Chapter I: G. Farben’s objections having been met and other difficulties (2)

“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.