Chapter V: Front Matter (5)

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.”