attractive to the Army Air
Corps, but there is one difficulty involved which Mr. Russell quite
frankly discussed. The hydrogenation development originated in Germany,
and through cooperation all around has now passed into the hands of the
oil industry of the entire world, and, to a certain extent, into the
hands of the foreign chemical industry as well. There is a full and
free exchange of technical information between all of the companies
and units involved in the hydrogenation development and this exchange
is not only by means of reports but by constant visits of technical
men. To cut off these reports and shut our hydrogenation plants against
these visitors would be not only a violation of these agreements, which
would involve us in many difficulties, but would also be tantamount
to a confession that we were engaged in some work of special military
value which would mean that the plants would become a focal point for
espionage. The costs and difficulties of protecting against leakage of
information about large commercial operations under such conditions
is hard to estimate. _It seems that the only practical way to handle
this problem is to avoid carrying out the operation of producing 100
octane number aviation gasoline commercially as long as possible._ We
would, of course, also have to breach our agreements to render full and
complete technical reports to all of the companies associated with us
(even to the American companies, for fear of leakage). We should also
forfeit the advantage in producing at the least cost the best available
gasoline for commercial purposes.
“_Any program by which the Army Air Corps can obtain their objective
of a one or two year start over the rest of the world on this vital
matter bristles with difficulties and sacrifices from our standpoint._
We will not have to cross the bridge finally until our present
experiments are completed. When and if we are able to demonstrate that
the hydrogenation plants are capable of turning out an aviation product
which with the usual quantity of lead can be brought up to 100 octane
number, we shall be faced with the situation mentioned above. _To meet
the very proper desires of the Air Corps as expressed to us we shall
have to violate our agreements and perhaps forfeit the confidence of
our associates, both American and foreign, and beyond this we shall
either have to avoid any commercial use of the new method or run the
very grave risk of finding that our efforts at secrecy have been
abortive._”
In pointing out the inevitable conflicts between national loyalties
and business interests which arise when industry is carried on through
private international cartel agreements, I do not attack, nor do I
intend to cast inferences against, the patriotic motives of any men
or companies. I assume that the persons who have taken part in these
transactions have not consciously acted against the best interests
of their country. But it is the cartel system that is at fault. The
individuals caught up in the system are faced with a dilemma because it
imposes on them choices which it is almost impossible to make without
violation of an obligation to one of two conflicting interests.
One of the most serious limitations upon research has been the
division of fields of technology by cartel groups. If a company is
barred by agreement from an aspect of technology, there is little if
any incentive to do research in that field. One possible consequence
of such division of technology is that it permits foreign interests
to exercise influence amounting to domination over research in this
country.
No one doubts that synthetic rubber is a matter of national interest.
The cartel arrangement between Standard Oil Co. (N. J.) and I. G.
Farbenindustrie was such that the latter dominated the development of
synthetic rubber in this country as well as in Germany.
In the case of the Bausch & Lomb (Rochester)-Carl Zeiss (Jena, Germany)
cartel on military optical glass, the heads of the Bausch & Lomb
department responsible for military research were to be appointed only
with the agreement of the Zeiss firm.
In regard to the cartel involving Plexiglass, probably one of the most
important plastics, and one which has innumerable military uses, the
Rohm & Haas Company (Philadelphia) stated: “We could think of a price
agreement on the finished product, or a division of our interests ...
we have not only our own interests at stake, but also the ones of our
German house [Rohm & Haas of Darmstadt, Germany] and the I. G.”
In December 1934 a high official of the duPont Company wrote to E. W.
Webb, president of the Ethyl Gasoline Corporation (copies were sent to
every member of its Board of Directors) as follows:
“I learned through our Organic Chemicals Division today that the Ethyl
Gasoline Corporation has in mind forming a German company with the I.
G. to manufacture Ethyl lead in that country.
“I have just had two weeks in Washington, no inconsiderable part
of which was devoted to criticising the interchanging with foreign
companies of chemical knowledge which might have a military value.
Such giving of information by an industrial company might have the
gravest repercussions on it. The Ethyl Gasoline Corporation would be no
exception, in fact, would probably be singled out for special attack
because of the ownership of its stock.
“It would seem, on the face of it, that the quantity of Ethyl lead used
for commercial purposes in Germany would be too small to go after. It
has been claimed that Germany is secretly arming. Ethyl lead would
doubtless be a valuable aid to military aeroplanes.
“I am writing you this to say that in my opinion under no conditions
should you or the Board of Directors of the Ethyl Gasoline Corporation
disclose any secrets or ‘know how’ in connection with the manufacture
of tetra-ethyl lead to Germany.”
Yet, in the face of this warning from duPont, on January 12, 1935,
Webb wrote the Chief of the Army Air Corps that “There is no technical
data of military importance known to us which would be involved in the
building of such a plant that has not already received wide publicity,
or is of common knowledge in the aviation field.”
This statement strikingly ignores the warning received from duPont
only one month earlier that such a disclosure would “doubtless” be
prejudicial to our national security. In this connection it should
not be overlooked that duPont and Dow were the sole producers of the
chemical components of tetraethyl lead and, as such, were the concerns
which alone possessed the essential know-how.
Why did Ethyl Gasoline disregard duPont’s warning? Webb himself has
supplied the answer in the final paragraph of his letter of January 12,
1935:
“There is, furthermore, an equally, if not more, important business
aspect to the German situation. We are owned by Standard Oil and
General Motors in equal shares. General Motors has important
investments in Germany, producing there in excess of 50 percent of
the motor cars. Standard Oil has large investments in all phases of
the petroleum business in Germany.... We feel ... for the reasons
specifically mentioned here, that it would be extremely unfortunate
for all concerned if we do not proceed to carry out the agreement with
I. G.... A refusal or undue delay on our part ... might bring on some
serious reprisal measures.”
This leaves nothing for surmise. It is not unfair to conclude, in
view of these facts, that for the directors of Ethyl Gasoline the
preservation of I. G. good-will conflicted with the maintenance of
good faith in dealings with their own government. Though duPont, from
the beginning, was opposed to the entire deal on grounds of patriotic
scruples, nevertheless it eventually deferred. In an inter-office memo
of the duPont Company appears the following:
“I think we should tell I.C.I. that the technical and engineering
information which we are giving I. G. in connection with Tetraethyl
Lead is being given them entirely at the request of the Ethyl Gasoline
Corporation. As they no doubt know, Ethyl Gas and I. G. set up some
arrangements whereby they are going to participate jointly in the
manufacture and sale of Ethyl Lead in Germany and we are turning over
our information to Ethyl Gas which they in turn can submit to I. G. as
part of the bargain in connection with this joint enterprise.”
The full extent of the dilemma in which cartel members are placed by
the conflict of their cartel commitments with national interest is
indicated in two statements made by a representative of one of the
world’s great industrial combines. In a letter written in 1939, after
the outbreak of war, a Standard Oil official stated:
“Pursuant to these arrangements I was able to keep my appointments in
Holland, where I had three days of discussion with the representatives
of the I. G. They delivered to me assignments of some 2,000 foreign
patents and _we did our best to work out complete plans for a modus
vivendi which would operate through the term of the war, whether or not
the U. S. came in_. All of the arrangements could not be completed,
but it is hoped that enough has been done to permit closing the most
important uncompleted points by cable. It is difficult to visualize
as yet just how successful we shall be in maintaining our relations
through this period without personal contacts.”
It is of significance also that this same representative of a cartel
group brilliantly expressed the cartel point of view when he said:
“Upon completion of that agreement, the war intervened because our
grouping of interested parties included Americans, British, Dutch,
Germans, and the war introduced quite a number of complications. _How
we are going to make these belligerent parties lie down in the same
bed isn’t quite clear as yet._ We are now addressing ourselves to that
phase of the problem and I hope we will find some solution. _Technology
has to carry on--war or no war_--so we must find some solution to
these last problems.”
It is in their very nature that cartels restrict the fullest
developments of new products and that they attempt to place rigid
handicaps on output. Very often they even adulterate the quality of
products in order to exact the greatest possible toll from the public.
Several examples may be used to indicate the practices and mental
attitude of monopoly groups in relation to the quality of material. The
following quotation concerning flashlight bulbs speaks for itself:
“Two or three years ago we proposed a reduction in the life of
flashlight lamps from the old basis on which one lamp was supposed to
outlast three batteries, to a point where the life of the lamp and the
life of the battery under service conditions would be approximately
equal. Sometime ago, the battery manufacturers went part way with us on
this and accepted lamps of two battery lives instead of three. This has
worked out very satisfactorily.
“We have been continuing our studies and efforts to bring about the
use of one battery life lamps. I think you will be interested in
the attached analysis which Messrs. Prideaux and Egeler have worked
up covering the various points involved in going to the one battery
life basis. If this were done, we estimate that it would result in
increasing our flashlight business approximately 60 per cent. We can
see no logical reason either from our standpoint or that of the battery
manufacturer why such a change should not be made at this time.
“Messrs. Parker and Johnson now have this matter up with the battery
manufacturers and I would urge that every assistance be given them to
put it over.”
Methyl methacrylate, the name of one of the best known plastics, is
used not only in the industrial field to make airplane windshielding
and many other structural materials, but it also has excellent
qualities for the making of dental plates or dentures. As a result of
the monopoly control of this material by the duPont Company and Rohm
& Haas, its uses were divided into two fields: industrial and dental.
At the time these firms were indicted a sharp difference in price was
maintained. When methyl methacrylate was sold for industrial purposes,
it cost 85 cents a pound, while the price to dental users was $45 a
pound. The dental profession soon learned that there was no difference
in the material, whether it was designed for industrial or dental use.
As a result they began to purchase their requirements from industrial
users, in order to gain the advantage of the cheaper industrial price
which, we could assume, might possibly be passed on to the dental
patient.
The monopoly clique considered this a form of bootlegging. On March 15,
1940, the Vernon-Benshoff Company (Pittsburgh), a member of the clique,
made various suggestions to the Rohm and Haas Company which, although
they were not placed in actual effect, offer valuable insight into the
shocking extremes to which monopolists will consider going:
“Our discussion of the Pure Food and Drug Law and pulling the acrylic
denture under it leads me to wonder if the manufacturers of the
commercial molding powders might not add an ingredient which would not
effect the molding properties, but which would disqualify it under the
act. Apparently a slight trace would suffice. Naturally it would be
omitted from the strictly denture powder.
“Recently I asked Dr. Johnson to suggest an addition which might
interfere with distillation of monomer or retard polymerization. He
could not think of anything that wouldn’t spoil the molding properties
or clarity of the powders. But there the quantity needed to accomplish
the result was the handicap.
“Under the very finicky regulations of the above act however, it may be
the slightest trace of the right agent, too little to constitute harm
to molding (or health either as a matter of fact) would suffice to have
bootleg products in bad.
“A millionth of one per cent of arsenic or lead might cause them to
confiscate every bootleg unit in the country. There ought to be a trace
of something that would make them rear up.”
In its reply the Rohm & Haas Company said that it was in agreement with
the general principles presented in the letter quoted above and that
it would ask its research department to work on the matter. This was
expressed in a letter of March 21, 1940 to the Vernon-Benshoff firm:
“With reference to your letter of March 15th, we shall be glad to
investigate whether denture materials come under the Pure Food and Drug
Act. We agree with you that if we could put some ingredient in our
commercial molding material which would disqualify it under the Pure
Food and Drug Act, this would be a very fine method of controlling the
bootleg situation. We shall take this matter up with our development
department and advise you whether any such material could be used.”
A striking way in which research can be perverted is illustrated by
another example. The dyestuffs industry is one which is basically
monopolistic and cartelized. A tight grip is maintained over its price
structure. This is especially true of dyestuffs for textiles. Recently
the duPont Company’s research laboratories developed a pigment which
can be utilized either in paints or as a dye for textiles. The duPont
research laboratories considered various ways to be sure that the
pigment could be limited in use to the paint and finishing field so as
not to disturb the price structure of the textile dyestuffs field. The
trend of duPont’s research thought on this subject was stated by the
director of one of its laboratories:
“Further work may be necessary on adding contaminants to ‘Monastral’
colors to make them unsatisfactory on textiles but satisfactory for
paints.”
After working on this problem for some time, duPont’s Jackson
Laboratory reported on its progress somewhat dolefully. (DuPont says
of Jackson Laboratory that it is “one of the largest organic chemical
research laboratories in the world.”) The particular task involved was
difficult, according to a report by the Jackson Laboratory dated June
26, 1940:
“Mr. Chantler was of the opinion that pigment mixtures, unsuitable for
textile printing would be very difficult to obtain.
“(B) _Agents Injurious to Textile Printing._--The suggestion was made
that certain compounds that were white under ordinary conditions but
that would be oxidized to give colored bodies when the prints are
subjected to chlorine bleach, could be used. A few experiments had
been made along this line using such compounds as Chlorostain N,
dianisidine and DuPont Oxy Black Base. Complete data on this work are
not available. Mr. Dahlen expressed the opinion that the addition of
such compounds probably would cause as much or more damage to the paint
trade as to textile printing.
“Such substances as ground glass and carborundum were suggested for
incorporation with the pigment. While these materials would undoubtedly
scratch printing rolls, there is considerable doubt as to their effect
in paints and lacquers.”
Two days later the problem was again attacked at a meeting between the
representatives of General Aniline Works and the duPont Company. Eight
possible methods of adulteration were considered. I quote a few from
the confidential memorandum of their discussion:
“1. A new type of copper phthalocyanine (CPC) for the paint and lacquer
trade which would be unsuitable for application textiles.
* * * * *
“The importance of solving these problems was recognized, and it was
agreed that both parties would work on promising ideas which resulted
from this discussion. The three problems are closely related, and it is
possible that the solution of one or two will automatically solve the
third. It was agreed that a powder would be the preferable standard.
After detailed discussion of various modes of attack, the following
appeared to be outstanding:
“1. (a) Mixtures of CPC with Lakes.--The most promising mode of attack
appears to lie in the formulation of a mixture of CPC with a lake,
especially a lake of CPC. Such a mixture should have fairly good
fastness to light and _yet be poor in wash fastness on textiles_ or
incompatible with the usual textile printing lacquers....
* * * * *
“(d) Deteriorate Cotton.--Compounds might be incorporated into CPC
which when applied to textiles and followed by bleaching or heating
treatment _might increase the deterioration of the cloth_. Compounds
such as chlorates or aliphatic halides which would produce hydrochloric
acid were specific examples.
* * * * *
“(g) Irritating Substances.--_It is known that certain resins and
solvents are irritating to the skin, often causing dermatitis. It might
be possible to formulate a CPC composition which will make textile
materials irritating to the skin._
“(h) Incorporation of Grit.--It seemed too dangerous to attempt to add
gritty material to CPC since, although it would interfere with the use
of the material for textiles, it would also offer serious disadvantages
in grinding on application of surface coatings.
“It was agreed that the mere dulling of the material would not be a
satisfactory solution since dull shades are often used in the textile
trade. Most of the above comments are often based on work on blue, and
many of the solutions would apply equally well to the green. In fact it
is believed that there is a larger market for the sale of green than
the blue.”
It seems to me that we cannot afford to place our sole reliance upon
monopolistic corporations whose interests have only too often been
divided, who have sought restricted production rather than full
employment of our resources and labor, and who have sought for monopoly
control rather than public welfare. We must learn by the bitter lessons
of the early years of this war which found us lacking both materials
and the know-how to make them, resulting from the restrictive practices
of monopolies which instinctively seek to produce as little as possible
for the greatest profit.
In war and peace alike technology is a vital factor in our national
life. The present war is being waged with weapons and equipment which
represent the last word in scientific development. Careful planning and
rigorous adherence to the plans enabled Germany to have, in 1939, the
most efficient war machine the world had ever seen. Now, after several
years of feverish activity, the United Nations have at last caught up
with and passed Germany in the race for armament superiority.
Now that our war effort has finally been put in high gear an entirely
different kind of problem seems to be emerging. Under the forced
draft of war urgency and unlimited government expenditure, materials
and products are being made the like of which we have not heretofore
known. The light metals, aluminum and magnesium, the wonder metal
beryllium, the miraculously efficient diamond tools and the tungsten
carbide tools, the plastics and dozens of other new developments will
unquestionably make the postwar world something entirely different from
that to which we have been accustomed. Many of the processes which can
revolutionize our mode of living are owned by the government. Some
are in the custody of the Alien Property Custodian. Others have been
developed with federal funds, either by government agencies or by
private concerns. No one will seriously dispute the wisdom of retaining
control of these government-owned processes and of fostering the
fullest possible use of them for the benefit of all.
There can be no denying that the war has resulted in a concentration
of productive facilities in the hands of a relatively small number
of gigantic corporations. Even before Pearl Harbor some of them were
enormous concerns capable of wielding irresistible power in the
competitive struggle with other, smaller companies. Today and after
the war the smaller competitors which have survived will find the odds
against them a great deal more disheartening than before. It is not in
the public interest to allow the small competitors to be killed off
in the uneven fight. Neither is it in the public interest to place
hampering restrictions upon the effects of the large companies to fully
utilize their research laboratories and technical experience for the
purpose of strengthening their competitive position.
Without doubt the sensible thing for us to do is to make research
and technology available to the little fellow as well as to his big
competitor. In agriculture this policy has amply demonstrated its
soundness. Experiment stations financed by state and federal funds
extend the benefits of their research to the small farmer as well as
to the large. It is doubtful that one could find a single intelligent
farm operator, large or small, who would voice the opinion that
governmentally financed agricultural research has not been worth many
times the money spent for it. The small industrialist has the same
right to expect that a government wishing him to continue to make his
contribution to the national welfare shall offer him those benefits
of research and expert advice which he cannot afford to provide for
himself but which can easily be provided by the government.
There are those who scoff at all mention of cartels and refer to them
as bogies conjured up to justify an attack on all big business. Such an
attitude is dangerous. Cartels present the greatest challenge to our
system of free enterprise.
In every cartel arrangement which has come to the attention of the
Antitrust Division of the Department of Justice technology has been
a vital factor. It is the responsibility of government to see that
technology remains free from artificial control and monopoly perversion.
Every instance of this sort is evidence of the possibility of service
to the public which might be expected if the government should see
fit to provide itself with an adequately financed and numerically
sufficient staff of technologists. It is my belief that the time has
arrived for the adoption of legislation which will adequately protect
and advance the public interest in technological development.
4
_Patents_
The importance and the position of patents in the American economy have
been sharply defined since the outbreak of the present war. While the
problem which patents have presented to our economy did not begin with
the attack on Pearl Harbor, our experience within the past few years
has crystallized many of the questions and issues at stake.
Patents are fundamental factors in the cartel problem because
patent agreements are quite frequently used as the basis of cartel
arrangements. The vital importance of control over technology and
research to the achievement of cartel power enhances the significance
of patents as the foundation stones of cartel structures. At the same
time, the effects of patent abuses upon the economy are magnified to a
critical degree.
We are all familiar with the historical background of the patent system
and with the intent of the authors of the Constitution in stating
that Congress shall have the power to promote the progress of science
and useful arts by the grant of a patent. It is no accident that the
original clause in the Constitution was phrased in careful terms. The
framers of the Constitution inherited a concern toward the grant of any
monopoly by government. They were specific in limiting the scope of
the patent monopoly because they did not wish the patent to become the
basis of a system of privilege.
When the American patent system was born, we were a frontier nation.
Pioneers in every branch of science had before them an inviting
horizon of discovery. The recognition of their contribution towards
the promotion of science and useful arts served as a stimulus to their
initiative and ingenuity. During this period the patent system served
our country well and acted as a major incentive in the making of
industrial America.
Our patent system was designed to “promote the progress of science and
useful arts.” In many respects it has done so, and has given proper
protection to inventors and enterprising businessmen. Where it operates
to carry out this purpose, there can be no just complaint. But in many
instances the patent system has been perverted to accomplish exactly
the opposite effect. The patent has become the principal power weapon
of modern monopoly, and the misuse of patents the major tactic of
industrial cartels. This perversion has become so widespread as to
jeopardize the whole patent system.
The patent problem as it exists today arises in an environment vastly
different from the handicraft era in which modern industry found its
beginnings. It is not the patent grant as such nor is it the operation
of the individual inventor that brings the patent system into question.
Invention today is a large-scale industry in a complex economy. In many
branches of industrial production vast monopolies exercise a dominating
influence over research. It is the abuse and misuse of patents by such
concentrated groups wielding tremendous economic power which have
brought patents into conflict with the fundamental purpose of the
patent law and with the Sherman Act.
Monopoly interests, which have violated the antitrust laws in the
course of their abuse of patents, have made the claim that the
Antitrust Division of the Department of Justice is endangering the
patent system by prosecuting restraints of trade based on patents. Many
honest and innocent bystanders have been confused and misled by this
propaganda. The fact of the matter is that danger to the patent system
arises not from enforcement of the antitrust laws but from the flagrant
abuses of those who use patents as the foundation stone of illegal
monopolistic control of industry. If the patent system is finally
wrecked we shall have to thank those who brought it into disrepute by
their unflagging attempts to use the patent grant in a manner contrary
both to the law and to the national interest.
Because patents have become an instrument of power-hungry and
power-seeking groups in industry, grave doubt now exists as to
whether our economy can longer tolerate and permit the control and
consolidation of patents by industrial oligarchies.
Among the many serious abuses to which patents have become subject
within the last few decades, it is necessary only to specify a few.
1. Patents have been used illegally to establish regimented systems of
industrial control by private groups.
2. Patents have been used, contrary to the tradition and intent of
the American economy, to stifle new enterprise, to limit capacity and
production, to divide world markets, to impose artificial and arbitrary
price levels, and to set up private tariff walls.
3. In their determination to eliminate competition among themselves and
to prevent the emergence of new enterprise, monopoly groups in industry
have used patents as a shield for conspiracy to violate the antitrust
laws.
4. Employing the instruments of law designed to secure justice and
protection to the small inventor and small businessman, monopoly
interests have used litigation and threats of litigation based on
patents to compel the submission or surrender of independent enterprise
to the dictates of monopoly control.
5. Patents have been used by industrial giants here and abroad to
fasten their grip on international trade by setting up patent cartel
agreements which slice world markets into exclusive trade areas. In
many instances these international patent cartels have made it plain
that they consider adherence to monopoly rules to be above and beyond
the laws of the United States and other countries.
6. Our experiences in the first World War and the present global war
have demonstrated conclusively that the interests of hostile countries
have been able to use patents as weapons in economic warfare against
the United States. By delaying the development of strategic new
industries, by withholding know-how, and by strangling the market with
exorbitant prices for critical materials, monopoly groups in aggressor
nations have sought to weaken the war potential of the American economy.
7. In numerous instances, scientific research has been perverted and
misused in order to strengthen monopoly restrictions illegally based on
patents.
In the scores of Department of Justice cases involving patents and
illegal agreements based on patents and in the testimony before various
congressional committees investigating the facts, it has become
overwhelmingly clear that if free enterprise is to be maintained,
patent abuses must be eliminated. At the same time, the protection
which the patent right was designed to give to the independent inventor
and businessman must be strengthened and restored. If the system of
economic competition on which this nation depends for its well-being is
to be preserved, it is imperative that economic opportunity be granted
to all on equal terms. This cannot be accomplished if privileged
groups are able to obtain unfair advantage over new enterprise or
to amass huge patent structures which block the road to industrial
initiative.
In a whole roster of industries, patents have been employed as the
police power of private economic governments. Our industrial history
is replete with examples of industries dominated by a few small
monopoly groups whose power rested on patents. In the radio industry,
in explosives, in spectacles, in glass containers, in magnesium,
in vitamins, in medicines, in building materials, in dyestuffs, in
electrical equipment and in synthetic rubber, to mention prominent
examples, the development of the industry has been decided by the
arbitrary discretion of groups controlling concentrated patent
structures. Using patents as an excuse, monopolists have sought to
determine who shall be given permission to manufacture, to buy and to
sell. They have determined what prices should be fixed and in what
markets sales might also be made. Illegally wielding their patent power
such groups have completely squelched free enterprise in these and in
many other industries. Such control is regimentation and bureaucracy in
an extreme and pernicious form. The independent businessman who falls
victim to this system of control is without recourse.
Many businessmen seriously object to the regulation of industry
by government. What they do not realize is that it is not public
government but private government which exercises the most rigid
control over industrial conduct. Such regimentation violates the
fundamental and elementary principles of economic liberty. If we
believe in free enterprise, we cannot at the same time tolerate the
existence of private economic government which bears no responsibility
to the public. This type of regimentation has acquired such influence
in numerous branches of industry that free enterprise no longer
operates.
A striking example of the manner in which patents are misused to create
private industrial governments is afforded by the glass container
industry. For more than a generation this industry has been dominated
by a monopoly group whose main function it has been to acquire and
license patents. This private governing body produced nothing itself,
yet the production of practically all the glass containers made in this
country was subject to its will. The amount of glass containers to be
produced by any manufacturer was closely regulated and limited. The
type of bottle he could make was determined by a system which permitted
practically no competition. Outsiders who attempted to enter the
industry were promptly eliminated by vigorous and costly patent suits.
The patent policy of the monopoly group was neatly set forth in a
company memorandum which states:
“In taking out patents we have three main purposes: (a) To cover the
actual machines which we are putting out and prevent duplication of
them ... (b) to block the development of machines which might be
constructed by others for the same purpose as our machines, using
alternative means; (c) to secure patents on possible improvements of
competing machines so as to ‘fence in’ those and prevent their reaching
an improved stage....”
In the administration and regulation of the glass container industry,
this group pursued a licensing policy equally intended to perpetuate
its monopolistic position. In a memorandum outlining this aspect of its
control, the following statement appears:
“Consequently, we adopted the policy which we have followed ever since,
of restricted licensing. That is to say, (a) We licensed the machines
only to selected manufacturers of the better type, refusing many
licenses whom we thought would be price cutters, and (b) We restricted
their fields of manufacture, in each case, to certain specific
articles, with the idea of preventing too much competition. (c) In
order to retain more complete control of the situation, we retained
title to the machines and simply leased them for a definite period
of years, usually 8 or 10 years, with the privilege of renewal of a
smaller additional term.”
Obviously, the patent and licensing policy in the glass container
industry constitutes a system of oppressive regulation which neither
promotes the progress of science and the useful arts nor permits the
operation of competitive economic processes. Yet, instances like the
glass container industry could be multiplied for it is by no means
unique in modern American industry.
The restrictive effects of patent abuses on the production of critical
materials in this country became clearly apparent following the
outbreak of war. Shortage followed shortage, and in nearly every
instance the basic device restricting our expansion of capacity and
output was found to be a patent cartel agreement.
A dramatic illustration of a shortage resulting from a restrictive
patent agreement enforced by cartel groups is provided in the case of
tungsten carbide. Few items are as important as machine tools to our
economy both in peace and in war. The best cutting edge for machine
tools is made from tungsten carbide. Because of a patent cartel
agreement between the General Electric Company of this country and the
Krupp Works of Germany, the price was maintained at such a high level
that the second largest manufacturer of this commodity said:
“The control of the tungsten carbide patents by the General Electric
Company and the Krupp Company has resulted in keeping the prices at
exorbitant levels. Now when the emergency has come, industry has not
learned how to use tungsten carbide and has not the machines, the
skilled men, or the technique which it would have had if the material
had been available at the same low prices at which it was available to
German industries.”
Before the patent cartel was organized, the price in the United States
was less than $50 a pound. After the cartel was formed in 1928, the
price of tungsten carbide rose to as high as $453 a pound or, in other
words, much more than the price of gold. Significantly enough, the
price in Germany never rose above $50 a pound.
While we recognize that technology is the most dynamic factor of
change in the modern world, it is not sufficiently realized that in
the struggle to control technological development and to confine
research within their feudal domains, monopolistic interests divide
the universe of technology in exactly the same way that they parcel
out world territory. Using the huge patent structures which they have
amassed, industrial giants divide among themselves the major branches
of technology and allow no one to encroach on their preserves.
Although we depend upon research as the principal source of those
advances which promise a better and a healthier world, we tend to
overlook the fact that the power which modern monopoly wields over
research, by virtue of patents, often perverts the spirit of discovery.
How the deliberate misdirection of research is carried out is clearly
indicated in at least three cases involving electric lamps, plastics,
and dyestuffs.
Electric lamps in the United States are practically the private
preserve of a domestic monopoly. The history of this industry can be
written in terms of the elimination of competition, based largely on
the abuse of patent litigation and price fixing. One of the great
threats to monopoly control can come from the virility and imagination
of our inventive genius. For this reason the vested interests attempt
not only to control their current monopoly, but take every precaution
to project their control into the future and to guard against the
development and exploitation of inventions by outsiders.
One of the greatest developments in the lighting art since Edison
invented the incandescent lamp is fluorescent lighting. It has already
proven to be many times more efficient, and cheaper, than incandescent
lighting. The rapid development of this newer type of lighting which
would come from a competitive situation has been carefully suppressed
by the monopoly group. Patent control by the monopoly group controlling
incandescent lamps has been the main instrument for the suppression
of fluorescent lighting. Not only the monopoly group governing
incandescent lighting, but the electric utility companies as well, fear
the effects of the widespread use of more efficient means of lighting,
since it would reduce their sale of electricity and hence their
profits. A letter from the manager of the lighting bureau of a large
power company to the General Electric Company should be of interest to
the public:
“Increasingly I seem to become the ‘father confessor’ on fluorescent
lighting as far as the utility men are concerned. This concerns one of
the displays dealing with fluorescent lighting in your G. E. building
at the New York World’s Fair. I must confess that although I have been
in your exhibit twice I did not see this particular display.
“It appears that 20 watts of fluorescent lighting are compared with 20
watts of incandescent lighting, the sign purporting to read something
to the effect ‘See the difference between equal wattages of fluorescent
and mazda lighting.’ Of course, the readings on the foot candle meters
show dramatic differences.
“If this demonstration is as explained to us, I think it does _violate
the spirit of the understanding that our group had in Cleveland. As a
matter of fact, I would think it violated the fundamental concept of
the lamp department that advances in the lighting art should not be at
the expense of wattage_, but should give the customer more for the same
money. I hope you can find a way to change this exhibit, so that it
does not give misleading impressions to the crowd who will see it.”
Here is the reply by the General Electric Company:
“When Miss Winters showed me the attached letter ... I immediately got
in touch with Al Reas with regard to the demonstration at the fair.
Apparently this particular demonstration was temporarily loaned for use
at the fair, and is now being returned to the exhibit shop. _Therefore,
by removing this particular exhibit, Sharp and the other utility men
need have nothing to worry about._”
Even if such flagrant misuse of patents did not occur, the grip on
our economic life which monopoly holds through patents would be a
threat to our system of enterprise. The spirit and substance of
free enterprise cannot exist in an environment where an independent
businessman with an independent idea, or an inventor with a new
discovery in a monopoly-ridden field, finds himself compelled either
to submit to monopoly control or to be barred from the market. It is
ironical but true that while a patent is supposed to give protection
and encouragement to the inventor, possession of a patent today is
little more than an invitation to predatory litigation. The threat
of expensive and protracted patent litigation is perhaps the most
effective means by which monopoly enforces its private rule on industry
to eliminate competition.
The small businessman facing such obstacles has limited choices of
action. He can sue the large group, or risk suit, but in either event
will find himself involved in a costly, lengthy process. He generally
emerges with a broken spirit and a petition in bankruptcy.
The files of the Department of Justice are crowded with complaints
and pleadings of these little men. They have found these handicaps
insuperable in their attempts to compete. In giving testimony before
the Temporary National Economic Committee, one small manufacturer
in the glass container industry recited a tale which is frequently
and tragically repeated throughout many branches of production. This
particular witness, sued for infringement on nine or ten counts, stated:
“We naturally were finally forced to hire a patent attorney. We had
to acquire the services of a Texas attorney, and I think there are
some two or three patent attorneys in the State. They brought us into
court in April of 1935, as I recall. Well, when I arrived in San Angelo
and met them there in the hotel, I can conservatively say there was a
half train load of attorneys and equipment. There were motion picture
projectors and attorneys all over the place. I don’t know anyone of the
Hartford legal staff that was not there. They were prepared to give us
a nice battle. Well, I had only one attorney and he was considerably
lost in that crowd. I wish you might have seen his face that morning.
So I promptly asked for a recess until the afternoon in order to see if
we couldn’t settle the case out of court.”
As the witness testified at the time, the “settlement” was “a sort of
slow death arrangement.”
This situation has become a common condition, but it is not new. Thomas
Edison once stated that patent litigation cost him more than he ever
made from an invention. Unfortunately, the government has not as yet
developed any procedure to protect the legitimate rights which a patent
is supposed to confer on the little man. I have hopes that this aspect
of the problem will be considered and met in the not too distant future.
Even if every other charge of malpractice or problem of monopolistic
abuse of patents were ignored, there would remain a crucial question.
Technology is an index of national security, and technological
strength depends upon technological freedom. Yet, in two world wars
we have learned that the infiltration of American industry by foreign
and hostile interests has been conducted through patents and patent
agreements.
In 1914, we experienced severe and crippling scarcities of dyestuffs
and medicines, because patents held by German interests had prevented
the development of American production. In the case of salvarsan,
Ehrlich’s “magic bullet” for the cure of syphilis, we found that a
patent protected the product, but did not reveal the method of its
manufacture. The same situation occurred in other drugs, such as
veronal and novocaine, and in other fields, such as metal alloys and
special electrical equipment.
Since the outbreak of the present war, our vulnerability to this method
of attack has been revealed once more. The use of patents as the
spearheads of attack in industrial and economic warfare, intended to
weaken our war potential, is illustrated in the beryllium industry, in
synthetic rubber, in pharmaceuticals, in optical goods, and in other
important military and civilian supplies. It is clear that abuses
of this nature, having consequences which affect both our national
security and our standards of living, cannot be tolerated.
Whether at the hands of domestic or foreign interests, misuse of the
patent system and abuses of patent power militate against the best
interest of the American people. It is our task and our responsibility
to uproot these malpractices. Within the space of four years the
Antitrust Division of the Department of Justice has brought more than
forty cases involving these typical abuses, and this Division is
investigating many more.
I should like it clearly understood that I believe the patent system in
many respects has served this country well. As long as it stays within
its proper orbit it can continue as a great force in the industrial
and scientific development of our country. Indeed, it must be one of
our aims to strengthen the patent system to make it more effective
for the protection of small business and for the encouragement of new
invention. Those who have a deep belief in the patent system should
support the government’s action in uprooting and eliminating the abuses
which have done so much to discredit the patent system generally.
The vigorous enforcement of the antitrust laws is, of course, our
greatest guarantee that democratic opportunity will be kept alive in
our economic system. Something more is needed, however, to make certain
that free enterprise has a fighting chance. In this connection, it
is encouraging to note that the Senate has had under consideration
legislation intended to provide access to technology to government
and public alike. It is, of course, absolutely necessary that in the
present stage of technological development, where the military security
of the nation may depend upon the quality of its technology, that
the government have every facility at its disposal to keep abreast
of technological change. From the standpoint of economic health,
however, means must be found of granting to the small businessman or
the small inventor, who cannot hope to compete on an equal footing
with the massive strength and enormous resources of great industrial
laboratories, a chance to initiate and develop new ideas, new processes
and new products.
In numerous instances patents have been used to discourage research
by independent inventors and businessmen. What incentive is there to
inventors to develop new products or processes when they may be, in
effect, inventing themselves into a patent infringement suit? Very
often in such cases the fact of infringement is never determined.
We all know that patent litigation is costly and time consuming.
In disputes between monopoly groups and smaller opponents the
difference in economic strength between the two parties is usually the
determining factor. In this situation small competitors often find it
less expensive to depend upon the research and the largesse of great
corporations, by accepting licenses which are usually restrictive.
Under such conditions neither the opportunity nor the fact of free
enterprise can flourish.
Conduct of research by government does not mean that it would enter
into competition with industry. Rather, research sponsored and carried
on with the facilities and support of the government would constitute a
strong stimulus to private initiative.
The government would enter no business as a result of carrying on
research. It would sell nothing, and it would not prevent others from
going into business. The fruits of discoveries produced by government
research would be open to all. It is primarily those interests which
seek to deny access to technology by independent enterprise that are
opposed to the entry of government into this field.
The great need of small business in the post-war world for new
opportunities and new directions cannot be fulfilled if the small
businessman is denied access to technology. If the government provided
the scientific and technical resources which placed small enterprise on
an equal footing with great corporations, we should undoubtedly witness
a revival of the spirit of industrial adventure.
Ultimately, the entire public as consumers would receive the benefits
of a government research program. When competition is absent and
research is dominated by monopoly groups, the consumer not only pays
higher prices for what he does get, but has no assurance that he is
obtaining the best possible products. Monopoly has no incentive to
progress, and so long as it is able to control research it need not
strive to make better products at lower prices.
In addition to meeting the needs of small business and consumers, the
maintenance of scientific research by an over-all public agency is a
direct concern of government. The importance of technology to national
welfare has been shown strikingly during the present war. There are
many areas of scientific research and development which private
industry cannot adequately explore and develop. There are many branches
of science and technology, as well as of industrial development, where
government cannot afford to be dependent upon the efforts of private
monopoly groups. The lists of shortages which hampered our war effort
in early days of the present struggle resulted in nearly every instance
from restrictive effects of monopoly control. Government was forced to
turn to monopoly groups which dominated the market. It is essential for
the future that the hazard of dependence on monopoly be removed.
Industry itself, large as well as small, would profit tremendously
if research conducted by the government supplemented private efforts
and increased our stock of scientific knowledge. The creation of new
industries would open up new channels for private investment and would
help to eliminate the periodic effects of depression. The constant flow
of new ideas into industry is essential if we wish to have both full
production and full employment. Government research could become one of
the principal means of stimulating and encouraging new industry and at
the same time overcoming the effects of the business cycle.
The means of correcting patent abuses and of renewing competitive
opportunity in industry are available in existing law and with
relatively minor modifications in the scope of governmental authority.
Unless we are willing to accept private industrial government as a
substitute for a free economy, it must be our determination that the
spirit and purpose of the patent laws and the conditions necessary
to competition shall be securely established. If we would avoid the
destruction of the patent system as the consequence of its abuse, it
must be made clear to monopoly groups and industry that they cannot
base their restrictive practices and policies on patent privileges.
5
_Medicines_
In a very real sense the producers and distributors of medical products
occupy a position of public responsibility. On the whole, those in the
drug industry who are charged with this responsibility have carried
out their obligations in a highly praiseworthy manner. They are to be
commended and congratulated.
In nearly every instance in which the standards of service and of
public welfare have not been maintained we find that monopoly groups
have been responsible for the abuse of public confidence. When monopoly
is able to impose restrictive conditions on the production, the price
and the distribution of vital medicines and to determine who may buy
and sell products, it is in the interests of the drug industry and the
public alike for government to intervene.
Thus when it was found that a small ring of producers had been able to
maintain fixed prices on insulin and to pick and choose those who would
be allowed to distribute insulin to the public, it was necessary for
the government to act.
There are approximately two million persons in the United States
suffering from diabetes. Most of these sufferers require one or
more daily injections of insulin. They are dependent for their very
lives on an adequate supply of the drug at a reasonable price. Yet a
monopoly group exploiting its privileged position took advantage of the
industry and of the public to impose arbitrary prices and unreasonable
conditions of distribution. Wholesalers, distributors, and retailers
were compelled to adhere to the edicts of the monopoly group under the
threat that if they did not do so, no insulin would be sold to them.
The possible consequences of this exercise of monopoly power on the
well-being of victims of diabetes are appalling, yet in the hands of
monopoly the needs of the public become subordinated by the edicts
which are imposed on the industry and the public alike. It is for
this reason that the industry itself, as well as government, must
continuously be vigilant to oppose the growth and exercises of monopoly
power and to stimulate wholesome competition.
Few effects of monopoly have been more insidious than the consequences
of cartel control over many areas in the drug and medical field.
Because of cartel and patent agreements which carve up world markets
and divide fields of production, American drug manufacturers have in
some cases been denied the right and the chance to develop the American
drug industry to its full possibilities. Because international cartels
have been able to set up their own trade restrictions, American drug
manufacturers have been prevented from competing within the United
States. In many cases American manufacturers have been barred from
engaging in competition in other countries and from exporting to such
countries. In particular, American producers have found themselves shut
off from South American markets. Illegal patent abuses and agreements
have in other cases prohibited American manufacturers from entering
production or carrying on research in many important fields dominated
by foreign interests.
The fight against disease is a primary concern of society everywhere.
Yet the brilliance and the industry of modern scientists have all too
often been perverted by the efforts of selfish groups to fasten the
grip of monopoly on products essential to health and welfare. There
have been numerous illustrations of the malignant effects of monopoly
on national health and on the maintenance of free enterprise in the
pharmaceutical industry. It is instructive to recall some of the more
flagrant examples of the abuse of monopoly power in the drug and
medical field.
The cartel spirit in the pharmaceutical field is exemplified by the
following paragraph, written in July 1938 by the German company, I. G.
Farbenindustrie:
“There is an agreement between German and Swiss firms of the Chemical
Pharmaceutical Industry for the protection of original preparations
which are marketed by the individual members of the group.... This
agreement provides that products which compete with the original
products of members of the association and their subsidiaries or
affiliated firms shall not be introduced in any country throughout the
world.”
This agreement may be described as a conspiracy to deprive the world of
the benefits of research in new drug products wherever such benefits
may conflict with the vested interests of any of the participating drug
manufacturers.
The present war is not the first time that the United States has found
itself dependent in a period of crisis for vitally needed drugs and
medicines on cartels dominated by foreign interests. During the first
World War the scarcity of salvarsan, of veronal, of novocaine, and
similar synthetic medical products seriously affected the health of
our people. It was not until after the war was over that we were able
to relieve some of these shortages. In the years between the World War
and the present global war cartel interests once more were able to
reestablish their monopolistic control over new pharmaceutical products.
The myth of German superiority in the production of organic medical
compounds has been dispelled for many years. It is necessary, however,
to recall that this prestige rested not on superior skill but on the
abuse of monopoly and patent privileges. A well-known instance of
the way in which the German cartel interests sought to exploit their
monopoly position is the story of Bayer 205, sometimes called Germanin.
Shortly after the end of the World War I. G. Farben announced that it
had discovered a cure for sleeping sickness, the disease which is so
prevalent in Africa. The Germans refused to reveal the formula for
Bayer 205. Instead they sought to use their discovery as the basis of
an exchange of the secret process in return for the restoration of
Germany’s lost colonies. While this bold attempt to balance medical
achievement against political advantage is an extreme case, it
nevertheless reflects a cartel attitude.
From the standpoint of the progress and growth of the American drug
industry it must be realized that the influence of cartels has been
the principal factor in keeping American products from world markets.
Foreign concerns, by making treaties with monopoly groups in the
American drug industry, have been able to monopolize practically the
entire continent of South America. One typical agreement between an
American corporation and a German concern divided the world market for
more than 400 pharmaceutical and chemical products into non-competitive
areas. Among the fields included in the agreement were quinine
derivatives, sulfa drugs, vitamins and narcotics. The American firm was
prohibited from exporting. This same pattern of restriction by which
American producers were barred from selling to South America has been
found in a whole roster of cartel agreements involving pharmaceutical
products. The effects of these agreements have severely handicapped our
good neighbor relations with South America and have made more difficult
the establishment of healthy trade between the United States and Latin
American countries.
If we are to succeed in our efforts to create a better postwar world,
it should be evident that we must uproot every vestige of illegal
monopoly control over products essential to the health and welfare of
our people. Whether the restriction stems from the efforts of a cartel
to confine American industry to the domestic market, or to strangle
research and production by American concerns, or to use patents to
impose unlawful restraints on trade in the drug industry, it must be
our determined purpose to restore free enterprise in the pharmaceutical
field. Given freedom of opportunity and the incentive to enter branches
of the industry heretofore dominated by cartel interests, we may
rest assured that American drug manufacturers will demonstrate their
outstanding capabilities in research and their ability to compete both
at home and abroad. Competition will benefit the American drug industry
and permit it to attain its maximum development. What is perhaps even
more important, this country will be assured that in the future the
health and welfare of its citizens will not be dependent upon the
arbitrary exercise of monopoly power.
I am sure that responsible persons in the pharmaceutical industry will
not argue that European technology in this field is so superior to
ours that competition is futile. If American manufacturers have free
access to technology and are not barred by the misuse of patents and
the resurrection of cartel arrangements, then the industry will find
itself in a healthier financial and technological position as well as
in a position more fully to discharge its obligations to the American
people. The myth of European superiority in the medical field has been
carefully nurtured by foreign interests which have used this propaganda
as a commercial device. Only free competition and free enterprise
can fully dispel this myth. This cannot be done, however, unless the
pharmaceutical industry sees to it that victims of diabetes, malaria,
pellagra, rickets and arthritis are not at the mercy of privileged
groups who have abused public confidence and exploited human suffering.
The laboratories of our pharmaceutical industry have brought forth
wonderful discoveries. Their achievements have been a boon to the human
race. But they have a responsibility to erase the blemish caused by
those few who have misused their economic power to violate their trust.
The promotion of public welfare as well as the best interests of the
pharmaceutical industry are served when research, production and
distribution are carried on free from the taint of monopoly. National
health, like national economic well-being, demands that freedom of
opportunity to conduct research, to engage in business, and to compete
in domestic and foreign markets be preserved. No compromise is possible
with monopoly control in an industry which is so directly concerned
with human welfare.
6
_Synthetic Hormones_
The use of synthetic hormones in the United States has grown to such
an extent that the annual sales amount to many millions of dollars.
Something more than half of the entire business in this country has
been carried on by four companies. Each of these companies is the
subsidiary or affiliate of a corresponding company in Europe. The
European companies belong to a hormone cartel which has controlled the
hormone business most effectively abroad and in the United States.
After investigating the ramifications of the cartel’s activities in
this country the Department of Justice prosecuted the four American
companies for violations of the antitrust laws. Pleas of nolo
contendere were entered by the four corporations and by five of their
officials and fines totalling $54,000 were assessed and paid. At the
same time, on December 17, 1941, the defendants consented to the entry
of a decree in a civil action brought by the government, which enjoined
them from further activities in violation of the antitrust laws.
These are the basic aspects of the hormone cartel:
1. Research has been seriously affected by restrictions imposed by
foreign cartel members.
2. German interests have entered into patent licensing arrangements
with American affiliates under which they--the latter--agreed to
withhold their products from Latin American markets.
3. During the war American companies have aided their German affiliates
in evading the British blockade.
4. American companies have participated in the use of paper
corporations and dummy consignees to avoid the effects of the Black
List in Latin America.
5. American concerns have devised deceptive labels to preserve markets
for their German affiliates and to aid the spread of German propaganda
in Latin America.
6. Members of the cartel have misused patents in schemes to camouflage
flagrant violations of the laws of the nation.
7. The recognized benefits which might be obtained by the widespread
use of hormones have been to a large extent curtailed by reason of the
restrictions and illegal policies of the cartel members.
8. In the case of one of the synthetic hormones, there is evidence
indicating that it may have a substantial contribution to make in
connection with treatment of wounded soldiers for shock. The cartel
restrictions have had their effect upon the production and wide use of
this hormone as well as the others.
9. Two of the American companies have been taken over by the Alien
Property Custodian and one of these has been sold.
The following explanation of the nature of hormones does not purport
to be a scientific discussion. It represents my understanding of the
subject based upon what I believe to be reliable authority. I merely
give it for what it may be worth as background for the discussion of
this cartel.
Hormones are the secretions of certain ductless glands. As they enter
the bloodstream they regulate chemically practically every function of
the human body. They are really special agents of chemical coordination
of the body. They regulate, order and correlate bodily functions with
the same precision as that achieved by the nervous system. Since their
first definite isolation by the great English physiologists, Bayliss
and Starling, in the early years of this century, there has grown up
a whole new field of research. Infinitely small amounts of certain
hormones have the most profound effects upon the human body and its
emotions. As in the case of vitamins, much of our present knowledge
is the result of observing the striking pathological defects and
abnormalities produced by excess or deficiency of hormones.
Thus deficiency of certain of these drug-like substances from the
small thyroid gland causes a marked decrease in metabolism and mental
and physical sluggishness. Excess of this same hormone, or complex of
substances, has the opposite effect, increasing oxidation and pulse
rate, and causing nervousness and emaciation. It also has striking
effects upon growth and development. Deficiency in children results in
dwarfism and idiocy.
Other hormones such as those from the anterior lobe of the pituitary
gland affect the growth of bone. Hormones from the adrenal glands,
located near the kidneys, cause constriction of blood vessels,
accelerate the heart beat and cause discharge of glucose from the
liver. Insulin, one of the most widely known of the hormones, plays an
essential role in the metabolism of carbohydrates. Its absence causes
diabetes which is characterized by a failure of normal carbohydrate
metabolism.
Medical investigators and chemists have been exploring this vast new
field of research for many years. They have learned more and more about
the actions and composition of these complex substances. For many years
they have worked with the extracts from the glands of certain animals
to obtain the hormone itself, or as much of it as could be saved in
the process of extraction. At the same time they have been analyzing
the composition of the hormones, and endeavoring to synthesize the
active principles. Among those which have been produced in synthetic
form are the male sex hormone, testosterone; the follicular and corpus
luteum, both being female sex hormones; and desoxycorticosterone
acetate, a synthetic substance which has effects similar to those of
cortin.
Cortin is derived from the cortex of the adrenal glands. There is
still some question as to the role which this hormone plays, but
there is no doubt that it is essential to life. It apparently affects
the metabolism of sodium, potassium, and carbohydrates. This hormone
plays an important role in the concentration of body fluids and their
distribution between the inside and outside of body cells. The hormone
is therefore of some use in diseases or conditions where there occur
marked changes in the distribution of the body fluids. Specifically, it
means the hormones of the adrenal cortex are useful in the treatment
of Addison’s disease, where it seems to strike a balance in the intake
of salt. It has also been suggested that since surgical shock is
associated with unbalance of body fluids, this hormone may be of value
in counteracting the shock effects. Shock is so complex a condition,
however, that there is no general agreement on the effects of the
hormone. However, the hormone, or crystalline preparations possessing
hormonal activity, are being used by army surgeons both here and abroad
for whatever value they possess.
It is with these and certain other pharmaceutical specialties that the
hormone cartel has concerned itself. The cartel is composed of five
large European companies: Schering A. G. (Berlin); Ciba (Basle); N. J.
Organon (Oss, Holland); C. F. Boehringer & Sons (Mannheim); and Chimio
(France). Each of the first four has had a subsidiary or affiliate
in this country which has been used to carry out the policies of the
European company and of the cartel. I shall describe in some detail the
practices which were followed in aiding the German companies to avoid
the effect of the British blockade and Black List in Latin America.
The Schering A. G. firm is one of the most important pharmaceutical
and chemical manufacturers in Germany. It makes photographic supplies,
soaps, cosmetics and many other products. However by far the largest
part of its production consists of medicinal specialties and fine
chemicals, the former being the more important. It is the largest
German exporter of pharmaceutical and medical specialties, specializing
in sex hormones, vaccines, remedies for venereal and other contagious
diseases, rheumatism, tuberculosis, etc., and also laxatives,
anti-acids, opiates, etc. It is also one of the larger German exporters
of fine chemicals, laboratory chemicals and plant protection chemicals.
At the time of the first World War, Schering A. G. did comparatively
little export business. Its export system, established and carefully
developed after 1918, is mainly the result of the work of one man, its
former president Dr. Julius Weltzien. This export system spreads over
the entire world. The procedure in establishing outlets abroad has been
as follows: At first sales are made to all who may wish to buy; then,
with increasing turnover, a local firm is made sole agent. When the
yearly turnover reaches about $25,000, an expert sent from Berlin is
coordinated with the sole agency firm. When the yearly turnover exceeds
about $50,000, Schering A. G. sets up a firm of its own, directed by
managers sent from Berlin. Germans, or men of German descent, are
placed in all key positions, and the remainder of the staff is partly
German, partly persons of the country in which the agency is located.
The final step is to set up factories in the most important markets
which are equipped to ampule the finished solutions and to tablet the
finished substances which are used in that form. The supervision of all
firms abroad is strongly centralized in Berlin.
Until recently, Schering A. G. was one of the largest sellers of
pharmaceutical and medicinal specialties in South and Central America.
Testimony before the Truman Committee indicated that approximately
one-third of all materials shipped into South America by airmail over
the German controlled _Lati_ airline, during a six months period in
1941, were chemical and pharmaceutical products. Approximately the same
amount of books, maps, etc., intended for espionage and propaganda work
was also shipped by air since it was the only means of avoiding the
British blockade. On the return trips four-fifths of the air cargoes
were of mica for the Nazi war machine and most of the remaining fifth
was made up of other important war materials. The important role played
by the pharmaceutical exports in providing the exchange for purchase of
war materials should not be overlooked.
The interruption of exports due to the war caused Schering A. G. to
adopt several different methods of continuing its foreign business.
Prior to the invasion of Belgium and Holland, firms in those countries
and in the Scandinavian countries were used as blinds to avoid the
British blockade. Before Italy entered the war, the Milan factory was
utilized as a point from which the German goods, labeled in Italy,
could be sent out to the rest of the world.
The final step was to transfer to the United States the business of
supplying the markets cut off by the blockade. In preparation for this
emergency, several measures had been taken long before the actual
outbreak of the war.
The center of the new supply system was Schering Corporation
(Bloomfield, New Jersey), a firm now held by the U. S. Alien Property
Custodian. This firm was established as a Schering A. G. subsidiary
in 1929 to manufacture medical specialties for the market in this
country. Differing from most other Schering factories outside Germany
it developed the finished solutions and substances out of raw or
semi-manufactured imported materials, where the others merely finished
the process by placing the material in ampule, tablet and package
form. Gradually extending its research, laboratory and manufacturing
facilities it came to be as fully equipped to manufacture, although on
a much smaller scale, all Schering medical specialties as Schering A.
G. itself.
All of the common stock of this New Jersey corporation was owned by
Chemical and Pharmaceutical Enterprises, Ltd. (Chepha) and held in the
name of a nominee of the Swiss Bank. Chepha was owned 51 per cent by
the Swiss Bank and 49 per cent by other related interests. However, it
has recently come to light that the transaction in 1937 by which Chepha
and the Swiss Bank got apparent control of the Schering Corporation,
included an option agreement which made it possible for Schering
A. G. to regain its interest at any time it so desired. Obviously
the transaction was a mere sham to make it appear that the American
corporation was controlled from Switzerland rather than from Germany.
Actually Schering A. G. had never ceased to exercise its domination
over Schering Corporation up to the very outbreak of war between
Germany and the United States.
As of January 1, 1938 the two corporations entered into an extensive
and detailed agreement. Two paragraphs of the preamble of this
agreement are as follows:
“Schering A. G. is engaged in the development, manufacture and/or
sale of medicinal, pharmaceutical, biological, and bacteriological
preparations. It is the owner of processes and formulae used in the
production of such preparations and is also the owner of U. S. A.
patents and patent applications pertaining to such preparations. For
many years it has maintained and operated and still does maintain and
operate laboratories to carry on research and development work in
connection with such preparations, and has thereby acquired valuable
scientific knowledge, data and material concerning the aforesaid sphere
of activities.
“Schering Corp. has an organization suited for national distribution
and promotion of such preparations in the United States of America,
and is equipped to manufacture such preparations. It also maintains
and operates laboratories to carry on research and development work in
connection with such preparations, but has not acquired the extensive
scientific knowledge and practical experience in this field that
Schering A. G. commands by reason of its longer and more extensive
research work and experience.”
This language portrays the true relationship of the parent and
subsidiary companies.
The parties agreed to exchange patents and information and to deal in
each other’s products in their respective territories. The division
of territory, as in so many of these German-American agreements, gave
the United States to the American corporation as its territory and the
remainder of the world to the German firm.
Article V, Paragraph 5 is as follows:
“Schering A. G. agrees not to deal in selected preparations nor to sell
selected preparations to any corporation or person in the U. S. A.
except to Schering Corp., nor knowingly to sell them to any corporation
or person for purposes of exportation to or resale in the U. S. A.
unless Schering Corp. shall first have given its written consent.”
Article V, Paragraph 7 is as follows:
“Schering Corp. undertakes not to export, either directly or
indirectly, from the U. S. A., or knowingly to sell for purposes of
export to any third party any such preparations unless Schering A. G.
shall have previously given its written consent.”
A letter from Schering Corporation to Schering A. G. dated June 2, 1939
contained the following:
“In view of your assignment to us of certain patents in the
female-sex-hormone field and your assistance in connection with the
acquisition by us of licenses under patents in the male-sex-hormone and
cortin fields, we agree not to sell or offer for sale any product made
pursuant to the said assigned and/or licensed patents or any of them in
any country outside of the U. S.”
All Schering A. G. patents and trademarks in the United States are
owned by Schering Corporation or its affiliates. However, the agreement
is not limited in its terms to the mere fixing of compensation for the
use of patents and trademarks. The American corporation agreed to pay
Schering A. G. a royalty on all its sales of pharmaceutical products
which had nothing to do with Schering A. G. patents and trademarks. It
even went so far as to agree to pay the German firm a royalty of not to
exceed 12½ per cent on sales of new preparations developed by itself in
this country. The following provisions of Article X of the agreement
make clear this unusual relationship:
“In either of such cases [if net sales of Saraka, a proprietary
laxative, are more or less than $1,200,000] the royalty shall be as
follows:
“(b) On that portion of such amount derived from sales of preparations
commonly available in the open market and not sold under a trademark,
such as insulin, milk of magnesia, thyroid, or codliver oil, and in the
manufacture of which no special Schering A. G. process is utilized, 6¼%;
“(c) On that portion of such amount derived from sales of new
preparations developed by Schering Corp, wholly independent of Schering
A. G. and which do not fall within a field of preparations already
developed or in process of development by Schering A. G., a percentage,
less than 12½%, to be determined and agreed upon by the parties from
time to time.”
Up to the outbreak of the war there was a constant exchange of
experience and knowledge by frequent mutual visits. This differs
radically from the conditions which prevailed in many other fields.
In the case of synthetic rubber for instance, the Hitler government
flatly prohibited the giving out of technical information while using
every means of securing the information of developments in this
country. It seems obvious that in the case of Schering A. G., the plan,
as subsequently carried out, was to place Schering Corporation in a
position of being able to carry on Schering A. G.’s overseas business.
In this rapidly changing field of hormones, this meant keeping the
American corporation completely informed as well as getting from it all
available information.
Schering Corporation, before the outbreak of war, was provided with
complete instructions about the technicalities of exporting Schering
products, with a complete set of Schering export packages, labels,
prescriptions, etc., indicating all details of the complicated system
of packages which differ from country to country and from product
to product. This was done to enable Schering Corporation to start
exporting without delay in case of emergency. For these products which,
before the war had not been made by Schering Corporation, the necessary
manufacturing directions were sent from Berlin. About these products
until as recently as 1941 there was a constant exchange between
Bloomfield and Berlin.
In addition to establishing a “neutral” manufacturer and supplier in
the United States which in case of emergency could be resorted to
as a new center of the overseas business, Schering A. G. took other
measures as well. The Schering subsidiary in London, Schering, Ltd.,
was also sold to Chepha. It is understood that it has since been or is
being wound up by the British government. Shortly before the outbreak
of the war in 1939, all Schering A. G. firms in the British Empire,
except London, and those in Latin America, were transferred to Foreign
Investments and Invention Company, Ltd. Basle (Forinvent.) This was
done to “neutralize” these Schering firms and thus to protect them
from seizure in the British Empire or blacklisting in Latin America.
Forinvent is wholly owned by Palladium A. G., also a Swiss holding
company which in turn is wholly owned by the Swiss Bank Corporation,
Basle. Forinvent, like Chepha, is within the premises and organization
of the Swiss Bank. The president is the same Dr. Samuel Schweitzer of
the Swiss Bank, who is in charge of Chepha, and the connections of
Forinvent and Chepha with the Swiss Bank are practically identical.
Due to the fact that the selling transaction in the case of Forinvent
took place immediately before the outbreak of war, Forinvent could
not escape being placed on the blacklist. The same holds true for the
Forinvent (Schering A. G.) subsidiaries in Latin America, while the
Forinvent (Schering A. G.) subsidiaries in the British countries were
placed under enemy alien control.
The carefully laid plans were put into effect upon the outbreak of war.
Forinvent advised the British Empire companies to get their further
supplies from Schering Corporation and at the same time advised the
latter to supply them, which it did.
The fact that the British government acted quickly and placed Forinvent
and its subsidiaries in Latin America on the blacklist partially upset
the plans which had been made. In view of the increasing anti-German
attitude in the United States and the possibility of this country
entering the war sooner or later, Schering Corporation had to be very
careful of its outward connections with the Schering A. G. set-up.
Therefore when Schering Corporation was finally advised to supply
Latin America, steps were taken to conceal any connections with the
blacklisted Forinvent firms. On January 2, 1940 Schering A. G. gave a
release to Schering Corporation as to all products excepting hormones,
and on March 1, 1940, cabled a blanket release in the following terms:
“We authorize you until further notice to deliver pharmaceutical and
technical chemicals to our South and Central American representatives
or through their mediation to their customers.” These releases, of
course, did not apply to foreign firms not associated with Schering
A. G., and evidence shows that the restrictions as to these other
companies were still continued, and Schering Corporation refused to
sell to them.
Two paper corporations were created to avoid use of the name Schering
although both corporations are in the same building with Schering
Corporation and are completely identified with it except as to name.
Pharmex, Inc., owned by Gregory Stragnell, vice president of Schering
Corporation, dealt directly with the ex-Schering A. G. subsidiaries in
the British Empire, except Schering Corporation, Limited, of Canada.
The latter deals directly with Schering Corporation of Bloomfield.
Delta Pharmaceutical Corporation, owned by Sherka Chemical Company
(which was in turn owned by Chepha), purchased raw materials from
Sherka and hormone products from Schering Corporation and sold them
to Atlantis, a corporation organized in Panama. These two companies,
Pharmex and Delta, were really the export department of Schering
Corporation. Part of their employees were on the pay roll of Schering
and part on the pay rolls of Pharmex, Delta and Sherka. Both companies
were under the direction of Dr. Weltzien and Dr. Stragnell, then
president and vice president, respectively, of Schering Corp.
Atlantis S. A., Panama, is a wholly owned subsidiary of Forinvent
organized in 1940. Its president is Dr. Samuel Schweitzer, who is
likewise in charge of Chepha and Forinvent. At first it was considered
advisable to set up an actual office in Panama. However since so
many technical questions, passport difficulties and tax questions
were involved, the whole Atlantis business was centralized in
Basle, Switzerland, under the direct supervision of the Swiss Bank
Corporation, in closest cooperation with Schering A. G. of Berlin.
One of the problems faced by Schering Corporation in its new foreign
trade was that of packaging and labeling the products so that they
would seem to be identical with those formerly supplied by Schering A.
G. Since one of the chief considerations prompting this whole scheme
was preservation of good will, in order that the business could be
turned back to Schering A. G. after the war, this factor was most
important. On February 10, 1940 Forinvent cabled Pharmex as follows:
“fundamental changes of packing latinamerica may jeopardize turnover
on account customers mentality and will probably cause difficulties
with registration authorities therefore please adopt present style of
packing and labeling ... suggest airmailing you immediately films for
making plates [for printing Schering A. G. type of labels].” It was not
necessary to use the films in question inasmuch as Delta had samples of
all the Latin America packages it had used as a standard pattern. Delta
on January 28, 1941, sent to Swiss Bank samples of all packages used
for export, pointing out that the differences between the new and old
packages were very slight.
From early in 1940 until Pearl Harbor the supplying of Schering A. G.
firms in Latin America was accomplished in a circuitous manner. Each
of the firms kept in close touch with Basle and so with Berlin. They
advised Atlantis of their requirements. Atlantis, in Basle, cabled the
orders to Delta at Bloomfield and instructed Swiss Bank in New York to
honor Delta’s drafts. Delta delivered the goods to a forwarding agent
of Atlantis in New York, which shipped them to a dummy consignee in
Latin America and they were there received by the particular Schering
firm which had placed the order.
About 40 or 45 cents of each dollar paid by the Latin American firm
went to Atlantis and thus to Schering A. G. Out of its share, 55 or 60
cents, Delta (actually Schering Corporation) made its manufacturing
costs and whatever profit there might be for it. The advertising
expense was borne by Atlantis or Schering A. G. The advertising and
continuance of the familiar German packages, labels and Schering
trade-mark constituted an important form of German propaganda. It
was possible for the German agents in Latin America to point to the
continuance of German pharmaceutical supplies as indicative of their
ability to overcome the British blockade and to carry on their commerce
with this hemisphere.
It has been mentioned that the Germans used pharmaceuticals which
have a high value in proportion to bulk and weight to make up one
third of the air cargoes which were flown into South America along
with propaganda and other materials. Pharmaceuticals also constituted
an important part of the air cargo which was carried eastward,
ranking third among the materials which were flown over the blockade.
One order of 10 kilos (22 pounds) of testosterone propionate, the
semi-manufactured male hormone, valued at $50,000 was shipped one
kilo a week by air mail from Argentina to Spain and from there to the
Schering factory at either Milan or Berlin. This and other similar
orders, were placed by a dummy of Schering A. G. in Portugal.
Thus far I have been discussing the relations of two firms, one, the
largest of the European manufacturers of synthetic hormones, and the
other its affiliate or subsidiary, the largest American producer.
There are other large European members of the cartel and each has its
subsidiary in this country.
Ciba (Society of Chemical Industry in Basle, Switzerland) is another
important cartel member. It has been in existence for some sixty years,
engaged in the manufacture and sale of dyestuffs and pharmaceutical
products throughout the world. In July 1936 it organized a subsidiary,
Ciba Pharmaceutical Products, Inc., of Summit, New Jersey. Ciba Basle
also came to own several other corporations in fields other than
pharmaceuticals and hormones in this country, and companies in Canada,
Brazil and Argentina which sell dyestuffs and pharmaceuticals. Ciba’s
close relation to Schering A. G. is indicated by its joint ownership
with the Swiss Bank of the common stock of Chepha, which in turn owns
all the common stock of Schering Corporation.
Until just before the war Ciba Pharmaceutical of Summit, New Jersey,
produced no hormone products. These were all purchased by it from
Ciba Basle. However, since its organization it has been distributing
hormones under its own label.
The subservient attitude of Ciba Summit to the Society (Ciba, Basle) is
clearly shown in the following paragraph from a letter of October 17,
1939, from H. Kamp, vice president of the New Jersey corporation, to
James Brodbeck, Secretary of Ciba Basle:
“As I have repeatedly said, I am not interested in making profits for
Summit out of sales of raw materials or even finished packages sent
to foreign countries. _All I am interested in is to help Society in
getting the business_, but we must have a certain rule as regards
profits for Summit. The simplest way would be if Basle fixed a
percentage profit over our price II on all products shipped in bulk
to any foreign country. The same, of course, could apply to finished
packages if we were to supply finished packages to foreign countries
later on. _We want to help Society as I fully realize that we are
working for the interest of Society and not for the interest of Ciba
Summit alone. Whatever seems most advantageous from your point of view
will meet with my approval._”
The same attitude is also reflected in a letter of September 22, 1939
from H. Kamp of Ciba Summit to Dr. J. Weltzien, president of Schering
Corporation:
“At the meeting which took place on May 10, 1939 in your offices,
among other points, the introduction of desoxycorticosterone acetate
was discussed. It was finally agreed that Ciba would introduce the
product, but would abide by your suggestion that no other indications
be mentioned in the literature than Addison’s Disease. We were,
therefore, more than surprised to read your advertisement in the
‘Druggists Circular’ announcing ‘CORTATE,’ where it is suggested that
the drug may be of use in the more chronic constitutional types of
cortical deficiency, in asthenias, and that certain allergies should be
benefited by the administration of Cortate....
“It is again one of your usual methods by putting the other parties
before accomplished facts. I have discussed your tactics very
thoroughly while in Basle, and I can assure you that our friends
in Basle are more than fed up with your _methods. In fact, I have
the full authority to give you a dose of your own medicine at the
next opportunity, and this I am going to do without any hesitation
whatsoever!_”
N. V. Organon of Oss, Holland, is a large manufacturer of hormone
products and so is F. Hoffman-LaRoche of Basle, Switzerland. The
latter company has had a subsidiary in Nutley, New Jersey called
Hoffman-LaRoche, Inc. N. V. Organon of Oss and Hoffman-LaRoche, Inc.,
of Nutley, have jointly owned a corporation called Roche-Organon, Inc.,
organized in 1937 and engaged in the sale of hormones. In 1940 Ciba
licensed Roche-Organon to manufacture products in the cortin field
under a patent for which it had made application in 1938. Ciba agreed
to pay Roche-Organon 20 per cent of all royalties collected from other
licensees except Schering. Roche-Organon agreed to pay Ciba 6 per cent
on its entire turnover in the United States in the Cortin field from
January 1, 1940 to June 17, 1955 regardless of whether the turnover
involved products made under Ciba’s patent.
The German firm of C. F. Boehringer and Sons of Mannheim-Waldhof,
Germany formerly owned 50 per cent of the stock of Rare Chemicals,
Inc., Nepera Park, New York. The president of the German firm was the
father of E. T. Fritzsching, formerly secretary and more recently
president of Rare Chemicals. A memorandum of the younger Fritzsching of
Rare, dated March 29, 1939, contains the following opening paragraph:
“In view of the boycott situation and in view of a number of other
reasons I have come to the conclusion that the best way to avoid
any further trouble for Rare Chemicals is to arrange for a definite
purchase of the Boehringer shares by an American citizen. It is my
intention to make an offer to Boehringer, by which I shall take over
their assets in this country and pay for them at whatever price I could
possibly obtain them. I am assuming this obligation personally for the
reason that it really makes very little difference whether the shares
are owned by Boehringer or by me, since through this transaction the
assets would morally still remain within the same family interests. It
would also work along the lines of my personal interest and that of my
family in the event of war.”
The remaining 50 per cent of Rare’s stock was owned by Pyridium
Corporation also of Nepera Park, New York. A letter to Erwin
Fritzsching c/o C. F. Boehringer & Soehne, G.m.b.H., Mannheim-Waldhof
from W. S. Lasdon of Pyridium and president of Rare dated August 18,
1939 contained the following statement: “I agree with your suggestion
to the transfer of the B.&S. stock to a Swiss Company, instead of to
you, and of course, your participation in the profits of Rare is to be
cancelled upon the signing of this agreement, the understanding being
that you and W. S. Lasdon will represent the stockholding interests.”
The products of the two companies were exchanged with definite
restrictions upon their distribution. The following excerpt indicates
that the German firm kept a tight rein on the use by the American firm
of the former’s products. It is taken from a letter from Fritzsching
of C. F. Boehringer & Soehne, G.m.b.H. to Rare Chemicals, Inc., dated
October 31, 1936. It concerns a request of Rare to be allowed to
manufacture a product called Eucupin.
“We are acknowledging the receipt of your letter of October 19th and
regret to say that we cannot comply with your wishes.
“We must take into consideration also the German interest when weighing
the question whether it is right to send manufacturing processes to
foreign countries, even though they may go to our friends in these
countries. We cannot be responsible for it to give you manufacturing
processes, the use of which is not to be expected within a reasonable
time. In such a case we cannot truthfully answer any possible questions
from authorities to the effect that we can say that when giving away
a manufacturing process it will make it possible to manufacture and
sell in a foreign country a German preparation, the sale of which from
Germany due to duty difficulties and other restrictions cannot be
considered. In this fact lies the German interest, and this we have to
consider in first line.”
In the summer of 1942 Rare was taken over by the Alien Property
Custodian and subsequently sold at public auction to a wholly American
independent organization.
After certain separate agreements and considerable negotiation a five
party agreement was entered into on May 26, 1937 to which the European
firms Schering A. G.; Ciba, Basle; N. V. Organon, Oss, Holland; C. F.
Boehringer & Sons, and Les Laboratoires Francais de Chimiotherapie
of France (Chimio) were the parties. The male hormone, female sex
hormones, and cortin, the cortico adrenal hormone, are covered by the
agreement. It involved a division of territories with certain parties
being definitely excluded from certain territories. Competing producers
of pharmaceutical products were expressly named as firms with which
any kind of cooperation is prohibited. Among these were E. Merck,
Darmstadt, Germany, and Merck & Co., Inc., of Rahway, New Jersey.
Subsequent agreements removed the prohibition as to these firms.
Of course, one of the chief purposes of the cartel agreement was to
fix prices. The European parties agreed upon prices and their American
affiliates did likewise. A memorandum of a meeting held at Summit
on October 6, 1938 between representatives of Ciba and of Schering
discusses the fixing of prices on various hormones. The artificial and
arbitrary character of the pricing policies is indicated by quotations
from some of the documents which were written following this meeting.
One of them indicates an agreed price of $3 for a certain hormone
product. It then states: “This price was later refused by Mr. Kamp
[Ciba’s general manager] who then advocated $4.00. This was submitted
to the other with our O.K.”
A memorandum of a discussion held at Bloomfield, New Jersey on October
7, 1938 between representatives of Rare and of Schering, recites a
detailed list of prices agreed upon between Schering and Ciba the
preceding day as having been submitted to Rare.
As to the item on which the price had been changed as just indicated
an endorsement on this memorandum states: “Informed Mr. Landon [Rare
official] by phone of Summit’s desire to change this price to $4. He
agreed to this.”
The entire world cartel system has been bound together with patents.
The contracts among the American companies have been carefully planned
and drafted abroad to avoid any appearance of violating the antitrust
laws. They were couched in terms of licensing patents to give the
impression that the parties were merely procuring rights under patents
and not engaging in restraints of competition. The evidence indicates
that the cartel participants in Europe had attempted to allocate the
issue of patents in the United States to the associated firms in such
a manner as to strengthen the defense of the American firms against
charges of antitrust law violations. At a discussion in Berlin on
March 18, 1939 among representatives of Ciba, Organon, and Schering,
A. G. there was set in motion reciprocal concessions of priority in
interferences between Organon and Ciba in the U. S. Patent Office
relating to the male hormone, and to cortin. It was arranged for
Schering to drop out of the interference proceedings. It appears from a
circular letter from Organon to Ciba and Schering that the plan was for
Organon to concede priority to Ciba in the male hormone interference
and for Ciba to concede priority in the interference regarding cortin.
The intent of the parties, as to the male hormone interference, was
to transfer the application of Organon to the United States Ciba
firm. This circular letter of April 4, 1939, from Ciba to Organon and
Schering, A. G. reads in part:
“It is up to Ciba to take care in accordance with the several single
agreements in the United States for a correct and clear basis of the
agreements relating to the male hormone field because corresponding
proceedings are intended in the paranephros [cortin] hormone field in
which Roche-Organon shall obtain the basic patent claims. In accordance
with the opinion expressed here since Ciba gives its consent already
in the letter of March 9, 1939 to transfer the basic application in
which the patent claims for paranephros are established (Case 1577/1-4)
to Roche-Organon, that however, is dependent upon corresponding
proceedings of the Organon in the male hormone field.”
The reasons for this “swapping” were very clearly indicated in the last
mentioned document:
“As it is known in the United States the antitrust legislation is of
extremely great significance. The different agreements which are in
the state of preparation in the United States are intended to put all
contractors into position to sell hormone compounds in the United
States without any violation of those statutes.... So far as ... cross
promises to maintain prices exist, this promise is only lawful if the
licensee, in this case Ciba, possesses the protection of a patent
claim....
* * * * *
“According to the information of Dr. Joseph Engi almost daily new
indictments based on the antitrust legislation are made. Under such
circumstances it is extremely important to obtain as fast as possible
the protection of the most important patent claims.”
However, Roche-Organon resisted the transfer of the application,
writing in its circular letter to Ciba and Schering, A. G., dated April
15, 1939: “An expert would understand immediately that the transfer of
this application served only aims which have to be considered as lawful
according to the antitrust legislation. We couldn’t even mention any
consideration given the Ciba.”
Although Organon’s male hormone application was in fact not transferred
to Ciba, the result which the parties contemplated appears to have been
effected. Ciba, apparently relying upon its own male hormone patents in
the United States, became the licensor of Roche, Schering, and Rare,
while Roche-Organon participated in the licensing arrangements only
under its cortin patents.
There are numerous indications in the Schering correspondence that
the American license agreements are so bound up with the basic cartel
agreements that the sums of money paid by the American firms to each
other are regarded as parts of the total considerations which the
European firms are bound to pay each other.
As in the case of Schering A. G. and Schering Corporation the other
cartel members bound their United States affiliates to agreements which
precluded exports in any manner which would interfere with the division
of territory among members of the cartel. The agreement of April 1,
1938 between N. V. Organon and Roche-Organon contains the following
provisions: “Roche-Organon agrees not to deal in or manufacture
glandular and hormone preparations other than those originated by Oss
[N. V. Organon], nor to export or sell for export from the territory
any glandular and hormone preparations.” (The territory is defined as
the United States, its territories and possessions, Canada and the
Philippine Islands, and Cuba.) The other agreements contain similar
restrictions with some variations as to the exact territory.
The principles of competition, price, and research heretofore discussed
are well exemplified by the case of Stilbestrol (diethylstilbestrol), a
recently discovered pharmaceutical which has effects similar to those
of the female sex hormones. It is the product of research supported
by Government grant in England, several scientists of the University
of London and of Oxford University, headed by E. C. Dodds, being
responsible for the development. Throughout all of the work of Dodds
and his colleagues the Medical Research Council, a British government
organization, undertook the necessary financial support. (While
Stilbestrol is not a synthetic hormone, it has most of the valuable
therapeutic effects of these substances although it may not be entirely
free from side reactions. Its cost of manufacture--and the price to the
consumer--are much lower than those of the equivalent hormones).
The American hormone cartel members were aware of Stilbestrol and its
possibilities as early as 1939. In a conference of Roche-Organon, Ciba
and Schering officials, held on August 1, 1939 the following discussion
took place, according to minutes found in Ciba’s files:
“Mr. Kamp [Ciba] brought up the subject stilbestrol.
“Mr. Hammer [Schering] said he thought that any concern would have a
hard time getting stilbestrol accepted in this country.
“Dr. Oppenheimer [Ciba] pointed out that in this country estradiol
prices may not be too much out of line with those of stilbestrol
compared with Great Britain.
“The question of side effects from stilbestrol was then discussed.
“Dr. Josephy [Roche-Organon] told of reports from Amsterdam on the
use of stilbestrol in animal experimentation. He said that he thought
the government would look not only at the favorable reports on a
preparation which was submitted but also the unfavorable ones.
“Mr. Kamp said he thought some concern had already filed with the
government a request to market stilbestrol.”
A memorandum in Schering’s file concerning this same conference of
August 1, 1939 is somewhat more revealing:
“XVIII _Stilbestrol_. Ciba and Roche-Organon want to have it just to
be able to knock it with physicians. They say the hormone business
in England has been destroyed just by this new product. On the other
hand, it is said to injure the liver and there is doubt that the U. S.
Government will allow it to be used.”
In the minutes (from Ciba’s files) of a conference of representatives
of the three companies on Friday, October 27, 1939, there is this
statement: “During the discussion Stilbestrol was mentioned and Dr.
Weltzien [President of Schering] remarked he hoped ‘none of us will
introduce Stilbestrol’.” These quotations indicate the hostility of
cartel members towards a new product which endangers their control of
the market. Stilbestrol was put on the market in this country late in
1941 and had an immediate effect upon the sales of the higher priced
hormone products.
From what has been said it seems clear that in the field of synthetic
hormones the cartel control has been such as to be detrimental to our
national interest. When such control can be used to make American
corporations the tools of those of other countries it is exceedingly
unfortunate. When carried to the point of causing corporations in
this country to aid the Axis it could not be and was not tolerated.
The seizure of two of these companies by the Alien Property Custodian
has put an end to the German control. From the point of view of
encouragement of research those two companies are much better off than
they were when tied to the apron strings of their parent companies
in Germany. Complete removal of cartel restrictions from the entire
industry would be definitely in the interest of the general public in
this country and throughout the world.
7
_Vitamins_
The monopolistic control of one of the most essential products of
our modern era--the sunshine vitamin, also known as Vitamin D--has
been magnified by the fact that it is the poorer elements of our
country which have the greatest need for this product, since it is a
preventative and a cure for certain diseases most commonly found among
the lower economic strata of our population. Vitamin D is essential for
proper bone growth and development, the prevention and cure of rickets,
and the prevention or reduction of tooth decay.
The Wisconsin Alumni Research Foundation acts as a screen behind
which a group of monopolistic chemical, pharmaceutical and food
companies control Vitamin D. The story of the Wisconsin Alumni Research
Foundation is of extreme importance because it indicates how a
quasi-public research organization can be flagrantly misused.
At the outset I should like to state that the Wisconsin Alumni Research
Foundation has no formal connection with the University of Wisconsin,
and that the University of Wisconsin has absolutely no control over the
policies and practices of the Alumni Foundation. It should be clearly
understood, therefore, that what I say here does not reflect in any
manner upon the University of Wisconsin.
A report of the Trustees of the Foundation dated June 22, 1931, defines
the objectives and purposes of the Foundation as follows:
“Indeed one of the soundest reasons for the development of the
Foundation as a suitable means of handling the Steenbock process lies
in the rigid control through which it is possible to protect the public
and prevent unscrupulous commercialism from capitalizing the Steenbock
discovery.”
The investigation by the Antitrust Division of the Department of
Justice indicates, however, that somewhere along the line these
laudable objectives were lost. Instead, a summary of our investigation
discloses the following facts about the Wisconsin Alumni Research
Foundation:
(1) It has been the vehicle for creating a domestic monopoly resulting
in division of fields, price fixing, control of container size, and
limitation of potency of vitamin products--as a result of which the
public has been charged excessive and arbitrarily high prices. (The
Foundation has been described by a licensee as being “merciless in
beating out competition” in the field of vitamins.)
(2) It has considered plans to denature and adulterate Vitamin D
preparations in order to maintain high prices.
(3) It has exhibited a lack of interest in research unless a commercial
advantage could be obtained.
(4) It has used threats of patent litigations under patents which it
knew were very weak to eliminate competition. (Some of these patents
upon which the monopolistic scheme rested were, in fact, declared
invalid in 1943 by the Circuit Court of Appeals for the Ninth Circuit.)
(5) It has suppressed the use of competing processes.
(6) It has organized international cartels with I. G. Farben of Germany
and Joseph Nathan & Co., of Great Britain, in order to eliminate world
competition by dividing world territory into noncompetitive areas.
(7) It has attempted to suppress the publication of scientific research
data which were at variance with its monopoly interests.
(8) It has acted as a police organization for its licensees--in order
to maintain its price fixing arrangements--by setting up a black list
of price-cutting distributors.
(9) It has used its licensing scheme to discourage research by its
licensees.
(10) It has endeavored to suppress or prevent truthful advertising in
order to eliminate competition.
(11) It has required its licenses to charge unreasonable prices to the
government.
(12) It has forced farmers to buy vitamin-enriched animal feeds in a
monopoly market.
Since 1925 the production and use of Vitamin D has been under the
control of the Wisconsin Alumni Research Foundation. The control has
been based upon the so-called Steenbock patents, especially upon patent
No. 1680818, which the Foundation regards as the basic patent on
Vitamin D.
About 1925 Dr. Steenbock, then a professor at the University of
Wisconsin, conducted experiments which eventually resulted in the
Steenbock patents. Recognizing the commercial possibilities of his
developments, Steenbock offered his patents to the University, but the
Regents of the institution did not feel they were in a position to
commercialize them. The President of the Wisconsin Alumni Association
at that time was George I. Haight, a very able patent lawyer of
Chicago, who immediately recognized the commercial possibilities of
the Steenbock development. Together with some of the other leading
alumni of the University, Haight founded the Wisconsin Alumni Research
Foundation to undertake the exploitation of the Steenbock patents and
such other patents as the Foundation might from time to time acquire.
The Foundation was chartered on November 14, 1925 as a non-profit
corporation. Its purposes, as stated in its charter were “to promote,
encourage and aid scientific investigation and research at the
University of Wisconsin by the faculty, staff, alumni and students
thereof, and those associated therewith, and to provide or assist
in providing the means and machinery by which their scientific
discoveries, inventions and processes may be developed, applied and
patented, and the public and commercial uses thereof determined,
and by which such utilization or disposition may be made of such
discoveries, inventions and processes, and patent rights or interests
therein, as may tend to stimulate and promote and provide funds for
further scientific investigation and research within said University or
colleges or departments thereof.”
The Foundation is managed by a Board of Trustees. Originally these
trustees personally handled the work of the Foundation but, in 1931,
they secured the services of Henry L. Russell, former dean of the
University of Wisconsin College of Agriculture. Russell was made
Director and executive head of the Foundation. Later, as business
increased, L. D. Barney was employed as business manager, and Ward
Ross, an associate of Haight, was retained as General Counsel.
Steenbock himself appears to have handled most of the technical matters
of the Foundation insofar as they relate to Vitamin D. The royalties
received by the Foundation are invested and the resulting income is
utilized for research.
The Foundation has controlled Vitamin D by reason of its ownership of
the Steenbock patents Nos. 1680818, 1871135, 1871136, and 2057399. The
underlying concept of all of these patents is that certain substances
called pro-vitamins may be “activated” so as to result in a product
having a high Vitamin D potency. This “activation” is accomplished by
exposing the pro-vitamin to ultra-violet light, and the basic patent is
limited to activation by ultra-violet light produced by an artificial
source such as a quartz mercury vapor lamp.
The commercialization of the Steenbock patents was phenomenally
successful almost from the very outset. The report of the Trustees of
the Foundation dated June 22, 1931, states:
“The accumulation from royalties so far has been almost wholly from the
ultra-violet patents. During the calendar year 1930, the gross income
was $354,590, or very nearly $1,000 a day throughout the year. This
income has been developed within less than three years.”
The Foundation’s annual royalties showed a steady increase until
1936, when they amounted to nearly $1,100,000. After 1936, the annual
royalties decreased slightly, and in 1939 they amounted to $936,610.70
or over $2,500 per day. Up to 1940, the Foundation had received more
than $8,500,000 in royalties.
The royalty rates charged by the Foundation vary from 10% to 3% and
less, with higher royalties applying to only a few products. The
enormous size of the market is indicated by the munificent revenues
yielded by royalties at these rates.
The first requirement for the success of the Foundation’s licensing
program was the elimination of competition from non-licensees. The
Foundation’s practices in this respect are aptly described in a
memorandum dated February 20, 1935, from Connolly, a du Pont patent
attorney, to Kupperian, of du Pont: “The Foundation has been merciless
in beating out competition throughout the United States whenever such
competition threatened to encroach upon the synthetic vitamin D field.”
Some of the leading manufacturers in the country are licensees of
the Foundation. Many of these manufacturers have been licensees for
years, while in some cases licenses were obtained by the acquisition of
companies holding licenses. Both du Pont and Standard Brands obtained
their licenses by the latter method.
Acetol Products, Inc., had a license from the Foundation dated November
15, 1929. Du Pont acquired the assets of Acetol and on April 30,
1935, Acetol assigned its license to du Pont. On November 15, 1935, a
new agreement was executed between the Foundation and du Pont which
superseded the Acetol agreement of November 15, 1929.
Standard Brands succeeded to the rights of the Fleischmann Company
under an agreement dated August 8, 1928.
The question naturally arises why these powerful manufacturers paid the
Foundation such large royalties on the basis of the weak and limited
Steenbock patents. The correspondence indicates that the licensees were
not only willing but anxious to pay the royalties in return for the
profit opportunities offered under the Foundation’s schemes.
The desire of the licensees to cooperate in the Foundation’s
promotional schemes is well expressed in a letter dated July 8, 1935,
from Atkins of du Pont to Barney, the Foundation’s business manager:
“The writer feels certain that you understand our desire and
willingness to be considered as a part of the Foundation. You know
our desire to prevent the Vitamin D field from falling into disrepute
because of too many producers of various types of so-called Vitamin D.
We would much prefer centralized control in the hands of the Foundation
and you may count on us to support you even though, at times, we may
have differences of opinion.”
A memorandum dated January 25, 1937, from H. W. Elley, associate
chemical director of du Pont, to a number of the executives of du Pont,
explains the reason for centralizing “control in the hands of the
Foundation”:
“He [Mr. Protto, assistant general manager of du Pont] felt that it
would be preferable to deal with the Wisconsin Alumni Foundation
since they could be of considerable value to the industry in policing
and regulating matters. If, for any reason such arrangements become
unnecessary, it would then be possible to consider alternative
procedures not involving the use of the Foundation patents, that is, we
might commercialize the Milas process.”
The Foundation is organized along the lines of an international
cartel insofar as its licensing program is concerned. It is party to
agreements with the omnipresent I. G. Farbenindustrie of Germany and
Joseph Nathan & Co., of Britain. The agreements, following the standard
cartel pattern, create exclusive noncompetitive territories. Nathan
and I. G. are prohibited from exporting to the United States and the
domestic licensees of the Foundation are prohibited from exporting to
Germany or Great Britain.
The domestic licensing policy of the Foundation is characterized by a
most complex and minute division of fields into noncompetitive areas.
Generally speaking, these fields of activity are made exclusive so that
all competition between the different licensees or groups of licensees
is eliminated. Provisions of the various agreements, which will be
later described, prevent any substantial overlapping of these fields.
Often the provisions merely prohibit the licensee from accurately
describing his product but the essential object, elimination of
competition, is attained.
Fields are divided along three distinct lines: (a) the product to
be activated, (b) the method of activation, and (c) the use of the
activated product. In the first category there are 13 principal
divisions: (1) the pharmaceutical licensees are permitted to activate
ergosterol, (2) Standard Brands is licensed to activate yeast and yeast
products, (3) du Pont is allowed to activate ergosterol cholesterol
and other sterols except yeast and yeast products, (4) S. S. Kovaks
is allowed to activate sterols derived from yeasts but not yeast, (5)
a group of licensees are permitted to activate evaporated milk, (6) a
number of licensees are permitted to activate fluid milk, (7) Quaker
Oats is allowed to activate cereals, (8) Borden is allowed to activate
a milk product known as Dryco, (9) The Wanter Company is allowed to
activate Ovaltine, (10) the Commander Larrabee Company is allowed to
activate flour, (11) R. B. Davis and Company is allowed to activate
Cocomalt, (12) Loose-Wiles Biscuit Company is allowed to activate
crackers, and (13) Ayerst, McKenna and Harrison are allowed to activate
a food product known as Glucose-D.
The extent to which the division of fields is carried is exemplified
in an agreement dated June 27, 1938, between the Foundation and the
Loose-Wiles Biscuit Company. This agreement authorizes Loose-Wiles to
activate “Graham Crackers” and “Wafers slightly sweetened to such as
English Style Arrowroot Wafers,” but does not permit the activation of
“cakes” and “cookies.”
According to the method of activation, fields are divided into direct
irradiation and activation by the introduction of an irradiated
substance. Some few licensees are permitted to use either method of
activation, but most are restricted to a single method. One of the most
curious licenses issued by the Foundation permits the activation of
milk by feeding cows irradiated material.
The division of fields according to use is most detailed, but can be
broken into several general classes. Licenses are issued for the human
medicine field, for the human food field, for the fluid milk field, for
the evaporated milk field, for the animal feed field, and for a field
in which the product is not intended for internal use.
At the outset, it was pointed out that the stated objectives of the
Foundation are “to protect the public” and “to prevent unscrupulous
commercialization.” Over the years the Foundation’s devotion to these
objectives appears to have wavered. The Foundation appears to be
primarily interested in royalties, with little or no regard for the
public interest. Article VII of the agreement of November 1, 1938,
with the milk companies states that if “it should be found that the
activation of unsweetened evaporated milk by ultra violet rays under
this license is substantially harmful to the user of such milk, or
to the milk itself, the licensee shall have the right to cancel this
license.”
In a memorandum dated February 8, 1939, Dr. Russell described a similar
position of the Foundation in regard to high dosages of Vitamin D:
“Steenbock is of the opinion that in view of the fact that Vitamin
D is no longer a distinctive Steenbock product but can be secured
from a variety of sources that the Foundation might as well favor
the commercialization of high dosages unless there is _very_ serious
objection on the part of the A.M.A. officials toward a move of this
sort.”
It is to be noted that in neither of these cases is the Foundation
concerned with public benefit or medical approval, but only with
_substantial harm_ and a _very serious medical objection_.
Another instance of the Foundation’s regard for the public interest was
the Snider Packing Company matter. In 1931 the Snider Packing Company
obtained irradiated yeast from Fleischmann to add to Snider’s tomato
juice. The results were apparently not too satisfactory. After this
1931 failure, Snider was persuaded to continue the license and the
Foundation undertook to supervise the activation of the tomato juice.
Steenbock and Scott recommended Acetol irradiated ergosterol and this
recommendation was followed.
Despite the recommendations and supervision and guarantees of the
Foundation, the Vitamin D content of the Snider tomato juice did not
come up to expectations. This inadequacy was known to Snider, Acetol,
and the Foundation, and on February 27, 1933, Russell wrote to Acetol
stating:
“It would be most unfortunate if any publicity was to occur as a result
of the reduced potency of the Snider product and it would not only ruin
the Snider business in this product, but would affect most disastrously
you as well as ourselves. If the Government were to discover this
situation and publish the result, it would do irreparable injury to the
whole Vitamin D situation in foods.”
The correspondence does not show whether any of the Snider products
reached the market under false labels, but the Foundation’s concern in
the matter is clear. The Foundation feared only publicity or discovery
by the Government.
In 1934 and 1935 some research workers, and especially Dr. Reed of
the University of Illinois, found that large doses of Vitamin D were
highly beneficial in severe cases of asthma, hayfever and arthritis.
These large doses required a highly concentrated product which was
most easily used in the form of gelatin capsules. The Foundation and
its licensees were greatly interested in this project, but feared
the effect this concentrate might have on the pricing structure of
viosterol. These fears and a suggested solution are referred to in a
report of a conference between Russell and Ross of the Foundation and
Nielsen of Abbott, held early in February 1935. This report, signed by
Nielsen, states:
“Mr. Nielsen stated that if the capsules were priced considerably
lower than the commercial product unit for unit, nothing would prevent
the hospitals from opening the capsules and diluting the content with
vegetable oil to obtain a ‘250D’ solution far below the regular cost.
“Dean Russell asked for suggestions to prevent this. Mr. Nielsen stated
that Abbott Laboratories would give further thought to this problem.
Tentatively, he suggested that the concentrate might be denatured by
the addition of a drug also indicated in these cases--Ephedrine, for
example--that the product be considered as a drug, not a vitamin, and
that it be distributed for clinical trial under a special name--all
provided that the licensees agree. _Any untoward effects from it thus
would not reflect on the Viosterol products on the market._”
Despite its lofty objectives, the licensing program of the Foundation
appears to have resulted actually in a substantial reduction of
research and development. Its attitude toward research is indicated in
a letter from Russell to the licensees dated August 24, 1936:
“We are hardly interested in the prosecution of problems of a purely
scientific character that come to us from outside institutions.
Nevertheless, if this is a problem that has definite commercial
possibilities, we should not make a hasty adverse decision.”
In a letter dated January 6, 1937, addressed to Elley of duPont,
Waddell of duPont referred to a meeting in Madison with members of the
Foundation and stated:
“He [Steenbock] mentioned that most of the pharmaceutical licensees
had not been interested in obtaining rights to the manufacture of
crystalline Vitamin D (from ergosterol) and that the present situation
might find them in the same attitude. He admitted, however, that if
the patent situation and licensing arrangements worked out so that the
five pharmaceutical companies were again in a position of having an
exclusive hold on the synthetic Vitamin D field that undoubtedly they
would be very much interested.”
Thus, in spite of the acknowledged physiological superiority of Vitamin
D₃, the Foundation was reluctant to do any research whatever unless the
willingness and cooperation of the licensees showed a definite promise
of substantial profits.
The effect of the licensing policy on the research activities of
licensees is explained in a letter from Kupperian of Acetol to Waddell,
research director of Acetol. This letter states:
“According to my reading of the contract with Wisconsin Alumni
Research Foundation, we are not at liberty to use yeast in connection
with irradiated ergosterol, this field being reserved exclusively to
Fleischmann. In view of this fact, I think we ought not to waste time
and money on experiments in connection with yeast.”
In at least one case where the Foundation sponsored and financed
research, the publication of the results of the research were
suppressed by the Foundation because they were at variance with the
Foundation’s commercial interests. In an attempt to eliminate the
non-infringing product of General Mills from competition with the
Viosterol of the pharmaceutical licensees, the Foundation attempted
to prove that Viosterol was clinically superior to the General Mills
product. To accomplish this, the Foundation made a grant to Drs. Smith
and Owens of Freedmen’s Hospital in Washington, D. C., to run certain
tests comparing the effectiveness of the General Mills product and
Viosterol, and to prepare an article for the medical journals on the
results. On June 17, 1936, Drs. Smith and Owens submitted to the
Foundation their article, which contains the following conclusion:
“A comparative study of nine cases of varying degrees of rickets
receiving 800 U.S.P. units of Squibb’s Viosterol daily with eleven
comparable cases receiving 800 U.S.P. units of American Pharmaceutical
Company Viosterol [General Mills’ product] shows no significant
difference in rate or degree of healing as determined (1) by X-ray of
the wrists and (3) Ca and P determination on the blood.”
The attitude of the Foundation and its licensees to this article is
described in a letter from Lescohier of Parke-Davis to Anderson of
Squibb, dated July 6, 1936:
“If this article is published the Steenbock group are certainly in the
position of being hung with their own rope. I should like to see the
publication suppressed but am pretty certain that Meade Johnson will
see that it is published since they are no longer vitally interested
in Viosterol. Certainly anything that can be done to delay publication
would be advisable.”
In a letter dated August 17, 1936, Scott of the Foundation expressed
the Foundation’s attitude on this article as follows:
“From the outset, of course, we have been opposed to publication of
this paper in any form. We have advised Dr. Smith that it was necessary
to get the opinions of the pharmaceutical committee, and we intend to
confer with them in the near future advising them that publication of
the work is not desirable.”
The Foundation has also suppressed the use of competing patents.
Article II of the Supplemental Agreement of June 3, 1937, between
the Foundation and Meade Johnson, Squibb, Parke-Davis, and Abbott
provides for the licensing of additional pharmaceutical manufacturers
who had been using Sperti Patent No. 1,676,579 on the irradiation of
pharmaceutical products. This section provides:
“It is understood and agreed that such additional Licensees shall be
prohibited, by appropriate restrictions in any license agreements that
may be entered into between the Licensor and such additional Licensees,
from employing the process described and claimed in United States
Letters Patent No. 1,676,579 to George Sperti and from advertising the
use of said process in connection with products sold under said license
agreements....”
Thus, the results of the Foundation’s licensing program have been to
stifle its own research activities and the research activities of
its licensees, to prevent the publication of information which might
jeopardize the Foundation’s financial interests, and to suppress
competing patents. Certainly, these are peculiar results of a program
instituted “to protect the public” and “to prevent unscrupulous
commercialism.”
One of the most important fields in the Foundation’s scheme of
exploitation is the pharmaceutical field. All Vitamin D products used
in the treatment or prevention of human ills are embraced within the
pharmaceutical field, and restrictions in this field thus have a direct
and immediate effect on the health and well-being of the general
public. Also, at the time the Foundation embarked on its licensing
program, the pharmaceutical field probably was one of the most
promising, both from a publicity and a profit standpoint.
In or about March 1929, the Foundation made agreements with five
licensees, all manufacturers of pharmaceuticals: Meade Johnson & Co.,
Winthrop Chemical Company, Abbott Laboratories, Parke-Davis & Company,
and E. R. Squibb & Sons. These agreements have been amended several
times by letter agreements and supplemental agreements. Two letters,
dated March 20, 1939 and April 27, 1939, offer the licensees certain
royalty reductions, and it is assumed that these reductions were
accepted. These letters do not, however, make any substantial changes
in the restrictive provisions of the agreement.
This combination in restraint of trade between the Foundation and its
licensees is expressed in various ways throughout the pharmaceutical
licenses. For example, Article XII of the agreement of March 21,
1929, fixed minimum prices for the sale of irradiated pharmaceutical
products. This article contains the following language: “Such prices so
established shall remain in effect indefinitely but may be changed by
the Licensor not less than ninety (90) days after consultation with all
of the Licensees of this group.”
Article XIII of the agreement of March 21, 1939, states that the
potencies of the pharmaceutical products shall remain fixed “until
and unless changed by the mutual understanding of a majority of the
licensees of this group.” Article XVII prevents the assignment of the
licenses “without the written consent of the Licensor, the Patentee
and the Licensees under similar licenses.” Each of the agreements with
Abbott, Meade Johnson, Squibb and Parke-Davis, executed June 3, 1937,
also contains long recitals regarding the provisions to be introduced
into a new contract with Winthrop Chemical Co., Inc.
Price stabilization was one of the main considerations offered by the
Foundation to its licensees in exchange for the royalties. It might
almost be said that this price stabilization was the bait which made
the licensing scheme of the Foundation so attractive to the various
manufacturers. Clough of Abbott wrote to Russell of the Foundation
on April 21, 1936, and referred to the importance of price-fixing
activities of the Foundation as follows: “It was argued by your
Trustees that under our arrangement with the Foundation, we were given
certain benefits of price stabilization which was well worth the
additional 5%.”
That price-fixing was one of the most important points in the
pharmaceutical licensing plan and is described in a memorandum of a
conference between Anderson and Lewis of Squibb and Ross and Barney of
the Foundation on February 23, 1939:
“We outlined the high potency D situation both with respect to Merrell
and Winthrop. Their reaction was first that Squibb would have no
objection to Merrell’s continuing to sell its concentrated viosterol if
we could line up Merrell on its regular viosterol from the standpoint
of container size and price. We indicated that this latter could be
accomplished.”
Further, the papers indicate that this price-fixing was carried over
into the field of resale prices. This is brought out in a letter from
R. D. Keim of Squibb to Dean Russell of the Foundation dated July 23,
1934:
“We gave this matter our very serious consideration and wrote to all
the licensees, under date of July 19, 1934, as per copy enclosed and we
firmly believe that our suggested _Full Retail Prices per package to
the consumer and Minimum Retail Prices per package to the consumer_ for
Viosterol in Oil and Cod Liver Oil with Viosterol are more in line with
present market trends and the present economic market conditions than
those proposed by Parke-Davis & Company.
“We are desirous of acting in harmony with all the other licensees of
the Wisconsin Alumni Research Foundation in regard to the stabilization
of the market for Viosterol in Oil and Cod Liver Oil with Viosterol.
However, we firmly believe that it is necessary to establish a schedule
of Minimum Retail Prices to the consumer such as we have suggested in
order to bring about such stabilization.”
Prices were not only fixed; they were fixed arbitrarily at levels which
can only be regarded as extortionate in view of the economic status
of the people whose need for Vitamin D was the greatest. (Barney, the
business manager of the Foundation, once stated on examination in
a lawsuit: “It is my understanding that rickets is found to a great
extent in the so-called poorer class of people.”) Despite this full
awareness of the incidence of their high price policy, the Foundation
and its licensees remorselessly maintained prices on the Viosterol
products so high that their use was practically restricted to those who
had least need for them. This is recognized in a letter dated March
30, 1934, from Russell to the pharmaceutical licensees: “Very severe
criticism from certain prominent pediatricians has been lodged against
the Foundation on account of the alleged high retail prices of certain
Vitamin D preparations.”
The price-fixing activities of the Foundation also extended to sales to
Federal, State and local governments and government agencies. On May
10, 1940, W. S. Merrell Company wrote to the Foundation:
“We have an inquiry from the Government for a substantial quantity
of Irradiated Ergosterol and are wondering if we shall have to abide
by the price schedule in our license agreement in quoting. In other
words, would our quotation have to be the same as our minimum price to
wholesalers, or could we figure on a reasonable profit basis taking our
cost on such a large quantity for one shipment into consideration?”
The letter also contained a postscript: “We know that the price would
have to be much lower than our price to the wholesalers to secure the
order.” In spite of the fact that Merrell was merely asking to quote on
a “reasonable profit basis” and assured the Foundation that the price
would have to be “much lower ... to secure the order,” the business
manager of Foundation replied on May 13, 1940:
“Under the present license agreement with your company and the other
pharmaceutical licensees of the Foundation under the Steenbock
patents, the minimum price to be quoted to government institutions is
the minimum wholesale price as outlined in your contract, less two per
cent discount for cash if paid by the tenth of the following month.
“All of the other pharmaceutical licenses of the Foundation have
operated under this arrangement for some time. We note, however, your
postscript which indicates that the quotation to the government will
have to be lower than the price to wholesalers in order to secure the
order. We dislike to see your company or any of our other licensees
lose business.”
The pharmaceutical agreements fix both the potency and the quantities
in which Vitamin D concentrates may be sold by the pharmaceutical
licensees. The purpose and effect of these additional controls were
stated by an official of the Foundation. “We feel that it is perfectly
proper to control the price of Viosterol and cod liver oil from a legal
standpoint and, unless we control the potency of the product and size
of the container, price control of the product, of course, would be
rather useless.”
The pharmaceutical agreements specified that potencies could be changed
only by “mutual agreement of Licensees of this group,” while container
sizes could be changed by “mutual understanding of a majority of
the Licensees of this group.” Operations were in exact accord with
these provisions, and only unanimous approval by the licensees could
authorize potency changes. Notes of a phone conversation of March 30,
1932, between Nielsen of Meade Johnson and Russell of the Foundation
state: “Russell said under no condition could such approval be given.
That Meade Johnson had no warrant in changing the potency without the
knowledge and approval and consent, not only of the Foundation but also
of the other four licensees.”
Prior to December 24, 1936, the Foundation and its pharmaceutical
licensees maintained a very effective black list and white list of
dealers. While the approval of dealers was ostensibly within the
exclusive control of the Foundation, actually it was again a matter
for vote by the licensees. L. D. Barney, business manager of the
Foundation, described the program to Dr. Russell, director of the
Foundation, in a memorandum dated November 6, 1935:
“As you know, the usual procedure in handling requests of wholesale
drug concerns with respect to their addition to the approved wholesale
list for the sale of Viosterol products is for the Foundation to send
the name and address of this company to the five licensees. They,
in turn, investigate the company and report back to whether or not
they favor the addition of the said company to the list. The general
procedure set up several years ago was that a majority of the licensees
(three) would constitute sufficient authority on the part of the
Foundation to add the name of the company to the approved list.
“By reason of the manner in which these are handled, it is impossible
for us to tell the licensee when we refuse their request anything other
than the fact that the Committee, which handles the request, did not
approve their application, or, stated in another way, the Committee
voted in the negative. Obviously, we cannot say that our licensees did
not favor the addition of this company to the group.”
W. N. Larson of Meade Johnson recognized that this black list and white
list might be illegal, and referred to it in a letter dated December
22, 1936, to Ward Ross, Counsel for the Foundation. He sent copies to
each of the other pharmaceutical licensees. Larson’s letter states:
“We would have no objection to the Foundation acting as a clearing
house for information relative to those to whom wholesale terms on
Viosterol and Cod Liver Oil with Viosterol are extended, except we
wonder if such action might not be construed as a violation of law.
Anyone investigating this activity might well inquire as to why this
was done, if some action which could be construed as collusion or
restraint of trade were not contemplated.”
One of the principal functions of the black listing and white listing
of wholesalers and retailers was the maintenance of resale prices.
This is explained in a letter dated June 29, 1931, from W. N. Larson
of Meade Johnson to N. A. Buttle of Winthrop, with copies to the other
licensees and to the Foundation. This letter states:
“To our knowledge there have been very few departures from the
suggested minimum price, and these departures have been confined to a
very few relatively unimportant wholesale druggists whose objectives
unlike ours, are not to stabilize conditions in the drug trade. It is
the legal right of any manufacturer to refuse to sell to a wholesaler
or any other customer in fact, who will not carry out his wishes.
I hope that it will not be necessary, but it is entirely possible
that it may become desirable for the Foundation to make the list of
preferred jobbers a trifle more exclusive than it is at the present
time. We would work with the Foundation in any reasonable steps in that
direction. Better proof of our desire to have this matter straightened
out could hardly be given, we believe.”
At least as early as 1933, the Foundation and the pharmaceutical
licensees realized that this black list was illegal. On May 11, 1933,
Larson of Meade Johnson wrote to Gunn, attorney for the Foundation,
regarding this black list:
“Licensees cannot make agreements among themselves in these matters
and must, of course, take the position that they are acting under
instructions from the Wisconsin Alumni Research Foundation. The
revelation that that is not the case might prove to be very
embarrassing, as you probably realize. My suggestion is that, in
cases of this kind, you simply inform the inquiring party that your
action was guided by a committee, operating under the Wisconsin Alumni
Research Foundation, and that this committee does not reveal its
reasons for taking any action of this kind.”
Probably in part on account of this growing disquietude concerning the
lawfulness of their undercover boycott, in part also, perhaps, because
of the vast amount of detail work involved in maintaining the list,
the Foundation ceased rendering this service for its licensees some
time late in 1936. On December 24, 1936, the business manager of the
Foundation referred a prospective wholesaler to the pharmaceutical
licensees for direct action.
The pharmaceutical agreements were thus far more than mere restrictive
patent licenses. Prices, potencies, dosages and container sizes were
fixed by the licensees jointly and black lists of price-cutting dealers
were established and maintained. The Foundation offered little more
than a facade of respectability to conceal these activities, and it
was for this concealment that the licensees were willing to pay so
handsomely.
The remaining agreements of the Foundation prohibit the other
licensees from invading the pharmaceutical field. Several of the
agreements prohibit, in express terms, sales of activated products
for pharmaceutical uses, others so limit the potency of the licensed
product as to make it worthless for medicinal purposes, while still
others merely limit the right of the licensee to claim curative
properties for his product in his advertising.
All the agreements of the Foundation clearly show the intention to
protect the exclusive market of the pharmaceutical licensees in the
human medicine field. Actually this practice is carried to a ridiculous
extent. The following statement appears in a memo note of November
14, 1935, written by Ward Ross, General Counsel for the Foundation,
regarding a conference with Dr. Hooper of Winthrop:
“With regard to the comparison between Viosterol and Drisdol, I asked
Hooper how he would like it if our milk licensees said that one quart
of irradiated milk was equal to 10 drops of Viosterol. Hooper claimed
that this would be an invasion of the pharmaceutical field by our milk
licensees and that they would be selling milk as medicine.”
Apparently, the licensees are prevented from telling the truthful
merits of their products if the truth would cause an overlapping of the
artificial division of fields.
Another industry capable of using large quantities of Vitamin D was the
bread industry. Under an agreement dated November 15, 1939, this field
is allocated exclusively to duPont. DuPont’s chief concern in the bread
field was price “stabilization” which to duPont meant the maintenance
of high price levels. DuPont was even willing to share the field with
Standard Brands to accomplish this end. A memorandum, dated September
19, 1935, from Mr. Kenneth T. King of duPont to Mr. Ralph Horton and
Mr. W. S. Kies, a Trustee of the Foundation, states: “We would be
willing for the Foundation to grant non-exclusive license for the sale
of Vitamin D from Ergosterol in the bread field to the Fleischmann
Company, providing the price of Vitamin D in the bread field shall be
stabilized.” The agreement between duPont and the Foundation expressly
stipulates the limits of licensees’ discretion in price policy. Article
2 (C) provides: “DuPont shall not sell said irradiated or activated
Ergosterol or its derivatives at a higher price than one dollar and a
half ($1.50) or a lower price than ninety-five cents ($.95) per million
U.S.P.A. (revised 1934) Vitamin D Units.”
The Foundation’s support of duPont’s policy of high prices is
indicated in a letter dated July 18, 1935, from Barney to Atkins of
duPont which states: “Dr. Waddell stated that it was his opinion
that if General Baking came back into the picture a higher price for
ergosterol should be charged. We discussed the possibility of a price
of $1.25 to $1.50 per million Steenbock units.”
So long as the Foundation could be “merciless in beating out
competition” price-fixing at these levels was quite attractive. But by
1940 the weakness of the Steenbock patents was so apparent that the
fixed prices became a competitive hazard. On March 5, 1940, King of
duPont wrote to the business manager of the Foundation:
“In reply to your letter of February 24th we are very much interested
in modifying our contract with respect to the maximum and minimum
provisions in the baking field. In fact, we believe the simplest way
to handle this question is to delete from our present contract the
clause specifying maximum and minimum provisions. This, of course,
was explained to you over the telephone in our recent conversation
concerning General Baking. I believe unless some change is made in the
maximum and minimum provisions all business in this field will be lost
by the licensees of the Foundation.”
The Foundation recognized the need for abandoning these artificially
high price levels and on March 14, 1940, Barney of the Foundation
wrote to King of duPont referring to “a quotation from General Mills
at a price of 60¢ per million” and stated: “This will acknowledge
receipt of your letter of March 5th regarding the maximum and minimum
price provisions with respect to the baking field. Shortly, Ward
[Ross of the Foundation] will send Art [Connolly of duPont] either a
letter agreement or supplemental contract deleting this provision from
the contract.” On July 19, 1940, Connolly wrote Ross again asking
elimination of the price-fixing provision and finally on July 30,
1940, Ross of the Foundation wrote to duPont deleting the price-fixing
paragraph from Article 2 (C) of the agreement.
DuPont’s aim in all of its Vitamin D operations was to obtain high,
non-competitive prices for its products. This thought is expressed time
and time again. A memorandum dated July 26, 1932, from Bradshaw to
Atkins, both of Acetol, states: “This morning I reported to Mr. Protto
and Mr. Robinson regarding conversation with Dean Russell and also
the known facts concerning Lever Bros. business. It was Mr. Protto’s
feeling that we should raise our prices as much as possible and not
sell the material cheap.” The next day Atkins replied:
“It seems obvious to me that we should always try to get the maximum
price for any of our goods, keeping in mind the possible potential
volume and competitive conditions.
“According to authentic price information which we have secured,
Fleischmann have been selling and offering Vitamin D at slightly less
than $1.00 per 1,000,000 Steenbock Rat Units. This is what influenced
my suggested price of $1.00 to Lever Brothers and I was very much
surprised when you informed me that Fleischmann was not in a position
to furnish irradiated ergosterol. If this were true, I apparently had
gone too low on our initial price in view of the fact that we were the
exclusive source of supply.”
The profit levels resulting from the Foundation’s activities were
enormous. In a letter dated March 9, 1938, addressed to Ward Ross of
the Foundation, King of duPont stated: “With respect to the Chesney
matter, all I know is that 35¢ per million units was quoted to General
Baking Company.”
Vitamin D is of the greatest importance to expectant and nursing
mothers, infants, and children and, consequently, milk is one of the
most natural and most important vehicles for this vitamin. The Council
on Foods of the American Medical Association stated in the _Journal of
the American Medical Association_ for January 16, 1937, “Of all the
common foods available, milk is most suitable as a carrier of added
Vitamin D. Vitamin D is concerned with the utilization of calcium
and phosphorous of which milk is an excellent source.” Next to the
pharmaceutical industry, milk was probably the most promising outlet
for Vitamin D from a profit standpoint. The Foundation therefore became
active in promoting the use of Vitamin D in the milk industry.
On November 1, 1938, the Foundation granted licenses to five producers
of evaporated milk, The Borden Company, Carnation Company, Indiana
Condensed Milk Company, Nestle’s Milk Products, Inc., and Pet Milk
Company, to activate evaporated milk. The agreements allocate the
evaporated milk field exclusively to these five producers. Like the
Foundation’s other agreements, these evaporated milk agreements
provide for the maintenance of the division of fields. Article XX, in
protecting the evaporated milk field, states: “The Licensor agrees
that in all licenses for the activation of fluid milk by the use of
irradiated ergosterol or by direct application of ultra violet rays,
it will incorporate a provision preventing the use or sale of such
activated milk by such licensees for the manufacture of activated
unsweetened evaporated milk.”
The rights of the evaporated milk producers were similarly restricted
to prevent encroachment on other exclusive fields. Article XII
specifically protects the pharmaceutical field by providing that “said
evaporated milk shall not be intended or sold as a cure for rickets.”
The other fields of use of Vitamin D are protected from invasion by
activated evaporated milk by Article IX which provides: “The Licensee
agrees that it will not knowingly directly or indirectly sell its
unsweetened evaporated milk activated under this license to others ...
as a source of Vitamin D for any other product when such product is
intended to be sold or resold on a commercial basis.”
There are several methods by which fluid milk may be activated and
the Foundation has issued licenses for each of these methods. In one
method, irradiated yeast is fed to cows to increase the Vitamin D
content of the milk; in the second method, the milk is irradiated
directly; and in the third method, an activated concentrate is
introduced into the milk.
The Bill of Particulars in the Vitamin Technologists suit lists 138
dairies licensed to activate milk by feeding irradiated yeast to cows.
In its agreement with West Haven Creamery, Inc., which is typical
of all of the licensees of this class, the Foundation licensed and
empowered the licensee to purchase from Standard Brands, Incorporated,
dried yeast “antirachitically activated” upon the following terms and
conditions:
“First: The Licensee shall buy and use such yeast for no other purpose
than that of feeding cows to impart antirachitic qualities to milk.
* * * * *
“Fourth: The Licensee shall not sell any of its antirachitically
activated milk to others for use or incorporation in any other marketed
product when Vitamin D or antirachitic claims are made or intended to
be made for such other marketed product.
“Fifth: The activated yeast purchased by Licensee pursuant to this
License shall not be resold or otherwise used except for feeding the
same to the Licensee’s animals, pursuant to the conditions of this
license.”
The Steenbock patents do not even purport to cover anything more
than a process of irradiating or an irradiated product. Under no
circumstances could the milk from an irradiated-yeast-fed cow be an
infringement of the Steenbock patents. Article Fourth is a bare-faced
attempt to carry out the artificial division of fields. Milk from an
irradiated-yeast-fed cow could, for example, be used in the commercial
making of bread, but such use would be an invasion of the exclusive
bread and breadstuffs field. It was, therefore, necessary for the
Foundation to insert this limitation in the West Haven Creamery’s
license even though the limitation was entirely outside the Steenbock
patents.
The prohibition of resale in Article Fifth likewise lacks any taint of
legal justification. A patentee’s right under a patent is completely
exhausted by the first sale of the patented product. Here again the
Foundation is seeking to prevent any use of the irradiated yeast which
may in any way conflict with the division of fields.
As the demand for activated milk increased, the addition of
concentrates was accepted by the medical profession. This business
was so attractive that the Foundation decided to engage in the sale
of these concentrates for addition to milk. The Foundation did not,
however, wish to enter a market in which any competition existed and
since Standard Brands had rights in this field, it was essential that
the Standard Brands competition be eliminated. In the agreement of
February 1, 1939, the Foundation agreed to pay Standard Brands 40% of
the profits derived by the Foundation from the sale of concentrates in
return for Standard Brands’ withdrawal and agreement not to compete.
Vitamin D is of the utmost importance in the poultry industry since
it is essential for the prevention and cure of rickets and for bone
development, egg production and hatchability. Prior to the war some
Vitamin D could be obtained from cod and other fish liver oils, but at
the present time, the requirements must be obtained almost exclusively
from synthetic Vitamin D. Even apart from war time shortages, synthetic
Vitamin D presents certain advantages over fish liver oils. The
synthetic product may be used for forced feeding without adversely
affecting the flavor of the poultry, while too generous use of fish
liver oils results in a somewhat fishy flavor.
The size of the poultry market in the United States involves almost
astronomical figures. The crop report of September 1, 1943 of the
United States Department of Agriculture on poultry and egg production
states that there were over 316,000,000 laying hens; over 318,000,000
pullets and over 224,000,000 chicks. The egg production for August
1943 was 3,863,000,000. This crop report also states that the average
cost of feed for farm poultry ration on August 15, 1943 was $2.13 per
hundred pounds. Dr. Harry Titus of the Poultry Nutrition Section of the
Bureau of Animal Industries of the Department of Agriculture estimates
that 25,000,000 tons of commercial mixed feed are used annually in the
poultry industry and that 75% of this feed is fortified with Vitamin D.
The wartime demands on meat make the poultry market unusually important
and any artificial restraints or artificial price levels affecting the
poultry market are of the most serious national importance.
The discovery upon which Steenbock’s patent No. 1680818 is based is
that certain substances, known as pro-vitamins take on antirachitic
properties when irradiated with ultra violet light. These pro-vitamins
are sterols which may be obtained from either vegetable or animal
sources and the effectiveness of the irradiated product is dependent
upon the nature of the pro-vitamin.
In the early days, vegetable pro-vitamins were used almost exclusively
but it was subsequently found that the animal pro-vitamins were
superior. Vegetable pro-vitamins were unsuitable for poultry feeding
and the exploitation of this market awaited the development of the
animal pro-vitamins, cholesterol and 7-dehydrocholesterol.
The animal and poultry feed field had been exclusively allocated
to duPont and its predecessor, Acetol. This exclusive arrangement
highlights the artificial nature of the Foundation’s division of
fields. In the case of cows Vitamin D in the feed will result in
a Vitamin D content in the milk. Vitamin D may also have some
antirachitic effect on the cow itself. In interpreting this provision
of its agreement with the Foundation, duPont was obliged to consider
the question whether the effect of the Vitamin D feed is in the cow
or in the milk. Finally, however, duPont resolved the doubt in its
own favor. A letter dated February 20, 1935, addressed to Kupperian
of duPont, from Connolly, a duPont attorney, states: “Irradiated
cholesterol may therefore be used in feed for cows regardless of
whether its purpose is to enhance the Vitamin D content of the milk or
prevent rickets in the cow itself.”
Prior to 1936, duPont recognized the importance of the animal sterols,
cholesterol and 7-dehydrocholesterol, in the poultry feed field. DuPont
immediately set out to secure a monopoly over these pro-vitamins and
through them to control the entire poultry feed field. The first step
in this direction is described in a letter dated January 21, 1936 from
King of duPont to Nielsen of Abbott which states:
“We were, of course, largely interested in the poultry field, and to
protect our position had made tentative arrangements to secure all of
the available cholesterol in the country, or perhaps we might say, in
the world.”
Apart from attempting to corner the sources of animal sterols, duPont
also sought exclusive rights in the field of animal sterols within the
licensing scheme of the Foundation. The agreement of November 15, 1935
between the Foundation and duPont grants duPont an exclusive license to
irradiate sterols from animal sources. When the Foundation wished to
grant new licenses and submitted the proposed licenses to duPont for
approval, duPont insisted upon retaining exclusive rights in the animal
pro-vitamin field. In a report to the Executive Committee of duPont
recommending approval of the Foundation’s license to Merrell, E. G.
Robinson states:
“The Foundation now wishes to grant a license to the William S. Merrell
Company of Cincinnati, Ohio, limited to Vitamin D from non-animal
sources for sale only as medicinals or pharmaceuticals for human
use, which this department is willing to approve. It is limited to
non-animal sources in the pharmaceutical field and, therefore, we do
not think it will materially interfere with our own developments.
Also, the Foundation is able to grant a license with respect to yeast
ergosterol without our permission, since that product is not in our
license field; and if the license to Merrell is limited to yeast we
will not have the opportunity of selling Merrell our own ergosterol.”
Thus, while duPont desired to protect its animal sterol field it
did not wish the Merrell license so limited as to deprive duPont of
a potential market for non-yeast ergosterol. In both instances the
Foundation was most willing to cooperate.
8
_Quebracho Extract_
Quebracho extract is of great use to the nation in the war effort.
It is a material which has been found most desirable for tanning the
leather which goes into the shoes, harness, straps and other leather
articles of the armed forces. It is of some interest to every man,
woman and child whose ration stamps are used to buy a pair of shoes.
Practically all heavy leather tanned in this country has been tanned
by use of a blend in which this material is an important ingredient.
It comes from the southern part of South America, and there have been
times when it was difficult, and others when it appeared it might be
impossible, to ship the material to this country. The production and
sale of the material is controlled by a monopoly pool or cartel, and
this country is at the mercy of the pool in procuring the material in
adequate quantities and at a reasonable price. The pool has exercised
its power to curtail the quantity shipped to this country, to prevent
any adequate stock pile in this country, and to raise prices out of
proportion to any increase in costs.
In the Spring of 1942 the Department of Justice submitted the facts
of this monopoly pool to a Federal Grand Jury in New York, and it
promptly returned an indictment against five American corporations, one
Canadian and one British corporation, and five individuals, officials
of four of the American corporations. Pleas of _nolo contendere_
were subsequently entered by three of the American corporations and
four of their officials. Fines were levied against and paid by these
defendants, totalling $59,002. A _nolle prosequi_ was entered as to the
two remaining American corporations, the two British corporations, and
one official. The reason for the _nolle prosequi_ in the case of the
two foreign corporations was that they were outside the jurisdiction of
the court.
The national interest in such a situation plainly warranted a diligent
effort long ago to find an adequate substitute which would relieve us
from entire dependence upon the ability and willingness of a foreign
cartel to supply us with a vital material.
The extract is obtained from the quebracho tree. For commercial
purposes the growth of these trees is limited to Argentina and
Paraguay. Although there are quebracho forests in southern Brazil, the
extract manufactured from these trees is inferior to Argentine and
Paraguayan extract, and cannot compete favorably with it in the market.
Ninety-eight per cent of the world production of quebracho wood and
extract comes from Argentina and Paraguay. In 1942 the total production
amounted to approximately 300,000 metric tons of extract and was valued
at $25,000,000.
This war has naturally affected the market for quebracho in Europe.
Several years before the war the German Government took steps to render
that country less dependent upon the continuance of quebracho imports.
Clauses were inserted in all Army and Navy contracts for the purchase
of leather goods that at least 12 per cent of such goods should be
tanned by German-manufactured tanning agents. This resulted in the
development of a new industry based upon the production of tanning
material from German trees. Tannic acid was extracted from the oak
trees of South Germany and was permitted to find a place in the tanning
industry by reason of the Government policy. Thus the German leather
industry gradually became independent of quebracho importation from
South America.
The loss of the continental European market due to the war was not felt
to any great extent by the quebracho exporters because of the great
increase of exports to the United States. During the war the imports of
quebracho almost doubled due to the tremendous production of leather
goods for the armed forces.
The quebracho industry consists of twenty-two producers in Argentina
and Paraguay. Five of these are owned or controlled by the British
corporation, The Forestal Land, Timber and Railways, Ltd., through its
Argentine subsidiary, La Forestal Argentina S. A. de Tierras, Maderas y
Explotaciones Commerciales e Industriales. These five companies have a
productive capacity which constitutes approximately 57 per cent of the
total capacity.
All producers, except four having a capacity of about eleven per cent
of the entire industry, are members of a Quebracho Pool which regulates
the production and sale of the product. Quebracho is sold by official
agents of the Pool, and it recognizes two official agents in the
United States: The Tannin Corporation and the International Products
Corporation, both of New York.
Forestal of England controls La Forestal of Argentina through the
ownership of a majority of its stock and a substantial portion of its
bonds. One John B. Sullivan, Chairman of the Board of Forestal of
England, is also the manager of Forestal of Argentina. Sullivan is an
Argentine citizen who was formerly a citizen of the United States and
a graduate of Harvard College.
By reason of La Forestal’s ownership of 57 per cent of the total
productive capacity of quebracho in South America, which is
approximately eight times the capacity of its next largest competitor,
Forestal has completely dominated the quebracho industry. Its policy
has been to restrict production and maintain high prices. Forestal’s
economic dominance in Argentina has enabled it to exert a great
influence upon the government of Argentina. For example, in 1942 the
efforts of John B. Sullivan alone were primarily responsible for
the imposition by the Argentine Minister of Agriculture of highly
restrictive export quotas upon each producer. These restrictions were
imposed upon the industry at a time when it appeared that the efforts
of Forestal to continue similar restrictions upon the South American
producers might fail.
Forestal’s domination extends not only over the production of
quebracho, but over its distribution as well, including importation
into this country. Through St. Helen’s Ltd., a Canadian corporation,
Forestal of England owns substantially all of the stock of Tannin
Products Corporation, a Delaware corporation, which in turn owns all
the capital stock of The Tannin Corporation, a New York corporation.
The Tannin Corporation imports approximately 70 per cent of all
quebracho extract consumed in the United States. The Tannin Corporation
has been controlled by Forestal of England since 1913 and during the
past thirty years its controlling officials have been completely
subservient to the policies of Forestal of England. Thus Forestal
controls this material from the tree to the United States consumer.
The questionable character of the functioning of these American
subsidiaries is indicated by portions of a letter written December 23,
1941, by Carl B. Ely, President of the Tannin Corporation, to J. B.
Sullivan of Forestal, whom he addressed as “My dear Jack”:
“You will recall the formation for good and practical reasons of
the Tannin Products Corporation in 1925, at which time a very large
dividend was paid, which procedure continued in a more or less degree
during the following years, particularly in 1929 and 1934. The company,
as you will see, earned $3,284,427.28 and paid out dividends of
$4,200,000.00. In other words, we declared practically $1,000,000 more
during the sixteen-year period than we earned.
“Under the circumstances I have no fault to find with this, provided
our principal stockholders, the Forestal Company, are aware of it and
are prepared to take care of our money situation as the same arises....
“To come right down to the last analysis, we have been living on
Government funds, which under proper business procedure should be
reserved for income tax payments, but, as these payments are not due
until next year, it has been possible to use this money. We owe the
Government today $500,000. This money, together with your most helpful
postponement of payments, has made it possible for us to have cash to
pay the dividend we did. I believe that with the extra terms on future
purchases of extract we will make our position stronger during the next
six months, and we are trying diligently not to borrow from the banks,
as in this particular case it would appear that such borrowing was done
to pay dividends. This I believe would have a very bad effect on our
good will and financial standing--and we enjoy today the good will and
respect of the tanning industry as we never have before.”
I have already pointed out that Forestal controls five of the South
American producers. One of the other seventeen is the International
Products Corporation of New York. Another producer, Samuhi S. A., is
controlled through ownership of a majority of its stock by two American
corporations, Proctor Ellison and Howes Bros. of Massachusetts.
International Products Corporation and Samuhi together have a capacity
of about eight per cent of the entire industry. Both of these producers
have been ineffective in preventing La Forestal from carrying out its
policy of restricted output and high prices, and International Products
has in the past frequently cooperated closely with La Forestal to
further such a policy.
Since 1934 International Products Corporation has consulted with
Tannin about the prices to be charged to quebracho extract consumers
in the United States, so that the prices of both companies have been
fixed, uniform and high. From May, 1934 to July, 1939, Tannin owned a
substantial amount of the stock of International Products Corporation,
and from May, 1934 until May, 1936, the president of Tannin, Carl B.
Ely, was a member of the Board of Directors of International Products
Corporation. On February 26, 1935, Ely wrote to Sullivan:
“I am giving the I.P.C. problems a lot of my time, and, as previously
told you, have found that there is a lot to be done to straighten out
that problem. I am working slowly so as not to upset the apple cart any
more than is necessary....
“I am getting their sales policies straightened out and believe now
there will be no more monkey business.”
From 1934 to 1939 International Products Corporation was a member of
the Quebracho Pool, and by reason of its designation as an official
pool agent for the United States gave up its business of selling
extract in England and in Asia.
American purchasers of quebracho might well wonder whether this
American company was more concerned with giving them a good deal or
with favoring certain foreign concerns, from the concluding paragraph
of a letter from one of its officials to its President dated November
16, 1939:
“You undoubtedly know that Mr. Seldes was successful in substituting
Casado extract to fill the order we had for Forestal for 535 tons of
Supremo for delivery in Buenos Aires for shipment to Japan. We paid for
the Casado extract with a dollar draft and have since received from
Forestal the sterling representing the sale. The net result of the
whole transaction represents a loss of a little more than a $1.00 per
ton, which, as explained in a previous letter, is really not a loss at
all, as we will use this extract to fill orders for North America which
will net us a nice profit.”
The production of Samuhi was so small, being about one per cent of the
entire industry, that it could hardly contain any competitive threat
to La Forestal. Nevertheless, our records show that for many years
Forestal harassed this company by every means and sought to buy up its
assets and its stock.
It is interesting to observe in what manner the quebracho extract
pool operated to carry out Forestal’s policy of restricted output and
high prices. Before the formation of the Pool the price per pound of
quebracho extract was 2½ cents. By the terms of the pool agreement a
directive committee, dominated by Forestal, was empowered to fix the
prices of all its members. The directive committee between November,
1934 and January, 1941, decreed six price rises, raising the basic
price of quebracho extract for the whole world market from 2½ cents
up to 4⅞ cents, an increase of nearly 100 per cent. Sullivan admitted
in July, 1942, that at the then existing price, which prevails at
present, Forestal was making a net profit of 33 per cent on every ton
of quebracho it sold.
The exorbitant profits of the quebracho manufacturers were severely
criticized by the famous leading Argentine newspaper, _La Prensa_. The
following excerpt was taken from a letter of May 20, 1936, written by
the manager of the Buenos Aires office of the International Products
Corporation to its president:
“Another matter, which has caused a lot of excitement amongst the
manufacturers has been the inopportune declaration, made by the
Chairman of the Forestal during the annual meeting of the shareholders,
viz. that the understanding of the manufacturers was performed under
the auspices of the Argentine Government, in other words, that the
Argentine Government was really responsible for the agreement and that
it was protecting the same. This news was reproduced all over the
world and the _La Prensa_, the most important paper on the Southern
Hemisphere, has seized the opportunity to denounce the huge profits
made by the quebracho manufacturers, profits which in their opinion
mean a loss for the Argentine Republic on account of the decrease
in the export of both, Quebracho Extract and Logs. I am enclosing
herewith the article, as appeared in the _La Prensa_ of Monday the
18th. inst., and we would add this paper has on more than one occasion
criticized the so-called ‘gentlemen agreement.’ Mr. Marti told me that
he is at a loss to understand how the Baron made these declarations as
Mr. Sullivan has always stressed the necessity of not mentioning the
Argentine Government in connection with the manufacturers’ agreement, a
fact which can be noted in the balance sheets of the other companies,
who, referring to the higher prices, explain that they are due to a
better understanding in the sales policy abroad. Anyway, I hope that
his faux pas will have no serious consequences.”
To maintain high prices it was necessary to limit the production and
the sale of quebracho in the world market. The method used to limit
production under the pool agreement was to allocate a quota to each
producer in accordance with his respective productive capacity. These
quotas limited the amount of quebracho extract which any manufacturer
could sell during a given period. Each member of the pool was compelled
to make substantial contributions at regular periods to a so-called
“battle fund” of the pool. These contributions were retained by the
pool unless the producers adhered to the pool’s regulations relating
to prices and quotas, in which case a portion of each producer’s
contribution was refunded. So restrictive were these quota limitations
that producers who desired to sell above their quotas often paid
enormous prices to acquire the quota rights of other producers.
This rigid control of the market so severely limited the production of
many companies that in 1941 several deserted the pool. These companies
were LaChaquena S. A. and Cotan S. A. These two companies, together
with International Products Corporation, Samuhi, and Weisburd & Cia.
Ltda., a new concern, have been the only producers outside of the
pool since 1941. Although the total productive capacity of these five
companies did not exceed 12 per cent of the total industry, their
threat of full production and decreased prices jeopardized its whole
structure. To meet this threat, Forestal succeeded in persuading
the Ministry of Agriculture in February, 1942, to impose export
restrictions upon each producer which prevented exportation of more
than approximately one-third of their total capacity. In addition,
Forestal attempted to prevent companies outside the pool from shipping
their extract to the United States.
One instance is the experience of Hammond and Carpenter Corporation,
an independent importer which has sought to compete with The Tannin
Corporation and International Products Corporation in the importation
of quebracho. In February or March, 1942, J. A. Barkey, its
Vice-President, attempted to import some extracts produced by Weisburd,
an Argentine extract manufacturer, who entered the industry in 1941. He
called at the offices of the Sprague Steamship Company and spoke to Mr.
Bodemann of that company. Mr. Barkey later described the conference as
follows:
“Mr. Bodemann retorted that it was very unlikely that our firm would
be given any space for the reason that we were newcomers in the import
of quebracho extract and for the further reason that the ‘Pool’ had
supported his line during the lean years before the war and by reason
of such support his line would be obliged to support the ‘Pool’ during
the present emergency.”
Similar sentiments were voiced by Mr. Horgan of the Stockard Steamship
Corporation. The aid of the Buenos Aires Agency of Moore-McCormack
was also previously enlisted. In October, 1941, the Moore-McCormack
line stated that “at the request of the Forestal Company they had
promised their cooperation for the purpose of keeping out any of the
new brands.... The understanding was that whenever they were offered
outside extract and they had space they were to reject it and advise
the other manufacturers, who would try to offer replacement.”
Forestal’s tactics are well illustrated by the case of Mr. T.
Valentine, exporter and concessionnaire of a projected new company.
International Products Corporation was informed in September, 1941:
“[It] has proved impossible so far to reach a satisfactory agreement
with the new factory at Santiago del Estero. For this reason, the
Forestal Company, in an endeavor to impede the exportation of the
extract, has seen all the steamship companies requesting them not
to give space to any outsiders, but to advise the Forestal who would
immediately offer replacement cargo. The steamship companies promised
to act accordingly.”
The Basal Agency had obtained shipping space for Valentine in the past.
“The Basal Agency,” an official of International Products wrote to
Feeney a week later, “has informed us that Valentine wants to book a
further 200 tons on the next steamer but that they would refuse to take
it if we or the Forestal would offer them replacement cargo.”
The effect of the restrictive government decrees and other measures
taken by Forestal has been to force one independent, Cotan, S.A., back
into the Pool, while another, Samuhi, S.A., is contemplating rejoining
the Pool. It appears inevitable that within a short period of time the
remaining independents will be forced into full cooperation with the
Pool and that the industry’s policy of restrictive production and high
prices will continue unless some completely satisfactory substitute may
be found for quebracho extract. Apparently the tanners in this country
find that wattle extract is the only tanning product interchangeable
with quebracho extract, and it is therefore significant to observe that
the wattle extract industry, which is located in South and East Africa,
is also controlled by Forestal of England, and that the principal
importers of wattle in the United States are the Tannin Corporation and
International Products Corporation.
The chief official of one of the companies which stood up against the
bulldozing tactics of the Pool wrote a letter to American Tanners Ltd.,
on February 7, 1935. After discussing in a critical manner the actions
of the Pool and referring to a conversation with an individual whom he
said could be “interpreted as a stool pigeon for Forestal,” he wrote:
“We also pointed out the fact that if the arbitrary methods of the
gentlemen [the Pool] were pursued, that they were throwing away their
markets, they were encouraging the fields of research and that they
would wake up one day and find that the volume of consumption of
Quebracho Extract had been greatly reduced due to the introduction of
other materials which supplanted Quebracho and I cited the instance
of what the tanners went through with substituted leather and how the
volume of the market had never been regained and that the same thing
would happen to Quebracho.”
9
_Titanium_
The titanium industry is controlled by a typical cartel. That it is a
cartel there can be no question. The president of one of the American
companies which dominate it was thoughtful or thoughtless enough to
define it. He wrote to one of the European officials as follows:
“May I call the proposed combination, for simplicity, a cartel? The
whole purpose of the cartel is to obtain a monopoly of patents, so
that no one can manufacture it [titanium] excepting the members of
the cartel, and so can raise the prices by reason of such monopoly to
a point that would give us much more profit on our present tonnage,
but also prevent a growth in tonnage that would interfere with their
greater profits in lithopone [a competing but inferior product].”
It is typical because it has utilized the devices and followed the
practices which are found in greater or lesser degree in all cartel
arrangements. The members of this cartel include I. G. Farbenindustrie,
the German chemical trust and many other foreign companies. The
American scene is dominated by three American corporations, the
National Lead Company, E. I. duPont de Nemours and Co., and Titan Co.,
Inc. (These three companies and four of their leading officials were
indicted by a grand jury in the Southern District of New York on June
28, 1943.)
The story of the titanium cartel is significant for these reasons:
1. Titanium, the most valuable and useful of all white pigments for
paints, rubber products, glass, paper, enamel and other materials
has been priced exorbitantly and its use restricted because of the
monopolistic control exercised over it by a worldwide cartel.
2. American members of the cartel are placed in a position where they
have felt obliged to help the Japanese evade the British embargo.
3. American members have seen fit to aid I. G. Farben in attempting to
prevent seizure of German owned patents by the American Alien Property
Custodian by the execution of specious patent assignments.
4. To attain such monopolistic control, the cartel has resorted to
flagrant misuse of patents and has gone so far as to actually pay large
sums to potential competitors to keep them out of the titanium business.
5. I. G. Farben, the German chemical trust, as one of the leading
parties to the cartel, has dictated the terms upon which American
members might do business.
6. The fact that duPont, Imperial Chemical Industries and I. G. Farben
are also members of other cartels, such as that involving dyestuffs,
makes their control of a fine pigment such as titanium the more
objectionable.
It is difficult to think of any material which is more universally used
by private citizens and by governments alike than is paint. In time of
peace, the United States government buys and uses enormous quantities
of paint. In this time of war its purchases account for by far the
greater portion of all the paint manufactured in the entire country.
It is a fact which is not widely known that the finest of all white
pigments, useful in colored paints as well as white, is titanium
dioxide. It is also not generally known that titanium is the ninth most
abundant element in the earth. Crude titanium is found in combination
with iron in an ore called ilmenite in many places in this and other
countries. It is found in purer form in the sands of Travancore Beach
in India and in lesser concentration in many places.
While the element itself is abundant, no commercially practical
processes for reducing it to pigment form were known until about the
time of the first World War. In the relatively short period which has
passed since then, technology has been developed which makes possible
the manufacture of the finest pigment from titanium. It has already
displaced white lead, lithopone and other pigments in a large share of
the market. In hiding power (covering qualities), opacity and chemical
inertness--all essential qualities for paints--titanium compounds,
chiefly titanium dioxide, excel all other kinds of pigments.
Shortly after the Civil War it was discovered that titanium ore
could be reduced to a powder which when mixed with oil resulted in
a paint. It was not until about the beginning of World War I that a
feasible method of separating titanium oxide from the ore was worked
out. This was accomplished by two chemists, Dr. A. J. Rossi and L. E.
Barton, whose research was done for the Titanium Alloy Manufacturing
Company organized by Dr. Rossi and others in 1906. As a result of
their discovery, a new corporation called the Titanium Pigment Company
was formed in 1916. At that time, as well as subsequently, the
leading manufacturer of white pigment was the National Lead Company.
Recognizing the implications of titanium’s excellence in this field,
National Lead purchased a substantial interest in the Titanium Pigment
Company in 1920. The two companies continued to operate more or less
separately until 1932 when National Lead acquired the entire stock of
Titanium Pigment. In 1936, the latter was dissolved as a corporation
and its business and properties were taken over and operated as a
division of National Lead.
During substantially the same period in which this development was
taking place in this country, a different process for the manufacture
of titanium compounds was being developed in Norway by Gustav Jebsen.
His process was patented and was exploited by a Norwegian corporation
called Titan Co. A/S. At about the same time a Russian chemist named
Joseph Blumenfeld was perfecting, in France, another method of
manufacture, which was likewise patented. Thus prior to 1920 three
groups working independently of one another had developed processes for
utilizing titanium ore for production of pigments. These groups are:
1. Titanium Pigment Company, subsequently absorbed in National Lead
Company.
2. Titan Co. A/S, originally organized in Norway by Jebsen for the
exploitation of his developments. Eighty-seven percent of its stock
was purchased by National Lead in 1927, the remaining 13% being
retained by Jebsen. This company was originally intended to exploit
the foreign interests of National Lead, but in 1929 National Lead and
Jebsen organized in Delaware a holding company called Titan Co., Inc.,
the sole function of which was to hold all foreign interests of the
parties. Titan Co. A/S remained in existence in Norway solely as the
sales agent for Titan Co., Inc.
3. The Blumenfeld Interests. Whereas National Lead and Jebsen chose
to exploit their patents by means of operating companies, Blumenfeld
followed a general policy of licensing other interests.
Titanium Pigment and Titan Co. A/S entered into a contract dated July
30, 1920, which is the foundation upon which the parties and their
successor companies have been able to build a cartel with monopoly
ramifications extending throughout the world. This contract was to
extend to 1936 and was to be automatically renewed for 10-year periods
unless terminated by 5-year notice. By the terms of this agreement,
National Lead (as Titanium Pigment and its successor in interest will
be called) was assigned the markets of North America as its exclusive
territory. Titan Co. A/S was given the rest of the world with the
exception of South America which was to be common territory. The two
companies granted each other exclusive licenses under their patents
for their respective territories, excluding even the licensor from
the licensee’s territory. Each agreed not to ship into the other’s
territory and to prevent its licensees from shipping their finished
products into the other’s territory if it would interfere with the
other party’s sales. Any sublicensee was required to be governed by
the same restrictions as the parties imposed upon themselves. The
parties agreed to exchange know-how and also to permit visits of
representatives to their respective plants. Each party undertook
to secure from its employees assignment of any and all inventions
developed by them. In acquiring rights to inventions from third
parties, each agreed to secure rights for all countries within the
territory of the other party.
Following the execution of the 1920 agreement, the parties operated
under it until 1927.
Jebsen, having Europe as part of his territory, set up a selling
company in France. This was originally intended to become a
manufacturing company also, but this idea was never carried out.
National Lead acquired a majority interest in this company in 1927. At
the same time it acquired 87% interest in Titan Co. A/S, the Norwegian
company, Jebsen retaining the remaining 13%.
Also in 1927 National Lead and Jebsen formed a new company in Germany
in conjunction with I. G. Farben. This company, Titangesellschaft,
G.m.b.H., was organized as part of a series of transactions including
the execution of nine separate contracts. Titangesellschaft was given
as its exclusive territory for manufacture and sale of titanium
compounds the following countries: Germany, Russia, Austria, Hungary,
Czechoslovakia, Switzerland, Rumania, Serbia, Jugoslavia, Bulgaria,
Greece, Turkey, Japan, China and Spain. In 1933 Titangesellschaft
eliminated potential competition on the part of the Sachtleben Company
in Germany by the simple expedient of paying it a large sum of money
for its agreement to stay out of the titanium business.
In 1929, National Lead and Jebsen organized in Delaware a company
called Titan Co., Inc., for the purpose of holding their foreign
interests. Titan Co., Inc., succeeded to the position of Titan Co. A/S
(the Norwegian firm) under the basic agreement of 1920. Thus we have
National Lead as successor to Titanium Pigment as one party to the
basic agreement and Titan Co., Inc., owned 87% by National Lead, as
the other party. However, the 1920 agreement continues in existence
inasmuch as its territorial and license exchange restrictions form the
basis and pattern for all the subsequent agreements. Thus, Titan Co.,
Inc., became entitled to all territory outside North America except as
yielded up by the German agreements and others subsequent to them.
Blumenfeld transferred all his patent rights to a French company
known as Societe de Products Chemiques des Terres Rares. This concern
then licensed or sold them to different companies operating in various
European countries, the British Empire and United States.
In the United States, the patents were first owned by the Commercial
Pigments Corporation which sold them in 1931 to the Krebs Pigment
and Color Corporation. At that time, duPont owned 70% of the stock
of Krebs. It subsequently acquired 100% and now operates it as the
Krebs Division of duPont. National Lead entered upon negotiations with
duPont looking toward an agreement which would allow the two companies
to maintain a monopoly of the titanium business in this country and
eliminate competition between them. I. G. Farben insisted that in any
such agreement duPont must obligate itself not to compete or allow its
sublicensees to compete in I. G. Farben’s territory, i.e., the world
outside the Western Hemisphere. When a proposed form of agreement was
submitted to I. G. Farben for approval, it objected because the license
given by duPont for foreign territory was a “non-exclusive license.”
A National Lead official reassured I. G. Farben on this score in the
following language, quoted from a letter written in 1933:
“In regard to the phrase ‘non-exclusive license’ to which you call our
attention ... we have to refer to the United States Anti-Trust Laws
which absolutely forbid the granting of exclusive licenses between two
manufacturers in the United States as such a practice would tend to
create a monopoly. Therefore, the use of this phrase ‘non-exclusive
license’ is simply to comply with the United States Laws and in
practice the licenses under each other’s patents will undoubtedly prove
to be, to all intents and purposes, exclusive.”
I. G. Farben’s objections having been met and other difficulties
overcome, Titanium Pigments Co., Inc., and Krebs Pigment and Color
Corporation, subsidiaries of National Lead and duPont, respectively,
entered into an agreement dated January 1, 1933. It provided for a
mutual grant of irrevocable and “non-exclusive rights” and a license
within the United States to use all processes, methods and apparatus
of manufacture including present and future processes and patents. It
also provided that each party might sell the products resulting from
the exercise of the processes in the United States, Central and South
America. The territorial division of the basic agreement of 1920 was
thus preserved.
The agreement also provided for the exchange of the most detailed
information with respect to technical developments and know-how “to the
end that all the knowledge and experience of each party in the licensed
field shall be at the full disposal of the other.” This provision
caused some little difficulty between the parties. About 1937 I. G.
Farben developed a new titanium pigment (rutile) of exceptionally
fine quality which gave a great competitive advantage. It passed the
information concerning it to National Lead. The latter failed to inform
duPont of this development and when duPont later discovered that such
had been the case, it charged National Lead with violation of its
agreement. The net result was an amendment in 1941 of their agreement
with the elimination of the exchange of information provision.
Actually, duPont itself developed a similar rutile pigment and started
production of it while National Lead was still guarding the secret it
had received from I. G. Farben without producing the pigment.
The 1933 agreement further provided that each party was to pay a
royalty to the other on the basis of titanium dioxide produced and
packed by it. DuPont was to pay National Lead a royalty of 2½% based
on the average published carload price and National was to pay Krebs
(duPont) 1% on a similar basis. It was provided, however, that in no
event was royalty to either party to exceed $10,000 in any given year
and all royalties were to cease as of December 31, 1936. The parties
undertook to use their best efforts to acquire the rights for each
other from third parties and duPont further agreed to offer licenses to
the foreign associates of National Lead for the various countries of
the world. This virtually was a commitment by duPont to give National
Lead’s foreign subsidiaries a preference in granting licenses.
Following the execution of the duPont-National Lead Agreement in 1933,
duPont entered into a series of four contracts with Titan Company, Inc.
By these agreements, duPont agreed to turn over all its foreign patents
to the various foreign associates of Titan Company, Inc. The result
was a virtual consolidation of all the important titanium interests
throughout the world. All commercially useful patents were under the
control of the parties involved. Future control was assured by the
various provisions of the agreements requiring the continuing exchange
of licenses and patents to the practical exclusion of all would-be
competitors.
At the time of the formation of Titangesellschaft, it was the intention
of the National Lead-I. G. groups to extend their facilities into any
country if and when it seemed necessary. From time to time beginning in
1933 the National-Titan-I. G. group because of threatened competition
in one country after another was forced to take action to control the
various competitive forces. This happened in Great Britain, Canada and
Japan.
As early as 1930 the British Chemical Trust, Imperial Chemical
Industries, Ltd., evidenced a desire to engage in the titanium business
and in fact carried on considerable research work in that connection.
This came to the attention of the National Lead-Titan group and
prompted them to take action to control the development in the British
Empire. At that time, the Blumenfeld British patents were owned by
National Titanium Pigments Co., Ltd. It was feared by the National
Lead-Titan group that National Titanium Pigments, I. C. I. and Imperial
Smelting Corporation would undertake a joint enterprise and thus
offer formidable competition in that territory. After considerable
negotiation, a jointly owned corporation, British Titan Products Ltd.,
was formed. The stock was owned 49% by Titan Co., Inc., and 51% by I.
C. I., Imperial Smelting and Goodlass Wall Lead Industries, Ltd., in
equal shares. In conjunction with the formation of the new corporation,
the participating companies executed a series of agreements, the
purpose and result of which was to divide territory and avoid
competition among the various companies. The principal contract between
Titan Co., Inc., and British Titan Products was to extend to 1963 and
to continue in force thereafter until cancelled by either party upon
twelve months’ notice. It is still in effect. The Blumenfeld patents
had been acquired by the British Laporte Co. and negotiations between
Laporte and British Titan Products were carried on in 1940 and 1941.
In August 1941 an agreement in principle was arrived at. This provided
that Laporte was to receive 20% of the British market for the duration
of the war. British Titan Products tried to make it for a longer period
and stated its willingness to concede a larger proportion of the
market, but Laporte refused. Jebsen, now as an officer of a National
Lead subsidiary, gave his approval to this agreement and stated that he
was quite satisfied that it was only for the duration because he felt
that British Titan Products would be much better off after the war as
a result of the developments which they would get from National Lead.
He felt that they could use these developments to advantage in dealing
with Laporte in postwar negotiations.
The most important chemical company in Canada is Canadian Industries,
Ltd. (C. I. L.), most of the stock of which is owned by duPont and I.
C. I. Under the basic agreement of 1920 Canada was within the territory
assigned to National Lead and it supplied most of the Canadian market
until the early thirties when British Titan Products was allowed to
ship into Canada on a preferential basis. The British Laporte Company
was also shipping into the Canadian market. Although it held the
Canadian Blumenfeld patents, it did not undertake to manufacture in
that country. DuPont also was exporting to Canadian buyers and for a
number of years the various companies participated in price stabilizing
agreements.
In 1937 National Lead and C. I. L. organized Canadian Titanium
Pigments, Ltd. (51% C. I. L.--49% National Lead) for the manufacture
and sale of titanium in the Canadian market. At the same time, they
purchased the Blumenfeld Canadian patents from Laporte. A series of
contracts executed by National Lead, C. I. L. and Canadian Titanium
Pigments contain the usual provisions for division of territory,
licensing of patents, control of shipment of manufactured products,
exchange of know-how, etc. The principal contract extends until 1967.
National Lead continues to sell Canadian Titanium Pigments all its
requirements for the Canadian market. However, it is obligated to cease
all exports to Canada as soon as Canadian Titanium Pigments builds a
factory which is scheduled for erection immediately after the war.
The only remaining country of any commercial consequence was Japan.
By virtue of the European cartel agreements, the Japanese market had
been assigned to the Titangesellschaft and to the Blumenfeld French
company in the ratio of 70–30. The Titan Co., Inc., owning 50% of
Titangesellschaft, profited by this arrangement. From the time of the
execution of these agreements until 1937, the Japanese market was
supplied with products manufactured in Germany. From time to time,
however, there were indications of independent competition which
finally became so threatening to their control that the National
Lead-I. G. Farben interests thought it necessary to undertake
development of a domestic manufacturing plant in Japan.
After considerable negotiation and the overcoming of many difficulties,
the various interested companies executed a series of seven contracts
providing for the formation of a new company known as Titan Kogyo
Kabushiki Kaisha. The participating companies were National Lead
and I. G. Farben operating through their jointly owned subsidiary,
Titangesellschaft, Blumenfeld’s French company, and a Japanese chemical
company, the Kokusan Kogyo Kabushiki Kaisha. Neither National Lead nor
Blumenfeld had any direct contact with the operations of the Japanese
company inasmuch as all matters were handled through I. G. Farben by
its Japanese representative, Doitsu Senryo Gomei Kaisha. By virtue
of the executed contracts, Kokusan was given 50% of the stock of
Titan Kogyo. Titan Co., Inc. (representing National Lead’s interests)
received 17½%; I. G. Farben, 17½% and Blumenfeld’s French company, 15%.
Because of restrictions of the German government, I. G. Farben was
unable to supply capital necessary to subscribe for its share of the
stock. Consequently, Titan Co., Inc., subscribed for I. G. Farben’s
share and gave the latter an option to purchase these shares at any
subsequent time.
Because of German participation in the Japanese Titanium Company, the
British Government refused to permit titanium from Travancore, India,
to be exported to Japan in the fall and winter of 1940–41. Titanium was
badly needed in Japan and the Japanese government had not permitted
any titanium pigments to be exported for a long time. Knowing this
and in spite of the fact that the situation in this country was very
serious because of disruption of shipping and inadequacy of domestic
supplies, nevertheless Titanium Pigment (National Lead) shipped 700
tons to Titan Kogyo Kaisha, Ltd. on March 9, 1941, thus aiding the
Japanese to evade the embargo which the British had with good cause
placed on sale to Japan. In a letter dated April 3, 1941, the manager
of Titanium Pigments wrote to the Japanese company:
“Even at the time we made shipment to you of 700 tons on March 9th,
the situation was so serious that we should have much preferred not to
have released even this quantity, but in view of the fact that we had
promised it to you early last fall, we felt that we should not withdraw
our offer. Incidentally, at the time we made this shipment to you in
March, the replacement value of that ore was more than double the price
at which we invoiced it to you.”
The extent to which one member of a cartel will go in protecting the
interests of a foreign partner and incidentally in attempting to
safeguard its own monopoly position is indicated by the following
letter and resolution. The letter dated December 11, 1939, is from the
manager of National Lead’s Patent Department to the General Manager of
the Titanium Division.
“Confirming our recent conversations, regarding exchange of title to
patents, I beg to review the situation for you.
“On September 7th I wrote Dr. Jebsen, pointing out that in view of the
war certain questions arose affecting the United States patents which
stand in the name of Titangesellschaft and the I. G. Farbenindustrie
under which we enjoy an exclusive license. We suggested to Dr. Jebsen
that it might be desirable to assign to National Lead Company, in
trust, the patents of the I. G. Farbenindustrie and Titangesellschaft
against the possibility of the United States entering the war and
taking over these patents. _The suggestion was primarily designed
to protect the patent property of the I. G. Farbenindustrie and
Titangesellschaft and at the same time would have protected our
exclusive license by insuring that no one else could have petitioned
the government to secure licenses under them._ On December 7th I
received the following cable from Dr. Jebsen:
“‘YOUR LETTER SEPTEMBER 7 STOP SUBJECT LEADCOS AND TITANINCS APPROVAL
_HAVE AGREED ASSIGNMENT_ TG PATENTS AND APPLICATIONS COUNTRIES
OUTSIDE TG TERRITORY TO TITANINC AND ASSIGNMENT LEADCOS AND TITANINCS
PATENTS AND APPLICATIONS COUNTRIES WITHIN TG TERRITORY TO TG STOP
ASSIGNMENT PATENTS BRITISH EMPIRE FRANCE MUST BE POSTPONED DUE WAR
SITUATION STOP PATENTS AND APPLICATIONS OF IG CANNOT BE INCLUDED
PRESENTLY BUT QUESTION WILL BE STUDIED STOP PLEASE CABLE APPROVAL
STOP GERMAN PATENTS 571387 AND 588230 AND 604311 ARE IN LEADCOS
CZECHOSLOVAKIAN PATENT 39354 IN TITANIUM PIGMENT CO INCORPORATEDS
NAME ALL OTHER PATENTS TG TERRITORY IN TITANINCS NAME STOP CABLE
TITANINC BOARDS AUTHORISATION I ASSIGN TITANINCS PATENTS AND
APPLICATIONS TO TG AS ABOVE OUTLINED STOP SUGGEST FORMAL RESOLUTION
BE MADE GENERAL REGARDING ASSIGNMENT AND MAILED STOP PLEASE
ACKNOWLEDGE CABLE UPON RECEIPT--JEBSEN’
“The suggestion here is that Titangesellschaft will assign their United
States patents and applications to National Lead Co. and National Lead
Co. and Titan Co., Inc., will assign their applications and patents
in Germany, and other countries within Titangesellschaft’s territory
to Titangesellschaft.... Several years ago National Lead Company
formally renounced maintenance of any European patents owned by it,
putting upon Titan Co., Inc., the obligation to pay all maintenance
charges and hence, under the Agreement of 1920, Titan Co., Inc., could
have requested formal assignment of these patents. They have not done
so in order to save the expense of preparing the assignments and
recording them in the various countries. The question is, therefore,
whether Titan Co., Inc., should assign its patents and applications to
Titangesellschaft.
“In discussing this matter with you on December 8th, _it appeared to
us that to assign these patents in Germany to Titangesellschaft might
involve some risks for the future. For instance, if the Germans owned
all the patents now held in Germany by Titan Co., Inc., and if, as a
result of the war they were forced by their government_, or through
other circumstances, _to abrogate the main agreement, they would be
free to export their products and, in general, take themselves outside
of the titanium family cooperation_. I cabled this thought to Dr.
Jebsen, soliciting his views. A reply has just been received which
reads as follows:
“‘PROPOSAL MY CABLE DECEMBER 7 IS NOT TGS BUT MINE STOP CONSIDER THIS
BEST PRESENT CIRCUMSTANCES TO SECURE LEGAL POSITION ALL AROUND STOP
EXACTLY LEGAL POSTWAR POSITION PATENTS OTHERWISE VERY UNCERTAIN STOP
_PREVENTION IMPORT PARTLY SECURED IN FUTURE BY PATENTS IN RESPECTIVE
COUNTRIES BUT WILL BE CHIEFLY SECURED BY ALL COMPANIES SELFISH
INTEREST IN COOPERATION BECAUSE OF ADVANTAGES ALREADY REALIZED BY
EXPERIENCE_.’
“You will see that Dr. Jebsen believes that in view of the war the best
possible legal position for each of the members of the family is to
hold title to all patents in its territory. He believes that prevention
of import and export competition will chiefly be secured in the future
through the individual company’s recognition of the advantages to be
derived from maintaining the cooperation, having through experience
appreciated the value of this cooperation.
“It should be noted in this connection that even if Titan Co., Inc.,
retained title to the patents in Germany, and should the government
force abrogation of the main agreements, particularly with a view
to fostering German exports, they will find means to negate Titan
Co., Inc.’s patent rights also. _Should the situation develop where
Titangesellschaft is forced, perhaps against its will, to engage in
export competition with other members of the titanium family, then,
as pointed out by Dr. Jebsen, that competition can be controlled by
patents owned by the other members of the family in their particular
territories._ Therefore, I believe we should approve Dr. Jebsen’s
proposal.”
That this plan was put into effect is shown by a resolution adopted by
the Board of Directors of Titan Co., Inc., on December 19, 1939:
“Resolved, in furtherance of that certain License Agreement between
Titan Co. A/S (predecessor in interest of this corporation) and
Titangesellschaft m. b. H., of Leverkusen, Germany, dated October
3/20, 1937, and pursuant to the recommendation of Dr. G. Jebsen,
Vice-President of this corporation, the officers of this corporation be
and they hereby are authorized and empowered to execute and deliver in
its name and behalf appropriate assignments to said Titangesellschaft
of all patents and patent applications of this corporation, within the
Licensed Field as defined in said Agreement, in countries now embraced
within the territory of said Titangesellschaft as defined in said
Agreement and subsequent amendments thereto, in consideration of the
execution and delivery by said Titangesellschaft to this corporation of
appropriate assignments of all patents and patent applications of said
Titangesellschaft, within said Licensed Field, in countries embraced
within the territory of this corporation as defined in said Agreement
and subsequent amendments thereto; and upon the express understanding
and condition that such reciprocal assignments shall in no way alter or
limit the general intent and operating effect of said Agreement of the
several other rights and obligations of the respective parties thereto.”
Among the patents so assigned to avoid seizure by the Alien Property
Custodian is one covering the new rutile pigment previously mentioned.
In the cable which has just been cited, and the action taken pursuant
to it, there is an example of postwar planning which has been all too
prevalent in these cartel groups. This is not the only instance in
which a German company’s United States patents have been taken over
by an American cartel partner to avoid seizure by the Alien Property
Custodian. The understanding that such assignments shall only operate
during the war and that after the war the game shall take up where it
left off is of great importance. Government postwar planning should not
fail to take into account and deal forcefully with the secret postwar
plans of private cartels.
In a system of free enterprise, the superior product which can be
produced and sold at the lowest price is able to take the place of
competing products inferior in quality or higher in price. Under a
cartel system inferior or more expensive products are allowed to hold a
share of the market which they would lose on a competitive basis.
This is well illustrated in the case of titanium pigment and an
inferior product called lithopone. The latter is a pigment in the
manufacture and marketing of which duPont has taken a leading part
for many years. Since 1933 National Lead and duPont have maintained
identical prices for titanium compounds. There have been changes in
market prices on the average of twice a year on all grades of pigments
and in every instance the effective date of price change of each party
has been the same. With respect to lithopone which is competitive with
the calcium sulphate composite pigment, there has been maintained a
constant differential. Unless the lithopone were priced below the
titanium compound, it could not sell. Therefore, irrespective of
costs of production the titanium compound has been priced 2 cents a
pound above the price of lithopone. An honest technologist who knows
that a better product can be made at a profit to undersell an inferior
competing product cannot be expected to be happy in a situation which
holds back the better and aids the poorer.
One of the worst features of cartel control lies in the overlapping of
fields which is found in the case of large companies such as duPont and
I. G. Farben. These companies are largely concerned not only with the
production of pigments but also many other chemical products.
It is difficult to believe that the public interest has been adequately
served by having the most valuable of white pigments subjected to
complete control in this country and throughout the world by a cartel.
What steps a free technology unfettered by cartel restrictions might
have taken one cannot say with certainty. One may be quite sure that
when the cartel shackles are broken, titanium will take its rightful
place as not only the most important and useful of all pigments but
also for a wide variety of other industrial uses.
10
_Optical Instruments_
How was it possible for Nazi Germany to emerge as a fully armed
aggressor nation when she had been so thoroughly disarmed as a result
of the Versailles Treaty? What can be done to prevent German technology
from being utilized in preparation for another war? I propose in this
chapter to discuss a particular cartel situation which sheds much light
on the first question and will, I believe, be of value in finding an
answer to the second.
There were, of course, many factors which contributed to the failure
of the Versailles Treaty to accomplish the permanent peace which was
contemplated at the time of its execution. It is my purpose to show
herein that there was a definite program to sabotage the effectiveness
of the Treaty and that that program was conceived in Germany almost
as soon as the peace was made and many years before Hitler came
into power. Furthermore, I shall prove, on the basis of documentary
evidence, that evasion of the disarmament provisions of the Versailles
Treaty was facilitated by a cartel agreement between a German firm and
an American corporation. The agreement was between Carl Zeiss of Jena,
Germany, and the Bausch and Lomb Optical Company of Rochester, New York.
In March, 1940, Bausch and Lomb and Carl Zeiss were indicted for
violation of the antitrust laws. Pleas of _nolo contendere_ were
made, fines paid and thus trial of the indictment was avoided. A
civil complaint and consent decree were filed in July 1940. The
investigations in connection with this case revealed the following:
(1) Action was taken in 1921 to nullify the provisions of the
Versailles Treaty which prohibited Germany from large scale
manufacturing of military equipment.
(2) The parties caused Zeiss patents in this country to be taken out
in the name of Bausch and Lomb, thus giving an appearance of American
ownership and consequent protection against seizure by an Alien
Property Custodian.
(3) Secret United States military information was given by Bausch and
Lomb to Germans not only before but after Hitler came into power.
(4) Unknown to the Navy a secret commission to Bausch and Lomb was
included in prices paid by the Navy for equipment furnished by Zeiss.
(5) Public declarations were made as to a policy of not selling
military equipment to England and France for fear it might be used
against this country, when the reason such policy existed was because
of the provisions of a secret agreement with a German concern.
(6) Threats of patent infringement were used to frighten competing
firms bidding upon military equipment for the United States Army.
(7) The cost to United States users of binoculars was greatly increased
by reason of the efforts of Bausch and Lomb to protect itself from
competition in that field.
No one factor is of greater importance in the waging of modern
mechanized warfare than the precision instruments which indicate
the exact location of a target and permit the accurate aiming of the
gun or other device which will throw the projectile. The instruments
which come in this category include periscopes, range finders, height
finders, boresights, bombsights, telescopes, torpedo directors,
gunsights, searchlight lenses and reflectors, as well as others. The
glass which is used in making such instruments is of extremely high
quality, it being absolutely essential that it be free from striae or
streaks, bubbles, cloudiness and other defects which would impair its
transparency or refractivity. At the outbreak of the first World War
practically all such glass was made in Germany at the Schott glass
works at Jena. Moreover, practically all first quality military optical
instruments were also made in Germany, at Jena, in the factory of the
Carl Zeiss Stiftung. The latter is a foundation created by bequests
from Carl Zeiss and Dr. Ernest Abbe for the purpose of perpetuating
the instrument business which their research had founded. By the time
of the first World War it had grown into a tremendous establishment
employing something like 10,000 people and supplying most of the
Kaiser’s war machine with optical-gunfire control instruments. Its
continuance as a large scale producer of war instruments was entirely
inconsistent with the aims and provisions of the Versailles Treaty.
Prior to the first World War Bausch and Lomb had been manufacturing
military optical goods from glass imported from Germany. This had
resulted from an agreement made in 1907. Carl Zeiss had threatened to
establish a factory in the United States and sent a representative,
Professor Tschopski, to this country in that connection. Apparently
frightened by this threat, Bausch and Lomb entered into a series of
transactions intended to eliminate any such competition. This was
the so-called Optical Triple Alliance. The Fauth Instrument Company
of which George Saegmuller was president was absorbed by Bausch
and Lomb, and Saegmuller became vice-president of the latter firm.
Carl Zeiss acquired one-fifth of Bausch and Lomb’s capital stock and
representation on its board of directors. Zeiss abandoned its plan to
establish a factory in the United States, and Bausch and Lomb agreed
to buy its glass for military optical instruments exclusively from
Zeiss. In 1915 Zeiss refused to continue to supply Bausch and Lomb with
glass, under their arrangements of 1907, because the Rochester firm
had been supplying military instruments to countries which were at
war with Germany. The Zeiss interest in Bausch and Lomb was purchased
by members of the Bausch and Lomb families. Upon our entrance into
the war in 1917 it was found that one of the most badly needed war
materials was military optical goods. Neither the glass itself nor the
instruments had been produced in this country in adequate quantities
prior to the war. The Geophysical Laboratory, the Bureau of Standards,
Bausch and Lomb, the Spencer Lens Co., and the Pittsburgh Plate Glass
Co., worked strenuously on a program to produce adequate quantities
of proper quality optical glass. Between April 1917 and November 1918
over 600,000 pounds of usable optical glass were produced, 65 per cent
of it by Bausch and Lomb. Under the stress of war, the manufacture
of military optical-gunfire control instruments was increased to the
extent necessary to supply the fighting arms of the service.
Confronted with the restrictions imposed by the Versailles Treaty the
heads of Carl Zeiss were more than glad to work out, in 1921, a secret
agreement with Bausch and Lomb. To summarize this agreement, Zeiss
placed its know-how at the disposal of Bausch and Lomb. The latter
agreed to pay Zeiss a royalty starting at 7% and gradually diminishing
for 25 years on all its military optical business except field glasses.
As indicated quite plainly by the third paragraph of the agreement, the
two companies divided up the world insofar as the sale of military
optical goods was concerned:
“B. & L. obligate themselves not to sell, directly or indirectly,
Military instruments to countries outside of the United States of
America, and vice versa Carl Zeiss obligate themselves not to sell such
instruments, directly or indirectly to the United States unless the
parties have come to an agreement regarding the conditions of sale and
the respective territories of distribution.”
In the fourth paragraph, Zeiss was given the power to pass upon who
should become the heads of the Bausch and Lomb “Military Department.”
“In furtherance of the aims of this agreement B. & L. in Rochester will
create a new Department solely responsible to the Board of Directors,
which is charged with the independent development of all scientific
and technical tasks within the Military scope and the maintenance of
connections with Jena. The parties will come to an agreement as regards
the heads to be placed in charge of this department.”
In non-military fields the parties, while competing, were to give due
regard to each other’s interests. In the military field they agreed to
full exchange of know-how and to rights under inventions acquired by
them. The eighth paragraph anticipated the possibility of a conflict
between the obligations to each other under the agreement and those
owing to the nation: “The mutual obligation regarding the exchange of
Military designs shall be void whenever the highest home Government
of one party expressly demands that they be kept in confidence in the
interest of the nation.”
As will be shown, Zeiss subsequently demonstrated a very keen awareness
of the privilege thus accorded it to obey Hitler’s edicts and to keep
its know-how in Germany. Bausch and Lomb on the other hand on more
than one occasion weighed the demand for secrecy by our Army and Navy
against the obligation to keep Zeiss informed and decided in favor
of the latter. Both parties were fully aware of the fact that such
an agreement had to be kept secret. It was intended to give Zeiss a
new lease on life and actually made it possible for that concern to
continue its existence in spite of the disarming of Germany and its war
partners. The contract bluntly stated: “The contracting parties agree
to keep the foregoing agreement in strict confidence as regards a third
party and to guard silence concerning this agreement also with their
own employees as far as this may be practical under the circumstances.”
In contending that the contract was not secret, Bausch and Lomb states:
“The original contract was shown to the U. S. Naval Observer in Berlin
within a month of its execution, and through him the Bureau of Naval
Intelligence and the Bureau of Ordnance were informed.” As a matter of
fact it seems clear that what was shown to our Naval representative in
Berlin was not the “original contract” but only a portion of it with a
certain other part withheld. The explanation for withholding part was
that it related to matters which did not concern the Navy. The Navy
representative was told that the Bausch and Lomb connection with Zeiss
must be kept strictly confidential to protect Zeiss. The latter was not
permitted under the terms of the Versailles Peace Treaty to continue
the manufacture of military optical goods. In this connection a letter
from George N. Saegmuller to Bausch and Lomb, sent from Jena on May 6,
1921, is of interest (Saegmuller was the vice-president of the firm who
had gone to Germany to execute the agreement with Zeiss):
“I hope you rec’d our cable via Frankfurt in regard to the signing
of the agreement Apr 29th and also my letter of even date in which I
entered into the subject more fully. In that letter I stated that
Capt. Bechler, Naval representative of the Am. Commission, telephoned
for me to come to Berlin. This I intended to do but upon reflection
I thought it best for him to come here as the various instruments in
which they are interested are here. He assented to this and was to
come yesterday but was taken sick so in place sent his aid, Lieut.
Culbert, U. S. N., who was also accompanied by the Military represt.
of the Am. Commission. What the Navy wants at once are: [enumerating
range-finders, periscopes, sights and other similar instruments].
“For these instruments they are in a hurry and most probably we will
have to import the optics from here as it would be impossible for us
to produce them in time even with Zeiss opticians. I thought it best
to go with Fred to Berlin to see Comdr. Bechler & impress upon him
the importance of finding out how many of the various instruments are
wanted, so as to receive the optics in time.
“_The Navy Department wants to obtain a copy of the agreement as a kind
of a guarantee that if they order from us they will really receive
Zeiss instruments or rather Zeiss quality. I told Lieut. Culbert that
in my opinion there would be no difficulty in giving them a copy of
the agreement which relates to military instruments. An entire copy
we could not give as it relates to matters which does not concern the
Navy; I wrote out what I thought and gave it to Dr. Fischer who will
consult with the others; I don’t think there will be any trouble on
that score. I told both officers that our connection with Zeiss must
be kept strictly confidential, chiefly on acc’t of Zeiss; this they
understand._”
The reason it was necessary to keep the agreement secret is quite
obvious but it need not be left to inference. On Dec. 27, 1930,
Bausch and Lomb wrote to Interflash Signal Corporation of New York
in reply to an inquiry concerning a range finder for the Grecian Navy
Department. The letter contains this language:
“Our activities in the military line of instruments in general are
concentrated in supplying the requirements of our own Government. While
we have occasionally supplied foreign Governments with a few of these
instruments, this has only been by chance as far as our facilities
have permitted. We appreciate very much the offer of Admiral Dedes to
become our special representative, but under the circumstances above
stated we are unfortunately not in a position to accept this offer. We
would suggest that he communicate with our friends, the Nederlandsche
Instrumenten Compagnie, Den Haag, Holland, who manufacture the military
line of optical instruments formerly made by Messrs. Carl Zeiss of
Jena, Germany, _the latter not being permitted under the terms of the
Peace Treaty to continue the manufacture of these products_....”
On October 20, 1926, Bausch and Lomb wrote a letter to one of its
representatives in the New York City office. J. A. Scheick of that
office had quoted a price on two range finders to a New York firm which
intended to ship them to Laredo, Texas for the ultimate use of the War
Department of Mexico. The letter states:
“We have, on previous occasions, explained to Mr. Scheick that we
must know the customer for whom this Military equipment is ultimately
intended and we have also withdrawn our previous quotations stating
that by reason of the limited supply of instruments on hand, it would
be best to refer all such inquiries first to us, to find out whether
or not we can take care of such an order. _The real reason, as you are
aware, is our agreement with Zeiss, which, of course, we cannot explain
to Mr. Scheick, as we are not only required to keep the nature of the
agreement confidential, but the very existence of such an agreement._
As you are probably aware, this prevents us from making sales in the
Military line, directly or indirectly, outside of the United States,
unless by previous agreement with Zeiss on the price question; the
price agreed to by Zeiss will be higher than their direct quotation.
Obviously, we cannot accept the inclosed order intended for the War
Department of Mexico.”
The 1921 agreement was to run for 20 years with Bausch and Lomb
obligated to continue to pay royalties for 25 years on all its military
business whether based on Zeiss patents or not.
To carry out its agreement with Bausch and Lomb, Zeiss used the device
of a corporation organized in Holland called N. V. Nederlandsche
Instrumenten Compagnie--or Nedinsco, for short. It is a wholly owned
subsidiary of Zeiss with its principal office at The Hague and its
plant at Venlo, a town on the German border. Thus, in the years which
passed before Hitler came into power in the face of the disarmament
provisions of the Versailles Treaty, Carl Zeiss was enabled to continue
in the production of military optical equipment by merely moving its
plant across the border. It was assured of and received royalties from
all sales of such equipment in the United States by Bausch and Lomb,
and assured of and received for Nedinsco freedom from competition in
all the rest of the world so far as Bausch and Lomb was concerned. The
survival of Carl Zeiss and its ability to provide at Jena one of the
most important cogs in the Hitler war machine is clearly understandable
and is in large part the result of the secret agreement of 1921.
The following paragraphs from a letter from Bausch and Lomb to Zeiss
dated February 10, 1939, substantiates this statement:
“We are uncertain whether your reference to the more distant past is
intended to cover the period between 1907 and 1915, during which time
we freely admit that you were of assistance to us in the establishment
of our military department, or to the period following the resumption
of our cooperative endeavor after the World War.
“On the assumption that you are referring to the earlier period, we
believe that you were completely compensated by the dividends which you
received on the stock held in our company and by the appreciation in
the value of this stock which you realized at the time of its sale.
“If, on the other hand, you are referring to the later period, _we
believe that inasmuch as the arrangement made accomplished the primary
objective of keeping your scientific staff intact at a time when you
could not manufacture war materials, you were adequately compensated,
particularly in view of the fact that, as you then knew, our Government
was at that time very little interested in the development of, and made
but very small appropriations for, fire control apparatus. In other
words, we believe that the development work which you did during this
period was primarily for your own benefit and not of great value to us
here._”
Here we see quite clearly how an American company aided a German
company avoid both the spirit and the letter of the Versailles Treaty.
Although Germany was prohibited from manufacturing and exporting
military equipment, Bausch and Lomb “accomplished the primary objective
of keeping your scientific staff intact at a time when you [Zeiss]
could not manufacture war materials.” In response to the letter just
quoted, Zeiss replied on July 22, 1939:
“_In reference to 2._ In the reference to our letter of January 3,
1939, page 2, to a more remote time, that is, the time further back
than 5 years, we have had reference to the first decade of the
operation of the agreement as it now exists. Your assumption that
during that time the development work done for you was above all to our
advantage and had served the purpose of maintaining our design force
is absolutely misjudged. _We had at no time the intention to allow our
experience and knowledge of the military business to rest but have,
as you know, established the Nedinsco branch for the express purpose
so as to keep our place in the world market._ If the Nedinsco was a
successful competitor where high grade equipment of our sphere of
activities was in demand, this success is due to the work and efforts
of our scientific staff and technicians who building on experiences
before and during the war have explored all kinds of military spheres
for our designs. The fruits of this successful, constructive labor
has of course been reaped in general by Nedinsco. Surely we could not
have continued the development work of even a small part of these
activities from the small royalties received from you. From this
follows definitely that you were the one who profited, without merit of
your own, from the advantages of our complex and expensive development
work, and that you unfortunately, notwithstanding repeated urging on
our part, did not sufficiently make use of the given possibilities, a
fact with which we found fault repeatedly verbally and in writing.”
The sentence which I have italicized is a positive statement by Zeiss
of its utter disregard of the conditions imposed by the Peace Treaty.
On June 27, 1925 a supplemental agreement was made which slightly
changed the royalty provisions of the 1921 agreement. The division of
world territory remained as before, except that the parties undertook
to protect each other in bidding on government contracts by overbidding.
Subsequently on October 28, 1925, a further supplemental agreement
was signed by Zeiss at Jena and on December 11 by Bausch and Lomb at
Rochester. After repeating the provisions of the supplemental agreement
of June 27, 1925, it added:
“In case the inquiries referred to in paragraph 2 and 3 should not come
to Bausch & Lomb from a Government, but exceptionally from a commercial
house of a country outside of the United States, the firm of Bausch
& Lomb is to communicate immediately with the firm of Nedinsco, and,
depending on the situation at Nedinsco, either to make the protective
offer named to her by the latter firm, or to decline the inquiry under
pretense. The information in question will be given to the firm of
Bausch & Lomb by the firm of Nedinsco.”
The second supplemental agreement also contained the following
provision:
“If the firm of Bausch & Lomb is furnishing to American shipyards,
optical instruments as equipment for a ship of a country outside of
the United States, all instruments in which the ideas of construction
of the firm of Carl Zeiss have been used, shall, besides the trade
name of Bausch & Lomb, be engraved with the designation, “System
Nedinsco-Zeiss.” Instruments according to the construction of Bausch &
Lomb shall bear only their name. On instruments furnished by Nedinsco
the name of Nedinsco will appear next to the name of Bausch & Lomb.”
Thus, as early as 1925 there is evidence of the determination to place
the Zeiss name back in the consciousness of the world. One more step
was thereby taken to nullify the effect of the Versailles Treaty and to
reestablish Germany in her place in the sun.
In 1926 Bausch and Lomb caused the 1921 agreement and its supplements
to be modified because its counsel declared them to be wholly invalid
as violating the antitrust laws. In place of the division of territory
provision in the third paragraph, as quoted previously, the following
language was inserted: “The license hereby granted is exclusive, the
firm of Carl Zeiss agrees that it will grant no license to another
American manufacturer.”
This was a change in the language of the agreement to give an
appearance of legality. Actually, after 1926, as well as before, the
parties maintained a definite and illegal division of territory. The
following sentences from a memorandum of Edward Bausch, dated January
27, 1927, show that no change in the actual relationship took place
in the previous year: “It is my understanding, in accordance with
the opinion of Carl Lomb, that we are not to bid on any military
instruments for use anywhere outside of the U. S. The agreement is that
if such inquiries come to us we are to refer them to Zeiss.”
Paragraph 9 of the 1921 agreement, quoted above, providing for strict
secrecy as to the agreement was dropped out as being (in 1926) unwise
and unnecessary. In its place was inserted an innocuous provision that
neither party has any claims against the other arising from previous
agreements. This agreement of 1926, along with the early agreements
which it purported to supersede was declared in violation of the
antitrust laws by the decree entered by the court on July 9, 1940.
The 1921 agreement and also those which were subsequently executed
contemplated an exchange of information and experience between the
parties. This included the right of each party to send confidential
representatives to the workshops of the other. Bausch and Lomb was
more than anxious to have Zeiss employees visit its plant and its only
complaint in connection with the visit of one such employee was that he
had not been of great help to Bausch and Lomb while in this country.
When Hitler came into power the American company found the door to the
Zeiss designing rooms closed to it.
In a memorandum of April 19, 1938 Carl L. Bausch, Vice President of
Bausch and Lomb, quoted paragraph VII of the contract providing for
exchange of experience and access to the workshop and then stated: “In
1934, although they allowed me to go through their plant at Venlo, I
could see none of the work that was being done at Jena, although all
the design, part work and optical work was being done there at that
time.” In the same memorandum Mr. Bausch stated:
“My contention is that over the past five years we have paid out
$139,000 without receiving any benefit from it except for the fact
that our contract might have kept Zeiss out of this market. I doubt
very much whether our government would have purchased any Zeiss range
finders, even if Zeiss was allowed to solicit business.”
In a letter from Carl Zeiss to Bausch and Lomb dated January 3, 1939
referring to the period of the past five years, i.e., since Hitler came
into power, Zeiss said: “It certainly cannot be denied that we have
been restricted in many respects in the execution of the agreement out
of national interests particularly as far as visiting our plant is
concerned.”
In the matter of knowing what Zeiss was building for Hitler, of course,
there was no passing of information to Bausch and Lomb. On the other
hand, Zeiss was kept informed at least until well into the Hitler
regime as to what was being ordered by our military departments. This
was done not by sending the information directly to Zeiss but through
Bausch and Lomb’s German representative. August Lomb of Bausch and
Lomb G.m.b.H. Frankfurt-on-the-Main acted as the conduit for the
information. On July 9, 1929 Bausch and Lomb wrote to August Lomb as
follows:
“We are appending our report which will bring the Military transactions
up to date.
“We have nothing further to say at this time than what has already
been stated in our report as regards the confidential nature of this
information. Heretofore, the Government has merely been insistent
that none of the details as regards the design of these instruments
be made public, but lately it seems as if the quantities, prices,
etc., and the amount of equipment purchased, etc., are also considered
secret. _Obviously, our agreement with Messrs. Carl Zeiss cannot work
satisfactorily unless, at least the latter information, becomes common
knowledge to both parties, but some arrangement must be made whereby we
are assured this information will be kept in strictest confidence._”
The accompanying report is headed “Statement of Military Department
to Mr. August Lomb, For the Months of April, May and June 1929.” It
gave the number of antiaircraft range finders, 26½ ft. range finders,
periscopes, telescopes, and bombsights which it had delivered and
discussed the items for which other bidders had been successful. Near
the end of the report was this paragraph:
“It will be noted from the foregoing statements that not much
information can be further obtained regarding competitive prices.
While these bids are supposed to be public, it has lately become the
practice to withhold the information from the public. Every letter and
envelope from the Government is marked ‘Confidential’ and we are held
accountable that the information will not become public, and that it
will be treated in strictest confidence.”
On December 20, 1932, Bausch and Lomb sent August Lomb a letter marked
Military Department 8430 and enclosed a pamphlet dealing with submarine
periscopes which he was to give to Zeiss and make sure that it was
returned to him and by him to Bausch and Lomb. On the following day
Bausch and Lomb wrote Zeiss this letter:
“We confirm having written you the letter stated in the above
reference. The pamphlet referred to in it has been sent to Mr. August
Lomb, via registered mail.
“It occurs to us that we were not sufficiently specific regarding the
caution that must be exercised for our protection in keeping the loan
of this pamphlet a secret, and particularly as regards the inspector.
If any question should arise with regard to the pamphlet which you are
preparing, _please do not admit to any one that this has been prepared
analogous to our copy_.
“_By reason of the great importance which we attach to the secrecy
of this question, the copy has been sent via our Frankfurt office,
and please make sure that after it has served its purpose it is again
safely returned to our Mr. August Lomb._”
The year 1933--the year Hitler became Chancellor--brought a greatly
enlivened interest on the part of Zeiss in the military secrets of our
country. The following is a translation of a letter from Nedinsco to
Bausch and Lomb dated April 7, 1933:
“Your last monthly report has given cause to the consideration that
we surely would be better in a position to assist you _if you would
report to us what kinds of instruments are under trial and in use by
your military service_. There must be a great many questions regarding
instruments for _airplanes, tanks, and ships_ which demand special
optical instruments.
“We would ask that you intensively _find out at the proper places and
that you communicate to us the different problems_, so that we are
placed in a position to name you the necessary instruments which we
also make new to satisfy the actual demands.
“We believe that thereby the business could be enlivened and also work
could be created for you as well as us.”
A month later on May 11, 1933 Nedinsco again wrote to Bausch and Lomb
as follows:
“We find, much to our regret, that the agreement during the course of
the last few years has materialized exclusively in Rangefinders and
Periscopes for the Navy and that also in this respect it has lost more
and more in intensity, whereas all other instruments for Army and Navy
have completely ceased.
“_It may be assumed with great probability that the many other kinds of
military instruments would find interest in the United States and that
there would be a demand for these so that also for these there should
be certain business chances._
“Notwithstanding that we transmitted to you information regarding
many of our products, you have recently made a demand upon us for our
constructive help only to a very limited extent.
“Business possibilities for foreign countries have never been mentioned
which may result from American credits to foreign countries or from
building contracts of American shipyards, gun factories, etc., and for
which you might be considered as subcontractors. _Such business would
according to Paragraph 3 of the agreement need a special understanding
between us but is not excluded._ In view of the extremely serious
economic situation in the world it would seem most urgent in our mutual
interest that we endeavor to bring about a more intensive cooperation
between us in the frame of our agreement and we therefore ask that you
make known your position and make proposals as to how far and in what
manner these relations could be furthered and the possibilities of
business could be more rationally exploited.
“_We would also be thankful for a comprehensive economic report which
would enable us to judge conditions._”
It can hardly be mere coincidence that these repeated requests for
military information came so soon after Hitler’s accession to power.
On December 14, 1933 Bausch and Lomb wrote to August Lomb as follows:
“We are sending you herewith our report which unfortunately had to be
delayed by reason of the pressure of work which had to be taken care of
in this department, due to the sudden activity brought about by the N.
R. A.
“_By reason of special secrecy clauses of late attached to each bid
and contract, these reports, as harmless as they are considering that
they have a commercial purpose only, are contrary to these clauses. We
cannot very well eliminate them under the existing agreement with Carl
Zeiss; however the regulations are so stringent that particular care
must be exercised to keep these reports in strictest confidence and
they should be kept in a separate file under lock and key._
“We would ask that you be governed accordingly and that you bring these
facts to the attention of Messrs. Carl Zeiss.”
August Lomb answered this letter on December 29, 1933. The first three
paragraphs of his reply were as follows:
“Since writing you December 5th, your letter Nr. 8909 of December 14th
was received. It just arrived before the writer went to Jena and could
therefore be discussed there.
“_Monthly report._ That enclosed in your letter Nr. 8909 was therefore
transmitted personally, impressing again the _necessity of considering
this information strictly confidential and secret_. This is fully
understood by the management as well as their Mil. Department and
we _were again assured that these reports are locked up and only
accessible to a few people who are fully responsible so that you can
depend on your instructions being carried out_.
“The contents of this report were very pleasing so far as the
important orders are concerned which you were able to secure. It is to
be regretted that the thirty-four 11 ft. R.F. were lost, but evidently
other firms also have to expect part of the business.”
It would no doubt have been very reassuring to our War and Navy
Departments to know that these reports were “only accessible to a few
people” in Hitler’s Germany.
On October 16, 1934 Bausch and Lomb wrote to August Lomb as follows:
“We are very sorry to find that we neglected to send you our report for
a considerable length of time. _As you know, we are not free to give
you these reports._ This is about the best excuse that we can offer;
_the less reports we make the less the chance of any going astray_.
“_We shall try to keep you informed more regularly having your
assurance that these matters will be treated by you and Carl Zeiss in
strictest confidence._”
The report of October 16, 1934 entitled “Statement of Military
Department to Mr. August H. Lomb” lists the number and kinds of range
finders delivered each month and also the total number of various types
of instruments, orders for which Bausch and Lomb has booked since their
last report. There is also the remark that they lost an order for four
13½ ft. height finders awarded to Keuffel and Esser (another American
firm). This report contains the following remarkable statement in
connection with designs for submarine periscopes:
“Our design force now consists of thirteen men all occupied on present
contracts so that it cannot be assumed that we want to throw the burden
of the design work on Carl Zeiss. _As a matter of fact we could not do
this under the secrecy clauses of the ‘Recovery Act,’ but surely we
ought to be able to rely on Carl Zeiss for support when and where it
is most important._ We are hopeful that the promise made in letter of
October 5 to give us this design by next spring can be considerably
improved, in fact that every effort will be made to bring the solution
of this problem to a point which will enable us to enter into
competition in the next bid.”
On October 20, 1936 Bausch and Lomb wrote the following letter to Carl
Zeiss:
“With your letter in reference we received from you a new optical
layout in the form of your drawing A 33 08 65/Opt. L. No. 2 for the
altiperiscopes of 34 foot optical length.
“_We recently learned that our Government is now contemplating the use
of 40 foot submarine periscopes and that bids for these will soon be
submitted for consideration. These periscopes will be built according
to the identical specifications as those you have in your possession
with the exception that, as already stated, the optical length has been
increased from 34 feet to 40 feet and the reduced section has been
increased in length as shown on our drawing Mil. 458 sent herewith._
Moreover, the inner diameter of the main body tube now measures 6,500
inches diameter for a distance of 11 feet from the eye-piece and while
its remaining length has an inner diameter of 6.375 inches as shown on
our drawing Mil. 458.
“We would ask that you kindly prepare for us immediately a new
optical layout conforming to these changes and that you give us this
information at the earliest possible date. As stated this question will
soon need our consideration and unless we have the data available by
that time we shall have to forego bidding on this new proposition.”
August Lomb realized the situation in which Bausch and Lomb was placed
in sending written reports of secret military information to Germany.
In a letter of July 9, 1937 to Bausch and Lomb he made this very
helpful suggestion:
“Prior to the years 1935 and 1936 Zeiss have always received a list of
numbers, kinds and prices of the instruments furnished during one year
when the commission statement for the respective year was rendered.
_Since 1935 such a statement was not received, probably because you
did not want to furnish any such data in accordance with your letter
Nr. 9383 of October 16th, 1934. Zeiss, however, would be satisfied
with very brief and condensed information, for instance Range Finders
abbreviated to R.F. etc., if possible._
“Of course you will have to consider this with the Executive Office and
may let us know occasionally whether feasible or not.”
In a letter of March 24, 1939--the week after Hitler invaded
Czechoslovakia--Carl Zeiss made this demand upon Bausch and Lomb:
“For this purpose it is _absolutely necessary_, and that is why we
ask you for it, _that you supply us_, before we arrive at our final
decision, with a _precise statement of those patents of ours which
you use in your manufacturing processes, designating at the same time
those instruments in whose manufacture these patents are used, also
indicating the turnover you have had in these instruments during the
last two business years, and the volume of orders which you have at
present on hand for such instruments_.
“We take it for granted that your Administrative Division can make
up such a statement without trouble and loss of time so that we _may
expect it within a month at the latest_.”
Instead of the detailed reports which had formerly been sent, Bausch
and Lomb complied with this demand by giving a statement of the
aggregate amount of sales of instruments covered by Zeiss patents in
1937 and in 1938, designating the patents. They stated they had orders
for future delivery of instruments covered by Zeiss patents totaling
approximately $1,000,000 and giving the patent numbers.
From the foregoing quotations it seems rather clear that Bausch and
Lomb put their own interpretation--and a strange one--upon their
obligation to keep military information secret and confidential.
The supplemental agreement of June 27, 1925 contained the following
provision:
“In the case of inquiries, received by Bausch & Lomb from authorities
outside of the United States of America, by Carl Zeiss from the
authorities of the United States, one party informs the other of the
inquiry and is _obligated to make the protective offer named by the
other party. The increase of the protective offer over the normal price
for the corresponding quantity of instruments in question shall not be
higher than 20%._ Both parties are obligated to treat such inquiries as
promptly as possible. _If the party, that has made the protective offer
should, nevertheless, receive the order, it is obligated to cede in
full to the other firm the excess price representing the protection._
The firm of Bausch & Lomb besides, has to pay to the firm of Zeiss the
royalty on the normal price according to paragraph 2, in case Bausch &
Lomb is awarded the order.”
This arrangement served the purpose of making a governmental
authority--United States or some other--believe that bona fide bids
were being made in response to requests. Such collusive bidding is a
fraud upon the government and while a similar provision was included
in the supplemental agreement of October 28, 1925, it was omitted from
the agreement of 1926. And yet in 1932 there is evidence of willingness
on the part of Bausch and Lomb to be less than forthright in dealing
with the Navy Department. The following excerpt is from a letter from
Bausch and Lomb to Carl Zeiss dated February 24, 1932:
“From the copy of the above contract which we have sent you with our
other letter of today, Mil. Dept. 8077, you will take notice that the
contract provides that customs entry will be taken care of by the
Government. _In view of this, and in order not to divulge to the Navy
Department that we earn a commission of 10% on this transaction, it
will be necessary that the consular invoices and export declarations
which you will have to make out be higher in this particular case than
your net invoice prices to us. Your shipping papers, consular invoices,
and export declarations, etc., accordingly should state the following
prices_, f.o.b. Venlo:
_Item_ _Unit_ _Total_
1 --The unit price to be declared by
you will be $7,400 $14,800.00
1a--The unit price to be declared by
you will be 470 470.00
2 --The unit price to be declared by
you will be 6,780 20,340.00
(Note: The repeater motor is
here included)
2a--The unit price to be declared by
you will be 470 940.00
“The difference between the above prices and those stipulated in the
official contract are satisfactorily explained by shipping expenses,
etc.
“It goes without saying that you will bill us for these periscopes in
accordance with your letter of December 29, 1931 (N XIII/6661), less
10% commission.”
The provisions of the 1921 and 1925 agreements prevented Bausch and
Lomb from selling to any purchaser outside the United States unless
such sale was approved by Zeiss. That the omission of this provision
from the agreement of 1926 did not mean a change in policy is clearly
shown by the following memoranda exchanged by two Bausch and Lomb
officials:
“From: Mr. M. H. Eisenhart Date: Jan. 11, 1927.
“To: Mr. Edw. Bausch.
“I have read the following paragraph in August Lomb’s letter of
December 20, 1926:
“‘We note that you have decided to give up all military work
in connection with foreign countries, thus doing away with the
supplementary agreement of October 28th, 1925. Its second paragraph on
page 2 treats of instruments which you might be called to supply for
foreign vessels built or equipped on American ship yards, as was the
case for Argentine. We understand that, as this entire agreement is now
canceled, you will renounce to bidding for such instruments hereafter.’
“Is it your understanding from this that in the future we will not bid
on any military instruments for use anywhere outside of the United
States? As this is a change over our present procedure, I think we want
to be sure of the definite understanding.”
* * * * *
“From: Mr. E. Bausch Reply Date: Jan. 27, 1927.
“To: Mr. M. H. Eisenhart
“It is my understanding, in accordance with the opinion of Carl Lomb,
that we are not to bid on any military instruments for use anywhere
outside of the U. S. The agreement is that if such inquiries come to
us we are to refer them to Zeiss. If, on the other hand, any inquiries
come to them which belong to this territory, they are to be referred by
them to us. A condition may arise, as has been the case before, where
a foreign government might want to place an order with us, this to
be under supervision of Army and Navy officers and the inspection as
well. The procedure then would be--I should think--that we defer giving
any definite answer until we had submitted the matter, according to
agreement, to Zeiss, and await their disposition of it.”
The Edward Bausch who wrote the latter memorandum is the same gentleman
who was quoted in the _Literary Digest_ of December 12, 1936 in the
following item:
“Millions of dollars of foreign Government orders for military optical
instruments have been rejected by the Bausch & Lomb Co., of Rochester,
New York, because they might conceivably be used against the United
States or its interests in another War.
“Proudly last week, vigorous, eighty-two-year-old Dr. Edward Bausch,
founder and chairman, declared that to be his company’s settled policy,
developed ‘through a close understanding with the Departments of the
Army and the Navy of our Government.’...
“Chiefly, Bausch & Lomb’s rejected orders have been offered by England
and France, have been for range-finders, periscopes, gun-sights,
binoculars, artillery fire-control instruments. Business from those
two Governments would have exceeded $1,500,000. Various smaller
nations have also sought to make contracts and have been refused.
Self-sufficient Germany, however, has shown no needs.
“_War-Time Seller_--During the World War, encouraged by Washington,
Bausch & Lomb made large sales to the Allies, built up an extensive
business with Great Britain. Promptly with the reappearance of European
war-scares several years ago, however, the policy of no supplies to
potential combatants abroad was adopted. ‘They are not prepared for war
over there,’ a company officer gravely explained last week, ‘and if we
refuse to help them prepare, it puts it off just that much.’”
In the documents taken from Bausch and Lomb’s files there are dozens
of letters in which inquiries from foreign buyers of military optical
instruments were answered by Bausch and Lomb with an expression of
disinterest and a reference to Nedinsco. On March 30, 1938 Bausch and
Lomb wrote the British Military Attache in Washington as follows:
“In reply to your letter of March 24, 1938 we wish to inform you that
the instruments that we manufacture for the U. S. War Department are 4
meter Stereo Height Finders.
“Unfortunately we have to inform you that we are not in a position to
take British Government orders at the present time.”
On June 20, 1938 the International Standard Electric Corporation of
New York wrote Bausch and Lomb with regard to procuring manufacturing
equipment for its English associate, Standard Telephone and Cables,
Ltd., to manufacture certain lenses and optical systems from British
optical glass. After some conferences and consideration, Bausch and
Lomb wrote to International Standard Electric Corporation on July 1,
1938 as follows:
“One of the first steps I took in giving consideration to your
proposition which we discussed yesterday was to look into the
contractual arrangements to which we are already obligated which I
spoke to you about in my conversation.
“_Our attorneys tell us that we are absolutely tied up in a way that
will prevent our giving you the type of assistance you need to get
into the manufacture of optical fire control instruments._ My thought
was that events over the last few years had changed our foreign
relationship in a way that might allow us to work with you, but I am
definitely satisfied now that such is not the case. Because of this
situation, there is no need for us to delay you any further in your
plan.
“I enjoyed very much your visit here and perhaps at some future
occasion I may have the opportunity of meeting you again.”
In the October 1940 number of _Fortune Magazine_ which contained an
article about Bausch and Lomb there was a two-page spread devoted to
“The Critical Geography of Industries Essential to U. S. Rearmament.”
With reference to optical goods, this statement appeared: “After
aircraft engines, armor plate, and machine tools this little industry
(range finders, aircraft height finders) stands fourth among defense
bottlenecks.”
There are undoubtedly many factors which contributed to defense
bottlenecks. It seems quite certain that the Zeiss-Bausch and Lomb
restrictive arrangement has had a substantial part in bringing about
this condition. There is no way of ascertaining how many times
competitors were intimidated by threats from the combination of the two
companies which were the largest in the world. The following quotation
is taken from a letter from Bausch and Lomb to Carl Zeiss dated June
12, 1932 and referring to a new order for Height Finders for which the
Frankford Arsenal was contemplating asking bids:
“Bids for this new prospective order have not yet been received by us.
It is at present our intention after the bids have been received to
_wait until a few days before the opening of the bids_ and then call
the attention of the Keuffel & Esser Company to the fact that we are
controlling patent No. 1638190 which prohibits their furnishing the
Height Finder in question. _In this manner we hope to be able to make
them afraid of touching this business._ You will understand, therefore,
how anxious we are to receive your opinion that the arrangement
of four compensator wedges on one side of the Range [sic] Finder
infringes your patent.”
The foregoing quotation indicates one of the reasons for the
arrangement by which all Zeiss inventions were to be patented in the
United States by Bausch and Lomb. There can be little doubt that
American patentees of competing military optical instruments would have
much more to fear in infringement litigation initiated by the American
firm of Bausch and Lomb than would be the case if the real owner of the
patents, the German firm of Carl Zeiss, were the patentee. The other
reason for this arrangement was the fear that Zeiss-owned patents would
again be confiscated by the United States Government as had been done
in the first World War. For the two reasons and possibly others it was
clearly understood that all Zeiss inventions patented in the United
States should result in patents issuing to Bausch and Lomb. What was
just as clearly understood was that at the expiration of their contract
all these patents were to be reassigned to Zeiss. This was stated in
many documents one of which, a letter from Bausch and Lomb to Zeiss,
dated January 17, 1936, should suffice to substantiate the point.
“We have given consideration to the suggestions which you have made for
further clarification of the interpretations of the existing contract
which was the subject of our letter of October 14, 1935. We are,
therefore, restating the points covered in that letter, as follows:
[Par. 1 and 2 deals with termination of the contract]
“3. You are to assign to us all unexpired United States patents and all
pending applications for United States patents in the military field
now standing in your name or the name of any company controlled by you
through stock ownership or otherwise, or in the name of any individual
in the employ of your company or any company so controlled by you. You
are also to assign to us all applications for patents in the military
field which are filed prior to October 31, 1940, on inventions made
by any individual or individuals employed by you or any company so
controlled by you. You are to file and prosecute such applications and
pay all expenses and fees therefor. With respect to such pending and
future applications we suggest that you execute the proper assignment
and send it to us as soon as you receive the notice of allowance in
an application. We will promptly record the assignment in the United
States Patent Office and notify you so that you may pay the final fee
in due time so as to have the patent issued in our name as assignee.
_We shall assign to you or your nominee all your United States patents
or pending applications which have been taken out in our name, or
caused to be assigned to us under the provisions of said agreement
prior to April 30, 1941, reserving to ourselves only the license to
manufacture thereunder upon the payment to you of the royalty as agreed
under 2 hereinabove._”
Field glasses or binoculars were expressly excepted from the cartel
arrangement between Zeiss and Bausch and Lomb. In 1931 Bausch and
Lomb bid $39.50 each on a United States Navy request for bids on 600
binoculars. Zeiss bid $26, and this angered Bausch and Lomb to the
extent that they brought about a greatly increased tariff rate on
imported binoculars. The correspondence between the two firms over a
period of years refers to this episode. Edward Bausch of Bausch and
Lomb wrote to August H. Lomb in Frankfurt on November 18, 1932. The
last two paragraphs of his letter are as follows:
“In all other departments we find the Zeiss competition keen and
aggressive. Zeiss have established themselves in this country and have
been for years making more and more intensive efforts to get business.
As an instance of their efforts we will cite the circumstance of
their having put in a bid for Field Glasses to the government at such
ridiculously low prices that we cannot understand how there can be
any profit in it for them, but leaves us with a feeling that they
are aiming to put us out of competition and acquire the business for
themselves.
“Such efforts as they are making in this territory will surely lead to
more aggressive action on our part and will certainly lead to anything
but friendly feeling, and ultimately, to a more serious situation.”
On February 6, 1934, Zeiss wrote Edward Bausch as follows:
“I received your letter of January 25, and at the same time, a report
from our Dr. Bauer about his interview with you and your associates on
January 15, 1934 in Rochester. First of all, I wish to thank you for
having gone to the trouble to write down the sequence of events, which
brought about the change in duty calculation on our prism binoculars,
with the result that the duty, which will actually have to be paid,
comes very close to doubling the present rate. I expressed myself to
Mr. Lomb in a very general way, and had pointed out merely the effect
of the change of duty, which was probably caused by your initiative,
and I used the expression that the sixty per cent rate had, in reality,
been doubled.
“The essential consequence is that quality binoculars--and only those
of more than 5× magnification, and of foreign net value of more than
$12--have been affected by this measure. In reality, only Zeiss
Binoculars fall under this arrangement, whereas all the cheap French
prism binoculars, which are not negligible in quantity, are exempt.
“From your letter, I have noted that the steps taken by you were
prompted by our offer and that of Carl Zeiss, New York, of six hundred
6 × 30 prism binoculars at $26 each, which we made in 1931 to the Navy.
I believe that I do not have to add anything to the explanations
which our Dr. Bauer has given you concerning this matter. The thought
occurs to me, however, whether it would not have been appropriate,
in view of the friendly and long relations between our respective
houses, if one of your gentlemen had communicated with our Dr. Bauer
and had pointed out the low prices to him in order to bring about a
satisfactory solution of the question for the future, and this by
means of a friendly understanding. Such an understanding would have
been readily possible at the time, for we have always been ready to
recognize justified wishes or requests of other houses, especially of
those friendly to us.
“I would consider it to our mutual interests if this duty arrangement,
which, as I admit frankly, has caused great bitterness on our part,
would disappear again. As you know from several negotiations on other
matters here and there, we and Dr. Bauer are always ready for a price
agreement, which protects your just interests.”
On February 28, 1935, Bausch and Lomb wrote to Dr. Bauer of Carl Zeiss,
Inc., New York. The first paragraph of his letter is as follows:
“Although I enjoyed my visit with you last Saturday morning very much,
I have not been able to get out of my mind your statement that you have
not confidence in the younger generation here in Rochester. Since this
is predicated, I believe, entirely upon the binocular situation, I
just want to repeat again what I told you in New York, that I believe
whatever action we took in regard to the tariff on binoculars was
prompted entirely by the fact that you bid a figure on a Navy contract
for binoculars which was absolutely out of reason and made it look
to us as if you were going to get this binocular business from the
United States Navy at any price. When we saw there was no possibility
of getting business from our own Navy at a reasonable figure, we took
the only step that was open to us and made a complaint to one of our
senators that started a Senate Investigation and finally culminated in
an executive order that resulted in changing the method of figuring
tariff to the basis of American valuation.”
On March 8, 1935, K. A. Bauer of Carl Zeiss, Inc., wrote Bausch and
Lomb. The first three paragraphs of his letter are as follows:
“I thank you for your letter of February 28, referring to our
conversation of February 23rd. I wish to correct your impression of my
having made the general statement ‘that I have no confidence in the
younger generation in Rochester.’ I said: ‘How can we have confidence,
that an agreement regarding Contact glasses--if possible at all--will
turn out satisfactorily, after the experience we had in the binocular
matter?’ I also said that under the management of the older generation,
such a thing, as this binocular case turned out to be, would not have
been possible. But I do not wish these words to be generalized to the
above blunt statement, and I am sorry, if I may not have expressed
myself clearly enough.
“Now turning to the binocular matter, you know that I have had
conversations with your firm in which I found a certain degree of
understanding for the untenability of the present tariff situation and
a willingness not to resist a reasonable solution. Due to the political
constellation and to tariff negotiations pending in Washington with
other countries, the flexible tariff clause is at present petrified
and nobody can say, when this may change. In the meantime, importation
of highgrade binoculars continues to be impossible. As long as this
condition lasts, we shall naturally feel irritated and we cannot but
resent the fact that it was brought about by methods which we must
condemn. The nature of the tariff action was camouflaged by the
wording of the Senate Resolution, in order to deceive the importers of
prism binoculars. We ourselves as well as other importers were deprived
of what little right we had under the tariff law to state our side. If
you personally have any doubt as to who engineered this whole affair, I
suggest that you read the stenographic report of the so-called ‘Public
Hearing’ which took place in Washington on October 18, 1932.
“You say that we quoted on 600 binoculars 6 × 30 such a low price that
it was ‘out of reason.’ Admitted that our price of $26--was low. Your
quotation of $39.50, however, seems to be exorbitant. It is also true
that the quality specified by the Navy was of a higher grade than that
of commercial binoculars. But this fact is more than compensated by the
large number of 600 glasses involved, which were to be manufactured,
shipped and delivered at one time to one party, whose credit is beyond
doubt. The large number called for a special low price. Instead you
quoted to the U. S. Navy--your best single customer--considerably more
than what you asked from a dealer for one single glass. At that time
you sold your 6 × 30 model (with central focusing device) at $66 list,
and at $35.18 and even at $33 net to the trade; a few months later at
even lower prices. If you deduct from these prices an adequate amount
for the central focusing device, which the Navy did not require,
your net trade price for one single 6 × 30 binocular with individual
focusing would have come rather close to our price of $26. What
difference remained might have been cut down further by the quantity
factor as explained above. Had your firm quoted as one should have
expected, considering all that has been said above, we would have had
no chance whatever to get the order under the Budget Law even at a
lower price. In our opinion you bid too high, expecting that under the
Budget Law you would have the monopoly anyhow.”
One recalls the urgent plea which was made about the time of Pearl
Harbor for all private citizens to make gifts of their binoculars
for use by the armed service. To the extent that a shortage of such
material can be traced to the squabbles among cartelists it is a
condition which should certainly never be allowed to recur.
One of the most serious problems which will confront our government
and the United Nations in connection with the termination of the war
with Germany is that of eliminating for the future the German war
machine. The relations of Carl Zeiss and Bausch and Lomb show what may
be expected when private business concerns are permitted to handle
such a problem as though it were a matter of private concern. Surely
it is to be hoped that the policy of our government as expressed
in the peace which will be made with Germany will not be rendered
ineffectual because of the private international policy of certain
business concerns. The decree of July 9, 1940, enjoined Bausch and Lomb
from further carrying out any of the provisions of its agreements with
Carl Zeiss. This alone is not sufficient to insure that the public
policy expressed by government action shall not be thwarted by the
machinations of private cartels.
11
_Miscellaneous Products_
Three recent cases illustrate some interesting characteristics of the
cartel problem. These cases--involving cartelization of pharmaceutical
products, chemicals, firearms and ammunition, and matches--include
industrial concerns and individuals in Germany, England, Canada,
Sweden, Chile, the Argentine, and Brazil. They are significant not
only because of their inherent character, but also because the war has
not materially affected their operation. True, the war forced certain
changes upon them, but these were modifications, not cessations.
Since the cases in question had not been legally adjudicated at the
time this was written, it is well for the reader to remember that
the statements which follow are allegations which were a matter for
litigation between the government and the various defendants.
On October 28, 1943, the Department of Justice filed a complaint
charging Merck & Co., Inc., of Rahway, N. J., the largest producer of
pharmaceutical chemicals in the United States, and E. Merck Chemical
Works, of Darmstadt, Germany, with maintaining a cartel agreement in
violation of the antitrust laws.
Named as defendants in the suit were Merck & Co.; George W. Merck,
President of the firm; and Powers-Weightman-Rosengarten Corp., a Merck
subsidiary. The complaint charged that:
(1) The Rahway firm and its subsidiary conspired with the Darmstadt
concern to divide world territory into non-competitive areas by means
of what they themselves describe as a “Treaty,” dated November, 1932.
(2) Under the terms of this “Treaty,” the Rahway firm was assigned the
United States and Canada as exclusive territory, while the Darmstadt
organization was assigned almost all the rest of the world. The
“Treaty” also provided that Cuba, the West Indies and the Philippines
were joint territory in which conditions of sale and prices were fixed
by agreement.
(3) Since the British blockade after outbreak of the war in 1939
prevented the Darmstadt firm from exporting to many foreign countries,
particularly to Latin America, it was agreed that the American
company would supply Darmstadt’s agents in South America but that the
territorial provisions of the 1932 “Treaty” remained in effect, with
Latin American markets returned to Merck of Darmstadt as exclusive
territory after the war.
(4) To carry out this agreement Merck of Rahway revived a dormant
subsidiary, Powers-Weightman-Rosengarten Corporation, to engage during
the war in export business in territory assigned exclusively to
Merck-Darmstadt. The purpose of using this dormant subsidiary was to
enable Merck of Rahway more easily to abandon its export business in
Darmstadt’s territory after the war.
(5) Merck of Rahway not only intends to abandon all its export business
in Darmstadt’s territory after the war but to continue the territorial
division provided in the 1932 “Treaty” until 1982.
(6) The agreement covers approximately 400 pharmaceuticals and
chemicals, including quinines, sulfa drugs, vitamines, narcotics and
mercurials.
The government charges specifically that prior to the last war there
were close ties between Merck of Rahway and Merck-Darmstadt which were
dissolved in 1919 by the Alien Property Custodian. During the last war
the American Merck company gained a large export business in chemicals
and pharmaceuticals in Central and South America only to relinquish
this business and allow it to be recaptured by Merck-Darmstadt after
the war.
In 1932, the two companies entered into understandings and agreements
to divide world markets into exclusive areas, and as a device to
conceal these arrangements they entered into a so-called “Treaty
Agreement” on November 17, 1932, for a period of 50 years. The German
and American Merck companies, it is charged, divided the use of the
“Merck” trade name and the sales of their products throughout the
world. Under this arrangement, the right to sell exclusively in the
United States and Canada was assigned to Merck of Rahway, which was
also permitted to sell jointly with Merck-Darmstadt in Cuba, the West
Indies and the Philippines. The rest of the world became the exclusive
sales territory of the German company.
In making the above charges, the Government asked the Court to dissolve
the 1932 “Treaty Agreement”; to cancel the exclusivity of licenses to
use certain patents of the German firm; to enjoin Merck of Rahway from
refusing to fill orders from established chemical and pharmaceutical
dealers in foreign countries; and to enjoin the American firm from
vesting any patent rights in the German company at any future time
without first notifying the Attorney General of its intention to make
such patent transfer; and to prevent the parties from entering any
similar agreements or arrangements.
* * * * *
On January 6, 1944, the Department of Justice filed a complaint
charging two American companies, a British company, the American agent
of the British company, and five of their officers, with maintaining
an international cartel agreement to restrain trade in the manufacture
of chemical products, firearms, and ammunition, in violation of the
Sherman Antitrust Act.
Named as defendants in the suit were: E. I. du Pont de Nemours and
Company, Inc., Wilmington, Delaware, including Lammot du Pont, Chairman
of the Board, Walter Samuel Carpenter, Jr., President; Remington Arms
Company, Inc., Bridgeport, Connecticut, including Charles Krum Davis,
President and General Manager; Imperial Chemical Industries, Ltd.,
London, England, including Harry Duncan McGowan, Chairman of the Board,
and Henry Mond, Deputy Chairman; and Imperial Chemical Industries (New
York), Ltd., New York City, American agent of ICI.
The government charged that beginning sometime prior to 1920 du Pont,
ICI and, from 1933, Remington, had been engaged in a conspiracy and
combination in restraint of trade and commerce in chemical products,
arms, including war materials, and ammunition in the United States and
with foreign nations, and were parties to contracts and agreements in
violation of the Sherman Antitrust Act.
The alleged conspiracy consisted of an agreement, the terms of which
were:
(1) That du Pont and ICI not compete with each other.
(2) That du Pont, Remington and ICI cooperate to eliminate competition
between Remington and ICI.
(3) That du Pont and ICI each be assigned certain marketing areas as
exclusive territory.
(4) That the defendants agree to eliminate competition between
themselves in non-exclusive territory by various arrangements,
including the formation of joint companies, to sell their products in
accordance with agreed quotas and prices.
(5) That du Pont and ICI exchange exclusive licenses under all patents
and processes for the exclusive territories allocated to each, and
non-exclusive licenses for the remainder of the world.
(6) That du Pont and ICI attempt to obtain for each other the benefit
of agreements and understanding arrived at with third parties for
allocation of world markets or the acquisition of technological
developments.
(7) That du Pont and ICI cooperate to eliminate the competition of
other companies throughout the world.
The agreement was estimated to affect thousands of products, ranging
from explosives to paints and varnishes. Du Pont is the largest
manufacturer of chemical products in the United States, with total
assets approximately one billion dollars, including the ownership of
approximately 23 per cent of the stock of General Motors Corporation.
Remington is described as the largest manufacturer of sporting arms and
ammunition in the United States, and since 1933 has been controlled by
du Pont.
Imperial Chemical Industries, which has a virtual monopoly of the
chemical industry in Great Britain, was formed as the result of a
merger of four major British companies, and it was contended that ICI’s
founders intended not only to gain a monopoly of the chemical industry
in the United Kingdom but to join with the other major manufacturers
of chemicals throughout the world, including I. G. Farbenindustrie of
Germany and du Pont, to safeguard such monopoly position. This policy
was explained by ICI to du Pont as follows:
“Sir Harry explained that the formation of I.C.I. is only the first
step in a comprehensive scheme which he has in mind to rationalize
chemical manufacture in the world. The details of such a scheme are
not worked out, not even in Sir Harry’s own mind, but the broad
picture includes working arrangements between three groups--the I. G.
in Germany, Imperial Chemical Industries in the British Empire, and
du Pont and the Allied Chemical & Dye in America. The next step in
the scheme is an arrangement of some sort between the Germans and the
British.”
Imperial Chemical Industries (New York) conducts no independent
business operations of its own but acts solely as agent for ICI for the
transaction of business in the United States. The complaint stated that
in 1935 the then president of ICI (New York) described the corporation
as the “private commercial legation” of ICI.
Sometime prior to 1920 du Pont and ICI came to an understanding with
each other for the elimination of competition in the sale of explosives
in all parts of the world. By this understanding du Pont was allocated
the United States and Central America as its exclusive sales territory,
and ICI was allocated the balance of the world, with the exception of
Canada, Newfoundland and South America. Both companies were to refrain
from manufacture in or export to each other’s exclusive markets, while
Canada, Newfoundland and South America were to be shared by both
companies on a non-competitive basis.
It was further agreed that profits from the sale of commercial
explosives in South America would be divided equally; and that in
Canada the firm of Canadian Industries, Ltd., jointly owned by both,
would be utilized to eliminate competition between them. Moreover, it
was agreed that du Pont and ICI would exchange exclusive licenses under
all their present and future patents, processes and inventions for use
in the exclusive territory of each, and that non-exclusive licenses
would be exchanged for the territories shared by both companies.
By 1925, however, Dynamit Aktiengesellschaft (known as DAG), a German
corporation, had begun to offer serious competition to du Pont and ICI
in all important world markets, and in that year the two companies
reached an agreement with DAG to eliminate competition in commercial
explosives. By this understanding, DAG agreed to abstain from doing
business in certain markets and to adhere to quota arrangements in
other markets including South America. For this agreement, DAG was
awarded as its exclusive market in commercial explosives Germany,
Holland, Poland, Austria, Denmark and Bulgaria. Du Pont and ICI also
subsequently acquired a stock interest in DAG.
In order to carry out the understanding, it was charged, du Pont, ICI
and DAG about 1925, organized Explosives Industries, Ltd., incorporated
under the laws of the United Kingdom. Du Pont and ICI were each
allocated 37½ per cent of its shares, and DAG 25 per cent; and the
parties agreed to conduct all their exports in explosives to South
America through this corporation. Exports to Chile and Bolivia were
not included, however, as du Pont and ICI had earlier organized a
jointly-owned company, Compania Sud-Americana de Explosivos, to import
and manufacture explosives in Bolivia and Chile.
At the time du Pont and ICI entered into the conspiracy, it was
asserted, they were primarily explosives manufacturers, but both
continually increased the number of products manufactured until
explosives became but one of many items. The growth of the combination
paralleled the grow of the two companies; as each company made new
products, they were brought into the conspiracy.
The complaint cited as an example of the functioning of the conspiracy
that during the period 1920–29, du Pont tried to protect ICI from the
competition of American cartridge companies by withdrawing from these
companies discounts and rebates in connection with the sale of powder
so that they might not disrupt ICI’s markets by cutting prices.
By 1929 the conspiracy had incorporated substantially all of the
products then made by du Pont and ICI, and the complaint alleged that
in 1929 a further agreement was entered into whereby all products other
than explosives would be handled in the British Empire by ICI and in
the United States and Central America by du Pont. It was further agreed
that as to the balance of the world, the two companies would enter into
special arrangements to eliminate competition and would explore the
desirability of utilizing joint companies. Later, two joint companies
were founded to handle products in Argentina and Brazil--Industrias
Quimicas Argentinas “Duperial,” S. A., and Industrias Chimicas
Brazeileiras “Duperial,” S. A.
Military explosives had been omitted from the 1929 agreement, as
the two companies continued to make certain special arrangements to
eliminate competition between them. After 1933, when Remington joined
the conspiracy, the complaint states that further contracts and
agreements were entered into to eliminate competition between ICI and
Remington in the manufacture and sale of ammunition and sporting arms.
The parties clearly understood that they would continue the
relationship between them irrespective of governmental action which
might affect the concerns. In July, 1933, Lord McGowan wrote to Lammot
du Pont as follows:
“I have warned my people that no fiscal alterations in the U. S.
A. must be allowed to affect the interpretation to be placed on
our Patents and Processes Agreement, and the working out of the
co-operation for which the Agreement provides.... I find it is a good
thing to issue such warnings ... so that everything possible is done to
ensure that no prospective political or legislative action on the part
of Governments is permitted to influence relations between du Pont and
ICI.”
To this letter, Mr. du Pont replied in part: “I feel the same; ... If
any legislation or international agreements are brought about which
affect these ICI-du Pont relations, I am sure we will be able to adjust
ourselves so as to get the continued benefit of our Agreement.”
The agreement of 1929 was to expire in June, 1939, and at that time
ICI and du Pont entered into another agreement for 10 years and
indefinitely thereafter. The territorial provisions were continued, and
in addition to the patents and products covered by the 1929 agreement,
numerous other products were added, including cellulose compounds,
alkali metals and their products, fertilizers, dyestuffs, synthetic
resins and plastics, perfumes, flavoring compounds, pharmaceutical
chemicals, and new synthetic products, including rubber, nylon and
neoprene.
The Government charged that competition was restrained successfully
by means of the joint companies in Canada, Argentina and Brazil,
pointing out that because I. G. Farben was encroaching on the field in
Argentina, certain arrangements were made for a further joint company
to be partly controlled by Farben. However, because of the war this
procedure was not carried out, although du Pont’s Foreign Relations
Department stated in February, 1940, that “the du Pont Company informed
I. G. that they intended to use their good offices after the war to
have the I. G. participation restored.”
The purpose of the Government’s suit was to bring about the abrogation
of the illegal contracts, to secure a perpetual injunction against ICI
from violating the American Antitrust Acts, and to require du Pont and
ICI to take further steps to prevent future use of joint companies.
* * * * *
On May 1, 1944, the Department of Justice filed a complaint charging
the maintenance of an international cartel in the manufacture and
distribution of matches, in violation of the Sherman Antitrust Act, by
six American companies, two British companies, a Canadian company, a
Swedish company, two American agents of the Swedish company, and six of
their officers.
Named as defendants in the suit were: Diamond Match Company, New
York City (including William A. Fairburn, President, and Howard F.
Holman, Vice-President); Berst-Forster-Dixfield Company, New York City
(including Robert G. Fairburn, President); William Gordon Corporation,
New York City; Universal Match Corporation, St. Louis, Missouri; Ohio
Match Company, New York City; Lion Match Company, Inc., New York
City; British Match Corporation, Limited, London, England (including
Sir Clarence Bartholomew, Managing Director); Bryant & May, Limited,
London, England; Eddy Match Company, Limited, Pembroke, Ontario,
Canada; Svenska Tändsticks Aktiebolaget (Swedish Match Company),
Jönköpings, Sweden; Transamerican Match Corporation, New York City
(including Fritz Otterberg, President); New York Match Co., Inc., New
York City, American agents of Swedish Match Company (including Paul
Bertil Lind, President).
The Government’s complaint made the following charges:
(1) A cartel comprising American, Swedish, British, and Canadian
match producers eliminated competition throughout the world in the
manufacture and distribution of matches. This cartel has been in
existence since 1901.
(2) The defendants divided world territories into non-competing areas,
established production and sales quotas, and restricted the production
of matches in the major markets of the world.
(3) The defendants suppressed inventions and improvements in the
match art. By the acquisition of patents controlling the “repeating”
or “everlasting” match, the defendants have been able virtually to
suppress its production and use.
(4) Defendants controlled patents, raw materials, chemicals, machinery,
and processes in order to maintain their grip on the industry and
prevent competitive capital from entering the market.
(5) The defendants acquired competing match producers and distributors
wherever and whenever competition threatened.
(6) The amounts of matches imported into the United States from Sweden,
Russia, and Japan have been curtailed and prices have been fixed by
agreement with the Diamond Match Company with the approval of the other
American defendants. Imports into the United States from Canada, the
British Empire, and other markets of the world have been virtually
eliminated.
(7) As part of the conspiracy, match factories in the United States
have been withdrawn from production and scrapped.
(8) As the result of agreements between the Diamond Match Company and
I. G. Farbenindustrie, American production of chlorate of potash,
essential to match production and certain types of ammunition, was
virtually halted during the period between the first World War and
the second World War. This conspiracy resulted in a grave shortage of
chlorate of potash for military purposes and match production.
(9) Post-war plans have already been made by the defendants to resume
the conspiracy in full as soon as the difficulties created by the war
disappear.
The conspiracy in the world match industry against which the complaint
was directed was reinforced by an agreement entered into in 1920 by
Ivar Kreuger, the late so-called “match king,” and William Fairburn on
behalf of their respective companies, the Swedish Match Company and the
Diamond Match Company.
These two companies are the major factors in the match industry of the
world. The Swedish Match Company is the world’s largest match producer
and exporter. The Diamond Match Company is the largest American match
producer. Diamond, through its President, William A. Fairburn, and his
personal holding company, the William Gordon Corporation, dominates and
controls the policies of Diamond’s partly-owned and affiliated company,
Berst-Forster-Dixfield Company, and the Universal Match Corporation,
Ohio Match Company, and Lion Match Company, Inc.; these companies
together with Diamond, produce approximately 83 per cent of American
matches. The annual sales of matches in the United States are in excess
of $40,000,000.
Prior to the first World War, Diamond was the exclusive agent for
Swedish Match for the sale in the United States, Canada, Cuba, and
Puerto Rico of safety matches, the type most widely used by the armed
forces. When Swedish imports to the United States were cut off during
the first World War, Diamond, in 1917, erected a large safety match
factory at Savannah, Georgia, to supply the urgent needs of the armed
forces of the United States and its allies and civilian requirements
for this kind of match.
After the first World War, Kreuger threatened vigorous competition
with Diamond in the United States. Faced with this threat, Diamond
and Swedish Match entered into an arrangement in 1920 described by
Diamond’s President, William A. Fairburn, as the “peace treaty with
the Swedes.” Under the “peace treaty” Swedish Match appointed Diamond
its exclusive agent in the United States for the sale of Swedish
safety matches and agreed to discontinue all other selling agencies
and establishments in the United States. In order to assure Swedish
Match of its share of the American match market, it is charged, Kreuger
and Fairburn entered into a secret agreement which required Diamond
to destroy virtually its entire safety match business, including the
scrapping of its largest plant at Savannah, Georgia. Swedish Match
agreed that it would not otherwise make or sell matches on the North
American Continent; Diamond, in turn, agreed not to make or sell
matches in countries supplied by Swedish Match.
The understandings reached in 1920 between Diamond and Swedish Match
are still in effect, although the limitation of production feature
has been temporarily suspended. Upon the outbreak of the present war
a match shortage, particularly of the safety match type, resulted
in the United States and in certain South and most Central American
countries. In accordance with the agreement between the parties the
South and Central American markets were Swedish territory. But war
conditions have made it impossible for Swedish Match to supply this
market. Instead of selling directly in these markets, however, Diamond,
through its controlled affiliate, Berst-Forster-Dixfield, supplied
Swedish Match with matches for South and Central American countries.
The condition for Diamond’s policy in thus helping out was expressed to
Swedish Match as follows:
“We help you now. You stay out of the United States market after the
war.”
By 1927 Kreuger became dissatisfied with the share of Swedish Match
and its affiliated company, International Match, in the American match
market. In violation of the “peace treaty,” he planned to erect new
match factories and acquire existing concerns in the United States.
William A. Fairburn, on behalf of Diamond, successfully appeased
Kreuger for the time being by acquiring Ohio Match, then the second
largest domestic match producer, and selling Kreuger a half interest
in the company. By 1931 Kreuger, through an arrangement with Fairburn,
acquired a one-third interest in Diamond itself. At the same time,
Fairburn induced Kreuger to scrap a partly-constructed match factory at
Natchez, Mississippi.
In 1901, the complaint charges, Diamond and Bryant & May, virtually
the sole match producer in Great Britain, came to an understanding
for the elimination of competition between them. Thereafter Bryant
& May refrained from producing and selling matches in the United
States and Diamond in the British Empire. It is also charged that
the Berst-Forster-Dixfield, Universal, Ohio, and Lion companies have
followed Diamond’s policies with regard to non-competitive relations
with Swedish Match, Bryant & May, and the other corporate defendants.
About 1927 Bryant & May and Swedish Match eliminated competition in the
British home market (the United Kingdom and Ireland) and the remainder
of the British Empire. Fifty-five per cent of the match consumption of
the United Kingdom and Ireland was allotted by Bryant & May’s domestic
production; the remaining 45 per cent was allotted to Swedish Match’s
imports. India was allocated to Swedish Match and the remainder of the
British Empire to Bryant & May. To effectuate the division of markets,
British Match Corporation was formed in 1927 as a holding company, and
acquired all of the stock of Bryant & May. Swedish Match obtained 30
per cent of the stock of British Match.
In 1927, it is asserted, Diamond, Bryant & May, and Swedish Match
eliminated competition in Canada by the formation of Eddy Match, which
acquired virtually all of the match factories in that country.
In 1935, after consultation with and approval by Diamond, Swedish
Match, by agreement with the Japanese producers and the Soviet Match
Monopoly, fixed the price of and limited match imports into the United
States from Japan and Soviet Russia. In about 1937 Diamond became the
exclusive agent for all Russian and Japanese matches sold in the United
States.
The complaint alleges that about 1922 Diamond’s wholly-owned
subsidiary, Uniform Chemical Products, became exclusive agent in the
United States for the sale of I. G. Farbenindustrie’s German-made
chlorate of potash. Chlorate of potash is a chemical not only essential
in match manufacture, but also in the production of ammunition,
flares, and railway emergency warning signals. In return for Uniform’s
exclusive agency, I. G. Farbenindustrie required Diamond virtually
to cease the manufacture of chlorate of potash in the United States.
As a result of the scrapping of American plants, this country had
practically no plant capacity for the production of chlorate of potash
at the outbreak of the war. Emergency plant construction has not yet
overcome the shortage of this essential chemical.
The complaint recites the heretofore undisclosed history of the
so-called “everlasting” match, which has long been a matter of
considerable rumor and speculation. About 1932, it is charged, Kreuger
obtained control of the patents on this match, and subsequently
Bryant & May obtained an interest in them. Diamond later was offered
a participation in Swedish Match’s patents and also negotiated with
the inventor of certain improvements. Although it was commercially
successful in Holland and Switzerland, the everlasting match has
never been manufactured commercially by Diamond or any other
American manufacturer. Diamond’s decision not to acquire the patents
and manufacture the everlasting match was expressed as follows in a
document found in their files: “The patents have not so long to run
and if it becomes a marketable commodity by our pushing it, once the
patents are out--as in the case of book-matches--it would be a fertile
field for the rottenest kind of competition. It is to be hoped that if
the item is not put out and pushed by a strong manufacturer, no one
else will take it up even if the patents expire.”
The Government sought, among other things, the abrogation of the
illegal contracts and agreements and a perpetual injunction against the
defendants, prohibiting them from violating the Sherman Antitrust Act.
The Government also asked that Diamond, Berst-Forster-Dixfield, and the
William Gordon Corporation be required to divest themselves of holdings
in any other match producer, including the foreign corporate defendants.
12
_The Webb Act_
An expanding foreign trade is one of our chief economic objectives.
Both Government and business should desire and promote policies that
will open up new markets to American enterprise, encourage sound
foreign investment and facilitate the flow of goods between this
and other countries. There can be no issue, surely, over this basic
purpose. Nor is there room for disagreement on the proposition that a
crucial, if not indeed the ultimate, test of our economic policy should
be its efficacy in promoting free enterprise as opposed to a controlled
economy. Differences, if any, relate only to methods.
However, anyone who has been under the impression that the Webb Act
provides an easy backdoor entrance for American firms to join forces
with cartels seeking domination and control of world markets is in for
sad disillusionment. The Webb Act was intended to strengthen American
competition against foreign cartels. It was enacted by Congress in the
belief that it would provide a means of assistance to American business
in combatting the power of foreign cartels dominating world markets.
The Act was not passed to permit American firms to take part in cartel
restrictions on American trade--such restrictions are directly contrary
to Congressional purpose.
It should be emphasized that associations organized under the Webb
Act cannot legally enter into international agreements which restrict
production and distribution, divide territories and fields of
operation, fix prices or other wise regiment industry throughout the
world. Neither can they legally enter into agreements which restrain
trade within the United States, restrain the export trade of any
domestic competitor or association, or which enhance or depress prices
or substantially lessen competition within the United States.
We have instituted a suit against the United States Alkali Export
Association, the California Alkali Export Association and others,
charging them with maintaining international cartel agreements to
restrain trade in the manufacture and distribution of alkalis in
violation of the Sherman Act. In this case we have charged that
activities by the defendants were not authorized by the Webb Act. I
shall refer later to this case in more detail. It is sufficient to
say at this point that other associations are under investigation for
similar activity, and that new antitrust suits will be instituted
whenever evidence discloses illegal activity by export associations or
others.
The alkali suit may very well have prompted the resolution of the Board
of Directors of the Commerce and Industry Association of New York
to declare that Congress should restudy the Webb Act and by proper
amendments bring it up to date so that there can be achieved under it
all of the objectives that President Wilson sought to attain when he
procured the enactment of this Act in 1918. The resolution recited that
the Department of Justice program for enforcement of the Sherman Act
seemed to be seeking to impose the competitive system and the antitrust
philosophy, as interpreted by the United States Supreme Court, on other
countries, and implied that antitrust enforcement was frustrating the
purposes of the Webb Act. And in other quarters it has been suggested
that perhaps the Webb Act provides a vehicle for attaining cartel
objectives without incurring the penalties of the Sherman Act.
These suggestions that the enforcement of the Sherman Act in the field
of foreign trade somehow constitutes a betrayal of the Congressional
policy embodied in the Webb Act, and that the Webb Act legalizes
restrictive cartel practices, are based upon a misconception of the
meaning and purpose of the Act. The Webb Act was enacted to help
American business compete with foreign cartels. It was not passed to
provide a conduit for joining them. It was designed to stimulate the
position of American concerns as competitors for world trade and to
stimulate the growth of our export trade. The Act created only a very
limited exemption from the Sherman Act which I shall presently discuss.
But, before taking up the Act itself, let us look at the conditions
which brought about its enactment. The background of the Act is set
forth extensively in a report by the Federal Trade Commission, dated
June 30, 1916, on cooperation in American export trade. This report
set forth that other nations had certain advantages in foreign trade
because of superior facilities and more effective organizations; it
pointed out that doubt and fear as to legal restrictions prevented
Americans from developing effective organizations for engaging in
international trade, and that as a result the smaller concerns suffered
because of their lack of organization and facilities. It emphasized
that in seeking business abroad, American manufacturers and producers
had to meet aggressive competition from powerful foreign combinations
often international in character. It recited that in some industries
the smaller manufacturers had to compete abroad with great American
companies having much more efficient worldwide selling organizations.
In order to assist these smaller businesses to acquire proper
facilities for doing an international business, and to enable them to
meet the competition in prices and services of major American concerns
and all foreign competitors, the report recommended that small American
producers and manufacturers should be permitted to unite their efforts
for purposes of conducting foreign trade. By combining their efforts it
was thought that these small firms would be better able to advertise,
maintain an adequate selling force, and create markets abroad.
But, while recognizing the desirability of a certain degree of
cooperation in seeking international markets, the Federal Trade
Commission in its 1916 report was fully cognizant of the possibility
of misuse of export associations and of the necessity to prevent their
misuse by legislative safeguards and antitrust enforcement. Thus the
Commission said:
“Two chief dangers from cooperation export organizations of American
manufacturers and producers are apparent. They may be used to exploit
the home market and they may be used unfairly against individual
American exporters in foreign trade. The dangers in cooperative action
must be faced frankly and provided against fully.
“The Commission is confident that this can be done without sacrificing
the essential advantages of joint action and without altering the
policy of the antitrust laws or interfering with their enforcement.”
And the Commission further declared that “This recommendation is made
subject to the condition that the legislation shall be carefully
safeguarded and shall make absolutely clear that the combinations for
export business are subject to all of the rigors of the Sherman law if
they are used to restrain trade in the United States.”
Bills were then introduced in Congress by Senator Pomerene and
Congressman Webb, and were considered by Congressional committees
and debated from 1916 to 1918, when the law was enacted. The Webb
Act as finally passed provides that nothing in the Sherman Act shall
be construed as declaring to be illegal an export association or any
agreement made or act done in the course of export trade by such
association, provided that such association, agreement or act does
not: (a) restrain trade within the United States; or (b) restrain the
export trade of any domestic competitor or association; or (c) enhance
or depress prices within the United States, substantially lessen
competition within the United States, or otherwise restrain trade
therein.
Since the Webb Act is a statute creating an exception to the Sherman
Act’s general application, the principle of interpretation governing
all statutes which create such exceptions must be applied here; that
is, the Webb Act must be strictly construed. It must not be taken
to cover any more ground than appears to have been intended by the
language of the Act itself read in the light of the legislative history.
The legislative history leaves no doubt whatever as to what Congress
intended. In its report of May 11, 1917, the House Judiciary Committee
stated:
“The bill is drawn so as to leave in full force our antitrust laws
as applied to our own markets and as affecting different American
exporters in their dealings with each other.... The bill does not
authorize any violation of the present antitrust laws.... The bill
prohibits the slightest violation of our antitrust laws within the
United States.”
The Senate Committee report contained a similar declaration.
The House and Senate debates abound with declarations by the sponsors
of the bill that it did not in any way interfere with the application
of the Sherman Act to the domestic commerce of the United States and
to agreements to restrain the export trade of competitors of the
associations. In referring to antitrust jurisdiction over proposed
export associations, Representative Webb stated: “If the combination
for export trade affects unduly or artificially the prices in the
United States then they come within the Sherman Antitrust Law.”
Senator Pomerene made the following significant arguments during debate
on the bill:
“The position was taken in substance that this bill was a repeal of
the Sherman Antitrust Law, and if it became the law of the land and
these associations were authorized they would at once seek to control
the foreign market and probably enter into a combination with foreign
companies and cartels engaged in the same line of business and thus
reenforced and worldwide in their control of products they would reduce
the prices of food animals, of grain, and of other products and raise
the prices to the consumer when it suited their purposes.”
“If the Senator when making this argument had recited facts instead
of fancies, there might have been some force in his utterances but
he was giving free reign to his imagination. The Senator overlooked
the fact that this bill does not repeal the Sherman Law. He had in
mind one paragraph only and lost sight of all the restrictions and
qualifications it contains. I submit that when this bill is construed
judicially it will be analyzed as a whole and not one part separate
from the other.
“The Senator forgets that neither the associations, nor their
agreements, nor their actions can be in restraint of trade within the
United States, nor in restraint of the foreign trade of any domestic
competitor and they cannot by any agreement, conspiracy, or act
artificially or intentionally and unduly either enhance prices or
reduce prices domestically, and if they do they violate the law of the
land.”
During the debates some members of Congress, foreseeing the
possibility that export associations might join in a combination with
foreign companies, questioned the sponsors of the bill as to the effect
of the bill upon such practices. In the House debates, Mr. Moore of
Pennsylvania asked: “Suppose a combination in which Americans join with
foreigners had been formed?” To this query Congressman Webb replied:
“Then you violate the antitrust law and it has been so held by the
court.” Later, in the Senate debates, Senator Pomerene stated: “There
is nothing in this bill authorizing the division of territory abroad.”
Attempts to amend the Act between 1921 and 1928 failed. Amendments
proposed in 1928 would have extended the Act to include combinations
for importation of crude rubber, potash, sisal and other raw materials
not made, produced, or grown in substantial quantities within the
United States. The bill proposed that year was stated by the House
Judiciary Committee to be designed “to meet an acute situation
affecting the import trade of the country” by reason of the fact that
certain foreign governments controlled and operated monopolies dealing
in rubber, potash and sisal for which this country depended materially
upon importations. Because of the operation of these foreign monopolies
the price to American importers had been greatly increased. The
Committee thought that the best way of meeting “these alien government
combinations” was to allow American buyers of the monopolized products
to combine for the purpose of importing them. During debates on the
bill it was attacked, among other things, on the ground that if it were
passed, import associations would be permitted to join with foreign
producers in worldwide agreements arranging world markets and fixing
world prices. The bill failed to pass, Congress thus indicating its
unwillingness to extend further the application of the Webb Act.
Thus it is clear that from the very beginning of the agitation for
the Act it was understood that the activities of export associations
would have to be strictly limited to the promotion of foreign export
trade, and that any agreements or activities which restrain domestic
competitors either in domestic or foreign commerce would still be
illegal under the Sherman Act. This, it seems to me, is what has been
overlooked by those who now question the application of the Sherman
Act to activities of export associations which restrain domestic
competition and the export trade of competitors.
The Department of Justice is not seeking any novel interpretation of
the Sherman Act or of the Webb Act. We have thus far instituted one
suit involving associations formed under the Webb Act and it requires
no novel interpretation of the Act to sustain the allegations involved.
In that suit, filed on March 16, 1944, we charged two American export
associations, 13 American manufacturers, and a British corporation and
its American agent, with maintaining international cartel agreements
to restrain trade in the manufacture and marketing of _alkalis_, in
violation of the Sherman Antitrust Act. Our complaint asserted that
the 17 defendants and four co-conspirators--two American corporations,
one German, and one Belgian--had conspired to allocate and maintain
exclusive marketing areas and export quotas throughout the world,
eliminating competition and restraining exports in alkalis by means of
illegal contracts, agreements and understandings still in effect!
The following were named as defendants in the complaint: United States
Alkali Export Association, Inc. (“Alkasso”), a Delaware corporation
with principal offices in New York City; California Alkali Export
Association (“Calkex”), a California corporation with principal
offices in Los Angeles; Imperial Chemical Industries Ltd. (“ICI”),
a British corporation with principal offices in London, England;
Imperial Chemical Industries (New York) Ltd., a New York corporation
wholly owned and controlled by ICI, London; Pittsburgh Plate Glass
Company, Inc., a Pennsylvania corporation with principal offices in
New York City; Church & Dwight Company, Inc., a Delaware corporation
with principal offices in New York City; Diamond Alkali Company, Inc.,
a Delaware corporation with principal offices in Pittsburgh, Pa.;
Dow Chemical Company, Inc., a Michigan corporation with principal
offices in Midland, Mich.; Hooker Electrochemical Company, Inc., a
New York corporation with principal offices in Niagara Falls, N.
Y.; The Mathieson Alkali Works, Inc., a Virginia corporation with
principal offices in New York City; Niagara Alkali Company, a New York
corporation with principal offices in New York City; Pennsylvania
Salt Manufacturing Company, a Pennsylvania corporation with principal
offices in Philadelphia; Southern Alkali Corporation, a Delaware
corporation with principal offices in New York City; Westvaco Chlorine
Products Corporation, a Delaware corporation with principal offices in
New York City; Wyandotte Chemicals Corporation, a Michigan corporation
with principal offices in Detroit; West End Chemical Company, Inc.,
a California corporation with principal offices in Oakland; and
Pacific Alkali Company, Inc., a limited partnership organized and
registered in California with principal offices in Los Angeles. Named
as co-conspirators were: American Potash & Chemical Corporation,
a Delaware corporation with principal offices in New York City,
substantially all of whose capital stock beneficially owned by the
German potash trust, was seized by the Alien Property Custodian in
1942; Solvay Process Company, a New York corporation with principal
offices in New York City; Solvay et Cie. (“Belgian Solvay”), a Belgian
corporation with principal offices formerly in Brussels but now in
London, England; and I. G. Farbenindustrie Aktiengesellschaft, a German
corporation with headquarters in Frankfort-am-Main, Germany.
This suit is of major importance in the drive to eliminate the effect
of cartels on American commerce. It is the first suit which the
Antitrust Division has filed involving the activities of associations
organized under the Webb Export Trade Act. It should serve as a warning
of our determination to prevent cartel groups from carrying out their
illegal plans by use of the Webb Act.
“Alkalis,” it should be explained, include soda ash (sodium carbonate),
caustic soda (sodium hydroxide) and bicarbonate of soda. Soda ash is
used in the manufacture of glass, textiles and chemicals. Caustic soda
is used in the manufacture of soap, textiles, rayon and paper and in
the refining of petroleum products. Sodium bicarbonate is used for
many industrial, chemical and drug purposes and, purified, as baking
soda. In 1939, there were produced in the United States approximately
2,900,000 tons of soda ash, worth more than $50,000,000; approximately
1,000,000 tons of caustic soda, worth more than $40,000,000; and
approximately 140,000 tons of refined bicarbonate of soda, worth more
than $5,000,000.
All the domestic defendants in the suit, with the exception of
Alkasso, Calkex and ICI (N. Y.), were engaged in the manufacture and
sale of alkalis in the United States and conduct substantially all
of their export trade in alkalis through Alkasso and Calkex. Alkasso
was organized in 1919 and filed a verified statement with the Federal
Trade Commission to obtain benefits and immunities provided by the
Webb Export Trade Act. Alkasso’s members, who control and manage all
its activities, include defendants Pennsylvania Salt, Pittsburgh Plate
Glass, Hooker Electrochemical, Diamond, Mathieson, Westvaco, Church
& Dwight, Dow, Niagara and Southern. Alkasso obtains alkalis from its
members, transporting from warehouses maintained at Hoboken, N. J.,
and New Orleans, La., to markets throughout the world. Calkex was
organized similarly in 1936 by American Potash & Chemical, West End
Chemical and Pacific Alkali, who control and manage its activities.
It obtains alkalis from member companies and ships from Pacific Coast
ports to various world markets. Prior to 1940, Alkasso and Calkex
together exported 95% of the alkalis exported from the United States.
Since then, because of war conditions and the resignation of Solvay
from Alkasso in 1941, the alkalis exported by the two associations have
amounted to 75% of the total alkali exports from the U. S.
It is charged that beginning in 1924 and continuing to the present day
the defendants have engaged in an unlawful combination and conspiracy
in restraint of trade and commerce in alkalis and that they have
been and are parties to contracts, agreements and understandings in
violation of the Sherman Act. This continuing agreement, it is alleged,
provides:
(1) That Alkasso, Calkex, their respective members, ICI, I. G. Farben,
and Belgian Solvay not compete with each other in the sale of alkalis
in any market of the world outside of the United States, and that ICI,
I. G. Farben and Belgian Solvay refrain from importing alkalis into the
United States;
(2) That Alkasso, Calkex and their respective members be assigned
certain marketing areas as their exclusive territory (including
the U. S.) and that ICI, I. G. Farben and Belgian Solvay refrain
from exporting alkalis to such territory and prevent other European
manufacturers from doing so;
(3) That exclusive market areas be assigned to ICI (the British Empire
exclusive of Canada), I. G. Farben (Scandinavia), and Belgian Solvay
(Continental Europe exclusive of the Scandinavian countries), and that
Alkasso and Calkex and their respective members refrain from exporting
alkalis to such territories and prevent other American manufacturers
from doing so.
(4) That the rest of the world markets be shared jointly by Alkasso,
Calkex, their respective members, and ICI, with competition therein
eliminated by allocating quotas to British and American companies and
limiting their exports to certain fixed percentages of the total sold
in such areas and by agreeing among themselves on the prices at which
alkalis are sold in such markets;
(5) That Alkasso, Calkex and their respective members prevent other
American manufacturers and dealers from exporting to joint territory
except in compliance with quota and price agreements fixed for such
markets.
(6) That Alkasso, Calkex, and their respective members conduct their
export trade and utilize the aforesaid arrangements and their practices
thereunder in such manner as to enhance, stabilize and maintain at
uniform and non-competitive levels the prices at which caustic soda is
sold in the United States.
It is alleged that the results of this conspiracy have been:
(1) To eliminate competition by Alkasso, Calkex and their members with
ICI and European producers of alkalis in the manufacture and marketing
of alkalis throughout the world;
(2) To eliminate exports of alkalis by ICI, Belgian Solvay and I. G.
Farben to the United States;
(3) To eliminate exports of alkalis by Alkasso, Calkex and other
American manufacturers to many markets of the world; and to restrict
and curtail by quota arrangements the export of alkalis from the United
States to many world markets;
(4) To eliminate competition by Alkasso and its members with Calkex and
its members in exports of alkalis from the United States;
(5) To curtail and limit the production of alkalis within the United
States;
(6) To prevent competition between manufacturers of alkalis in the
United States (who are not members of Alkasso and Calkex) and Alkasso,
Calkex, ICI, Belgian Solvay and I. G. Farben in world markets;
(7) To prevent independent exporters of alkalis in the United States
from engaging in the export of such commodities; and
(8) To enhance, stabilize and maintain at arbitrary price levels the
prices at which caustic soda is sold in the United States.
The Department of Justice sought the abrogation of the illegal
contracts and agreements and a permanent injunction against the
defendants restraining them from violating the Sherman Act. The
Government also asked that the defendants be enjoined from entering
into any future contract, agreement or understanding with any foreign
company in any manner restricting their exports of alkalis from the
United States by division of export markets, allocation of territories,
fixing of prices in export sales, or fixing or observing any export
quotas. The Government further asked that the domestic defendants be
enjoined from selling alkalis exported from the United States in any
foreign markets through ICI (N. Y.) or through any agent or dealer
selling alkalis for or on behalf of ICI or ICI (N. Y.).
Thus, in this case, we allege a conspiracy to restrain the exports of
American competitors; to restrict imports to the United States and
thereby restrain trade within the United States; to curtail and limit
production in the United States, and to enhance, stabilize and maintain
price levels within the United States. These allegations clearly charge
a violation of the Sherman Act. The Webb Act, I am confident, does not
protect activities of this type.
The allegations in this single instance against a Webb Export
Association raise serious questions of law violation which cannot be
ignored. The suggestion that we are stretching the Sherman Act by
novel interpretation simply does not stand up. Associations organized
under the Webb Act should take warning that the Alkali case represents
the view of the Department of Justice as to the application of the
Sherman Act to the activities of such associations. The position of the
Department is in accord with the purpose, history and language of the
Webb Act.
It is the policy of the Department of Justice to enforce the Sherman
Act as vigorously as possible whenever evidence establishes probable
violation. The Sherman Act represents a Congressional policy of more
than fifty years’ standing. The Department of Justice did not create
the Act although it has the responsibility of making it effective. The
Department of Justice does not interpret the Act. That is the task of
the courts. It is true, however, that the attitude of the Department of
Justice toward antitrust law enforcement is predicated, frankly, not
on a passive interest in the matter--a grudging willingness to perform
an unwelcome duty--but on a deep conviction that Congress is right,
and that the public economic policy embodied in the Sherman Act is
basically sound.
So long as the conditions which gave rise to the Webb Act still exist,
the Act, if properly employed, may be useful in promoting trade within
the special and limited domain to which the Act applies. To meet
centralized buying by centralized selling, and to stand up against the
exclusionary tactics and monopolistic practices of well-established
foreign cartels is sometimes necessary. Joint action by American
exporters may serve to secure an equal footing in foreign trade in
markets where combination is permitted or even encouraged. No doubt
such retaliatory measures are wasteful as ways of organizing world
trade, and no doubt we and other nations would be better advised to
join hands in getting rid of international trade restraints, theirs
and our alike. Meanwhile, however, the Webb Act has a use in defending
American interests in markets which are too often cartelized.
If export associations are to be economically useful in the postwar
world, approved by public policy and serving the purpose for which they
were created, they must be the spearhead of American industry as it
enters into competition with foreign industry for a fair share of world
markets, rather than the tool of international monopolists to draw
American industries into restrictive cartel agreements which contain
provisions in conflict with the Sherman Act.
I have given some thought to the question whether the Webb Act should
be tightened--whether additional legislation should be enacted to
assure that possible abuses shall be eradicated. Some of those who have
suggested such legislation apparently feel that export associations,
operating under the cloak of the Webb Act, may be used to carry
American industries into private international cartels which operate
contrary to our public policy, and that serious consideration should be
given now to legislation that would make such abuses impossible.
But at present, I am not ready to believe that additional legislation
is necessary. Vigilant enforcement of the Sherman Act against those who
misuse the Webb Act together with the understanding and cooperation
of industry will make additional legislation unnecessary and prove
adequate to prevent export associations from becoming screens for
illegal cartel activity. The appreciation by industry itself of the
advantage of avoiding restrictive agreements is an important factor
in our future policy. But if antitrust enforcement should prove
ineffectual, and if the postwar period should be characterized by
widespread misuse of export associations operating under the cloak of
the Webb Act, then, of course, serious consideration will have to be
given to legislation which will end the abuses.
13
_Private Governments_
One of the foremost problems facing our government today is the
formulation of an economic policy for the future. The development of
this policy is the concern of every American and will affect vitally
(1) the domestic prosperity of this country, (2) our role in world
affairs, (3) our national security. I should like to point out in this
connection certain important considerations which must be taken into
account if errors of the past are to be avoided and progress in the
future guaranteed.
No economic policy adopted by the government can be effective if the
industrial policies of the country in the international field are
determined, controlled, and executed by private agreements of which the
government has no knowledge. The formulation and conduct of the foreign
policy of the United States is provided for in the Constitution: “[The
President] shall have Power, by and with the Advice and Consent of the
Senate, to make Treaties, provided two thirds of the Senators present
concur.”
Past history demonstrates clearly that our economic foreign policy
has in many instances been rendered ineffectual by the operation of
secret agreements conceived and ratified by cartels. These agreements
admit of no sovereignty other than their own, and serve no interests
other than the shortsighted aims of monopoly. This has only too often
resulted in situations which have endangered our national security,
injured our position in the world economy, and denied us opportunity
for the fullest use of our resources and labor. Domestically,
businessmen have had to yield to the dictates of large aggregates of
power vested in international cartels. What and how much they might
produce, and to whom and at what price they might sell, have been
decided for them. If they did not yield, they risked elimination.
Internationally, our foreign policy has in many respects been
frustrated. The Good Neighbor policy governing our relations with Latin
America, the reciprocal trade treaties, our alien property policy, and
other basic principles of America’s conduct of foreign affairs have in
many instances been seriously weakened by the interference of cartel
activities. Indeed, it is difficult to see how our future policies--for
example the Atlantic Charter--can be executed successfully, if the
dispositions made by cartels continue into the postwar world.
Cartels will find it difficult to operate if the agreements upon which
they are based are open to public scrutiny and examination. Any law
requiring the filing of international agreements should operate like
the Foreign Agents’ Registration Act. It should not give immunity to
cartels, but should let the government and the public know of their
existence, their identity, and their scope.
The cost of secrecy is illustrated by the following examples. Two very
basic raw materials necessary to any industrial community are petroleum
and rubber. The crucial nature of these materials to our industrial
economy and military operations is clearly apparent. Without them,
practically all industrial activity would cease. Yet our oil and
rubber supplies have been dependent upon policies arrived at secretly,
operated clandestinely, and run in a manner contrary to the fundamental
foreign policy of our country. The public had no voice in making these
private policies, yet today it bears the burden of their effects.
The very nature of modern warfare and industrial life is such that both
petroleum and rubber have political and military, as well as economic,
aspects. Not all countries have petroleum within their borders and,
prior to the present war, only Britain, for practical purposes, had
rubber. Access to these raw materials is a prime military requisite to
any nation desirous of maintaining a strong international position.
Without them, no nation could hope to wage a war, maintain a healthy
industrial economy, or impose a treaty of Munich.
Among Germany’s raw material deficiencies, oil and rubber have been the
two greatest. Within her own borders there is little, if any, oil, and
no rubber. This fact has certainly been a consideration in the basis of
our own as well as the French and British foreign policy. Hence, the
discovery in 1926 that petroleum could be made from Germany’s plentiful
coal was a political event of the first magnitude. That synthetic
rubber became a reality in Germany shortly afterward served to magnify
the shock.
The petroleum industry, dominated in this country by Standard Oil
Co. (New Jersey), was shaken at its very foundation. A Standard Oil
official, Frank Howard, wrote at the time from Mannheim, Germany,
on March 28, 1926, to Walter Teagle, president of Standard Oil, the
following:
“Based upon my observations and discussion today, I think that this
matter is the most important which has ever faced the company since the
dissolution.
“The Badische can make high grade motor fuel from lignite and other low
quality coals in amounts up to half the weight of the coal. This means
absolutely the independence of Europe on the matter of gasoline supply.
Straight price competition is all that is left....
“They can make up to 100% by weight from any liquid hydrocarbon, tar,
fuel oil, or crude oil. This means that refining of oil will have as a
competitive industry in America and elsewhere, catalytic conversion of
the crude into motor fuel.
* * * * *
“I shall not attempt to cover any details, but I think this will be
evidence of my state of mind.”
Standard Oil was worried about its monopoly position. The discovery
threatened competition and Standard Oil met the threat.
The process of making oil from coal was controlled by I. G.
Farbenindustrie, the German chemical trust. In 1926 a meeting between
Standard Oil and I. G. Farben was arranged. The result was a series
of treaties. The agreements preserved the position of the parties in
the fields which they respectively dominated. As stated by a Standard
Oil official: “The I. G. are going to stay out of the oil business
proposition and we are going to stay out of the chemical business
insofar as that has no bearing on the oil business.”
Competition between I. G. Farben and Standard Oil was eliminated, and
the technology of chemistry and petroleum was made part of their feudal
preserve. The economic effect was the maintenance of monopoly.
Stated in a more detailed way, Standard Oil was given the world right
on the oil process and I. G. Farben was given the chemical business
of the world. But there was one exception. While I. G. was given
the right to engage in the oil business in Germany, Standard Oil was
permitted to engage in the chemical business in the United States only
as a junior partner to I. G. The staggering implications of this are
clear. Germany could not afford, considering her aims, to permit any
outsider to control within her own borders as important a development
to her national life as the production of oil from coal.
But when Standard Oil gave up its rights in the chemical field,
including those in the United States, the repercussions were to
seriously affect our wartime efforts.
Included in the chemical field was the synthetic rubber, buna. Under
the agreements, therefore, it was a German-controlled monopoly. When
the war broke out in September 1939, the Germans had not permitted
buna to be manufactured in the United States. We had no experience,
information, or know-how, and we had not obtained permission from
Germany to produce synthetic rubber. Of equal importance is the fact
that the United States Government had no knowledge of these facts. The
terms of the Standard Oil-I. G. Farben treaty were secret.
When corporations outside the I. G.-Standard Oil orbit attempted
to manufacture buna rubber, they were confronted with the combined
strength, wealth and power of the private coalition. Goodrich and
Goodyear attempted such production, but the former was sued for
patent infringement and the latter formally threatened with suit by
the Standard Oil Company under the I. G. patents. This took place in
October 1941, a few weeks before Pearl Harbor. Thus, not only did
Standard Oil agree with I. G. Farben that the latter should control
the exploitation of synthetic rubber, but cooperated in preventing
anyone else from producing. In fact, on April 20, 1938, a Standard Oil
official wrote as follows:
“Until we have this permission, however, there is absolutely nothing
we can do and we must be especially careful not to make any move
whatever even on a purely informal, personal or friendly basis, without
the consent of our friends. We know some of the difficulties they have,
both from business complications and interrelations with the rubber and
chemical trades in the United States, and from a national standpoint in
Germany, but we do not know the whole situation--and since under the
agreement they have full control over the exploitation of this process,
the only thing we can do is to continue to press for authority to act,
but in the meantime loyally preserve the restrictions they have put on
us.”
On its own, Standard Oil received little, if any, information on
synthetic rubber from I. G. The following quotations from Standard Oil
letters and documents are clear:
“Our people have never made buna ... the I. G. has not furnished anyone
technical information.”
“The only information our people have is derived from published
patents.”
“Information ... about the technical aspects of this development
has not been forthcoming as a result of the German Government’s
refusal because of military expediency to permit I. G. to reveal such
information to anyone outside Germany.”
The ambiguous position in which Standard found itself arises from the
fact that Standard never considered that it was making foreign policy,
or took into account the political implications of its acts. We neither
expect nor require this of our businessmen. After all, they are not
supposed to have such responsibility. Nevertheless, neither Standard
Oil nor the country could escape the consequences of these agreements.
It would seem, in the light of this experience, that the least the
Government can do is to provide a mechanism for acquainting itself with
the existence and terms of such agreements. The Government, on the
other hand, is unable to make proper judgments if it does not have
complete information.
The Monroe Doctrine and the Good Neighbor policy are both pillars
of our foreign relations. Nevertheless, many cartel agreements ran
directly counter to these policies. The causes of conflict are not
difficult to understand. In a large number of cartel agreements,
world territory is divided into exclusive, non-competitive domains.
In the drug, magnesium, optical glass, dyestuffs, plastics and a host
of fields, the United States was the exclusive territory of American
cartel members. The rest of the world was allocated to Germany. This
included Latin America. As a result, the Germans were able to set up
economic colonies in Latin America and elsewhere free from American
competition. The large members of Nazis in South America were a partial
consequence of the character of these agreements.
When the Nazis came to power in Germany, they immediately utilized
the cartel system as a device for political, as well as economic,
infiltration in countries outside of Germany, particularly in the
Western Hemisphere. A bold assertion of this policy is set forth in a
communication, written in 1933, from a director of Robert Bosch, A. G.,
of Germany, to the president of the United American Bosch Corporation,
which states:
“With regard to the political situation ... only one thing is very
evident, namely, that all forces of administrative and economic
endeavour such as the different cartels, etc., are to be brought into
one definite line of endeavour coinciding, of course, with the policy
of the ruling [Nazi] party and that individual opinions and utterances
will be submitted to a similar rule.”
When the present war broke out, Germany, because of the sea blockade,
was unable to supply goods to Latin America. Cartels made full
provision for the contingency of war. The South American market was
preserved for the German firms by cartel members of other countries,
notably the United States. Not only did American cartel members supply
products to the German agents in South America, in many cases they
used German labels. What is most important, they agreed to withdraw at
the end of the war and once again give Germany a free hand in Latin
America. In some cases, realizing that the blacklist might make this
kind of arrangement difficult, dummy firms in South America stood ready
to replace those blacklisted. Many instances of efforts by cartels to
maintain their usual relations, and to preserve the restrictions by
which German dominance in South American markets was achieved, are
available. A characteristic attitude is indicated in the statement made
by the head of the Chemical Marketing Co., an American firm, which had
relations with the Deutsche Gold-und-Silber Scheideanstalt of Germany.
In the early period of the war, this officer of the American company
wrote:
“We insure thereby that the German trade up to the present with our
South and Central American friends can be held firmly in our hands
and, should export from Germany become impossible--as you yourself can
well visualize--the loss would be much less if for the duration of the
war American chemicals can be delivered, rather than complete loss
of business for many, many years, if we place our clients in such a
position that they can continue to serve their customers.”
The dyestuffs industry ranks among the most strategic branches of
production. During the first World War, the United States and the
Allies experienced severe and crippling shortages of dyestuffs,
medicines and related products which were controlled by the German
dyestuffs cartel. In the years between the Armistice in 1919 and the
outbreak of the present war in 1939, the United States endeavored to
build up a strong dyestuffs industry because of its peacetime as well
as its wartime importance. The German dye trust, however, succeeded
in re-establishing a substantial and significant degree of control in
this industry through a series of cartel agreements. In addition, I.
G. Farben, through its American subsidiary, General Aniline & Film,
was able to exert direct influence on the dyestuffs market in the
United States. In the many agreements made between American, British
and German dyestuffs producers, the American companies were generally
restricted to the domestic markets.
Upon the outbreak of war, when the British blockade threatened to
cut off the exports of I. G., it nevertheless attempted to insure
the maintenance of its control over various markets. The boldness of
I. G.’s tactics is indicated in a cable addressed to General Aniline
& Film on September 19, 1939, which released that firm from export
restrictions for the purpose of supplying I. G.’s customers and agents
in the British Empire. This communication stated:
“In addition to Canada we release you from export restriction in regard
to the following countries: Great Britain, British India, Australia,
New Zealand but only for duration of present state of war and as far
as supplies to following firms are concerned.” [A list of distributing
agents within the British Empire is included.]
This cable was modified on September 21, 1939, when I. G. communicated
further with General Aniline & Film, stating: “Replace in first
telegram ‘for duration of present state of war’ by ‘until further
notice’ and act accordingly.” Similar arrangements were made regarding
I. G.’s distributing agencies in South America. This effort on I. G.’s
part to circumvent the British blockade is further illustration of the
implications which inhere in such cartel arrangements.
The same type of practice was no less significant in other parts of
the world. In the winter of 1941, while Congress was debating the
Lend-Lease Act, cartel agreements had already decreed that certain
critical types of products could not be sold to Great Britain.
For example, when Great Britain attempted to place an order for
tetrazene-primed ammunition, a cartel agreement between du Pont and I.
G. Farben forbade their sale, and it was not made.
In this case the patent attorney for the Remington Arms Company, a
subsidiary of du Pont, wrote a memorandum dated January 23, 1941,
stating:
“The further sale of Tetrazene Primed Ammunition to the British
Purchasing Commission or to the Government of the Union of South Africa
or to the Government of Canada is most undesirable by reason of our
Tetrazene contract with R. W. S. [Rheinische Westfalische Sprengstoff,
a wholly-owned subsidiary of I. G. Farben].
“Article III, Paragraph D of the original contract of November 14,
1929, reads as follows: ‘Remington shall not sell military ammunition
containing any Tetrazene in Germany and in any or all of the countries
in the British Empire.’
* * * * *
“There can be little if any question that pistol and revolver
ammunition sold at this time to his Majesty’s Government in the United
Kingdom is military ammunition ... or that such sale is a sale in a
country of the British Empire within the intent of Article III D of the
contract.
“We understand that the Process Division have recommended the use of
Tetrazene priming in certain ammunition to be sold to the British
Purchasing Commission. It appears obvious that this should not be done.”
Similar situations existed in aviation precision equipment, drugs,
and chemicals. Thus, I. G. Farben sought to obtain assurances from du
Pont that information on certain industrial processes would not be
transmitted to the British. On October 4, 1939, I. G. wrote to du Pont,
stating:
“You advise us that for the duration of the war, you will not pass the
experiences and applications which you receive from one licensee on to
another. We thank you for having quickly taken the necessary steps for
meeting the altered conditions.”
A significant and clear-cut example of the way in which cartel
agreements enabled the German Government to influence the policies of
American cartel partners of German industry is provided in the case of
aviation instruments. In this instance Siemens-Halske, the great German
electrical equipment producer, wrote to Bendix Aviation Company on
October 25, 1939, as follows:
“Under our agreement your geographical contract territory includes the
United States, its territories and Canada. A state of war exists at the
present time between Canada and ourselves.
“Notwithstanding the war we are of course willing to live up to the
agreement as far as possible. However, we would appreciate receiving
your assurance that the records which you will receive from us within
the scope of our agreement will not be given to Canada for the duration
of the war and that you will supply no instruments, built under a
license, if you know that they are destined for our enemies.”
An official of Bendix answered:
“As regards the drawings sent over you may rest assured. As regards
fabrication ... we will arrange to the best of our ability to keep
within the orbit of domestic use.”
One of the most necessary economic measures of war is the seizure of
enemy property. Although we have a policy concerning enemy property,
the Antitrust Division of the Department of Justice has come across
frequent attempts to nullify this policy by private agreement.
In one case, I. G. Farben transferred over 2,000 patents to the
Standard Oil Company. While there may be some dispute as to the purpose
of the assignment, the fact is clear. The Alien Property Custodian,
even though he has vested this property, found himself in litigation as
to whether the patents were in fact transferred in a bona fide manner.
Taken together with the provision in the Standard Oil-I. G. Farben
contract, this instance presents the result of a carefully-conceived
and well-developed policy of not only considering the war as an
unfortunate interlude, but as a method of defeating public policy.
The clause in question provides that even if the agreement should
be interfered with by the government of the United States or if, in
effect, war should take place between the countries of the respective
parties, then at the conclusion of such interruption the parties shall
come to a new agreement “in the spirit of the old.”
Another phase of the relationships between Standard Oil and I. G.
Farben with respect to the eventuality of war between the United
States and Germany is indicated in a letter written by the Assistant
Comptroller of Standard Oil to one of the directors of the company, on
September 8, 1939. The body of this letter deals with the Standard-I.
G. Corporation, a joint subsidiary in which Standard Oil owned 80%
and I. G. 20%, which had been formed to carry out the purposes of
the Standard Oil-I. G. agreements. Standard Oil was considering the
purchase of I. G.’s holdings in this subsidiary company. One paragraph
in the letter indicates clearly the objective which Standard Oil
sought. This paragraph states:
“Of course what we have in mind is protecting this minority interest in
the event of war between ourselves and Germany as it would certainly be
very undesirable to have this 20% interest in Standard-I. G. passed to
an Alien Property Custodian who might sell to an unfriendly interest.”
Another case shows how devious and complex cartel schemes can be.
Briefly, the Siemens-Halske Company of Germany and the Beryllium
Corporation of America entered into an agreement concerning the
production and distribution of beryllium alloys which had all the usual
characteristics of a cartel, such as the division of world territory,
etc.
Before this highly interesting agreement was entered into, however,
Siemens-Halske attempted to protect its position by assigning its
patents in this field to the Metal & Thermit Company of New York.
Actually these patents were held by Metal & Thermit in escrow for the
Siemens-Halske Company. For this service, the Metal & Thermit Company
received $10,000.
Without such a bill as is now contemplated, no Alien Property Custodian
could have known that the above patents were really property of an
enemy national. They would have remained concealed in this instance if
it had not been for the fortuitous action of an investigation by the
Department of Justice.
The titanium and optical goods cases previously related are other
examples of this practice.
The development of the magnesium industry in the United States provides
further illustration of the political effects of cartels in addition to
the corrosive effects of monopoly upon industrial expansion. From an
international standpoint the cartelization of the magnesium industry
prior to the outbreak of the present war had equally serious effects.
As a consequence of both monopoly and international cartel arrangements
in the industry, Germany obtained an initial lead in the production of
magnesium while at the same time Germany’s potential opponents were
restricting magnesium output. According to estimates made by the U. S.
Bureau of Mines, Germany produced 61% of the world’s total output of
magnesium in 1937. The United States produced 10%. In 1940 Germany was
still producing one-half of the world’s output while the United States
was producing about 14%.
The importance of magnesium is indicated by the uses for which it is
employed. In general, its principal consumer is the aircraft industry.
Magnesium is used in the construction of aircraft engines, the frames
of airplanes, various interior parts, wheels, and other similar
portions of aircraft. Magnesium is also employed in the manufacture of
incendiary bombs, tracer bullets, and flares.
The two principal producers in this country during the years 1919 to
1927 were the Dow Chemical Company and the American Magnesium Company,
a subsidiary of the Aluminum Company of America. In 1927, the American
Magnesium Company ceased production, and the Dow Chemical Company
thereafter enjoyed a monopoly in the production of magnesium in the
United States. The American Magnesium Company by agreement purchased
all of its requirements from Dow and constituted Dow’s largest
customer. In tracing the relationship between Dow, the sole producer of
magnesium, and Alcoa, the sole producer of aluminum, during the period
in question, it is essential to bear in mind that magnesium is the
principal technological rival to aluminum. Nearly all of the functions
for which aluminum is employed can also be fulfilled by magnesium with
greater efficiency, in many instances, because magnesium is not only
one-third lighter than aluminum, but is more readily machined and, when
properly alloyed, has greater tensile strength.
In the year 1931, I. G. Farbenindustrie, the principal producer of
magnesium in Germany, entered into an agreement with the Aluminum
Company of America known as the Alig Agreement. According to the terms
of this contract, a joint corporation, the Magnesium Development
Company, was formed in which Alcoa and I. G. each held 50% control.
The Magnesium Development Company was primarily a patent-holding
corporation to which I. G. transferred some patents for the fabrication
of magnesium and to which Alcoa contributed process patents. In
addition to participating in the Magnesium Development Company, I. G.
also obtained a 50% interest in Alcoa’s own subsidiary, the American
Magnesium Company.
The significance of the arrangements between Alcoa and I. G. was
twofold: Alcoa was interested in obtaining a secure foothold in
the magnesium industry in order to protect its primary interest in
aluminum; I. G. was endeavoring by its usual tactics to extend the
sphere of its influence. It is especially significant to note that in
the Alig Agreement it was stipulated that any licenses issued by the
jointly-owned Magnesium Development Company were to be restricted to
the United States. It was also provided that:
“As long as magnesium is produced by any ... producing company under
a license or licenses granted ... the holders of the I. G. shares in
Alig ... shall have the right to limit the increases in production
capacity of every such producing company after the initial contemplated
production capacity shall have been reached. The initial contemplated
production capacity shall in no case be more than 4,000 tons per annum.”
Dow Chemical Company was not a party to the 1931 agreement between
Alcoa and I. G. During the period immediately following the Alig
Agreement, every effort was made to bring Dow into the cartel
picture, with the consequence that, on January 1, 1934, Dow entered
into a patent-holding agreement with Magnesium Development Company.
In 1933 also Dow and American Magnesium Company had entered into a
five-year purchase contract by which the American Magnesium Company was
guaranteed a position as a preferred customer of Dow. In return, Dow’s
position as the sole producer of magnesium was protected.
In 1934 also Dow entered into a sales contract with I. G. Farben. This
contract stated:
“Dow agrees to confine its sales in Europe solely to the I. G., with
the exception that it reserves the right to sell the British Maxium or
its successors not more than 300,000 pounds (150 tons) per annum at a
price not lower than the price quoted to I. G. for the same quantities,
plus an extra charge of not less than 4¢ per pound for I. G.’s larger
consumption. Dow further promises to use its best endeavor to keep
British Maxium or its successors from reselling magnesium in ingot form
and will try to limit its purchases to its own use in fabricating.”
During 1934 and 1935 Dow delivered to I. G. (which was, of course,
the principal producer of magnesium in the world) more than 3,800,000
pounds of magnesium out of Dow’s total production of little more
than 4,000,000 pounds. This magnesium was sold to I. G. at a price
approximately 30% below the price to Dow’s other customers, with the
exception of American Magnesium Corporation, which also enjoyed a
preferential position. It is interesting to note that, during this same
period, the sales manager of Dow Chemical travelled to England and
wrote to his home office as follows:
“They [British Maxium] are very much in need of additional magnesium
for the balance of 1935, but they understand our position perfectly
well and do not blame us at all because we are not in a position to
furnish them the metal they want. They were at fault in not getting in
touch with us sooner regarding their increased demands. They advised me
that they had exported 20 tons of ingot to Europe but I later obtained
definite proof from Mr. Ziegler of the I. G. that they had exported 60
tons in Europe. If they had kept this metal in England they would have
had sufficient supplies for this year.”
It may be remarked that, in consequence of these arrangements between
Dow and I. G., I. G.’s position in the European magnesium market was
enormously strengthened. One particularly significant result of I.
G.’s dominance was that Great Britain was rendered primarily dependent
upon Germany for its magnesium imports. As late as 1938, 87.9% of the
magnesium imported into Great Britain was obtained from Germany. When
war broke out, Great Britain was at once cut off from a large part of
its magnesium supply.
From the standpoint of the development of the industry in the United
States, it is clear that the total effect of the arrangements among
Alcoa, I. G., and Dow was to restrict magnesium production. The extent
of the disparity in the magnesium output of Germany and the United
States is clearly evident in the production figures for the years 1937
to 1940. In 1940, the year in which France fell, the United States
produced 5,680 tons, while Germany produced more than 19,000 tons.
Strenuous efforts on the part of the government and industry have been
necessary to expand magnesium production sufficiently to meet our
minimum wartime needs. The large plant construction undertaken by the
government in cooperation with various magnesium producers has achieved
initial success. It is clearly evident, however, that the magnesium
program had to be inaugurated and carried out under the tremendous
handicap of the monopoly situation which existed in the industry prior
to the war.
It is equally clear that, from a political standpoint, the government
began its operations completely in the dark. It is scarcely credible
that, had the arrangements between Alcoa and I. G. and between Dow and
I. G. been known to the government at the time at which they were made,
the risks inherent in the private treating making of this type would
have been permitted to stand.
It is characteristic of many cartel agreements which are arrived at
secretly and maintained in silence that concealment of their provisions
is motivated by the desire to avoid scrutiny of their operations by
public authority. In some instances, the illegal nature of the terms
of cartel agreements explains the cloak of secrecy which is cast over
their provisions. Moreover, it is often stipulated in cartel agreements
that, in any eventuality of action taken by government, the parties to
the agreements shall cooperate in order to maintain their relationships
despite anything that government may do.
There are numerous examples among the many agreements which have been
investigated by the Department of Justice which clearly reveal the
intent as well as the necessity for secrecy from the point of view of
the cartels. Thus, in a letter from Canadian Industries, Limited, to
the du Pont Company, the writer states:
“In the course of recent meetings in connection with the new Patents
and Processes Agreement, I understand a suggestion has been made by
the du Pont legal representatives which will involve the new agreement
making specific reference to the respective territorial rights of
du Pont and ICI. I cannot help feeling that on broad grounds this
is undesirable both from the viewpoint of C-I-L and of the major
stockholders. For instance, should any investigation take place in
Canada which will require the production of this agreement, the clause
in question would automatically necessitate the production in its
term of the ICI and du Pont agreements: at least that is the way we
would read it, and this would be bound to lead to publicity of a very
undesirable nature in regard to the division of world territories. My
practical suggestion is that, as the detailed prior commitments are now
to be dealt with in the form of a letter separate from the agreement
(this at the suggestion of the du Pont legal representatives) it might
be possible to include the point in question in that separate letter
also.”
The attitude of cartels toward the relation between their own policies
and the policies of government are epitomized in the exchange of
correspondence between Sir Harry McGowan, Chairman of the Board of
Imperial Chemical Industries, and Lammot du Pont in May 1933. Sir Harry
wrote:
“With a large organization such as we have I find it is a good thing
to issue such warnings from time to time--one went out at the time of
the Ottawa Conference--so that everything possible is done to ensure
that no prospective political or legislative action on the part of
governments is permitted to influence relations between du Pont and
I.C.I.”
On June 17, 1933, Lammot du Pont replied as follows:
“I am much interested in what you say and have heartily approved your
attitude toward our Patents and Processes Agreement and the relations
between the two companies. I feel the same; namely that our relations
have been so happy and have produced such satisfactory results that we
should let nothing in the way of international agreements interfere in
any way with the progress we have made or may make in the future. If
any legislation or international agreements are brought about which
affect these I.C.I.-du Pont relations I am sure we will be able to
adjust ourselves so as to get the continued benefit of our agreement.”
A striking and instructive illustration of the role of secrecy
in cartel agreements is provided in the terms of an arrangement
concerning the pharmaceutical industry, between the Schering
Corporation of Bloomfield, New Jersey, and the Schering, A. G., of
Germany. One clause in this agreement, which was made in 1938, stated
that “the existence, the content, and the details of operation of this
agreement have to be kept secret by both parties notwithstanding the
possible obligation of disclosing it to public officials.”
In connection with an agreement concerning the plastics industry, the
consideration taken into account by the Rohm & Haas Company and du Pont
are indicated in a memorandum written by the latter company in 1936, in
which it is stated:
“We discussed the whole situation again. They repeated over and over
again that there is not the slightest possibility of the I.C.I.’s
coming into the American market, but du Ponts are afraid to write a
letter to this effect because in the case of an investigation of their
firm by politicians, the politicians might make capital of such a
statement, i.e., they might attempt to point out that the world was
divided up between I.C.I. and du Ponts.
“I told Mr. Wardenburg that I had implicit faith in all the assurances
which they had made to me, but that for my own protection I had to
have a letter from du Ponts, in which they can assure us, in one way
or another, that the I.C.I. will not take the opportunity to come
into this market. After a lengthy discussion of the different ways to
accomplish this purpose, it was agreed that Mr. Wardenburg will write
a letter saying that while it is true that the I.C.I. under their
contract have a right to come into the American market, they [du Ponts]
happen to know that the I.C.I.’s development in the methacrylic ester
field has taken a direction which is quite different from the one that
is being taken by du Ponts and ourselves, so that it will be highly
improbable that the I.C.I. will attempt to come into the U. S. market.
I told him that such a letter will be satisfactory.”
It is clear that cartel interests fear that the revelation of the
provisions of their agreements might impede the functioning of the
agreements or perhaps draw down upon them action by public authority.
Very often cartel agreements endeavor to discount this possibility in
advance. In the case of the agreements between Standard Oil and I. G.
Farbenindustrie it is provided that:
“It is our understanding ... that each party proposes to hold itself
willing to take care of any future eventualities in a spirit of
mutual helpfulness particularly along the following lines: In the
event the performance of these agreements ... by either party should
be hereafter restrained or prevented by operation of any existing or
future law, or the beneficial interests of either party be alienated
to substantial degree by operation of law or governmental authority,
both parties should enter into new negotiations in the spirit of the
present agreements and endeavor to adapt their relations to the changed
conditions which have arisen.”
Because most cartel agreements provide for their resumption at the
end of the present war, efforts to rehabilitate world trade may be
insuperably handicapped unless prompt and effective action is taken by
the government with full knowledge of the existence and character of
such cartel agreements. Regardless of the particular form or direction
of this nation’s trade policies after the war they could not become
effective if secret agreements among the large industrial groups of the
world contain arrangements which clash with the government’s program.
It is well to recall that the provisions of the Versailles Treaty at
the end of the first World War which prohibited the manufacture of
certain strategic products in Germany were rendered ineffective in many
instances. Through foreign subsidiaries and under the cloak of cartel
agreements with concerns in the United States and other countries,
German producers of military equipment were able to nullify the
application of the conditions imposed by the Treaty.
Public authority must not be left in the position of having to work
in ignorance. Only by compelling the official acknowledgement and
registration of the existence and provisions of agreements which affect
our foreign and domestic commerce can government acquaint itself with
the arrangements which have been made and which affect so vitally
national security and national welfare.
During the present war one of the most serious problems with which
the fighting services have had to contend on the battle fronts is
the frequency of malaria, one of the most widespread diseases in the
world. There are two standard remedies for malaria: one is quinine, a
natural product obtained from the cinchona trees of Java; the other
is atabrine, a synthetic coal-tar product. Because the production and
distribution of quinine were controlled by one of the most closely-knit
cartels in existence, a shortage developed almost immediately when the
Japanese seized Java. The dwindling stockpile of quinine in the United
States compelled the government to call upon druggists and housewives
alike to turn over whatever small quantities were on hand in order to
keep the fighting front supplied.
In the case of atabrine, only one company in the United States had
a license to manufacture the drug under the I. G. Farben patents.
It required the concerted effort of manufacturers and government to
institute expanded production in order to make up for the deficiencies
of quinine. Fortunately, these efforts have met with some success.
With regard to the future, however, it must be borne in mind that
cartels which are able to control and restrict the output of medical
products, in particular those which are so widely needed, as quinine
and atabrine, exert a direct influence on the military position of the
United States and other countries, as well as upon the general health
of the population. The opportunities for abuse which are present in
monopolistic control of medical products are obvious. It is equally
obvious that this government cannot afford to tolerate them. It would
seem a minimum precaution to require that where cartels control the
supply, the price, and the distribution of medical products, they
should be compelled to record the terms on which control is based, in
order that government might in its turn develop adequate safeguards for
the general welfare.
I believe it has been clearly demonstrated that certain fundamental
decisions affecting our relations with the rest of the world have
been formulated and put into effect by private groups without the
sanction or knowledge of government. These decisions concerning
our strategic materials, industries and trade, our Good Neighbor
and our European policies, our disposition of enemy property,
considerations of espionage, secrecy and the evasion of our laws, have
all been accomplished without the knowledge of our government or its
acquiescence.
If cartels are permitted to continue to enter into their secret
agreements, then it will be impossible for the peoples of the world
to develop mutual understanding or to share industrial experience and
progress. Cartels have been a focus of conspiracy and distrust among
nations in the past. It is not too much to say that they will form a
nucleus of future distrust and intrigue. A world partitioned by cartels
breeds economic friction and disunity. We must face the fact that a
cartelized postwar world would inevitably be a world of suspicion and
of clandestine international intrigue. Full reciprocity in respect of
trade and technology can only be founded on mutual confidence and good
faith.
There is current a school of thought which believes we must
differentiate between good cartels and bad cartels. Do these people
still propose to leave the conduct of our foreign economic policy
in the hands of private monopolists, with the one caveat that these
people be good monopolists and not bad monopolists? With all the best
intentions in the world, it is neither the role nor the responsibility
of businessmen to determine political questions which can only be
resolved by constituted government. This is a responsibility which
I believe businessmen should not undertake, and one which I believe
that they do not wish to undertake. Even those businessmen who have
engaged in these practices would be shocked to realize the implications
of their acts. At the time they were operating in this manner they
never thought in political terms, but rather in terms of the local
market. Once operating in the international market, however, these
businessmen found themselves in ambiguous positions where they were
forced to make choices which they never contemplated. What would they
do when confronted with the problem of choosing between national policy
as it should be and their own private interests? It would seem, from
the standpoint of public interest, that when questions of national
concern arise they should be handled by properly constituted government
authority.
American businessmen have not realized the significance of the
relationship between their foreign cartel partners and the foreign
governments involved. I doubt that they knew, for example, that the
following statement was made by Mr. Meinhardt of Osram, a member of the
international lamp cartel: “An international cartel has no right of
existence and a German businessman has no right to become a member of
such a cartel if this cartel is acting against the common interests of
Germany.”
The attitude of American businessmen is typified in the following
statement by an executive of the General Motors Company: “an
international business operating throughout the world, should conduct
its operations in strictly business terms, without regard to the
political beliefs of its management, or the political beliefs of the
country in which it is operating.”
All American businessmen and the Congress particularly should weigh
with care the type of thinking which results from a cartelized economy
such as Germany’s. Carl Duisberg, formerly chairman of the board of I.
G. Farbenindustrie, expressed succinctly the philosophy of Germany’s
cartel system when he said, in 1932: “The narrowness of the national
economic territory must be overcome by trans-national economic
territories.... For a final settlement of the problem of Europe ... a
close economic combine must be formed from Bordeaux to Odessa as the
backbone of Europe.” The ultimate consequences of such cartel aims have
been reckoned across the council tables of Munich and the battlefields
of Europe and Asia.
14
_Freedom or Control?_
All of us want our country to be strong and prosperous after this war
is won. In attaining strength and prosperity, foreign trade will play
an important part. Manufactured goods will leave the shores of this
country and will find their way through the miracle of new forms of
transportation, as well as on the tramp steamer, to the four corners of
the world. Raw materials, and finished products as well, will come from
these same four corners into the hands of the American consumer. The
foreign trade of this country will be measured in billions of dollars.
And our nation will take its place and play its part in what we believe
can be a healthy world economy.
I do not think that there is any basic difference of opinion in this
country as to the importance of our foreign trade. There appears to
be some difference of views, however, as to how our foreign trade
shall be conducted in the post-war world. It is argued that since
Europe has a cartel system, if we wish to carry on trade on commerce
with Europe or in the world, we must permit our foreign businesses
to become cartelized. We are told, in short, that we must join hands
with the cartels if we are to engage in foreign trade. Most of the
people who make this argument do so regretfully. They know that the
Sherman Antitrust Act, which prohibits restraints on both domestic and
foreign trade or commerce, has reflected the free enterprise spirit of
this country for more than fifty years. They know that the people of
this country are unalterably opposed to a cartel system under which
either the government or one’s competitors can determine what may be
manufactured, how much can be made, and what price may be charged. They
know that you cannot have a democratic system if enterprise is to be
subjected either to government bureaucracy or to the rule of private
trade councils. Nevertheless, these people, seeing a cartelized world
around us, believe that much as we may dislike it, we cannot conduct
foreign trade unless we join hands with the cartels.
There is a small minority in this country, of course, which has always
opposed our own free enterprise system. If these people could manage
it, they would have the economy of this country run by enlightened
and benevolent monopolists. These people make the argument, not at
all regretfully, that we must join hands with foreign cartels. They
know that once we have joined hands with foreign cartels, we will have
opened the door to monopoly at home, and that is what they want.
Let me venture a prediction. This country will engage in foreign trade
and commerce on a scale never before imagined, and we are not going to
join hands with any foreign cartels. There will be a drive to get us
into the foreign cartels; that drive in fact is now going on. It will
fail. It will fail for two good reasons. The first of these is that
our foreign trade would not be helped in the least if we joined with
the cartels. The second and even more important reason is that this
country is in no mood to give up an American way of life because Europe
believes in cartels.
We have been willing to subject ourselves to all kinds of governmental
controls over American business in order to win this war. When the war
is over, these controls must go, and as soon as possible. We are not
going to keep these controls either in the hands of the government or
in the hands of a few private individuals. We are not going to imitate
the very foreign economic system which we have defeated.
The monopolist tells us that European industry is cartelized and
that it will remain so after this war is over. What kind of wishful
thinking makes the monopolist so sure of that? I do not believe that
the French or the Belgians will wish to embrace an economic system
after this war is over which took their basic industries and put them
into the hands of an international set of cartelists dominated by the
Germans. I do not believe that the British will wish to encourage a
system which in March 1939 gave birth to the announcement between the
Federation of British Industries and the German Reichsgruppe Industrie
that the two groups would eliminate competition between British and
German industries, would fix prices, and would seek the aid of their
governments against the industry of any third country, clearly meaning
the United States, which did not join in this limitation of production
plan. Great Britain needed its own full production in those days, and
American production as well. I do not believe, for that matter, that
the British will wish to have an economic system which has made the
British consumer pay high prices and has restricted production in both
Great Britain and the Dominions.
It is clear, of course, that in each country of the world, there are a
few monopolists who will benefit from the cartel system. We have them
in our country also. But we are not going to let these few determine
our own economic life, and we should not let them control our attitude
or actions in Europe. Certainly it is too early to predict that Europe
will remain cartelized after this war. I think it is not unlikely that
the consumers of Europe will decide they have had enough of that system
and will demand a change.
But no matter what Europe does, our foreign trade will not be helped
in the least by our joining foreign cartels. The very reverse is true.
The way to kill American foreign trade is to have American producers
enter into international cartels. One reason for the current drive to
get American firms into foreign cartels is precisely that. There are
a few monopolists who do not look with favor upon sales by American
firms in the rest of the world. They are terrified that our mass
production methods may benefit consumers in the rest of the world. They
will not be able to maintain their own prices if this should occur.
Their invitation for us to join them in cartel agreements is not an
invitation to engage in trade or commerce; it is an invitation to
discover upon what terms and conditions we will keep our trade at home.
The record is very clear. A small number of powerful American firms
entered into illegal cartel agreements before the war, particularly in
the halcyon days of the twenties. These were agreements to restrict
American exports. Typically, the American firms agreed not only not
to export themselves but wherever possible to keep other American
firms from exporting. These agreements occurred in synthetic nitrogen,
aluminum, magnesium, optical glass, electric lamps, pharmaceuticals,
plastics, chemicals and a host of other items. It is quixotic to think
of these agreements as having promoted foreign trade; their whole
purpose was to prevent it. Where was our foreign trade when these firms
agreed to turn over the Latin American market in pharmaceuticals to the
Germans? What foreign trade was being promoted when we agreed not to
export to Great Britain more than a limited quantity of magnesium? The
underlying philosophy of these agreements was that if the foreign firms
would stay out of the American market, we would stay out of the foreign
market.
There is no mystery about this. The monopolists know it very well
as do the other American companies, large and small, who were not
permitted to export because if they did so, they would interfere with
the arrangements to keep trade and commerce from flowing in either
direction across the borders of this country. The reasoning is clearly
set forth by an official of an American company in explaining why his
company cannot export:
“... you spoke of a possible license from the G.E. to export lamps to
certain countries. I don’t know whether I explained the situation to
you, but the fact is that in the world at large, the more important
electrical interests, such as the G.E., Siemens of Germany, Phillips
of Holland, etc., are closely bound together in a cartel with the
result that they have entered into binding agreements, apportioning
world markets between the respective companies. Accordingly you can see
that if the G.E. broke their agreement and allowed us to export into
a foreign country which was assigned under the cartel agreement to a
European manufacturer, that European manufacturer would have a claim to
enter the American market in competition with us and probably could not
be restrained from doing so. This is something which would probably not
be to our advantage.”
One might as well urge that a railway wreck promotes transportation as
to urge that a cartel agreement promotes trade.
The cartelist lives in a land of make-believe. I do not suppose that
we can object to anyone having his own private fairy tale, but this
kind of fairy tale can be dangerous to the future peace and security of
this country. It is a self-perpetuating fairy tale. It is founded on
economic maladjustments and it tends to prolong these maladjustments
by collecting a hidden tax from consumers and by donating the proceeds
to monopolists who have no incentive to change their ways. The
consequences can be disastrous in both the military and the political
sphere. As for our own economic life, international cartels breed
domestic monopolies. Their final result is complete government control
and management of business.
The cartelist appears to believe that the way to engage in foreign
trade is to have a conference--a kind of Alice in Wonderland mad
tea party. At this conference the world is divided up; markets are
allocated; and, if he is fortunate, an American enterpriser will be
given some business. At the end of the conference he can telephone his
office and say “Men, we have been given the Shangri-La market; it’s
all ours.” Sometimes the cartelist sounds as though he were too lazy
to attend the conference himself. He wants his Government to go for
him. He wants the Government to tell him what to do, what markets he
can have, and what he can sell. One gets the impression that foreign
trade is conducted in an armchair, that it is better if you can get the
Government to do it for you, and that it does not make much difference
what you have to sell.
This kind of thinking is dangerous. It is a denial of the principle
of private property with the profit reward for private initiative and
risk taking. Foreign trade presents special problems, but it is none
the less true in foreign as well as in domestic trade that if you
want to sell you have to make a product the consumer wants to buy. In
the development of the foreign market there is no panacea, no easy
substitute for ingenuity and efficiency. We cannot expect the foreign
consumer to adjust his desires to whatever it is we want to sell.
We have to make the kind of a product he wants to buy. The truth of
the matter is that many of the large concerns that have made cartel
agreements have not been particularly anxious to sell in the foreign
market. They have been more anxious to keep independent enterprise in
this country from gaining access to foreign markets than they were
to sell themselves. As a consequence we must frankly admit that in
many industries, American enterprise has not shown the competitive
alertness it has at home. If it does not show competitive alertness,
it does not deserve the business. And you cannot find a substitute for
competitive alertness in an armchair cartel conference or even in an
intergovernmental cartel conference.
The cartel conference is a kind of legislature, imposing hidden taxes
on consumers and bestowing bounties on others, without the necessity
for disclosure or responsibility to any electorate. It is truly a
method of imposing taxation without representation. This is true
in every cartel case. Some time ago it was fashionable to scoff at
international relief or development projects as being international
WPAs. Americans were asked rhetorically whether they wished to take
care of inhabitants on some other portion of the globe. But no relief
scheme has ever been imagined, and no one would dare to present it,
which could begin to compare with the international relief societies
maintained for themselves by the international cartels. Gigantic sums
are drained from the American consumer each year and given outright to
domestic monopolists and to foreign companies operating in protected
markets. When it is urged that American companies should be allowed to
join with foreign cartels in order to promote foreign trade, it should
be remembered that what is there called foreign trade is in reality a
gigantic relief enterprise supported by the American consumer. I can
illustrate this with an example taken from one of our earliest cartel
cases.
The story begins prior to the First World War with the discovery
and development in Germany of a way of making synthetic nitrate of
soda by taking nitrogen out of the air. Prior to that discovery, the
world was dependent upon Chile for its nitrate of soda for use in both
fertilizer and the making of munitions. The discovery of this new way
of making nitrate of soda changed the history of the world for it made
it possible for the Germans to wage war without depending upon a raw
material to be found only in the Western Hemisphere. It is probable
that if synthetic nitrogen had not been discovered, the Germans could
not have been able to go to war.
The Allies at that time were dependent upon Chilean nitrate of soda,
and as a military matter, this dependence made the Allied position in
the first years of the war exceedingly precarious. The Germans knew
that Great Britain could not stay in the war for any considerable
length of time if it were cut off from its only source of nitrogen,
and accordingly in 1917, the Germans set up a blockade outside of
Valparaiso. The first attempt of the British to break this blockade was
unsuccessful, but the blockade was finally removed as a result of the
battle of the Falkland Islands when Admiral Von Spee was defeated. As
an economic matter, this dependence of the Allies upon Chilean nitrate
of soda was, of course, good for Chile. The United States in 1917 and
1918 purchased almost four million tons of nitrate from Chile; we paid
on the average of about $82.50 per ton. At one time, the price rose to
$150.00 per ton. In those days, Chile had a unique product, a natural
monopoly, and we had to pay for it. The First World War gave to Chile
the chance to receive large revenues on a valuable asset, but the First
World War also created a situation where in the days to come that asset
would depreciate enormously.
The asset of Chilean nitrate of soda was depreciated enormously because
all of the important countries of the world, including our own, began
to produce synthetic nitrate of soda. Chile no longer had a natural
monopoly safe from effective competition. The producers of synthetic
nitrate of soda began to compete with each other and with the Chileans.
In order to remove this competition they formed a cartel.
The cartel was formed in 1926 and by 1938 it had reached its full
growth. The cartel was dominated in Europe by the so-called DEN group,
composed of Imperial Chemical Industries, Ltd. for the British,
Stickstoff-Syndikat, controlled by I. G. Farbenindustrie for the
Germans, and Norsk Hydro for the Norwegians. The European end of
the cartel formed an international company in Switzerland to handle
the cartel affairs, and thus to represent the thirty-five principal
European producers. By special agreements the cartel was extended
to cover the Chilean producers of natural nitrate, and I am sorry
to say, the important American producers as well. The cartel was an
international combination to restrict production, maintain prices and
to allocate territories. The world was divided up into special zones of
influence; quotas were assigned, and sales in forbidden areas or above
the allowed quota resulted in the assessment of penalties. Mexico, for
instance, was allocated to the German producers. The American producers
were required to refrain from exporting to certain areas. The Barrett
Company could not sell substantial quantities of nitrate of soda into
foreign markets reserved for the Chilean producers. Du Pont was kept
from selling a nitrogenous product in the Philippine Islands. This
was not an international trade agreement; as is true with all cartel
agreements, this was an agreement to restrict trade.
The cartel agreements covered the American market. Imports by a foreign
company to this country had to be included in determining whether
that company had exceeded its quota of the world market. American
companies were restricted in their exports and to some extent in their
production. And sales in the American market, whether for Chilean,
European or American producers were at agreed upon prices. An elaborate
system of distribution was worked out and adhered to so that these
agreed upon prices could be maintained down through the wholesalers and
retailers. The cartel thus reached down and touched the American farmer
buying in the country store.
Now nitrate of soda is important to the American farmer as are the
other fertilizer nitrogen products which were covered by this cartel.
In 1937, approximately 700,000 tons of nitrate of soda were imported
from Chile for distribution to the American farmer. If there is a
cartel in fertilizer nitrogen, it is the American farmer who pays. And
he has paid in millions of dollars--a hidden tax to the foreign and
domestic producers.
Production was restricted and prices were fixed by this cartel. Some of
the higher prices went to Chile; some of them went to our own producers
and abroad. The consumer, who in this country happened to be the
American farmer, paid a tax in the form of higher prices to keep this
cartel going. He did not know he was paying this tax. He did not have
the opportunity to elect a representative who might have been for or
against this tax. And yet, out of every dollar the farmer paid, a part
of it was an involuntary offering to the cartel.
And what was the good from all of this? A hidden tax was collected;
purchasing power was destroyed. And all of this was done so that
productive capacity could go unused. Out of the hidden tax paid by the
American farmer, only a part of it went to the Chilean companies; a
good deal of it went to American and European producers.
Whenever the argument is made that a cartel supports a distress
industry, the complete answer is that it would be cheaper and better
to make an outright gift, raised, if necessary, by lawful general
taxation through the Congress. It would be cheaper because consumers
would not be required to pay an additional amount to those who are not
distressed as they have to do when the cartel keeps the general price
up. It would be better because if it were a gift, it would not be
raised from only one group of consumers, as in this case, the farmers.
It would be better because the contributors to the gift fund would
have some chance to know what they were doing and to decide whether
they wanted to do it. Nor would the gift be as likely to disappear
under the burden of an inefficient method of production as is the case
with the hidden tax which is collected every year and which imposes no
incentive upon the monopolist to change his ways. You cannot expect
the monopolist to change his ways when he can collect a hidden tax
every year. No doubt after this war, it will be argued that synthetic
nitrogen capacity should go unused by agreement between the large
companies. We should remember that if this is done, as with all cartel
agreements, there is a hidden and unlawful tax; in this case it would
be the American farmers who would pay.
I do not revive this synthetic nitrogen story in order to make charges,
but merely as a specific illustration of the way cartels operate. The
actual cases are the best answers to the argument that cartels promote
trade. The synthetic nitrogen cartel was typical in many ways. The
particular occasion for the birth of this cartel was the development of
a synthetic process which threatened to destroy the capital value of a
natural product. After this war, there will be many new processes whose
existence will destroy old capital values and which can be looked upon
either as keys to open the doors of new opportunities or as occasions
for restrictive agreements. The synthetic nitrogen cartel brought
together producers fearful of each other’s productive capacity. As
is true in almost every important cartel, the restrictive agreements
might have had important military consequences, even though many of the
private producers were only thinking in terms of a peace-time market.
And finally, this foreign cartel, as is so frequently the case, bred a
domestic cartel.
The effect is far-reaching both politically and economically. You
can never deal with just one cartel separate from the others because
the cartel world is an intricate and interrelated maze. Thus the
foreign participants in the nitrogen cartel include the German I. G.
Farbenindustrie and the British Imperial Chemical Industries--each a
member of a variety of world dividing cartels. The American producers,
whether they knew it or not, were entering into an international game
to divide markets in which every market and every type of product was
involved if the full scope of the cartel agreements of their partners
were revealed. They were dealing in secret international diplomacy.
In many cases they were in reality dealing with foreign governments,
despite the fact that it has not been the policy of this country to
have the conduct of our foreign affairs in private hands. Since 1799
an Act of Congress has prohibited every citizen of the United States,
without the permission of the Government, from carrying on any written
or verbal correspondence or intercourse with any foreign government
with an intent to influence the measures or conduct of any foreign
government in relation to any disputes or controversies with the United
States. Quite apart from whether this criminal statute is applicable,
its spirit would deny to any citizen the right to barter away the trade
of the United States by agreement with a foreign government.
One need only think of the possible disastrous effects of permitting
Germany to build up a monopoly position in Latin America. The economic
effects grow like a snow-ball. Thus in the instance of the synthetic
nitrogen cartel, the American consumer lost purchasing power; that
meant that American producers could sell less and could therefore buy
less. The Chileans received only a portion of the amount of money
taken out of purchasing power, but the related cartels operate in
Chile, such as the chemical cartel of which both Imperial Chemical
Industries and du Pont’s are members. And these cartels do the same
thing to Chile that the synthetic nitrogen cartel did to us. Economic
life is so related today that you cannot restrict one part and not have
almost endless repercussions. For instance, if American movies should
be kept out of foreign areas, the effect is immediate on all kinds of
American products which are advertised continually through the medium
of the motion picture. If the motion picture producers enter into a
cartel agreement, they are restricting a good deal of American trade in
addition to their own.
What then is the solution? There is no solution if the problem is how
can you have American firms enter into foreign cartel agreements but
not restrict American trade and commerce. It is surely no solution to
say that in the future we will have the governments enter into cartel
agreements for us. As an economic matter, it makes no difference
whether an agreement to restrict trade is private or governmental. As
a political matter, I would agree that if we are going to have such
agreements, with their widespread economic diseases, they had better be
the responsibility of the government, if only because, the government
which makes such agreements can be changed by the voters. But I would
suggest that effective governmental control over such agreements would
require such a degree of interferences and surveillance over private
industry as to place in great jeopardy our own free enterprise-private
property system. The history of attempts to control cartels by
legalizing and controlling them is not particularly inspiring. Germany
is one example.
There is not any one solution because there is not just one problem.
There are many things which must and can be done if this country is to
encourage foreign trade.
_First_, we must encourage domestic research. Any country which wishes
to engage in trade and commerce in the future industrial era must
develop its own laboratories and encourage its own domestic research.
It has sometimes been suggested that the reason why some of our larger
American companies entered into agreements to stay out of important
markets such as Latin America was because such was the price they had
to pay to get the benefits of European research. It has sometimes even
been suggested that we have been dependent upon European research
acquired in this manner for many of the important developments which
have helped us in this war.
There will probably always be a certain amount of obscurity about
this claim that we are dependent upon European research. The files
of some of the Antitrust Division cases, however, indicate that even
though German firms may have been bound under their agreements to make
their research available to their American friends, in many important
instances they did not do so. In any event, I think we would agree that
it is of the utmost importance that American firms be able to stand on
their own feet, and that they should not be dependent upon research
from abroad. It has been quite natural, of course, for European
research to be in advance of our own in some fields. But failure to
develop our own laboratories and our own scientists would be criminal
negligence.
I suggest that we ought to have an impartial and searching survey
begun as soon as possible as to American research facilities and the
state of American research. This is not a matter which concerns only
our foreign trade. It goes to the very heart of our future domestic
well-being.
Of course, I do not mean to suggest that we should cut ourselves off
from European research. There is every reason to believe that research
in the future will be truly international in the sense that a partial
discovery in England will be supplemented by work done in France
or in this country. Possibly some inter-governmental agency can be
developed which will act as a kind of international clearing house
in order to speed the development of common research carried on in
separate areas. It is likely that private institutions in this country
and the government itself, as suggested by Senator Kilgore, could aid
in the performing of this function. If a study were made of our own
domestic research facilities, I would expect that out of that study a
recommendation might well come to set up some kind of an international
clearing house for research.
There is a further step we can take. The research which has been
developed in Germany during the last ten years under the Nazi regime is
research which in right belongs to the people of the United Nations. It
was Nazi government sponsored research used for the purpose of making
war upon us. It is research which should now be put to use for the
general good of mankind. It should not be considered as belonging to
private hands either in Germany or elsewhere. The United Nations should
make sure that steps are taken to make available this research so that
it can be used generally.
_Second_, we must remove, through inter-governmental action, the waste
and misuse of resources which occur when industries cannot compete and
are artificially maintained. It will be much cheaper for this country
to offer transitional credit to be used to develop new industries than
to continue paying hidden taxes which don’t accomplish anything. We
should set up an international mechanism whereby substantial credit
can be made available to other countries upon such terms as will
encourage the readjustment of the use of their resources so that these
resources can be employed, without the crutch of a trade barrier, in
the free trade of the world. Consistent with this aim, we can urge
also the adoption of minimum wage and health standards so that labor
exploitation does not become the means of providing a hidden subsidy
for industry in countries having substandard labor conditions.
_Third_, it is, of course, imperative that this country make known its
determination to encourage foreign trade and to make it possible for
American firms, large and small, to bring their goods to the consumers
who will buy. Through vigorous antitrust action, we can break up the
activities of a great number of foreign cartels. And American firms
are perfectly capable of engaging in vigorous competition with the
old monopolistic companies of Europe. Where American industry is
competitive at home, such as the automobile industry, there is no
way a foreign company effectively can keep out American goods, and
foreign consumers would be the first to object if that were tried. It
is the industries which are monopolistically dominated at home which
seem to have the greatest difficulty. I suspect, however, that in
those industries there are smaller firms who will be glad to have the
opportunity of selling abroad.
_Fourth_, we should stand ready to help create an international
forum to which countries denied access to raw materials or allowed
to purchase them only on the basis of monopolistic prices can go to
present their case. This does not mean that we should take part in
any international control of business, but it does mean that for
those few areas where monopolies continue to persist, we must create
a world where there is a remedy within the structure of the peace.
Many of these raw materials no longer have their former importance.
Poetic justice may come to rubber, quinine and eventually to diamonds.
Persistence in monopoly prices usually stimulates the development
of a substitute. The international forum which I urge will probably
not have to hear too many cases. The power of competition has grown
more powerful during the war because of the development of myriads of
substitutes for the key raw materials.
The opportunities are tremendous. The tools needed for the job are the
productive facilities and materials which we will have in abundance.
We can play our part with energy and initiative; we would not have it
otherwise. We believe in competition, and we are ready to compete. We
are ready to engage wholeheartedly in rebuilding a world of peace in
which every man and every country can have a stake. We know that we
cannot maintain, let alone advance our standard of living save upon the
basis of an active and expanding international trade. Our expanding
trade will enlarge the area of the interests which we have in common
with other peoples, and for us, as well as for them, will narrow the
intensity of our differences. And we will have played our part in
foreign trade in such a way as to preserve the symbol of our political
and economic democracy.
APPENDIX I
_Recent Cases_
The most effective weapon presently available for combatting the
influence of monopoly and cartel-minded international groups is
vigorous enforcement of the antitrust laws. Congress has recognized
that the natural effect of competition is to increase commerce--to
extinguish or prevent the free play of competition is to hinder
commerce. As was stated by Mr. Chief Justice Stone in the _Trenton
Potteries_ case:
“Whatever difference of opinion there may be among economists as to the
social and economic desirability of an unrestrained competitive system,
it cannot be doubted that the Sherman Law and the judicial decisions
interpreting it are based upon the assumption that the public interest
is best protected from the evils of monopoly and price control by the
maintenance of competition.”
By passage of the antitrust laws, Congress has expressed the American
policy of free competition not only in interstate trade and commerce
but also in our foreign trade and commerce. The provisions of Section
73 of the Wilson Tariff Act further exemplify this doctrine with
specific reference to imports to this country. Section 11 of the Panama
Canal Act prohibits passage through the Panama Canal of ships owned
or operated by persons doing business in violation of the antitrust
laws. Thus, the practices of foreign cartels, involving elimination
of competition and collectivization of industry, are inconsonant
with the basic concepts of our antitrust laws and national economic
policy. The type of arrangements which are the cornerstone of European
cartelization, such as agreements dividing markets, allocating
customers, controlling production and prices, and apportioning business
have all been long declared to be in violation of our antitrust
statutes by the courts.
By and large, the antitrust laws can be effectively applied to combat
restraints upon the domestic and foreign commerce of the United States
whether the practices, agreements or conspiracies complained of have
their inception in this country or elsewhere.
It has become an accepted principle of law that acts done or agreements
entered into in a foreign jurisdiction, even though lawful there, may
be prosecuted or enjoined in this country where the effect or result
of such acts or agreements is a violation of our laws. This principle
has been applied in antitrust cases, and agreements which restrain our
trade with foreign nations have been uniformly declared illegal. Our
courts may control foreign citizens or corporations operating wholly in
foreign territory, where their operations extend into the domestic and
foreign commerce of this country, just as we may undoubtedly control
the activities of our own citizens and our own corporations which
impinge upon our domestic and foreign trade and commerce.
The mere fact that a combination is formed in a foreign country does
not prevent the application of our laws where it affects the foreign
commerce of this country and is put into operation here. Conversely,
combinations or agreements entered into in the United States and
adversely affecting the foreign trade of this country are subject
to the antitrust laws even though the acts done to effectuate the
restraints are performed outside this country. It is recognized that
some cartel arrangements are instigated by or under cover of foreign
governmental authority, but unless the cartel arrangements complained
of are solely participated in by the foreign government, the situation
is not altered.
While a foreign sovereign may have immunity from suit, such immunity
does not apply to private individuals or organizations even though
they may be acting pursuant to the laws of their own country, or as
agents for their government or though a foreign government may have
a substantial financial interest in the challenged organization and
activities.
The practical difficulty of acquiring personal jurisdiction over
some of the foreign individual or corporate participants in a cartel
which affects our foreign or domestic commerce is often confused with
the question of whether or not a violation of our antitrust laws is
involved. This, however, is a technical problem depending upon an
aggregation of facts rather than a question of substantive law involved
in restraints upon commerce.
The following is a list of antitrust cartel cases instituted by the
Department of Justice since 1937:
_Aircraft Accessories_: Bendix Aviation Corporation, et al.; complaint
filed November 19, 1942; postponement of trial requested by War and
Navy Departments.
_Alkali_: United States Alkali Export Assn., Inc., et al.; complaint
filed March 16, 1944; argument had May 10, 1944 on motions to dismiss.
_Aluminum_: Aluminum Company of America, et al.; petition filed April
23, 1937; judgment denying Government relief filed July 23, 1942; on
appeal.
_Chemicals_: Imperial Chemical Industries, Ltd., et al.; complaint
filed January 6, 1944.
_Chemicals and Petroleum (Including Synthetic Rubber)_: Standard Oil
Company (N. J.), et al.; complaint filed March 25, 1942; consent decree
entered March 25, 1942; supplemental judgment filed April 7, 1943.
Information filed and pleas of nolo contendere on March 25, 1942; fines
levied totaled $50,000.
_Dyestuffs_: Allied Chemical & Dye Corp., et al.; indictment returned
May 14, 1942; Attorney General acquiesced to postponement of trial
until it will not interfere with defendant’s war production. General
Dyestuff Corp., et al.; indictment returned December 19, 1941; pending
on preliminary motions.
_Fertilizer_: American Potash & Chemical Corp., et al.; complaint filed
May 15, 1940; consent decree entered May 21, 1940. Chilean Nitrate
Sales Corp., et al.; indictment returned September 1, 1939; dismissed
as to 18 defendants June 3, 1941 to August 28, 1942; pleas of nolo
contendere by 6 defendants August 28, 1942; fines levied totalling
$35,000. Allied Chemical & Dye Corp., et al.; complaint and consent
decree entered May 29, 1941. Imperial Chemical Industries (N. Y.),
Ltd., et al.; complaint and consent decree February 17 and 18, 1942.
Mutual Chemical Company of America, et al.; indictment returned June
26, 1942; Attorney General acquiesced to requests by War and Navy
Departments for postponement of trial. Synthetic Nitrogen Products
Corp., et al.; complaint and consent decree, September 5, 1941.
_Fluorescent Lamps_: General Electric Company, et al.; complaint filed
December 9, 1942; Attorney General acquiesced to postponement of trial
requested by War and Navy Departments.
_Fuel Injection Equipment_: American Bosch Corp. and Donald P. Hess;
complaint and consent decree, December 29, 1942.
_Glass Bulbs_: Corning Glass Works, et al.; indictment returned
August 28, 1940; pleas of nolo contendere and fines totalling $47,000
September 9, 1941.
_Gyroscopic Instruments_: The Sperry Corporation, et al.; complaint and
consent decree entered September 1, 1942.
_Hormones_: Ciba Pharmaceutical Products, Inc., et al.; information
filed and pleas of nolo contendere, December 17, 1941; fines of
$18,000. Roche-Organon, Inc., and Elmer H. Bobst; information filed
and pleas of nolo contendere, December 17, 1941; fines of $6,000.
Schering Corporation, et al.; information filed and pleas of nolo
contendere, December 17, 1941; fines of $24,000; complaint and consent
decree entered same day. Swiss Bank Corporation; complaint and consent
decree, December 17, 1941. Julius Weltzien and Schering Corporation;
information filed and pleas of nolo contendere, December 17, 1941;
fines of $6,000.
_Incandescent Lamps_: General Electric Company, et al.; complaint filed
January 27, 1941; Attorney General acquiesced to postponement of trial
requested by War and Navy Departments.
_Magnesite Brick_: Harbison-Walker Refractories Company, et al.;
indictment returned January 20, 1941; pleas of nolo contendere and
fines of $76,500, July 22, 1941; pending as to Veitscher Magnesitwerke
Aktiengesellschaft and Magnesit Co., Ltd., whose motion to vacate
services of summons has been referred to a special master, also as to
Magnesit Industrie Aktiengesellschaft.
_Magnesium_: Aluminum Company of America, et al.; complaint filed;
consent decree entered April 15, 1942; indictment returned January 30,
1941; pleas of nolo contendere, April 15, 1942, and fines of $104,993.
To be set for trial as to I. G. Farben and Dietrich Schmitz. American
Magnesium Corporation, et al.; indictment returned January 30, 1941;
pleas of nolo contendere and fines of $15,003, April 15, 1942; case to
be set for trial as to I. G. Farben and Gustav Pistor. Dow Chemical
Company, et al.; indictment returned January 30, 1941; pleas of nolo
contendere and fines of $20,004, April 15, 1942; to be set for trial as
to I. G. Farben.
_Matches_: Diamond Match Company, et al.; complaint filed May 1, 1944.
_Military Optical Instruments_: Bausch & Lomb Optical Company, et al.;
indictment returned March 26, 1940; pleas of nolo contendere and fines
of $41,000, May 27, 1940 and March 5, 1941; pending as to Carl Zeiss (a
German firm). Complaint filed July 9, 1940, and consent decree entered
same day as to all defendants except Carl Zeiss.
_Molybdenum_: Climax Molybdenum Company, et al.; complaint filed August
19, 1942 and consent decree entered August 21, 1942.
_News Reporting_: The Associated Press, et al.; complaint filed August
28, 1942; Decree for Government January 13, 1944; appeal of defendants
docketed in Supreme Court, April 13, 1944.
_Newsprint Paper_: Crown Zellerbach Corporation, et al.; indictment
returned July 12, 1939; 6 defendants pleaded nolo contendere and were
fined $30,000, May 2, 1941; remaining defendants dismissed.
_Pharmaceutical Products_: Alba Pharmaceutical Company, Inc., et al.;
information filed, pleas of nolo contendere, and fines of $26,000,
September 5, 1941; complaint filed and consent decree entered same day.
The Bayer Company, Inc., et al.; complaint filed and consent decree
entered, September 5, 1941. Merck & Company, Inc., et al.; complaint
filed October 28, 1943; Government moved to join the Alien Property
Custodian as party plaintiff, May 8, 1944.
_Photographic Materials_: General Aniline & Film Corporation, et al.;
indictment returned December 19, 1941; pending on preliminary motions.
Dietrich A. Schmitz, et al.; indictment returned December 19, 1941;
pending on preliminary motions.
_Plastics_: E. I. du Pont de Nemours & Company, et al.; indictment
returned August 10, 1942; Attorney General acquiesced to postponement
of trial requested by War and Navy Departments.
_Quebracho_: The Forestal Land, Timber and Railways, Ltd., et al.;
complaint filed December 20, 1943; pending on preliminary motions. The
Tannin Corporation, et al.; indictment returned November 24, 1942;
pleas of nolo contendere and fines of $59,003, January 12, 1943 and
April 19, 1943; dismissed as to the remaining defendants, August 24,
1943.
_Titanium Compounds_: National Lead Company, et al.; indictment
returned June 28, 1943; case set for trial on October 3, 1944;
complaint filed July 1, 1944.
_Tungsten Carbide_: General Electric Company, et al.; indictment
returned August 30, 1940; superceding indictment returned October 21,
1941; Attorney General acquiesced to postponement of trial requested by
War and Navy Departments.
APPENDIX II
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Ballande, Laurence, _Essai d’etude Monographique et Statistique sur les
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Borkin, Joseph and Welsh, Charles A., _Germany’s Master Plan_, New
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Burns, Arthur R., _The Decline of Competition_, New York, 1936.
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1931.
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1927.
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Nations publication.)
_Index_
Abbe, Dr. Ernst, 144
Abbott Laboratories, 92, 95, 96, 110
Acetol Products, Inc., 87, 91, 93, 105, 110
Addison’s disease, 61, 73
Agriculture, Dept. of, 109
Aircraft accessories, 252
Airplanes, 157
Alba Pharmaceutical Co., 256
Alien Property Custodian, 34, 59, 64, 76, 81, 125, 140, 143, 178,
200, 219, 220, 256
Alig Agreement, 222
Alkasso (See United States Alkali Export Ass’n.), 193, 199–204, 252
Allied Chemical and Dye, 181, 253
Allies, 215, 240
Aluminum, 11, 33, 221, 222, 236, 253
Aluminum Co. of America, 221–225, 253, 255
Aluminum production, French, 6
American Bosch Corp., 254
American Magnesium Corp., 221–223, 255
American Medical Ass’n., 90, 106
American Potash and Chemical Corp., 200, 202, 253
American Tanners, Ltd., 122
American Telephone and Telegraph Co., 21
Animal Industries Bureau, 109
Antitrust Division of Dept. of Justice, 35, 83
Antitrust laws, 38, 48, 58, 77, 130, 154, 176, 198, 205, 250, 251
Argentina, 71, 113–115, 119, 165, 176, 183, 184
Armistice, 215
Army Air Corps, 22, 23, 25
Arthritis, 57, 91
Associated Press, 256
Asthma, 91
Atabrine, 229, 230
Atlantic Charter, 10, 209
Atlantis S. A. Panama, 69, 70, 71
Ayerst, McKenna and Co., 89
Badische Anilin und Sodafabrik A.G., 211
Barkey, J. A., 121
Barney, L. D., 85, 87, 97, 100, 104
Barrett Co., 241
Bartholomew, Sir Clarence, 185
Barton, L. E., 126
Basal Agency, 122
Bauer, K. A., 173
Bausch and Lomb G.m.b.H. Frankfort-on-the Main, 155
Bausch and Lomb Optical Co. (Rochester), 24, 142–175, 255
Bausch, Carl L., 155
Bausch, Dr. Edward, 154, 165, 166, 170, 171
Bayer, 205 (See Germanin), 55
Bayer Co., Inc., 256
Bayliss, 60
Belgian Congo, 1
Belgian Solvay (See Solvay et Cie), 202–204
Bell Laboratories, 21
Bell System, 22
Bendix Aviation Corp., 218, 252
Berst-Forster-Dixfield Co., 185–189, 191
Beryllium, 34, 47, 220
Beryllium Corp. of America, 220
Binoculars, 143, 166, 170–174
Blacklisting, 101
Blumenfeld, Joseph, 127, 129
Bobst, Elmer H., 254
Boehringer and Sons, C. F. (Mannheim), 61, 74–76
Bombsights, 144, 156
Borden Co., 89, 106
Bosch, Robert, A. G., 214
Brazil, 113, 114, 176, 183
British Cabinet, 5, 8
British Laporte Co., 133
British Match Corp., Ltd., 185
British Maxium, 223
British Purchasing Commission, 217
British Titan Products, Ltd., 133, 134
Brodbeck, James, 72
Bryant and May, Ltd., 185, 189, 190
Bulbs, glass, 254
Buna, 212
Buttle, N. A., 101
California Alkali Export Ass’n., 193, 199–204
Canada, 16, 79, 132, 176–178, 181, 186, 187, 190, 203, 217, 218, 225
Canadian Industries Ltd., 134, 181, 184, 225
Canadian Titanium Pigments, Ltd., 134
Carnation Co., 106
Carpenter, Walter Samuel, Jr., 179
Casado extract, 118
Chamberlain, Joseph, 5
Chemical and Pharmaceutical Enterprises, Ltd., 64, 68–70
Chemical Marketing Co., 215
Chemical pharmaceutical industry, 54
Chemicals, 253
Chepha, 64, 68–70
Chilean Nitrate Sales Corp., 253
Chimio (See Les Laboratoires Francais de Chimiotherapie), 61, 76
Chlorate of potash, 186, 190
Cholesterol, 89, 110
Church and Dwight, Inc., 200, 202
Ciba (Basle) (See Society of Chemical Industry (Basle)), 61, 72–81
Ciba Pharmaceutical Products, Inc., 72, 254
Climax Molybdenum Co., 255
Cocomalt, 89
Cod Liver Oil with Viosterol, 97, 100
Commander Larrabee Co., 89
Commerce and Industry Ass’n., of N. Y., 193
Commercial Pigments Corp., 130
Compania Sud-Americana de Explosivos, 182
Congress, 16, 36, 37, 192, 193, 197, 198, 217, 232, 243, 244, 250
Corning Glass Works, 254
Cortate, 73
Cotan, S. A., 120, 122
Crown Zellerbach Corp., 256
Czechoslovakia, 14, 129, 162
Davis, Charles Krum, 179
Davis and Co., R. B., 89
Delta Pharmaceutical Corp., 69–71
D.E.N., 241
Deutsche Gold-und-Silber Scheideanstalt, 215
Diabetes, 52, 53, 57
Diamond Alkali Co., Inc., 200, 202
Diamond Match Co., 185–191, 255
Dodds, E. C., 80
Doitsu Senryo Gomei Kaisha, 135
Dow Chemical Co., Inc., 200, 202, 221–225, 255
Drisdol, 103
Duisberg, Carl, 232
du Pont de Nemours and Co., E. I., 24, 124, 125, 130–134, 140,
141, 179–185, 218, 225–227, 241, 244, 245, 256
du Pont, Lammot, 179, 183, 226
Dusseldorf, peace of, 14, 16
Dyestuffs, 6, 30, 43, 184, 214, 215, 253
Dynamit Aktiengesellschaft, 182
Economy, American, 36–39, 51
Eddy Match Co., Ltd., 185, 190
Edison, Thomas, 44, 46
Egeler, Mr., 28
Ehrlich’s “Magic Bullet” (See Salvarsan), 47
Eisenhart, M. H., 165
Elley, H. W., 88, 92
Ely, Carl B., 116, 117
Engi, Dr. Joseph, 78
Ephedrine, 92
Ergosterol, 89–93, 103, 104, 111
Ergosterol, Irradiated, 98
Espionage, Nazi, 12
Ethyl Gasoline Corp., 24, 25, 26, 27
Explosives Industries, Ltd., 182
Fairburn, William A., 185–189
Falkland Islands, 240
Fauth Instrument Co., 144
Federal Trade Commission, 194, 195, 201
Federation of British Industries, 13, 235
Fertilizer, 253
Fleischmann Co., 87, 90, 93, 103, 105
Fluorescent lighting, 44, 254
Foreign Agents’ Registration Act, 209
Forestal Land, Timber and Railways, Ltd., 114, 116, 118, 121, 122, 256
Forinvent, 68, 70
Fortune Magazine, 168
Freedmen’s Hospital, 93
Fritzsching, E. T., 74, 75
General Aniline and Film Corp., 256
General Aniline Works, 31, 216
General Baking Co., 104, 105
General Dyestuff Corp., 253
General Electric Co., 42–45, 237, 254, 257
General Mills, 93, 104
General Motors Corp., 26, 180, 232
Geophysical Laboratory, 145
George, Lloyd, 5, 6
Germanin (See Bayer 205), 55
Germany, 5, 14, 15, 22–27, 33, 62, 64, 129, 135, 138, 142–147, 151,
161, 166, 175, 176, 182, 210–215, 219–221, 224, 227, 228, 231,
232, 235, 240, 246, 247
Glass container industry, 41, 42
Glucose-D, 89
Goodlass Wall Lead Industries, Ltd., 133
Good Neighbor policy, 10, 12, 209, 214, 230
Goodrich, 212
Goodyear, 212
Gordon Corp., William, 185, 187, 191
Graham crackers, 89
Great Britain, 14–17, 80, 132, 166, 216, 217, 224, 235, 237, 240
Grecian Navy Dept., 149
Hague, The, 150
Haight, George I., 84, 85
Hammond and Carpenter Corp., 120
Harbison-Walker Refractories Co., 255
Hayfever, 91
Hess, Donald P., 254
Hitler, Adolf, 142, 143, 146, 150, 154–159, 162
Hoffman-La Roche, Inc., 73, 74
Holland, 27
Holman, Howard F., 185
Hooker Electrochemical Co., Inc., 200, 202
Hormones, 58, 59, 60, 61, 67, 69, 72, 74, 76, 254
Horton, Ralph, 103
House Judiciary Committee, 196, 198
Howard, Frank, 210
Howes Bros., 117
Hydrogenation, 22
Hydrogenation plants, 23
I. G. Farbenindustrie, 24, 25–27, 54, 84, 88, 124, 125, 129–132,
135, 137, 141, 180, 181, 184, 186, 190, 201–204, 211–213,
216–225, 228, 229, 232, 241, 255
Illinois, University of, 91
Imperial Chemical Industries, 125, 132, 133, 179–185, 199, 203, 204,
225–227, 241, 245, 253
Imperial Chemical Industries (N. Y.), Ltd., 200, 201, 204
Imperial Smelting, 133
Indiana Condensed Milk Co., 106
Industrias Chimicas Brazeileiras “Duperial,” S.A., 183
Industrias Quimicas Argentinas “Duperial,” S.A., 183
Instruments, gyroscopic, 254
Instruments, military optical, 255
Insulin, 52, 53, 60, 66
Interflash Signal Corp., 148
International Match, 189
International Products Corp., 114, 117, 119–122
International Standard Electric Corp., 167
Jackson Laboratory (du Pont’s), 31
Japan, 118, 129, 132–136, 186, 190
Japanese Titanium Co., 135
Jebsen, Gustav, 127, 128, 129, 133, 136, 137, 139
Jewett, Dr. F. B., 21
Justice, Dept. of, 3, 35, 39, 46, 58, 112, 176, 179, 185, 193, 195,
199, 204, 220, 225, 252
Kaiserism, 3, 5
Kamp, H., 72, 73, 76, 80
Keim, R. D., 97
Keuffel and Esser, 160, 168
Kewley, Joseph E., 254
Kies, W. S., 103
Kilgore, Senator Harley, 247
King, Kenneth T., 103
Kokusan Kogyo Kabushiki Kaisha, 135
Kovaks, S. S., 89
Krebs Pigment and Color Corp., 130
Kreuger, Ivar, 187, 188, 189, 190
Krupp Works (Germany), 42
La Chaquena, S. A., 120
La Forestal Argentina, S.A., 114, 117, 118
Lamps, electric, 43, 236
Lamps, flashlight, 28
Lamps, incandescent, 254
La Prensa, 119
Larson, W. N., 100
Lasdon, W. S., 75
Latin America, 12, 13, 68–71, 176, 214
Les Laboratories Francais de Chimiotherapie (See Chimio (France)),
61, 76
Lever Bros., 105
Light metals, 33
Lignite, 211
Lind, Paul Bertil, 185
Lion Match Co., Inc., 185, 187, 189
Literary Digest, 166
Lithopone, 126, 140, 141
Lomb, August, 155–161, 170
Lomb, Carl, 154, 165
London, University of, 86
Loose-Wiles Biscuit Co., 89
Magnesit Co., Ltd., 255
Magnesite Brick, 255
Magnesit Industrie Aktiengesellschaft, 255
Magnesium, 11, 34, 214, 220–224, 236, 237, 255
Magnesium Development Co., 222
Malaria, 57, 229
Matches, 186, 255
Mathieson Alkali Works, Inc., 200, 202
McGowan, Harry Duncan, 179, 181, 183, 226
Meade-Johnson and Co., 94, 95, 96, 99–101
Medical Research Council, 80
Meinhardt, 231
Merck and Co., Inc. (N. J.), 76, 176–178, 256
Merck, E. (Darmstadt, Germany), 76, 176, 177, 178
Merck, George W., 177
Mercurials, 178
Merrell Co., W. S., 98, 111
Metal and Thermit Co. of N. Y., 220
Metals, Alkali, 184
Methyl Methacrylate, 28, 29
Milas process, 88
Milk of Magnesia, 66
Mines, U. S. Bureau of, 221
Molybdenum, 255
Mond, Henry, 179
Monroe Doctrine, 214
Moore-McCormack Steamship Co., 121
Munich, peace of, 14
Mutual Chemical Co., of America, 254
Narcotics, 55, 178
Nathan and Co., Joseph (Great Britain), 84, 88
National Lead Co., 124–137, 140, 257
National Titanium Pigments Co., Ltd., 133
Navy, U. S., 143, 147, 148, 158, 163, 164, 166, 170–174
Nederlandsche Instrumenten Compagnie (Nedinsco), 149–153, 157–158, 167
Neoprene, 184
Nestle’s Milk Products, Inc., 106
News reporting, 256
New York Match Co., Inc., 185
Niagara Alkali Company, 200, 202
Nieuwe Nederlandsche Maatschappij Tot Vervaardigen Van Spiegelglas
N.V., 254
Nitrate of soda, 240, 241, 242
Nolo contendere, 113, 142, 254–256
Norsk Hydro, 241
N.R.A., 159
Nylon, 184
Office of Facts and Figures, 8
Ohio Match Co., 185, 187, 189
Optical glass, military, 24, 214, 236
Optical Triple Alliance, 144
Ordnance, Bureau, 147
Organon, N. J., 61
Organon, N. V. (Oss, Holland), 73, 76, 77, 79
Ottawa Conference, 226
Ottawa Journal, 17
Otterberg, Fritz, 185
Ovaltine, 89
Oxford University, 80
Pacific Alkali Co., Inc., 200, 202
Palladium, A. G., 68
Panama Canal Act, 250
Paper, newsprint, 256
Paraguay, 113
Parke-Davis and Co., 94–97
Patent Office, U. S., 77, 170
Patent system, 3, 6, 36, 37, 38, 47, 48, 51
Patents and processes agreement, 184, 225, 226
Patents, 5, 36–47, 53, 56, 59, 64–66, 77, 83, 85, 86, 92, 128, 130,
133, 136, 139, 140, 162, 184, 190, 191, 220
Pearl Harbor, 34, 36, 70, 175, 212
Pellagra, 57
Penn. Salt Manufacturing Co., 200, 201
Periscopes, 144, 148, 156, 166
Pet Milk Co., 106
Petroleum, 253
Pharmex, Inc., 69, 70
Phillips of Holland, 237
Pistor, Gustav, 255
Pittsburgh Plate Glass Co., 145, 200, 201
Plastics, 24, 28, 34, 43, 184, 214, 227, 236, 256
Plexiglass, 24
Pomerene, Senator, 195, 198
Powers-Weightman-Rosengarten Corp., 177
Price fixing, 83, 84, 97, 104
Proctor, Ellison, 117
Pure Food and Drug Act, 29, 30
Pyridium Corp., 75
Quaker Oats, 89
Quebracho, 112–123, 256
Quinine derivatives, 55, 229, 230, 249
Range-finders, 144, 148, 155, 156, 166, 168
Rare Chemicals, Inc., 74, 75, 77
Reciprocal trade pacts, 10
Reichsgruppe Industrie of Germany, 14, 235
Remington Arms Co., 179, 183, 217
Resins, synthetic, 184
Rheinische Westfalische Sprengstoff, 217
Rickets, 57, 82, 98
Robinson, E. G., 111
Roche-Organon, Inc., 74, 78–81, 254
Rohm and Haas (Darmstadt, Germany), 24
Rohm and Haas Co. (Philadelphia), 24, 29, 30, 227
Ross, Ward, 85, 91, 97, 100, 102, 104, 105
Rossi, Dr. A. J., 126
Russell, Dr. Henry L., 85, 90, 91, 92, 96–100, 105
Russia, 186, 190
Sachtleben Co., 129
Saegmuller, George, 144, 147
Salvarsan, 46, 54
Samuhi, S. A., 117, 118, 120, 122
Saraka, 66, 69
Schering A. G. (Berlin), 61–71, 74, 77, 79, 80, 227
Schering Corp. (Bloomfield, N. J.), 64–69, 73, 76, 77, 79, 80, 227,
245
Schering, Ltd., (London), 68
Schmitz, Dietrich, 255
Schweitzer, Dr. Samuel, 68, 70
Shangri-La, 238
Sherka Chemical Co., 69
Sherman Act, 1, 13, 16, 37, 179, 185, 191, 193–199, 202, 205, 206,
234, 250
Siemens-Halske Co., 218, 220, 237
Sights, gun, 144, 148, 166
Smith, Adam, 19
Snider Packing Co., 90, 91
Societe de Products Chemiques des Terres Rares, 130
Society of Chemical Industry (Basle), 61, 72
Soda ash, 201
Soda, caustic, 201
Solvay et Cie, 200, 203, 204
Solvay Process Co., 200
South America, 12, 55, 56, 71, 112, 115, 128, 131, 177, 181, 182,
215, 216
Southern Alkali Corp., 200, 202
Soviet match monopoly, 190
Spain, 71, 129
Spencer Lens Co., 145
Sperry Corp., 254
Sperti, George, 95
Sprague Steamship Co., 121
Squibb and Sons, E. R., 95–97
Squibb’s Viosterol, 94
St. Helen’s, Ltd., 115
Standard Brands, Inc., 87, 89, 103, 107, 108
Standard-I. G. Corp., 219, 220
Standard Oil Co. (New Jersey), 22, 24, 26, 210–213, 219, 228, 253
Standards, Bureau of, 145
Standard Telephone and Cables, Ltd., 167
Starling, 60
Steenbock patents, 84–87, 90, 92, 99, 107, 108
Sterols, 89, 109, 111
Stickstoff-Syndikat, 241
Stilbestrol, 79, 80, 81
Stockard Steamship Corp., 121
Stragnell, Gregory, 69, 70
Sulfa drugs, 55, 178
Sullivan, John B., 114, 116, 119
Svenska Tandsticks Aktiebolaget (See Swedish Match Co.), 185–190
Swedish Match Co. (See Svenska Tandsticks Aktiebolaget), 185–190
Swiss Bank Corp. (Basle), 68, 70, 254
Synthetic nitrogen, 236, 243, 245
Synthetic Nitrogen Products Corp., 254
Synthetic rubber, 24, 47, 67, 184, 210, 212
Synthetic rubber manufacture, 7, 8
System Nedinsco-Zeiss, 152
Tanks, 157
Tannic, acid, 114
Tannin Corp. (N. Y.), 114–116, 120, 122, 256
Tannin Products Corp. (Dela.), 115–116
Teagle, Walter, 210
Tetra-ethyl lead, 25
Tetrazene primed ammunition, 217
Thyroid, 66
Titan Co. A/S, 127–129, 139
Titan Co., Inc., 124, 127, 132–139
Titangesellschaft, G.m.b.H., 129, 132–139
Titanium Alloy Manufacturing Co., 126
Titanium Pigment Co., 126–130
Titan Kogyo Kaisha, Ltd., 135, 136
Titus, Dr. Harry, 109
T.N.E.C., 46
Transamerican Match Corp., 185
Truman Committee, 63
Tschopski, Prof., 144
Tungsten carbide, 42, 257
Uniform Chemical Products, 190
United American Bosch Corp., 214
United Nations, 16, 20, 33, 175, 247
United States Alkali Export Ass’n, 193, 199, 201–204, 252
United States Army, 143, 147, 158, 160, 166
Universal Match Co., 185, 187, 189
Valentine, T., 121, 122
Veitscher Magnesitwerke Aktiengesellschaft, 255
Vernon-Benshoff Co. (Pittsburgh), 29, 30
Versailles Treaty, 142–153
Viosterol, 91–94, 97, 98, 100, 103
Vitamin D, 82–87, 90–99, 103–111
Vitamins, 55, 60, 92, 178
Vitamin Technologists, Inc., 107
Von Spee, Admiral, 240
Waddell, Dr., 104
Wanter Co., 89
War Department, Mexico, 149, 150, 160
War Department, U. S., 167
Wardenburg, 227
Webb Act, 192–196, 199, 205–207
Webb, Congressman, 196, 197, 198
Webb, E. W., 24
Weisburd and Cia, Ltda., 120, 121
Weltzien, Dr. Julius, 62, 70, 73, 81, 254
West End Chemical Co., Inc., 200, 202
West Haven Creamery Co., Inc., 107, 108
Westvaco Chlorine Products Corp., 200, 202
White lead, 126
Whitelisting, 101
Wilson, Tariff Act, 250
Wilson, Woodrow, 7, 193
Winnipeg Free Press, 17
Winthrop Chemical Co., 95–97, 101, 103
Wisconsin Alumni Research Foundation, 82–111
Wisconsin, University of, 82–85
World War I, 39, 126, 144, 151, 186, 187, 215, 228, 239, 240
WPA, 239
Wyandotte Chemicals Corp., 200
Zeiss, Carl, 24, 142–156, 159–164, 168–175, 255
Transcriber’s Note
Some inconsistencies in spelling, hyphenation, and punctuation have
been retained.
p. 42: changed “th” to “the” (complete control of the situation)
p. 90: changed “violent” to “violet” (by ultra violet rays)
p. 90: changed “Fleischman” to “Fleischmann” (irradiated yeast from
Fleischmann)
p. 109: changed “moxed” to “mixed” (tons of commercial mixed feed)
p. 115: changed “Tanning” to “Tannin” (The Tannin Corporation imports
approximately)
p. 117: changed “Lo” to “La” (cooperated closely with La Forestal)
p. 127: changed “Jebson” to “Jebsen” (National Lead and Jebsen
organized)
p. 132: changed “entere dinto” to “entered into” (entered into a series)
p. 143: changed “an dconsent” to “and consent” (civil complaint and
consent decree)
p. 154: changed “violatio nof” to “violation of” (violation of the
antitrust laws)
p. 157: changed “de-demands” to “demands” (satisfy the actual demands)
p. 182: changed “Explosives” to “Explosivos” (Compania Sud-Americana de
Explosivos)
p. 191: changed “hope” to “hoped” (It is to be hoped that)
p. 193: removed duplicated word “the” from “Board of Directors of the
the Commerce and Industry Association”
p. 205: changed “Sheriman” to “Sherman” (embodied in the Sherman Act)
p. 206: changed “would would” to “would make” (would make such abuses
impossible)
p. 210: changed “every” to “ever” (which has ever faced the company)
p. 211: removed duplicated word “was” from “petroleum was was made part
of”
p. 229: changed “authortiy” to “authority” (Public authority must not
be left)
p. 229: changed “securtiy” to “security” (national security and
national welfare)
p. 231: changed “thees” to “these” (engaged in these practices)
p. 243: changed “an dunlawful” to “and unlawful” (hidden and unlawful
tax)
p. 246: changed “say” to “stay” (stay out of important markets)
p. 256: changed “ofr” to “of” (and fines of $59,003)
p. 262: changed “Scheidenstalt” to “Scheideanstalt” (Deutsche
Gold-und-Silber Scheideanstalt)
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