Chapter I: G. Farben’s objections having been met and other difficulties (1)

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: