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diff --git a/.gitattributes b/.gitattributes new file mode 100644 index 0000000..6833f05 --- /dev/null +++ b/.gitattributes @@ -0,0 +1,3 @@ +* text=auto +*.txt text +*.md text diff --git a/78077-0.txt b/78077-0.txt new file mode 100644 index 0000000..d7a5656 --- /dev/null +++ b/78077-0.txt @@ -0,0 +1,9477 @@ +*** START OF THE PROJECT GUTENBERG EBOOK 78077 *** + + + + + Transcriber’s Note + + +This file uses _underscores_ to indicate italic text. Small capitals +changed to all capitals. + + + + + CARTELS + + Challenge to a Free World + + _By_ WENDELL BERGE + _Assistant Attorney General of the United States_ + + _Public Affairs Press_ + WASHINGTON, D. C. + + + _To My Father_ + + GEORGE W. BERGE + + _who throughout his life and in his public career was + guided by the conviction that the people’s rights + are not won without struggle and will not + be maintained without vigilance_. + + _Public Affairs Press, 2153 Florida Ave., Washington, D. C._ + _Copyright, 1946, by American Council on Public Affairs_ + _M. B. Schnapper, Executive Secretary and Editor_ + + + + + _Preface_ + + +Plastics, television, new chemical and electrical techniques are but a +few of the instruments which will furnish the stuff for the pioneers of +a new age. The challenge of housing will excite bold minds to action, +on a scale never before attempted, to wipe out slums and give dwellers +in country and city alike a new and higher standard of living. Not +only at home, but also abroad, the opportunities for daring enterprise +which will be offered by the needs of world reconstruction will surpass +anything ever before known. + +How are we going to meet this challenge? At the outset, we must face +frankly the greatest obstacle to making the most of our opportunity. +It is the threat of cartel control of major world industries. Unless +this threat is understood and dealt with decisively, our opportunity +to realize the great potential benefits of a free economy will be +lost. And worse still, the hope of maintaining democratic political +institutions will be seriously impaired. + +The pattern of cartel operations has been clearly revealed in recent +years by antitrust investigations. From public records in antitrust +proceedings and congressional hearings, information about cartel +operations is now available. The public should be familiar with the +facts. As head of the Antitrust Division of the Department of Justice, +I have frequently been called upon to discuss cartel problems before +congressional committees, trade associations and civic groups. Since +my testimony and speeches received varying degrees of public notice +at the time they were given, the casual reader of newspaper reports +necessarily obtained only an impressionistic picture of the far-flung +ramifications of the subject. Something more is needed for thorough +understanding. + +With this thought in mind, a number of friends and associates have +suggested from time to time that my material should be woven together +in book form. This I have undertaken to do in the present volume. + +Merely to make assertions about the evil effect of cartels is a simple +matter. But I believe that the real usefulness of this book will depend +upon its fairly detailed explanation of the operation of particular +cartels, with direct quotations from letters, memoranda and other +documents. + +While I have not tried to compile a complete source-book, I have +striven to make this discussion as non-technical as possible. The +factual material is drawn largely from the documents of the Kilgore, +Truman and Bone Senate Committees, and from the public records of +antitrust cases. + +The investigations which unearthed the facts cited in this book were, +of course, the work of a great many men and women in the Antitrust +Division extending over a period of years. Acknowledgment of credit to +all of them would be impossible. Many of the men who have developed +these facts are now serving their country in the armed forces. + +I cannot praise too highly the ability, energy and devotion to public +service of the men and women of the Antitrust Division. It is a +privilege to head such a splendid staff, as it is to serve under such +an able and distinguished Attorney General as Francis Biddle, who +has maintained at all times an extremely deep interest in our cartel +work and has given it his fullest support. Attorney General Biddle +has repeatedly impressed upon me his own conviction that the vigorous +enforcement of the antitrust laws against cartels is an indispensable +condition to the maintenance of a free competitive economy in this +country. + +In the preparation of this book I am particularly indebted to Joseph +Borkin of my staff, who is in my opinion one of the best informed men +in America on the activities of international cartels. For more than +five years Mr. Borkin has devoted his great resourcefulness and energy +to investigation and study of cartel problems. His contribution in this +field has been invaluable. + +I also want to acknowledge my deep obligation to my First Assistant, +Edward H. Levi, with whom I have spent many hours discussing the legal +and economic problems of cartels, and on whom I have relied so heavily +in the practical administration of the Antitrust Division. And I am +greatly indebted to Myron W. Watkins, Charles A. Welsh, Ernest S. +Meyers, George P. Comer, Herbert A. Berman, Bartholomew Diggins, Robert +Hunter, and Heinrich Kronstein of the Antitrust Division staff, all of +whom have been of great assistance in the preparation of this book and +in the cartel work of the Division. Professor Walton Hamilton of Yale, +who has been a part-time member of the staff, has also worked closely +with me on these matters and has made a signal contribution to our work. + +Mr. M. B. Schnapper, Executive Secretary of the American Council of +Public Affairs, has been of greatest assistance in the planning of this +book and in the editorial work which it has involved. + + WENDELL BERGE + + + + + CONTENTS + + + _1_: Trusts to Cartels 1 + + _2_: Enterprise Eclipsed 10 + + _3_: Technology 19 + + _4_: Patents 36 + + _5_: Medicines 52 + + _6_: Synthetic Hormones 58 + + _7_: Vitamins 82 + + _8_: Quebracho Extract 112 + + _9_: Titanium 124 + + _10_: Optical Instruments 142 + + _11_: Miscellaneous Products 176 + + _12_: The Webb Act 192 + + _13_: Private Governments 208 + + _14_: Freedom or Control? 233 + + _Appendix I_: Recent Cases 250 + + _Appendix II_: Bibliography 257 + + Index 261 + + + + + 1 + + _Trusts to Cartels_ + + +The problem of monopoly is no longer a distinctively domestic and +national phenomenon. It has come to encompass the wide world. Like a +parasite upon its host, monopoly has grown with the marketplace. Today +hardly a corner of the world remains free from the malignant influence +of its latest and most sinister form, the cartel. Diamonds discovered +in Arkansas may prompt agitated conferences within 48 hours in London +and the Belgian Congo; a lawsuit in New York challenging the aluminum +monopoly brings simultaneous outbursts of oratory in the House of Lords +and of vituperation on the Axis radio. + +For over half a century, the Sherman Act has stood as a positive +expression of the inflexible will of the American people to preserve +freedom of economic opportunity. When this measure was enacted the oil, +whiskey, and sugar trusts had placed barriers directly athwart the +arteries of commerce and were exacting tolls for every gallon or pound +of product permitted to pass. Since nation-wide industrial monopoly of +a comparatively stable character first took the form of a simple trust +agreement the Sherman Act came to be designated an antitrust statute. +But its thrust was positive: the maintenance of free, competitive +markets and a democratic system of industrial control. + +If such an Act were passed today, I am quite sure it would be called an +“Anti-Cartel Act.” For our attention is at the present time focused on +industrial monopoly in a different form, operating in a wider orbit. +But our basic concern is the same. We are as determined today as were +our grandfathers, two generations ago--indeed, as were the founders of +the republic--to countenance no infringement of the right to engage +in any legitimate enterprise and to conduct business without let or +hindrance from any self-constituted group presuming to monopolize trade +or industry. + +The Sherman Act has proved an effective instrument no less for +dealing with the cartel problem than for curbing the trusts. It must +be conceded, however, that, in default of proper implementation and +appropriate supplementation, it has not fully realized the salutary +object for which it was designed. In particular, our policies with +regard to patents, trademarks, the tariff, monetary and credit matters, +interstate commerce, and foreign trade, all have a direct bearing +upon competition and the pattern of industrial organization. They +are important factors conditioning the efficacy of a free market for +performing its basic economic functions. To our comparative neglect of +the incidence of these policies on the problem of maintaining healthful +competitive conditions in industry must be attributed a large share +of the responsibility for the difference between antitrust goal and +business practice. + +In these circumstances, cartels--which, in effect, are trusts magnified +to an international scale--have been able by clandestine means to +impress their sinister mark upon our economy. In mobilizing for war, we +discovered, almost too late, that they were responsible for shortage +after shortage of vital materials. The fact is that they have retarded +technological advance and the introduction of improved devices and +products, whenever such developments seemed to threaten their vested +interests despite the fact that thereby national security might be +jeopardized. They have, indeed, obstructed and in no small measure +thwarted the declared foreign policies of the American government, +placing their own business interests above the public interests. + +In peace time, their high-price, restricted-output strategy has +impeded the advance of our living standards and general economic +well-being. Through the abuse of our patent system, cartel controls +have been established over large segments of technology. With this +leverage, industrial monopolies of international compass have at times +deliberately brought about the deterioration of quality standards. +When it might be to their advantage in maintaining or exploiting +their monopoly position, they have adulterated their products to an +extent and in a manner endangering the health, and even the lives, of +consumers. Almost incredible as these assertions may be, they are not +subject to contradiction--the incontrovertible facts are clearly set +forth in Congressional investigations and in the evidence in antitrust +cases of the Department of Justice. + +Cartels are in essence private governments which threaten to subvert +and even engulf duly constituted authority. In Germany, Kaiserism and +later Nazism received enormous impetus, indeed decisive support, from +the regimented, cartelized structure of the national economy. + +Totalitarianism represents simply the ultimate consummation of +cartelism--the final, full expression of the reactionary forces +stemming from special privilege. In totalitarian states all industrial +enterprise is subservient to the predatory interests and fear-dominated +will of a government which openly flouts the democratic principle of +consent of the governed. In the economic sphere, the investment of +fresh capital, the volume of production, the prices to be charged, the +markets to be served, are determined by arbitrary decrees. Risk-taking, +managerial discretion, bargaining freedom, the essential elements +of the capitalistic system as we have known it, are absent. One can +neither start a new industry, launch a new enterprise, or change one’s +occupation without first obtaining official consent. It is in the +nature of cartels that they should operate in a similar fashion, even +if in their application the devices used for consolidating the vested +interests of established concerns and throttling the dynamic forces +which economic freedom would release may lack something of the rigor +they exhibit under totalitarian “leadership.” In order to maintain +their control over production and prices cartels must determine who may +enter the industry, how they shall operate and where they may sell. + +The basic American concept of free enterprise is the antithesis of a +cartelized market. Yet, all too frequently, some of our industrialists +have had the effrontery to attempt to promote a pro-cartel policy by +a specious appeal for free enterprise. The pretension is that freedom +to compete in trade must encompass freedom to suppress competition! As +though the right to start a fire in order to heat a house must include +the right to burn down the house in complete disregard of the peril to +the whole community! The common sense of ordinary men has no difficulty +in distinguishing between the right to start a fire and the “right” to +commit arson. + +Unless I am greatly mistaken, the American public will no more tolerate +a cartel-sanctioning abrogation of the antitrust laws in the name of +“free enterprise” than they would countenance a repeal of the laws +against arson in the name of “freedom of self-preservation”--the right +to keep warm! + +It is significant, and deserves thoughtful reflection that Germany, the +“classic land of the cartel,” where regimented economic restrictionism +is the accepted “way of life,” has in the course of two generations +farrowed Kaiserism and Hitlerism--the natural offspring of militarism +and cartelism. Even in times of peace, the militarists and industrial +monopolists of Germany found cartel restrictions an excellent means +for conducting covert warfare. In this way industrial “colonies” +were acquired and prospective victims “softened up.” Back in 1883, +Joseph Chamberlain, as a member of the British Cabinet, declared, in +sponsoring a bill designed to forefend the sub-rosa “invasion” tactics +of imperialistic Germany: + +“It has been pointed out especially in an interesting memorial +presented on behalf of the chemical industry that under the present law +it would have been possible, for instance, for the German inventor of +the hot blast furnace, if he had chosen to refuse a license in England, +to have destroyed almost the whole iron industry of this country and to +carry the business bodily over to Germany. Although that did not happen +in the case of the hot blast industry, it had actually happened in the +manufacture of artificial colors connected with the coal products, and +the whole of that had gone to Germany because the patentees would not +grant a license in this country.” + +A quarter century later, Lloyd George, introducing a more drastic bill +for curbing these insidious depredations on strategically vital British +industries, pointed out: + +“Big foreign syndicates have one very effective way of destroying +British industry. They first of all apply for patents on a very +considerable scale. They suggest every possible combination, for +instance, in chemicals, which human ingenuity can possibly think of. +These combinations the syndicates have not tried themselves. They are +not in operation, say, in Germany or elsewhere.... A good many of +these patents have been taken out not for the purpose of working the +patents in this country, _but for the purpose of preventing their being +worked_.” + +The “big foreign syndicates” to which George referred were, of course, +the German cartels. + +The adroit strategy of stealthily sapping the industrial foundations +of the national security of countries capable of resisting the German +_drang nach_ all-points-of-the-compass has been relentlessly pursued +and resourcefully developed, through thick and thin, decade after +decade. If the cartels are thwarted in the use of the patent system as +a weapon for disarming potential competitors abroad, they may inveigle +the intended victims of German aggression to a ‘simulated’ love-feast +at which the latter are gorged with the poisoned food of production +quotas, technology restrictions, market-territory limitations, and +pricing inhibitions. What these tactics accomplished in the way of +immobilizing French industry is now a familiar story. To cite the +record of only three of the most strategic industries, through cartel +manipulations the Germans succeeded in (a) reducing the relative output +of French steel from substantial equality with German output in 1926 +to 40 percent thereof in 1938, (b) retarding the growth of French +aluminum production to a rate which fell short of doubling the output +in the same period, while German production was increasing five-fold, +and (c) restricting the French dyestuffs industry in such fashion that +its output in 1937 was barely two-thirds of what it had been in 1924, +whereas German production, even according to official estimates (none +too reliable though they are) had increased five percent in the same +period. + +Nor were the European countries alone the “potential enemies” whose +vital economic defenses were thus impaired by subtly imposed cartel +restrictions. In this hemisphere, likewise and not least of all in our +own country, the cartel device was sedulously--and effectively--used +for the same ulterior purpose. As President Woodrow Wilson declared +shortly after the first World War, + +“Our complete dependence upon German [dyestuffs] supplies before the +war made the interruption of trade a cause of exceptional economic +disturbance. The close relation between the manufacture of dyestuffs +on the one hand and of explosives and poisonous gases on the other, +moreover, has given the industry an exceptional significance.... +It will ... be a policy of obvious prudence to make certain of the +successful maintenance of many strong and well-equipped chemical +plants. German chemical industry, with which we will be brought into +competition, was and may well be again _a thoroughly knit monopoly, +capable of exercising a competition of a peculiarly insidious and +dangerous kind_.” + +Despite this warning in 1919, we were only slightly better off, +relatively, in respect of the arts of organic chemicals manufacture +twenty years later, when Germany decided the time was ripe for another +attempt at world conquest, than we had been in 1917. In the matter of +synthetic rubber technique, today the most strategically critical of +all these processes, I. G. Farbenindustrie had succeeded, through its +cartel arrangements with the leading American firms in the petroleum +and chemical fields, in keeping this country in an extremely vulnerable +position--as all the world now knows. Partly through persistent +stalling tactics, partly through playing one American firm off against +another, partly through cajolery, and partly through deliberate deceit, +the German cartelists had not only stifled the development of American +technology in this field, even by their “partners” on this side of +the Atlantic, but had done even better, from their standpoint. They +had obtained the German patent rights and the essential know-how for +the most signal contributions of American technicians to the art of +synthetic rubber manufacture. And, incredible though it may seem, they +had obtained these advantages without divulging a single significant +detail of their own carefully guarded know-how! + +As the President’s Office of Facts and Figures ruefully summed up the +situation in 1942: + +“[The enemy] has worked for many years to weaken our military +potential. Through patent controls and cartel agreements he succeeded +in limiting American production and export of many vital materials. +He kept the prices of these materials up and the output down. He was +waging war, and he did his work well, decoying important American +companies into agreements, the purpose of which they did not sense.” + +Thus, sixty years after a member of the British Cabinet first testified +to its awareness of the menace in the insidious penetration of German +cartels in the international sphere, a branch of the American Executive +confirms the continuing pertinence of his observations. + +How, in the face of this record, in the light of this evidence of +the persistence of the cartel movement and of its chronic tendency +to pervert the processes of industrial production to ulterior ends +leading indefeasibly to the devastation and slaughter of war can it be +contended that cartels represent a promising way to order the post-war +world economy? Is it not plain, rather, that “if we would guide by the +light of reason,” we must reaffirm our pledge of democratic equality +of opportunity for all in trade and industry, and resolutely set about +the task of putting our house in order in accordance with that basic +principle of American life? Is it not plain, too, that monopolistic +industrial control in the domestic sphere cannot be completely achieved +without the uprooting of the foci of cartel infection in German +industry? Once German industry is purged of its cartel hook-ups and +monopolistic animus and all non-German industry is released from the +haunting fears and seductive temptations which go so far to explain +these international industrial alliances, I am confident that the +prospects for the restoration of genuine freedom of enterprise and +healthy competitive markets will be good. While I am not sanguine of +the goal being reached forthwith and easily, “at one bound” as it were, +I have an abiding faith that the dynamism of economic freedom will +enable us, in the end, to surmount every obstacle erected by special +privilege or vested interest on the highroad to full utilization of +resources. A truly great adventure is ahead. + + + + + 2 + + _Enterprise Eclipsed_ + + +It is the determination of our people not only to gain victory over the +military power of aggressors, but to establish securely the lasting +conditions of peace. We know that beyond victory we shall have to face +a multitude of perplexing economic problems. We must also realize that +we shall meet new dangers to those free institutions on which our +national economy is based. If the problems of peace are to be solved, +we shall have to come to grips with these difficulties in the same +spirit of resolution with which the war has been waged. + +It seems abundantly clear that America can never have a foreign policy +based on the principles of democracy and international good will as +long as international trade is dominated by cartels. It does not seem +possible that the Atlantic Charter, the Good Neighbor policy, and +the reciprocal trade pacts can effectively prevail if the special +privileges of cartels dominate trade and politics in the postwar world. + +In many respects cartels form one of the central issues of the present +period. The greatest threat to our success in achieving full production +and full employment at home, and friendly cooperation with other +nations abroad, is the philosophy and practice of privilege embodied in +cartels. If there is to be a free and productive economy in the United +States, or a free exchange of goods in world markets, the power of +cartels must be broken. + +It is essential to understand that cartels seek to divide and rule +world industry on the basis of economic privilege. If cartels are +successful in gaining a foothold in the postwar period, it will almost +be impossible for this nation to maintain a high level of peacetime +production or to cooperate in the reconstruction of world trade. + +In general, cartels restrict rather than promote trade. Cartels +typically engage in such practices as dividing fields of operation +and market areas between members so as to eliminate competition, +restricting production by agreement, and fixing prices so as to +avoid price competition. They also promote various kinds of patent +licensing contracts which enable them to control and limit the use +of new inventions and thus restrict the benefits of technological +advance. The effects of these practices include reduced production and +employment, higher prices and profits, retarded spread of technological +improvements and a lower standard of living. + +The conduct of cartels before and during this war has been one of the +tragic pages of our history. The shortages of aluminum and magnesium +resulting from cartel restrictions forced us to strip the kitchens of +America and scar our public squares with scrap piles. The scarcity of +rubber is a never-ceasing threat to our productive effort. Our armed +forces plead with us to contribute our binoculars. The lack of vital +drugs and medicines has jeopardized our men fighting in fever stricken +areas. In fact, almost wherever there was a cartel there was a shortage. + +But cartels have an even more serious aspect. These private governments +threaten the sovereignty of democratic nations. The political +implications of cartel activity threaten to subvert future national +public policy of the United States. + +There is a close relation between a country’s economic policies and +its foreign relations. It is generally recognized now that economic +freedom cannot be attained at home if private groups are permitted to +acquire monopoly power over industry. Likewise, it must be equally +recognized that friendship and cooperation between this country and +other nations cannot be established without the free exchange of goods +and services. Reciprocal trade treaties and good neighbor policies can +have little effect if private cartels can shut off American markets to +foreign producers or prevent American producers from selling abroad. + +The Good Neighbor policy is one of the fundamental principles of our +relations with Latin America. While our Government was bending every +effort to bring about the conditions of sound and mutually advantageous +cooperation, cartels were systematically undermining these efforts. +Latin America was turned over by private cartels as a colony to hostile +foreign interests. By giving German industry virtually a free hand in +Latin America, and by agreeing not to compete, American cartelists made +possible the creation of a German sphere of influence. Nazi propaganda, +espionage, and subversive activity all stem directly from this +unhampered German penetration. When South Americans sought to purchase +drugs, metals, precision equipment, and munitions from the United +States, private cartel treaties had already provided that American +concerns could not engage in this trade. Not only was the healthy +development of South American trade and industry checked, but even +today we struggle desperately to overcome the political consequences of +cartel activity. + +We have long cherished the principle of open covenants openly arrived +at. In fact, this policy is an essential part of America’s conduct +of foreign affairs. Every treaty commitment made by this country is +debated publicly by the people’s representatives. Without the agreement +of two-thirds of the Senate and the President, no treaty may be made. +Yet agreements have been made in international industry affecting +both the American economy and our foreign policy which were secretly +contrived and clandestinely arrived at. The American people had no +voice, but they bore the burden of these private treaties. + +Make no mistake--the war has not interfered with cartel plans. Cartel +agreements invariably provide for the contingency of war. Long before +the war, cartels worked out a modus vivendi--a method of continued +existence--for they felt that their relations must be preserved, war +or no war. Thus we find American and British cartelists agreeing to +preserve the German position in Latin American markets after the war. +Agreements between the cartel members of countries now at war provide +for a resumption at the war’s close. In case legislation or government +action interfere, then they will cooperate to adapt their relations, as +one agreement states, “in the spirit of the present agreements.” + +Therefore, the necessity for vigorous action in keeping open the +channels of trade becomes apparent when we consider that those who +create cartels hold themselves above the law or seek to control +legislation and Government policy in the many countries where they +operate. + +These same groups are making their own postwar plans. Because they have +found the enforcement of the Sherman Act a hindrance in the past they +have expressed a desire to have the antitrust laws repealed. + +It should be recalled that the political deal which Munich represented +had its economic counterpart in one made at Dusseldorf, in which the +Federation of British Industries and the German industrial overlords +expressed their intention of stabilizing and rationalizing world trade. +As indicated at Dusseldorf, cartel groups regard governments as handy +instruments to be used in working out their schemes of restriction. + +Although the peace of Munich has received considerable public +consideration, little attention has been given to the peace of +Dusseldorf, a peace which, while obscured in the welter of political +and military crises, epitomized the spirit and the power of +international industrial monopoly. + +On March 15 and 16, 1939, immediately after Hitler’s invasion of +Czechoslovakia, representatives of the Reichsgruppe Industrie of +Germany and of the Federation of British Industries held an intensive +conference at Dusseldorf. At the conclusion of the conference +representatives of German and British industry issued the following +joint declaration: + +“The Reichsgruppe Industrie and the Federation of British Industries, +having concluded a general discussion on Anglo-German trade relations, +issue the following agreed statement: + +“1. The two organizations welcome the opportunity which these +discussions have given of developing still further the friendly +relations which have existed between the two bodies for so many years. + + * * * * * + +“4. The two bodies are agreed that the objective to be attained is that +the export of all countries should be conducted in such a way as to +ensure a fair return for the producers of those countries. Hence it is +agreed that it is essential to replace destructive competition wherever +it may be found by constructive cooperation, designed to foster the +expansion of world trade, to the mutual benefit of Great Britain, +Germany and all other countries. + +“5. The two organizations are agreed that it is desirable that +individual industries in both countries should endeavor to arrive at +industrial agreements which will eliminate destructive competition, +wherever occurring, but prices must be fixed at such a level as not to +diminish the buying power of the consumers. + +“6. The two organizations realize that agreements upon prices or other +factors between Germany and Great Britain are only a step, although a +most important step, towards a more ordered system of world trade. They +would welcome the participation of other nations in such agreements. + + * * * * * + +“8. The two organizations realize that in certain cases the advantages +of agreements between the industries of two countries or of a group +of countries may be nullified by competition from the industry in +some other country that refuses to become a party to the agreement. +In such circumstances it may be necessary for the organizations to +obtain the help of their governments and the two organizations agree to +collaborate in seeking that help. + +“9. The two organizations agree that it is their objective to ensure +that as a result of an agreement between their industries unhealthy +competition shall be removed. Their aim is to secure as complete +cooperation as possible throughout the industrial structure of their +respective countries. + +“10. The two organizations have agreed to use their best endeavors to +promote and foster negotiations between the individual industries in +their respective countries. They are encouraged in this task owing to +the fact that a considerable number of agreements between individual +German and British industrial groups are already in existence. There +is thus available a large body of experience which inspires confidence +that an immediate extension of this policy is both practicable and +advantageous. + +“They are glad to state that approximately a further fifty industrial +groups have already signified their willingness in principle to +negotiate at an early date. + +“They also report with satisfaction that negotiations have already been +started and are now taking place between ten industrial groups.” + +The spirit exemplified in the above declaration is not dead. It is +awaiting the moment of peace to step in and resume control of those +very industries which are most essential to the rehabilitation of a +war-torn world, to the fullest use of our labor and resources. + +Surely we must realize now that if the program of Dusseldorf prevails +in the postwar world it will produce World War III. Surely we must +recognize that we cannot build a free world without a free economy. + +The close and constant cooperation of the United Nations after the +war is all-important. This cooperation should rest, among other +things, on active and healthy international trade. We want to see that +trade grow unhampered by private restrictions. In attacking these +illegal activities the Government of the United States is aiming at a +condition which obstructs healthy international trade and threatens the +effectiveness of governmental foreign policies. + +To combat the influence of monopoly groups, the United States has two +effective weapons: (1) the vigorous enforcement of the Sherman Act, and +(2) the power which Congress possesses to investigate and make public +the hidden dealings of cartel interests. + +It is significant that in Great Britain increasing interest in the +purposes and activities of cartels is being manifested--principally as +the result of American antitrust investigations which have revealed +that British industry, no less than our own industry, has suffered the +burden of restrictive practices imposed by cartel arrangements. + +Moreover, there has been developing in Canada a substantial interest +in the cartel problem. Thus, the _Ottawa Journal_ recently stated +editorially that “it is fairly clear to all that cartels, large +combinations of industries parcelling out territories among themselves, +controlling patents and fixing prices, may be a menace to the general +well-being, and what is more vital, a menace to world peace.” + +And the _Winnipeg Free Press_ declared not long ago that “it is +gradually dawning upon Britain that rationalization of industry has +its dangers. They are discovering that monopolies can and do develop +evil practices.... Thus there is arising there [in Great Britain] a +demand for control of monopolies, the breaking down of cartels and +the restoration of competition between the great industrial giants.” +After pointing out some of the evils that flow from monopoly control, +_Winnipeg Free Press_ went on to say: “National monopolies which +restrain trade are bad enough of themselves. But when combined with +international cartels they are intolerable. The Canadian government +should pay particular attention to the antitrust proceedings in the +United States. They reveal a most unhealthy state of industrial health +and if the economy of this country is to be saved from disaster steps +will have to be taken to break up the evil monopolies and their +cartels.” + +It would certainly be in the mutual interest of Great Britain and +ourselves if we could take a joint stand against private restrictive +arrangements in the postwar world and together seek to stamp them out. + +There is ample reason to believe that American exposure of secret +cartel practices may have its effect on the public policy of other +countries and promote common understanding that certain types of +activity should be outlawed in other countries as well as here. But +irrespective of the extent to which other governments adopt policies +similar to ours, there can be no doubt that American business can +thrive in competition with foreign cartels if it does not enter into +cartel restrictions. If freed of cartel shackles, American enterprise +should well be able to expand in world markets and render foreign +cartel control ineffective. It is doubtful, indeed, whether any major +international cartel can effectively control world markets without the +participation and cooperation of the American segments of the industry. +There is a real question whether foreign cartels can long survive in +many industries if American cooperation is not extended to them. + +If and when some measure of control and regulation becomes economically +necessary on an international scale in a particular industry, a +question is presented for governmental action--not for private cartel +action. If, for example, in a particular industry it seems necessary +to control production in order to avoid waste of a scarce natural +resource, the solution of such a problem is properly a responsibility +of national or international governmental action. Where control is +needed, it must be by public authority. If international restrictive +agreements are ever needed, they must be determined upon by +governments--not by private cartels. + +But the situation where control would be required on an international +scale is decidedly the exception. Most foreign trade in the postwar +world can be conducted on a competitive basis if we give competition +a chance. The period following the war will present an unprecedented +challenge to the ingenuity of mankind. Men of brains and imagination +should have a chance to rebuild the world, to take risks, to engage in +foreign trade and to win in competitive struggle, unhampered by private +decrees. The world is not a private hunting preserve which can be +divided at will among monopolists who think they have gained squatters’ +rights. + + + + + 3 + + _Technology_ + + +In the days of Adam Smith it was possible to measure the wealth of +nations in terms of mineral resources, possession of fertile lands and +control of strategic geographical areas. Today we have a new index to +the wealth and security of nations. Technology and applied science have +become principal instruments in the maintenance of a high standard of +living and for the protection of national interests. In fact, when +we speak of the balance of power in the modern world, we must take +into account the extent and quality of industrial and technological +resources as a dominant factor in national welfare. The horizons +which have been opened by applied science and research offer to the +world, and to our own nation in particular, new industries, greater +opportunities for our youth, higher levels of health and comfort, and +the attainment of that genuine social security which comes with all +great advancements in human knowledge. + +Technology--its direction, its applications, and its enjoyment--is +today a primary concern of government. In a system based upon freedom +of enterprise, access to technology is the fundamental condition of +rapid advancement toward the goals for which our nation is striving. +The power that goes with the development of modern technology has +been perverted in totalitarian countries to provide instruments of +aggression. Because totalitarian states have regimented science and +have made it subservient to imperial ambitions, it has been used to +destroy rather than to create. One of the principal problems which +the United Nations will encounter in the peace to come will be +the prevention of any abuse of new discoveries for the purpose of +establishing war machines which can threaten the peace of the world. + +The control of vital areas of research by monopolistic interests is a +condition which cannot be tolerated. Monopoly control seeks to protect +vested interests and to perpetuate its grip on the advancement of +science and technology. It retards the introduction of new goods and +services and the maintenance of full employment in time of peace. +Our experiences in this war have demonstrated conclusively that +monopolistic control of critical sectors of industrial research has a +paralyzing effect on mobilization of our national strength. One of the +most difficult problems we have encountered in arming this country has +been the domination and restriction of technology by small privileged +groups. It has required strenuous efforts on the part of government and +industry alike to overcome the stifling effects of complacent monopoly. + +With rare exceptions industrial research at the present time can only +be carried on by large numbers of scientists and technicians combining +their ingenuity to resolve the complex problems of both pure and +applied science. In the last fifty years technology has moved at such +a rapid pace that no longer is the small businessman in a position to +maintain laboratories of sufficient size. Today we witness the gigantic +research organizations of all major corporations, and no one desires to +impair their efficiency. + +There is, nevertheless, a gap between the promise of organized research +conducted on a huge scale by great corporations and the fulfillment +as measured by accomplishments for the public interest. So that there +shall be no misunderstanding, I should like to pay tribute to the vast +army of scientists and research workers who have done such remarkable +work in the years of peace as well as in the years of war in bringing +forth a multitude of amazing discoveries. It is not their fault that +their contributions have not been fully realized. The trouble is that +in many instances the misuse of research by monopolistic and cartelized +groups has resulted in the restricting of production, withholding new +products, and fencing in and blocking off new developments. + +One of the ablest and clearest statements of the effect of restrictive +arrangements upon research was made by Dr. F. B. Jewett, vice-president +of the American Telephone & Telegraph, and chief of Bell Laboratories. +In discussing an agreement between his company and other parties, he +stated: + +“Broadly speaking, the practical effect of the agreement is to limit +the field of possible development of each party to its present major +activities.... + +“Thus, while a casual reading of the agreement by one not thoroughly +conversant with all the factors may appear to establish the basis +for an enlarged free development in most of the fields, this is not +actually the case. + + * * * * * + +“The far-reaching effect of the proposed agreement on the character and +scope of our research and development work is apparent. Viewed both +from the standpoint of the research worker in our laboratories and +from the standpoint of those responsible for the expenditures incurred +by the Laboratories, the inevitable result would be a narrowing of +the field of activity and failure to undertake anything which at the +outset is not clearly directed to the field of our current business. +From the standpoint of the man who has a brilliant idea which in its +first nebulous form seems to be applicable outside our business, there +will be little or no urge to go ahead in the face of a situation where +he knows that the results of his work have been sold in advance outside +of the Bell System. From the standpoint of management there will +likewise be no incentive, but quite the reverse, to urging him on and +appropriating money for his investigations.” + +A member of a monopoly or cartel group all too often finds itself in +a position where it must choose between the national interest on the +one hand and its cartel obligations on the other. This difficulty is +accurately stated in a document taken from the Standard Oil Co. (N. J.) +files with reference to the development of 100 octane gasoline, one of +the most vital materials of modern warfare: + +“This possibility is, of course, extremely attractive to the Army Air +Corps, but there is one difficulty involved which Mr. Russell quite +frankly discussed. The hydrogenation development originated in Germany, +and through cooperation all around has now passed into the hands of the +oil industry of the entire world, and, to a certain extent, into the +hands of the foreign chemical industry as well. There is a full and +free exchange of technical information between all of the companies +and units involved in the hydrogenation development and this exchange +is not only by means of reports but by constant visits of technical +men. To cut off these reports and shut our hydrogenation plants against +these visitors would be not only a violation of these agreements, which +would involve us in many difficulties, but would also be tantamount +to a confession that we were engaged in some work of special military +value which would mean that the plants would become a focal point for +espionage. The costs and difficulties of protecting against leakage of +information about large commercial operations under such conditions +is hard to estimate. _It seems that the only practical way to handle +this problem is to avoid carrying out the operation of producing 100 +octane number aviation gasoline commercially as long as possible._ We +would, of course, also have to breach our agreements to render full and +complete technical reports to all of the companies associated with us +(even to the American companies, for fear of leakage). We should also +forfeit the advantage in producing at the least cost the best available +gasoline for commercial purposes. + +“_Any program by which the Army Air Corps can obtain their objective +of a one or two year start over the rest of the world on this vital +matter bristles with difficulties and sacrifices from our standpoint._ +We will not have to cross the bridge finally until our present +experiments are completed. When and if we are able to demonstrate that +the hydrogenation plants are capable of turning out an aviation product +which with the usual quantity of lead can be brought up to 100 octane +number, we shall be faced with the situation mentioned above. _To meet +the very proper desires of the Air Corps as expressed to us we shall +have to violate our agreements and perhaps forfeit the confidence of +our associates, both American and foreign, and beyond this we shall +either have to avoid any commercial use of the new method or run the +very grave risk of finding that our efforts at secrecy have been +abortive._” + +In pointing out the inevitable conflicts between national loyalties +and business interests which arise when industry is carried on through +private international cartel agreements, I do not attack, nor do I +intend to cast inferences against, the patriotic motives of any men +or companies. I assume that the persons who have taken part in these +transactions have not consciously acted against the best interests +of their country. But it is the cartel system that is at fault. The +individuals caught up in the system are faced with a dilemma because it +imposes on them choices which it is almost impossible to make without +violation of an obligation to one of two conflicting interests. + +One of the most serious limitations upon research has been the +division of fields of technology by cartel groups. If a company is +barred by agreement from an aspect of technology, there is little if +any incentive to do research in that field. One possible consequence +of such division of technology is that it permits foreign interests +to exercise influence amounting to domination over research in this +country. + +No one doubts that synthetic rubber is a matter of national interest. +The cartel arrangement between Standard Oil Co. (N. J.) and I. G. +Farbenindustrie was such that the latter dominated the development of +synthetic rubber in this country as well as in Germany. + +In the case of the Bausch & Lomb (Rochester)-Carl Zeiss (Jena, Germany) +cartel on military optical glass, the heads of the Bausch & Lomb +department responsible for military research were to be appointed only +with the agreement of the Zeiss firm. + +In regard to the cartel involving Plexiglass, probably one of the most +important plastics, and one which has innumerable military uses, the +Rohm & Haas Company (Philadelphia) stated: “We could think of a price +agreement on the finished product, or a division of our interests ... +we have not only our own interests at stake, but also the ones of our +German house [Rohm & Haas of Darmstadt, Germany] and the I. G.” + +In December 1934 a high official of the duPont Company wrote to E. W. +Webb, president of the Ethyl Gasoline Corporation (copies were sent to +every member of its Board of Directors) as follows: + +“I learned through our Organic Chemicals Division today that the Ethyl +Gasoline Corporation has in mind forming a German company with the I. +G. to manufacture Ethyl lead in that country. + +“I have just had two weeks in Washington, no inconsiderable part +of which was devoted to criticising the interchanging with foreign +companies of chemical knowledge which might have a military value. +Such giving of information by an industrial company might have the +gravest repercussions on it. The Ethyl Gasoline Corporation would be no +exception, in fact, would probably be singled out for special attack +because of the ownership of its stock. + +“It would seem, on the face of it, that the quantity of Ethyl lead used +for commercial purposes in Germany would be too small to go after. It +has been claimed that Germany is secretly arming. Ethyl lead would +doubtless be a valuable aid to military aeroplanes. + +“I am writing you this to say that in my opinion under no conditions +should you or the Board of Directors of the Ethyl Gasoline Corporation +disclose any secrets or ‘know how’ in connection with the manufacture +of tetra-ethyl lead to Germany.” + +Yet, in the face of this warning from duPont, on January 12, 1935, +Webb wrote the Chief of the Army Air Corps that “There is no technical +data of military importance known to us which would be involved in the +building of such a plant that has not already received wide publicity, +or is of common knowledge in the aviation field.” + +This statement strikingly ignores the warning received from duPont +only one month earlier that such a disclosure would “doubtless” be +prejudicial to our national security. In this connection it should +not be overlooked that duPont and Dow were the sole producers of the +chemical components of tetraethyl lead and, as such, were the concerns +which alone possessed the essential know-how. + +Why did Ethyl Gasoline disregard duPont’s warning? Webb himself has +supplied the answer in the final paragraph of his letter of January 12, +1935: + +“There is, furthermore, an equally, if not more, important business +aspect to the German situation. We are owned by Standard Oil and +General Motors in equal shares. General Motors has important +investments in Germany, producing there in excess of 50 percent of +the motor cars. Standard Oil has large investments in all phases of +the petroleum business in Germany.... We feel ... for the reasons +specifically mentioned here, that it would be extremely unfortunate +for all concerned if we do not proceed to carry out the agreement with +I. G.... A refusal or undue delay on our part ... might bring on some +serious reprisal measures.” + +This leaves nothing for surmise. It is not unfair to conclude, in +view of these facts, that for the directors of Ethyl Gasoline the +preservation of I. G. good-will conflicted with the maintenance of +good faith in dealings with their own government. Though duPont, from +the beginning, was opposed to the entire deal on grounds of patriotic +scruples, nevertheless it eventually deferred. In an inter-office memo +of the duPont Company appears the following: + +“I think we should tell I.C.I. that the technical and engineering +information which we are giving I. G. in connection with Tetraethyl +Lead is being given them entirely at the request of the Ethyl Gasoline +Corporation. As they no doubt know, Ethyl Gas and I. G. set up some +arrangements whereby they are going to participate jointly in the +manufacture and sale of Ethyl Lead in Germany and we are turning over +our information to Ethyl Gas which they in turn can submit to I. G. as +part of the bargain in connection with this joint enterprise.” + +The full extent of the dilemma in which cartel members are placed by +the conflict of their cartel commitments with national interest is +indicated in two statements made by a representative of one of the +world’s great industrial combines. In a letter written in 1939, after +the outbreak of war, a Standard Oil official stated: + +“Pursuant to these arrangements I was able to keep my appointments in +Holland, where I had three days of discussion with the representatives +of the I. G. They delivered to me assignments of some 2,000 foreign +patents and _we did our best to work out complete plans for a modus +vivendi which would operate through the term of the war, whether or not +the U. S. came in_. All of the arrangements could not be completed, +but it is hoped that enough has been done to permit closing the most +important uncompleted points by cable. It is difficult to visualize +as yet just how successful we shall be in maintaining our relations +through this period without personal contacts.” + +It is of significance also that this same representative of a cartel +group brilliantly expressed the cartel point of view when he said: + +“Upon completion of that agreement, the war intervened because our +grouping of interested parties included Americans, British, Dutch, +Germans, and the war introduced quite a number of complications. _How +we are going to make these belligerent parties lie down in the same +bed isn’t quite clear as yet._ We are now addressing ourselves to that +phase of the problem and I hope we will find some solution. _Technology +has to carry on--war or no war_--so we must find some solution to +these last problems.” + +It is in their very nature that cartels restrict the fullest +developments of new products and that they attempt to place rigid +handicaps on output. Very often they even adulterate the quality of +products in order to exact the greatest possible toll from the public. +Several examples may be used to indicate the practices and mental +attitude of monopoly groups in relation to the quality of material. The +following quotation concerning flashlight bulbs speaks for itself: + +“Two or three years ago we proposed a reduction in the life of +flashlight lamps from the old basis on which one lamp was supposed to +outlast three batteries, to a point where the life of the lamp and the +life of the battery under service conditions would be approximately +equal. Sometime ago, the battery manufacturers went part way with us on +this and accepted lamps of two battery lives instead of three. This has +worked out very satisfactorily. + +“We have been continuing our studies and efforts to bring about the +use of one battery life lamps. I think you will be interested in +the attached analysis which Messrs. Prideaux and Egeler have worked +up covering the various points involved in going to the one battery +life basis. If this were done, we estimate that it would result in +increasing our flashlight business approximately 60 per cent. We can +see no logical reason either from our standpoint or that of the battery +manufacturer why such a change should not be made at this time. + +“Messrs. Parker and Johnson now have this matter up with the battery +manufacturers and I would urge that every assistance be given them to +put it over.” + +Methyl methacrylate, the name of one of the best known plastics, is +used not only in the industrial field to make airplane windshielding +and many other structural materials, but it also has excellent +qualities for the making of dental plates or dentures. As a result of +the monopoly control of this material by the duPont Company and Rohm +& Haas, its uses were divided into two fields: industrial and dental. +At the time these firms were indicted a sharp difference in price was +maintained. When methyl methacrylate was sold for industrial purposes, +it cost 85 cents a pound, while the price to dental users was $45 a +pound. The dental profession soon learned that there was no difference +in the material, whether it was designed for industrial or dental use. +As a result they began to purchase their requirements from industrial +users, in order to gain the advantage of the cheaper industrial price +which, we could assume, might possibly be passed on to the dental +patient. + +The monopoly clique considered this a form of bootlegging. On March 15, +1940, the Vernon-Benshoff Company (Pittsburgh), a member of the clique, +made various suggestions to the Rohm and Haas Company which, although +they were not placed in actual effect, offer valuable insight into the +shocking extremes to which monopolists will consider going: + +“Our discussion of the Pure Food and Drug Law and pulling the acrylic +denture under it leads me to wonder if the manufacturers of the +commercial molding powders might not add an ingredient which would not +effect the molding properties, but which would disqualify it under the +act. Apparently a slight trace would suffice. Naturally it would be +omitted from the strictly denture powder. + +“Recently I asked Dr. Johnson to suggest an addition which might +interfere with distillation of monomer or retard polymerization. He +could not think of anything that wouldn’t spoil the molding properties +or clarity of the powders. But there the quantity needed to accomplish +the result was the handicap. + +“Under the very finicky regulations of the above act however, it may be +the slightest trace of the right agent, too little to constitute harm +to molding (or health either as a matter of fact) would suffice to have +bootleg products in bad. + +“A millionth of one per cent of arsenic or lead might cause them to +confiscate every bootleg unit in the country. There ought to be a trace +of something that would make them rear up.” + +In its reply the Rohm & Haas Company said that it was in agreement with +the general principles presented in the letter quoted above and that +it would ask its research department to work on the matter. This was +expressed in a letter of March 21, 1940 to the Vernon-Benshoff firm: + +“With reference to your letter of March 15th, we shall be glad to +investigate whether denture materials come under the Pure Food and Drug +Act. We agree with you that if we could put some ingredient in our +commercial molding material which would disqualify it under the Pure +Food and Drug Act, this would be a very fine method of controlling the +bootleg situation. We shall take this matter up with our development +department and advise you whether any such material could be used.” + +A striking way in which research can be perverted is illustrated by +another example. The dyestuffs industry is one which is basically +monopolistic and cartelized. A tight grip is maintained over its price +structure. This is especially true of dyestuffs for textiles. Recently +the duPont Company’s research laboratories developed a pigment which +can be utilized either in paints or as a dye for textiles. The duPont +research laboratories considered various ways to be sure that the +pigment could be limited in use to the paint and finishing field so as +not to disturb the price structure of the textile dyestuffs field. The +trend of duPont’s research thought on this subject was stated by the +director of one of its laboratories: + +“Further work may be necessary on adding contaminants to ‘Monastral’ +colors to make them unsatisfactory on textiles but satisfactory for +paints.” + +After working on this problem for some time, duPont’s Jackson +Laboratory reported on its progress somewhat dolefully. (DuPont says +of Jackson Laboratory that it is “one of the largest organic chemical +research laboratories in the world.”) The particular task involved was +difficult, according to a report by the Jackson Laboratory dated June +26, 1940: + +“Mr. Chantler was of the opinion that pigment mixtures, unsuitable for +textile printing would be very difficult to obtain. + +“(B) _Agents Injurious to Textile Printing._--The suggestion was made +that certain compounds that were white under ordinary conditions but +that would be oxidized to give colored bodies when the prints are +subjected to chlorine bleach, could be used. A few experiments had +been made along this line using such compounds as Chlorostain N, +dianisidine and DuPont Oxy Black Base. Complete data on this work are +not available. Mr. Dahlen expressed the opinion that the addition of +such compounds probably would cause as much or more damage to the paint +trade as to textile printing. + +“Such substances as ground glass and carborundum were suggested for +incorporation with the pigment. While these materials would undoubtedly +scratch printing rolls, there is considerable doubt as to their effect +in paints and lacquers.” + +Two days later the problem was again attacked at a meeting between the +representatives of General Aniline Works and the duPont Company. Eight +possible methods of adulteration were considered. I quote a few from +the confidential memorandum of their discussion: + +“1. A new type of copper phthalocyanine (CPC) for the paint and lacquer +trade which would be unsuitable for application textiles. + + * * * * * + +“The importance of solving these problems was recognized, and it was +agreed that both parties would work on promising ideas which resulted +from this discussion. The three problems are closely related, and it is +possible that the solution of one or two will automatically solve the +third. It was agreed that a powder would be the preferable standard. +After detailed discussion of various modes of attack, the following +appeared to be outstanding: + +“1. (a) Mixtures of CPC with Lakes.--The most promising mode of attack +appears to lie in the formulation of a mixture of CPC with a lake, +especially a lake of CPC. Such a mixture should have fairly good +fastness to light and _yet be poor in wash fastness on textiles_ or +incompatible with the usual textile printing lacquers.... + + * * * * * + +“(d) Deteriorate Cotton.--Compounds might be incorporated into CPC +which when applied to textiles and followed by bleaching or heating +treatment _might increase the deterioration of the cloth_. Compounds +such as chlorates or aliphatic halides which would produce hydrochloric +acid were specific examples. + + * * * * * + +“(g) Irritating Substances.--_It is known that certain resins and +solvents are irritating to the skin, often causing dermatitis. It might +be possible to formulate a CPC composition which will make textile +materials irritating to the skin._ + +“(h) Incorporation of Grit.--It seemed too dangerous to attempt to add +gritty material to CPC since, although it would interfere with the use +of the material for textiles, it would also offer serious disadvantages +in grinding on application of surface coatings. + +“It was agreed that the mere dulling of the material would not be a +satisfactory solution since dull shades are often used in the textile +trade. Most of the above comments are often based on work on blue, and +many of the solutions would apply equally well to the green. In fact it +is believed that there is a larger market for the sale of green than +the blue.” + +It seems to me that we cannot afford to place our sole reliance upon +monopolistic corporations whose interests have only too often been +divided, who have sought restricted production rather than full +employment of our resources and labor, and who have sought for monopoly +control rather than public welfare. We must learn by the bitter lessons +of the early years of this war which found us lacking both materials +and the know-how to make them, resulting from the restrictive practices +of monopolies which instinctively seek to produce as little as possible +for the greatest profit. + +In war and peace alike technology is a vital factor in our national +life. The present war is being waged with weapons and equipment which +represent the last word in scientific development. Careful planning and +rigorous adherence to the plans enabled Germany to have, in 1939, the +most efficient war machine the world had ever seen. Now, after several +years of feverish activity, the United Nations have at last caught up +with and passed Germany in the race for armament superiority. + +Now that our war effort has finally been put in high gear an entirely +different kind of problem seems to be emerging. Under the forced +draft of war urgency and unlimited government expenditure, materials +and products are being made the like of which we have not heretofore +known. The light metals, aluminum and magnesium, the wonder metal +beryllium, the miraculously efficient diamond tools and the tungsten +carbide tools, the plastics and dozens of other new developments will +unquestionably make the postwar world something entirely different from +that to which we have been accustomed. Many of the processes which can +revolutionize our mode of living are owned by the government. Some +are in the custody of the Alien Property Custodian. Others have been +developed with federal funds, either by government agencies or by +private concerns. No one will seriously dispute the wisdom of retaining +control of these government-owned processes and of fostering the +fullest possible use of them for the benefit of all. + +There can be no denying that the war has resulted in a concentration +of productive facilities in the hands of a relatively small number +of gigantic corporations. Even before Pearl Harbor some of them were +enormous concerns capable of wielding irresistible power in the +competitive struggle with other, smaller companies. Today and after +the war the smaller competitors which have survived will find the odds +against them a great deal more disheartening than before. It is not in +the public interest to allow the small competitors to be killed off +in the uneven fight. Neither is it in the public interest to place +hampering restrictions upon the effects of the large companies to fully +utilize their research laboratories and technical experience for the +purpose of strengthening their competitive position. + +Without doubt the sensible thing for us to do is to make research +and technology available to the little fellow as well as to his big +competitor. In agriculture this policy has amply demonstrated its +soundness. Experiment stations financed by state and federal funds +extend the benefits of their research to the small farmer as well as +to the large. It is doubtful that one could find a single intelligent +farm operator, large or small, who would voice the opinion that +governmentally financed agricultural research has not been worth many +times the money spent for it. The small industrialist has the same +right to expect that a government wishing him to continue to make his +contribution to the national welfare shall offer him those benefits +of research and expert advice which he cannot afford to provide for +himself but which can easily be provided by the government. + +There are those who scoff at all mention of cartels and refer to them +as bogies conjured up to justify an attack on all big business. Such an +attitude is dangerous. Cartels present the greatest challenge to our +system of free enterprise. + +In every cartel arrangement which has come to the attention of the +Antitrust Division of the Department of Justice technology has been +a vital factor. It is the responsibility of government to see that +technology remains free from artificial control and monopoly perversion. + +Every instance of this sort is evidence of the possibility of service +to the public which might be expected if the government should see +fit to provide itself with an adequately financed and numerically +sufficient staff of technologists. It is my belief that the time has +arrived for the adoption of legislation which will adequately protect +and advance the public interest in technological development. + + + + + 4 + + _Patents_ + + +The importance and the position of patents in the American economy have +been sharply defined since the outbreak of the present war. While the +problem which patents have presented to our economy did not begin with +the attack on Pearl Harbor, our experience within the past few years +has crystallized many of the questions and issues at stake. + +Patents are fundamental factors in the cartel problem because +patent agreements are quite frequently used as the basis of cartel +arrangements. The vital importance of control over technology and +research to the achievement of cartel power enhances the significance +of patents as the foundation stones of cartel structures. At the same +time, the effects of patent abuses upon the economy are magnified to a +critical degree. + +We are all familiar with the historical background of the patent system +and with the intent of the authors of the Constitution in stating +that Congress shall have the power to promote the progress of science +and useful arts by the grant of a patent. It is no accident that the +original clause in the Constitution was phrased in careful terms. The +framers of the Constitution inherited a concern toward the grant of any +monopoly by government. They were specific in limiting the scope of +the patent monopoly because they did not wish the patent to become the +basis of a system of privilege. + +When the American patent system was born, we were a frontier nation. +Pioneers in every branch of science had before them an inviting +horizon of discovery. The recognition of their contribution towards +the promotion of science and useful arts served as a stimulus to their +initiative and ingenuity. During this period the patent system served +our country well and acted as a major incentive in the making of +industrial America. + +Our patent system was designed to “promote the progress of science and +useful arts.” In many respects it has done so, and has given proper +protection to inventors and enterprising businessmen. Where it operates +to carry out this purpose, there can be no just complaint. But in many +instances the patent system has been perverted to accomplish exactly +the opposite effect. The patent has become the principal power weapon +of modern monopoly, and the misuse of patents the major tactic of +industrial cartels. This perversion has become so widespread as to +jeopardize the whole patent system. + +The patent problem as it exists today arises in an environment vastly +different from the handicraft era in which modern industry found its +beginnings. It is not the patent grant as such nor is it the operation +of the individual inventor that brings the patent system into question. +Invention today is a large-scale industry in a complex economy. In many +branches of industrial production vast monopolies exercise a dominating +influence over research. It is the abuse and misuse of patents by such +concentrated groups wielding tremendous economic power which have +brought patents into conflict with the fundamental purpose of the +patent law and with the Sherman Act. + +Monopoly interests, which have violated the antitrust laws in the +course of their abuse of patents, have made the claim that the +Antitrust Division of the Department of Justice is endangering the +patent system by prosecuting restraints of trade based on patents. Many +honest and innocent bystanders have been confused and misled by this +propaganda. The fact of the matter is that danger to the patent system +arises not from enforcement of the antitrust laws but from the flagrant +abuses of those who use patents as the foundation stone of illegal +monopolistic control of industry. If the patent system is finally +wrecked we shall have to thank those who brought it into disrepute by +their unflagging attempts to use the patent grant in a manner contrary +both to the law and to the national interest. + +Because patents have become an instrument of power-hungry and +power-seeking groups in industry, grave doubt now exists as to +whether our economy can longer tolerate and permit the control and +consolidation of patents by industrial oligarchies. + +Among the many serious abuses to which patents have become subject +within the last few decades, it is necessary only to specify a few. + +1. Patents have been used illegally to establish regimented systems of +industrial control by private groups. + +2. Patents have been used, contrary to the tradition and intent of +the American economy, to stifle new enterprise, to limit capacity and +production, to divide world markets, to impose artificial and arbitrary +price levels, and to set up private tariff walls. + +3. In their determination to eliminate competition among themselves and +to prevent the emergence of new enterprise, monopoly groups in industry +have used patents as a shield for conspiracy to violate the antitrust +laws. + +4. Employing the instruments of law designed to secure justice and +protection to the small inventor and small businessman, monopoly +interests have used litigation and threats of litigation based on +patents to compel the submission or surrender of independent enterprise +to the dictates of monopoly control. + +5. Patents have been used by industrial giants here and abroad to +fasten their grip on international trade by setting up patent cartel +agreements which slice world markets into exclusive trade areas. In +many instances these international patent cartels have made it plain +that they consider adherence to monopoly rules to be above and beyond +the laws of the United States and other countries. + +6. Our experiences in the first World War and the present global war +have demonstrated conclusively that the interests of hostile countries +have been able to use patents as weapons in economic warfare against +the United States. By delaying the development of strategic new +industries, by withholding know-how, and by strangling the market with +exorbitant prices for critical materials, monopoly groups in aggressor +nations have sought to weaken the war potential of the American economy. + +7. In numerous instances, scientific research has been perverted and +misused in order to strengthen monopoly restrictions illegally based on +patents. + +In the scores of Department of Justice cases involving patents and +illegal agreements based on patents and in the testimony before various +congressional committees investigating the facts, it has become +overwhelmingly clear that if free enterprise is to be maintained, +patent abuses must be eliminated. At the same time, the protection +which the patent right was designed to give to the independent inventor +and businessman must be strengthened and restored. If the system of +economic competition on which this nation depends for its well-being is +to be preserved, it is imperative that economic opportunity be granted +to all on equal terms. This cannot be accomplished if privileged +groups are able to obtain unfair advantage over new enterprise or +to amass huge patent structures which block the road to industrial +initiative. + +In a whole roster of industries, patents have been employed as the +police power of private economic governments. Our industrial history +is replete with examples of industries dominated by a few small +monopoly groups whose power rested on patents. In the radio industry, +in explosives, in spectacles, in glass containers, in magnesium, +in vitamins, in medicines, in building materials, in dyestuffs, in +electrical equipment and in synthetic rubber, to mention prominent +examples, the development of the industry has been decided by the +arbitrary discretion of groups controlling concentrated patent +structures. Using patents as an excuse, monopolists have sought to +determine who shall be given permission to manufacture, to buy and to +sell. They have determined what prices should be fixed and in what +markets sales might also be made. Illegally wielding their patent power +such groups have completely squelched free enterprise in these and in +many other industries. Such control is regimentation and bureaucracy in +an extreme and pernicious form. The independent businessman who falls +victim to this system of control is without recourse. + +Many businessmen seriously object to the regulation of industry +by government. What they do not realize is that it is not public +government but private government which exercises the most rigid +control over industrial conduct. Such regimentation violates the +fundamental and elementary principles of economic liberty. If we +believe in free enterprise, we cannot at the same time tolerate the +existence of private economic government which bears no responsibility +to the public. This type of regimentation has acquired such influence +in numerous branches of industry that free enterprise no longer +operates. + +A striking example of the manner in which patents are misused to create +private industrial governments is afforded by the glass container +industry. For more than a generation this industry has been dominated +by a monopoly group whose main function it has been to acquire and +license patents. This private governing body produced nothing itself, +yet the production of practically all the glass containers made in this +country was subject to its will. The amount of glass containers to be +produced by any manufacturer was closely regulated and limited. The +type of bottle he could make was determined by a system which permitted +practically no competition. Outsiders who attempted to enter the +industry were promptly eliminated by vigorous and costly patent suits. + +The patent policy of the monopoly group was neatly set forth in a +company memorandum which states: + +“In taking out patents we have three main purposes: (a) To cover the +actual machines which we are putting out and prevent duplication of +them ... (b) to block the development of machines which might be +constructed by others for the same purpose as our machines, using +alternative means; (c) to secure patents on possible improvements of +competing machines so as to ‘fence in’ those and prevent their reaching +an improved stage....” + +In the administration and regulation of the glass container industry, +this group pursued a licensing policy equally intended to perpetuate +its monopolistic position. In a memorandum outlining this aspect of its +control, the following statement appears: + +“Consequently, we adopted the policy which we have followed ever since, +of restricted licensing. That is to say, (a) We licensed the machines +only to selected manufacturers of the better type, refusing many +licenses whom we thought would be price cutters, and (b) We restricted +their fields of manufacture, in each case, to certain specific +articles, with the idea of preventing too much competition. (c) In +order to retain more complete control of the situation, we retained +title to the machines and simply leased them for a definite period +of years, usually 8 or 10 years, with the privilege of renewal of a +smaller additional term.” + +Obviously, the patent and licensing policy in the glass container +industry constitutes a system of oppressive regulation which neither +promotes the progress of science and the useful arts nor permits the +operation of competitive economic processes. Yet, instances like the +glass container industry could be multiplied for it is by no means +unique in modern American industry. + +The restrictive effects of patent abuses on the production of critical +materials in this country became clearly apparent following the +outbreak of war. Shortage followed shortage, and in nearly every +instance the basic device restricting our expansion of capacity and +output was found to be a patent cartel agreement. + +A dramatic illustration of a shortage resulting from a restrictive +patent agreement enforced by cartel groups is provided in the case of +tungsten carbide. Few items are as important as machine tools to our +economy both in peace and in war. The best cutting edge for machine +tools is made from tungsten carbide. Because of a patent cartel +agreement between the General Electric Company of this country and the +Krupp Works of Germany, the price was maintained at such a high level +that the second largest manufacturer of this commodity said: + +“The control of the tungsten carbide patents by the General Electric +Company and the Krupp Company has resulted in keeping the prices at +exorbitant levels. Now when the emergency has come, industry has not +learned how to use tungsten carbide and has not the machines, the +skilled men, or the technique which it would have had if the material +had been available at the same low prices at which it was available to +German industries.” + +Before the patent cartel was organized, the price in the United States +was less than $50 a pound. After the cartel was formed in 1928, the +price of tungsten carbide rose to as high as $453 a pound or, in other +words, much more than the price of gold. Significantly enough, the +price in Germany never rose above $50 a pound. + +While we recognize that technology is the most dynamic factor of +change in the modern world, it is not sufficiently realized that in +the struggle to control technological development and to confine +research within their feudal domains, monopolistic interests divide +the universe of technology in exactly the same way that they parcel +out world territory. Using the huge patent structures which they have +amassed, industrial giants divide among themselves the major branches +of technology and allow no one to encroach on their preserves. + +Although we depend upon research as the principal source of those +advances which promise a better and a healthier world, we tend to +overlook the fact that the power which modern monopoly wields over +research, by virtue of patents, often perverts the spirit of discovery. +How the deliberate misdirection of research is carried out is clearly +indicated in at least three cases involving electric lamps, plastics, +and dyestuffs. + +Electric lamps in the United States are practically the private +preserve of a domestic monopoly. The history of this industry can be +written in terms of the elimination of competition, based largely on +the abuse of patent litigation and price fixing. One of the great +threats to monopoly control can come from the virility and imagination +of our inventive genius. For this reason the vested interests attempt +not only to control their current monopoly, but take every precaution +to project their control into the future and to guard against the +development and exploitation of inventions by outsiders. + +One of the greatest developments in the lighting art since Edison +invented the incandescent lamp is fluorescent lighting. It has already +proven to be many times more efficient, and cheaper, than incandescent +lighting. The rapid development of this newer type of lighting which +would come from a competitive situation has been carefully suppressed +by the monopoly group. Patent control by the monopoly group controlling +incandescent lamps has been the main instrument for the suppression +of fluorescent lighting. Not only the monopoly group governing +incandescent lighting, but the electric utility companies as well, fear +the effects of the widespread use of more efficient means of lighting, +since it would reduce their sale of electricity and hence their +profits. A letter from the manager of the lighting bureau of a large +power company to the General Electric Company should be of interest to +the public: + +“Increasingly I seem to become the ‘father confessor’ on fluorescent +lighting as far as the utility men are concerned. This concerns one of +the displays dealing with fluorescent lighting in your G. E. building +at the New York World’s Fair. I must confess that although I have been +in your exhibit twice I did not see this particular display. + +“It appears that 20 watts of fluorescent lighting are compared with 20 +watts of incandescent lighting, the sign purporting to read something +to the effect ‘See the difference between equal wattages of fluorescent +and mazda lighting.’ Of course, the readings on the foot candle meters +show dramatic differences. + +“If this demonstration is as explained to us, I think it does _violate +the spirit of the understanding that our group had in Cleveland. As a +matter of fact, I would think it violated the fundamental concept of +the lamp department that advances in the lighting art should not be at +the expense of wattage_, but should give the customer more for the same +money. I hope you can find a way to change this exhibit, so that it +does not give misleading impressions to the crowd who will see it.” + +Here is the reply by the General Electric Company: + +“When Miss Winters showed me the attached letter ... I immediately got +in touch with Al Reas with regard to the demonstration at the fair. +Apparently this particular demonstration was temporarily loaned for use +at the fair, and is now being returned to the exhibit shop. _Therefore, +by removing this particular exhibit, Sharp and the other utility men +need have nothing to worry about._” + +Even if such flagrant misuse of patents did not occur, the grip on +our economic life which monopoly holds through patents would be a +threat to our system of enterprise. The spirit and substance of +free enterprise cannot exist in an environment where an independent +businessman with an independent idea, or an inventor with a new +discovery in a monopoly-ridden field, finds himself compelled either +to submit to monopoly control or to be barred from the market. It is +ironical but true that while a patent is supposed to give protection +and encouragement to the inventor, possession of a patent today is +little more than an invitation to predatory litigation. The threat +of expensive and protracted patent litigation is perhaps the most +effective means by which monopoly enforces its private rule on industry +to eliminate competition. + +The small businessman facing such obstacles has limited choices of +action. He can sue the large group, or risk suit, but in either event +will find himself involved in a costly, lengthy process. He generally +emerges with a broken spirit and a petition in bankruptcy. + +The files of the Department of Justice are crowded with complaints +and pleadings of these little men. They have found these handicaps +insuperable in their attempts to compete. In giving testimony before +the Temporary National Economic Committee, one small manufacturer +in the glass container industry recited a tale which is frequently +and tragically repeated throughout many branches of production. This +particular witness, sued for infringement on nine or ten counts, stated: + +“We naturally were finally forced to hire a patent attorney. We had +to acquire the services of a Texas attorney, and I think there are +some two or three patent attorneys in the State. They brought us into +court in April of 1935, as I recall. Well, when I arrived in San Angelo +and met them there in the hotel, I can conservatively say there was a +half train load of attorneys and equipment. There were motion picture +projectors and attorneys all over the place. I don’t know anyone of the +Hartford legal staff that was not there. They were prepared to give us +a nice battle. Well, I had only one attorney and he was considerably +lost in that crowd. I wish you might have seen his face that morning. +So I promptly asked for a recess until the afternoon in order to see if +we couldn’t settle the case out of court.” + +As the witness testified at the time, the “settlement” was “a sort of +slow death arrangement.” + +This situation has become a common condition, but it is not new. Thomas +Edison once stated that patent litigation cost him more than he ever +made from an invention. Unfortunately, the government has not as yet +developed any procedure to protect the legitimate rights which a patent +is supposed to confer on the little man. I have hopes that this aspect +of the problem will be considered and met in the not too distant future. + +Even if every other charge of malpractice or problem of monopolistic +abuse of patents were ignored, there would remain a crucial question. +Technology is an index of national security, and technological +strength depends upon technological freedom. Yet, in two world wars +we have learned that the infiltration of American industry by foreign +and hostile interests has been conducted through patents and patent +agreements. + +In 1914, we experienced severe and crippling scarcities of dyestuffs +and medicines, because patents held by German interests had prevented +the development of American production. In the case of salvarsan, +Ehrlich’s “magic bullet” for the cure of syphilis, we found that a +patent protected the product, but did not reveal the method of its +manufacture. The same situation occurred in other drugs, such as +veronal and novocaine, and in other fields, such as metal alloys and +special electrical equipment. + +Since the outbreak of the present war, our vulnerability to this method +of attack has been revealed once more. The use of patents as the +spearheads of attack in industrial and economic warfare, intended to +weaken our war potential, is illustrated in the beryllium industry, in +synthetic rubber, in pharmaceuticals, in optical goods, and in other +important military and civilian supplies. It is clear that abuses +of this nature, having consequences which affect both our national +security and our standards of living, cannot be tolerated. + +Whether at the hands of domestic or foreign interests, misuse of the +patent system and abuses of patent power militate against the best +interest of the American people. It is our task and our responsibility +to uproot these malpractices. Within the space of four years the +Antitrust Division of the Department of Justice has brought more than +forty cases involving these typical abuses, and this Division is +investigating many more. + +I should like it clearly understood that I believe the patent system in +many respects has served this country well. As long as it stays within +its proper orbit it can continue as a great force in the industrial +and scientific development of our country. Indeed, it must be one of +our aims to strengthen the patent system to make it more effective +for the protection of small business and for the encouragement of new +invention. Those who have a deep belief in the patent system should +support the government’s action in uprooting and eliminating the abuses +which have done so much to discredit the patent system generally. + +The vigorous enforcement of the antitrust laws is, of course, our +greatest guarantee that democratic opportunity will be kept alive in +our economic system. Something more is needed, however, to make certain +that free enterprise has a fighting chance. In this connection, it +is encouraging to note that the Senate has had under consideration +legislation intended to provide access to technology to government +and public alike. It is, of course, absolutely necessary that in the +present stage of technological development, where the military security +of the nation may depend upon the quality of its technology, that +the government have every facility at its disposal to keep abreast +of technological change. From the standpoint of economic health, +however, means must be found of granting to the small businessman or +the small inventor, who cannot hope to compete on an equal footing +with the massive strength and enormous resources of great industrial +laboratories, a chance to initiate and develop new ideas, new processes +and new products. + +In numerous instances patents have been used to discourage research +by independent inventors and businessmen. What incentive is there to +inventors to develop new products or processes when they may be, in +effect, inventing themselves into a patent infringement suit? Very +often in such cases the fact of infringement is never determined. +We all know that patent litigation is costly and time consuming. +In disputes between monopoly groups and smaller opponents the +difference in economic strength between the two parties is usually the +determining factor. In this situation small competitors often find it +less expensive to depend upon the research and the largesse of great +corporations, by accepting licenses which are usually restrictive. +Under such conditions neither the opportunity nor the fact of free +enterprise can flourish. + +Conduct of research by government does not mean that it would enter +into competition with industry. Rather, research sponsored and carried +on with the facilities and support of the government would constitute a +strong stimulus to private initiative. + +The government would enter no business as a result of carrying on +research. It would sell nothing, and it would not prevent others from +going into business. The fruits of discoveries produced by government +research would be open to all. It is primarily those interests which +seek to deny access to technology by independent enterprise that are +opposed to the entry of government into this field. + +The great need of small business in the post-war world for new +opportunities and new directions cannot be fulfilled if the small +businessman is denied access to technology. If the government provided +the scientific and technical resources which placed small enterprise on +an equal footing with great corporations, we should undoubtedly witness +a revival of the spirit of industrial adventure. + +Ultimately, the entire public as consumers would receive the benefits +of a government research program. When competition is absent and +research is dominated by monopoly groups, the consumer not only pays +higher prices for what he does get, but has no assurance that he is +obtaining the best possible products. Monopoly has no incentive to +progress, and so long as it is able to control research it need not +strive to make better products at lower prices. + +In addition to meeting the needs of small business and consumers, the +maintenance of scientific research by an over-all public agency is a +direct concern of government. The importance of technology to national +welfare has been shown strikingly during the present war. There are +many areas of scientific research and development which private +industry cannot adequately explore and develop. There are many branches +of science and technology, as well as of industrial development, where +government cannot afford to be dependent upon the efforts of private +monopoly groups. The lists of shortages which hampered our war effort +in early days of the present struggle resulted in nearly every instance +from restrictive effects of monopoly control. Government was forced to +turn to monopoly groups which dominated the market. It is essential for +the future that the hazard of dependence on monopoly be removed. + +Industry itself, large as well as small, would profit tremendously +if research conducted by the government supplemented private efforts +and increased our stock of scientific knowledge. The creation of new +industries would open up new channels for private investment and would +help to eliminate the periodic effects of depression. The constant flow +of new ideas into industry is essential if we wish to have both full +production and full employment. Government research could become one of +the principal means of stimulating and encouraging new industry and at +the same time overcoming the effects of the business cycle. + +The means of correcting patent abuses and of renewing competitive +opportunity in industry are available in existing law and with +relatively minor modifications in the scope of governmental authority. +Unless we are willing to accept private industrial government as a +substitute for a free economy, it must be our determination that the +spirit and purpose of the patent laws and the conditions necessary +to competition shall be securely established. If we would avoid the +destruction of the patent system as the consequence of its abuse, it +must be made clear to monopoly groups and industry that they cannot +base their restrictive practices and policies on patent privileges. + + + + + 5 + + _Medicines_ + + +In a very real sense the producers and distributors of medical products +occupy a position of public responsibility. On the whole, those in the +drug industry who are charged with this responsibility have carried +out their obligations in a highly praiseworthy manner. They are to be +commended and congratulated. + +In nearly every instance in which the standards of service and of +public welfare have not been maintained we find that monopoly groups +have been responsible for the abuse of public confidence. When monopoly +is able to impose restrictive conditions on the production, the price +and the distribution of vital medicines and to determine who may buy +and sell products, it is in the interests of the drug industry and the +public alike for government to intervene. + +Thus when it was found that a small ring of producers had been able to +maintain fixed prices on insulin and to pick and choose those who would +be allowed to distribute insulin to the public, it was necessary for +the government to act. + +There are approximately two million persons in the United States +suffering from diabetes. Most of these sufferers require one or +more daily injections of insulin. They are dependent for their very +lives on an adequate supply of the drug at a reasonable price. Yet a +monopoly group exploiting its privileged position took advantage of the +industry and of the public to impose arbitrary prices and unreasonable +conditions of distribution. Wholesalers, distributors, and retailers +were compelled to adhere to the edicts of the monopoly group under the +threat that if they did not do so, no insulin would be sold to them. + +The possible consequences of this exercise of monopoly power on the +well-being of victims of diabetes are appalling, yet in the hands of +monopoly the needs of the public become subordinated by the edicts +which are imposed on the industry and the public alike. It is for +this reason that the industry itself, as well as government, must +continuously be vigilant to oppose the growth and exercises of monopoly +power and to stimulate wholesome competition. + +Few effects of monopoly have been more insidious than the consequences +of cartel control over many areas in the drug and medical field. + +Because of cartel and patent agreements which carve up world markets +and divide fields of production, American drug manufacturers have in +some cases been denied the right and the chance to develop the American +drug industry to its full possibilities. Because international cartels +have been able to set up their own trade restrictions, American drug +manufacturers have been prevented from competing within the United +States. In many cases American manufacturers have been barred from +engaging in competition in other countries and from exporting to such +countries. In particular, American producers have found themselves shut +off from South American markets. Illegal patent abuses and agreements +have in other cases prohibited American manufacturers from entering +production or carrying on research in many important fields dominated +by foreign interests. + +The fight against disease is a primary concern of society everywhere. +Yet the brilliance and the industry of modern scientists have all too +often been perverted by the efforts of selfish groups to fasten the +grip of monopoly on products essential to health and welfare. There +have been numerous illustrations of the malignant effects of monopoly +on national health and on the maintenance of free enterprise in the +pharmaceutical industry. It is instructive to recall some of the more +flagrant examples of the abuse of monopoly power in the drug and +medical field. + +The cartel spirit in the pharmaceutical field is exemplified by the +following paragraph, written in July 1938 by the German company, I. G. +Farbenindustrie: + +“There is an agreement between German and Swiss firms of the Chemical +Pharmaceutical Industry for the protection of original preparations +which are marketed by the individual members of the group.... This +agreement provides that products which compete with the original +products of members of the association and their subsidiaries or +affiliated firms shall not be introduced in any country throughout the +world.” + +This agreement may be described as a conspiracy to deprive the world of +the benefits of research in new drug products wherever such benefits +may conflict with the vested interests of any of the participating drug +manufacturers. + +The present war is not the first time that the United States has found +itself dependent in a period of crisis for vitally needed drugs and +medicines on cartels dominated by foreign interests. During the first +World War the scarcity of salvarsan, of veronal, of novocaine, and +similar synthetic medical products seriously affected the health of +our people. It was not until after the war was over that we were able +to relieve some of these shortages. In the years between the World War +and the present global war cartel interests once more were able to +reestablish their monopolistic control over new pharmaceutical products. + +The myth of German superiority in the production of organic medical +compounds has been dispelled for many years. It is necessary, however, +to recall that this prestige rested not on superior skill but on the +abuse of monopoly and patent privileges. A well-known instance of +the way in which the German cartel interests sought to exploit their +monopoly position is the story of Bayer 205, sometimes called Germanin. +Shortly after the end of the World War I. G. Farben announced that it +had discovered a cure for sleeping sickness, the disease which is so +prevalent in Africa. The Germans refused to reveal the formula for +Bayer 205. Instead they sought to use their discovery as the basis of +an exchange of the secret process in return for the restoration of +Germany’s lost colonies. While this bold attempt to balance medical +achievement against political advantage is an extreme case, it +nevertheless reflects a cartel attitude. + +From the standpoint of the progress and growth of the American drug +industry it must be realized that the influence of cartels has been +the principal factor in keeping American products from world markets. +Foreign concerns, by making treaties with monopoly groups in the +American drug industry, have been able to monopolize practically the +entire continent of South America. One typical agreement between an +American corporation and a German concern divided the world market for +more than 400 pharmaceutical and chemical products into non-competitive +areas. Among the fields included in the agreement were quinine +derivatives, sulfa drugs, vitamins and narcotics. The American firm was +prohibited from exporting. This same pattern of restriction by which +American producers were barred from selling to South America has been +found in a whole roster of cartel agreements involving pharmaceutical +products. The effects of these agreements have severely handicapped our +good neighbor relations with South America and have made more difficult +the establishment of healthy trade between the United States and Latin +American countries. + +If we are to succeed in our efforts to create a better postwar world, +it should be evident that we must uproot every vestige of illegal +monopoly control over products essential to the health and welfare of +our people. Whether the restriction stems from the efforts of a cartel +to confine American industry to the domestic market, or to strangle +research and production by American concerns, or to use patents to +impose unlawful restraints on trade in the drug industry, it must be +our determined purpose to restore free enterprise in the pharmaceutical +field. Given freedom of opportunity and the incentive to enter branches +of the industry heretofore dominated by cartel interests, we may +rest assured that American drug manufacturers will demonstrate their +outstanding capabilities in research and their ability to compete both +at home and abroad. Competition will benefit the American drug industry +and permit it to attain its maximum development. What is perhaps even +more important, this country will be assured that in the future the +health and welfare of its citizens will not be dependent upon the +arbitrary exercise of monopoly power. + +I am sure that responsible persons in the pharmaceutical industry will +not argue that European technology in this field is so superior to +ours that competition is futile. If American manufacturers have free +access to technology and are not barred by the misuse of patents and +the resurrection of cartel arrangements, then the industry will find +itself in a healthier financial and technological position as well as +in a position more fully to discharge its obligations to the American +people. The myth of European superiority in the medical field has been +carefully nurtured by foreign interests which have used this propaganda +as a commercial device. Only free competition and free enterprise +can fully dispel this myth. This cannot be done, however, unless the +pharmaceutical industry sees to it that victims of diabetes, malaria, +pellagra, rickets and arthritis are not at the mercy of privileged +groups who have abused public confidence and exploited human suffering. + +The laboratories of our pharmaceutical industry have brought forth +wonderful discoveries. Their achievements have been a boon to the human +race. But they have a responsibility to erase the blemish caused by +those few who have misused their economic power to violate their trust. + +The promotion of public welfare as well as the best interests of the +pharmaceutical industry are served when research, production and +distribution are carried on free from the taint of monopoly. National +health, like national economic well-being, demands that freedom of +opportunity to conduct research, to engage in business, and to compete +in domestic and foreign markets be preserved. No compromise is possible +with monopoly control in an industry which is so directly concerned +with human welfare. + + + + + 6 + + _Synthetic Hormones_ + + +The use of synthetic hormones in the United States has grown to such +an extent that the annual sales amount to many millions of dollars. +Something more than half of the entire business in this country has +been carried on by four companies. Each of these companies is the +subsidiary or affiliate of a corresponding company in Europe. The +European companies belong to a hormone cartel which has controlled the +hormone business most effectively abroad and in the United States. + +After investigating the ramifications of the cartel’s activities in +this country the Department of Justice prosecuted the four American +companies for violations of the antitrust laws. Pleas of nolo +contendere were entered by the four corporations and by five of their +officials and fines totalling $54,000 were assessed and paid. At the +same time, on December 17, 1941, the defendants consented to the entry +of a decree in a civil action brought by the government, which enjoined +them from further activities in violation of the antitrust laws. + +These are the basic aspects of the hormone cartel: + +1. Research has been seriously affected by restrictions imposed by +foreign cartel members. + +2. German interests have entered into patent licensing arrangements +with American affiliates under which they--the latter--agreed to +withhold their products from Latin American markets. + +3. During the war American companies have aided their German affiliates +in evading the British blockade. + +4. American companies have participated in the use of paper +corporations and dummy consignees to avoid the effects of the Black +List in Latin America. + +5. American concerns have devised deceptive labels to preserve markets +for their German affiliates and to aid the spread of German propaganda +in Latin America. + +6. Members of the cartel have misused patents in schemes to camouflage +flagrant violations of the laws of the nation. + +7. The recognized benefits which might be obtained by the widespread +use of hormones have been to a large extent curtailed by reason of the +restrictions and illegal policies of the cartel members. + +8. In the case of one of the synthetic hormones, there is evidence +indicating that it may have a substantial contribution to make in +connection with treatment of wounded soldiers for shock. The cartel +restrictions have had their effect upon the production and wide use of +this hormone as well as the others. + +9. Two of the American companies have been taken over by the Alien +Property Custodian and one of these has been sold. + +The following explanation of the nature of hormones does not purport +to be a scientific discussion. It represents my understanding of the +subject based upon what I believe to be reliable authority. I merely +give it for what it may be worth as background for the discussion of +this cartel. + +Hormones are the secretions of certain ductless glands. As they enter +the bloodstream they regulate chemically practically every function of +the human body. They are really special agents of chemical coordination +of the body. They regulate, order and correlate bodily functions with +the same precision as that achieved by the nervous system. Since their +first definite isolation by the great English physiologists, Bayliss +and Starling, in the early years of this century, there has grown up +a whole new field of research. Infinitely small amounts of certain +hormones have the most profound effects upon the human body and its +emotions. As in the case of vitamins, much of our present knowledge +is the result of observing the striking pathological defects and +abnormalities produced by excess or deficiency of hormones. + +Thus deficiency of certain of these drug-like substances from the +small thyroid gland causes a marked decrease in metabolism and mental +and physical sluggishness. Excess of this same hormone, or complex of +substances, has the opposite effect, increasing oxidation and pulse +rate, and causing nervousness and emaciation. It also has striking +effects upon growth and development. Deficiency in children results in +dwarfism and idiocy. + +Other hormones such as those from the anterior lobe of the pituitary +gland affect the growth of bone. Hormones from the adrenal glands, +located near the kidneys, cause constriction of blood vessels, +accelerate the heart beat and cause discharge of glucose from the +liver. Insulin, one of the most widely known of the hormones, plays an +essential role in the metabolism of carbohydrates. Its absence causes +diabetes which is characterized by a failure of normal carbohydrate +metabolism. + +Medical investigators and chemists have been exploring this vast new +field of research for many years. They have learned more and more about +the actions and composition of these complex substances. For many years +they have worked with the extracts from the glands of certain animals +to obtain the hormone itself, or as much of it as could be saved in +the process of extraction. At the same time they have been analyzing +the composition of the hormones, and endeavoring to synthesize the +active principles. Among those which have been produced in synthetic +form are the male sex hormone, testosterone; the follicular and corpus +luteum, both being female sex hormones; and desoxycorticosterone +acetate, a synthetic substance which has effects similar to those of +cortin. + +Cortin is derived from the cortex of the adrenal glands. There is +still some question as to the role which this hormone plays, but +there is no doubt that it is essential to life. It apparently affects +the metabolism of sodium, potassium, and carbohydrates. This hormone +plays an important role in the concentration of body fluids and their +distribution between the inside and outside of body cells. The hormone +is therefore of some use in diseases or conditions where there occur +marked changes in the distribution of the body fluids. Specifically, it +means the hormones of the adrenal cortex are useful in the treatment +of Addison’s disease, where it seems to strike a balance in the intake +of salt. It has also been suggested that since surgical shock is +associated with unbalance of body fluids, this hormone may be of value +in counteracting the shock effects. Shock is so complex a condition, +however, that there is no general agreement on the effects of the +hormone. However, the hormone, or crystalline preparations possessing +hormonal activity, are being used by army surgeons both here and abroad +for whatever value they possess. + +It is with these and certain other pharmaceutical specialties that the +hormone cartel has concerned itself. The cartel is composed of five +large European companies: Schering A. G. (Berlin); Ciba (Basle); N. J. +Organon (Oss, Holland); C. F. Boehringer & Sons (Mannheim); and Chimio +(France). Each of the first four has had a subsidiary or affiliate +in this country which has been used to carry out the policies of the +European company and of the cartel. I shall describe in some detail the +practices which were followed in aiding the German companies to avoid +the effect of the British blockade and Black List in Latin America. + +The Schering A. G. firm is one of the most important pharmaceutical +and chemical manufacturers in Germany. It makes photographic supplies, +soaps, cosmetics and many other products. However by far the largest +part of its production consists of medicinal specialties and fine +chemicals, the former being the more important. It is the largest +German exporter of pharmaceutical and medical specialties, specializing +in sex hormones, vaccines, remedies for venereal and other contagious +diseases, rheumatism, tuberculosis, etc., and also laxatives, +anti-acids, opiates, etc. It is also one of the larger German exporters +of fine chemicals, laboratory chemicals and plant protection chemicals. + +At the time of the first World War, Schering A. G. did comparatively +little export business. Its export system, established and carefully +developed after 1918, is mainly the result of the work of one man, its +former president Dr. Julius Weltzien. This export system spreads over +the entire world. The procedure in establishing outlets abroad has been +as follows: At first sales are made to all who may wish to buy; then, +with increasing turnover, a local firm is made sole agent. When the +yearly turnover reaches about $25,000, an expert sent from Berlin is +coordinated with the sole agency firm. When the yearly turnover exceeds +about $50,000, Schering A. G. sets up a firm of its own, directed by +managers sent from Berlin. Germans, or men of German descent, are +placed in all key positions, and the remainder of the staff is partly +German, partly persons of the country in which the agency is located. +The final step is to set up factories in the most important markets +which are equipped to ampule the finished solutions and to tablet the +finished substances which are used in that form. The supervision of all +firms abroad is strongly centralized in Berlin. + +Until recently, Schering A. G. was one of the largest sellers of +pharmaceutical and medicinal specialties in South and Central America. +Testimony before the Truman Committee indicated that approximately +one-third of all materials shipped into South America by airmail over +the German controlled _Lati_ airline, during a six months period in +1941, were chemical and pharmaceutical products. Approximately the same +amount of books, maps, etc., intended for espionage and propaganda work +was also shipped by air since it was the only means of avoiding the +British blockade. On the return trips four-fifths of the air cargoes +were of mica for the Nazi war machine and most of the remaining fifth +was made up of other important war materials. The important role played +by the pharmaceutical exports in providing the exchange for purchase of +war materials should not be overlooked. + +The interruption of exports due to the war caused Schering A. G. to +adopt several different methods of continuing its foreign business. +Prior to the invasion of Belgium and Holland, firms in those countries +and in the Scandinavian countries were used as blinds to avoid the +British blockade. Before Italy entered the war, the Milan factory was +utilized as a point from which the German goods, labeled in Italy, +could be sent out to the rest of the world. + +The final step was to transfer to the United States the business of +supplying the markets cut off by the blockade. In preparation for this +emergency, several measures had been taken long before the actual +outbreak of the war. + +The center of the new supply system was Schering Corporation +(Bloomfield, New Jersey), a firm now held by the U. S. Alien Property +Custodian. This firm was established as a Schering A. G. subsidiary +in 1929 to manufacture medical specialties for the market in this +country. Differing from most other Schering factories outside Germany +it developed the finished solutions and substances out of raw or +semi-manufactured imported materials, where the others merely finished +the process by placing the material in ampule, tablet and package +form. Gradually extending its research, laboratory and manufacturing +facilities it came to be as fully equipped to manufacture, although on +a much smaller scale, all Schering medical specialties as Schering A. +G. itself. + +All of the common stock of this New Jersey corporation was owned by +Chemical and Pharmaceutical Enterprises, Ltd. (Chepha) and held in the +name of a nominee of the Swiss Bank. Chepha was owned 51 per cent by +the Swiss Bank and 49 per cent by other related interests. However, it +has recently come to light that the transaction in 1937 by which Chepha +and the Swiss Bank got apparent control of the Schering Corporation, +included an option agreement which made it possible for Schering +A. G. to regain its interest at any time it so desired. Obviously +the transaction was a mere sham to make it appear that the American +corporation was controlled from Switzerland rather than from Germany. +Actually Schering A. G. had never ceased to exercise its domination +over Schering Corporation up to the very outbreak of war between +Germany and the United States. + +As of January 1, 1938 the two corporations entered into an extensive +and detailed agreement. Two paragraphs of the preamble of this +agreement are as follows: + +“Schering A. G. is engaged in the development, manufacture and/or +sale of medicinal, pharmaceutical, biological, and bacteriological +preparations. It is the owner of processes and formulae used in the +production of such preparations and is also the owner of U. S. A. +patents and patent applications pertaining to such preparations. For +many years it has maintained and operated and still does maintain and +operate laboratories to carry on research and development work in +connection with such preparations, and has thereby acquired valuable +scientific knowledge, data and material concerning the aforesaid sphere +of activities. + +“Schering Corp. has an organization suited for national distribution +and promotion of such preparations in the United States of America, +and is equipped to manufacture such preparations. It also maintains +and operates laboratories to carry on research and development work in +connection with such preparations, but has not acquired the extensive +scientific knowledge and practical experience in this field that +Schering A. G. commands by reason of its longer and more extensive +research work and experience.” + +This language portrays the true relationship of the parent and +subsidiary companies. + +The parties agreed to exchange patents and information and to deal in +each other’s products in their respective territories. The division +of territory, as in so many of these German-American agreements, gave +the United States to the American corporation as its territory and the +remainder of the world to the German firm. + +Article V, Paragraph 5 is as follows: + +“Schering A. G. agrees not to deal in selected preparations nor to sell +selected preparations to any corporation or person in the U. S. A. +except to Schering Corp., nor knowingly to sell them to any corporation +or person for purposes of exportation to or resale in the U. S. A. +unless Schering Corp. shall first have given its written consent.” + +Article V, Paragraph 7 is as follows: + +“Schering Corp. undertakes not to export, either directly or +indirectly, from the U. S. A., or knowingly to sell for purposes of +export to any third party any such preparations unless Schering A. G. +shall have previously given its written consent.” + +A letter from Schering Corporation to Schering A. G. dated June 2, 1939 +contained the following: + +“In view of your assignment to us of certain patents in the +female-sex-hormone field and your assistance in connection with the +acquisition by us of licenses under patents in the male-sex-hormone and +cortin fields, we agree not to sell or offer for sale any product made +pursuant to the said assigned and/or licensed patents or any of them in +any country outside of the U. S.” + +All Schering A. G. patents and trademarks in the United States are +owned by Schering Corporation or its affiliates. However, the agreement +is not limited in its terms to the mere fixing of compensation for the +use of patents and trademarks. The American corporation agreed to pay +Schering A. G. a royalty on all its sales of pharmaceutical products +which had nothing to do with Schering A. G. patents and trademarks. It +even went so far as to agree to pay the German firm a royalty of not to +exceed 12½ per cent on sales of new preparations developed by itself in +this country. The following provisions of Article X of the agreement +make clear this unusual relationship: + +“In either of such cases [if net sales of Saraka, a proprietary +laxative, are more or less than $1,200,000] the royalty shall be as +follows: + +“(b) On that portion of such amount derived from sales of preparations +commonly available in the open market and not sold under a trademark, +such as insulin, milk of magnesia, thyroid, or codliver oil, and in the +manufacture of which no special Schering A. G. process is utilized, 6¼%; + +“(c) On that portion of such amount derived from sales of new +preparations developed by Schering Corp, wholly independent of Schering +A. G. and which do not fall within a field of preparations already +developed or in process of development by Schering A. G., a percentage, +less than 12½%, to be determined and agreed upon by the parties from +time to time.” + +Up to the outbreak of the war there was a constant exchange of +experience and knowledge by frequent mutual visits. This differs +radically from the conditions which prevailed in many other fields. +In the case of synthetic rubber for instance, the Hitler government +flatly prohibited the giving out of technical information while using +every means of securing the information of developments in this +country. It seems obvious that in the case of Schering A. G., the plan, +as subsequently carried out, was to place Schering Corporation in a +position of being able to carry on Schering A. G.’s overseas business. +In this rapidly changing field of hormones, this meant keeping the +American corporation completely informed as well as getting from it all +available information. + +Schering Corporation, before the outbreak of war, was provided with +complete instructions about the technicalities of exporting Schering +products, with a complete set of Schering export packages, labels, +prescriptions, etc., indicating all details of the complicated system +of packages which differ from country to country and from product +to product. This was done to enable Schering Corporation to start +exporting without delay in case of emergency. For these products which, +before the war had not been made by Schering Corporation, the necessary +manufacturing directions were sent from Berlin. About these products +until as recently as 1941 there was a constant exchange between +Bloomfield and Berlin. + +In addition to establishing a “neutral” manufacturer and supplier in +the United States which in case of emergency could be resorted to +as a new center of the overseas business, Schering A. G. took other +measures as well. The Schering subsidiary in London, Schering, Ltd., +was also sold to Chepha. It is understood that it has since been or is +being wound up by the British government. Shortly before the outbreak +of the war in 1939, all Schering A. G. firms in the British Empire, +except London, and those in Latin America, were transferred to Foreign +Investments and Invention Company, Ltd. Basle (Forinvent.) This was +done to “neutralize” these Schering firms and thus to protect them +from seizure in the British Empire or blacklisting in Latin America. +Forinvent is wholly owned by Palladium A. G., also a Swiss holding +company which in turn is wholly owned by the Swiss Bank Corporation, +Basle. Forinvent, like Chepha, is within the premises and organization +of the Swiss Bank. The president is the same Dr. Samuel Schweitzer of +the Swiss Bank, who is in charge of Chepha, and the connections of +Forinvent and Chepha with the Swiss Bank are practically identical. +Due to the fact that the selling transaction in the case of Forinvent +took place immediately before the outbreak of war, Forinvent could +not escape being placed on the blacklist. The same holds true for the +Forinvent (Schering A. G.) subsidiaries in Latin America, while the +Forinvent (Schering A. G.) subsidiaries in the British countries were +placed under enemy alien control. + +The carefully laid plans were put into effect upon the outbreak of war. +Forinvent advised the British Empire companies to get their further +supplies from Schering Corporation and at the same time advised the +latter to supply them, which it did. + +The fact that the British government acted quickly and placed Forinvent +and its subsidiaries in Latin America on the blacklist partially upset +the plans which had been made. In view of the increasing anti-German +attitude in the United States and the possibility of this country +entering the war sooner or later, Schering Corporation had to be very +careful of its outward connections with the Schering A. G. set-up. +Therefore when Schering Corporation was finally advised to supply +Latin America, steps were taken to conceal any connections with the +blacklisted Forinvent firms. On January 2, 1940 Schering A. G. gave a +release to Schering Corporation as to all products excepting hormones, +and on March 1, 1940, cabled a blanket release in the following terms: +“We authorize you until further notice to deliver pharmaceutical and +technical chemicals to our South and Central American representatives +or through their mediation to their customers.” These releases, of +course, did not apply to foreign firms not associated with Schering +A. G., and evidence shows that the restrictions as to these other +companies were still continued, and Schering Corporation refused to +sell to them. + +Two paper corporations were created to avoid use of the name Schering +although both corporations are in the same building with Schering +Corporation and are completely identified with it except as to name. +Pharmex, Inc., owned by Gregory Stragnell, vice president of Schering +Corporation, dealt directly with the ex-Schering A. G. subsidiaries in +the British Empire, except Schering Corporation, Limited, of Canada. +The latter deals directly with Schering Corporation of Bloomfield. + +Delta Pharmaceutical Corporation, owned by Sherka Chemical Company +(which was in turn owned by Chepha), purchased raw materials from +Sherka and hormone products from Schering Corporation and sold them +to Atlantis, a corporation organized in Panama. These two companies, +Pharmex and Delta, were really the export department of Schering +Corporation. Part of their employees were on the pay roll of Schering +and part on the pay rolls of Pharmex, Delta and Sherka. Both companies +were under the direction of Dr. Weltzien and Dr. Stragnell, then +president and vice president, respectively, of Schering Corp. + +Atlantis S. A., Panama, is a wholly owned subsidiary of Forinvent +organized in 1940. Its president is Dr. Samuel Schweitzer, who is +likewise in charge of Chepha and Forinvent. At first it was considered +advisable to set up an actual office in Panama. However since so +many technical questions, passport difficulties and tax questions +were involved, the whole Atlantis business was centralized in +Basle, Switzerland, under the direct supervision of the Swiss Bank +Corporation, in closest cooperation with Schering A. G. of Berlin. + +One of the problems faced by Schering Corporation in its new foreign +trade was that of packaging and labeling the products so that they +would seem to be identical with those formerly supplied by Schering A. +G. Since one of the chief considerations prompting this whole scheme +was preservation of good will, in order that the business could be +turned back to Schering A. G. after the war, this factor was most +important. On February 10, 1940 Forinvent cabled Pharmex as follows: +“fundamental changes of packing latinamerica may jeopardize turnover +on account customers mentality and will probably cause difficulties +with registration authorities therefore please adopt present style of +packing and labeling ... suggest airmailing you immediately films for +making plates [for printing Schering A. G. type of labels].” It was not +necessary to use the films in question inasmuch as Delta had samples of +all the Latin America packages it had used as a standard pattern. Delta +on January 28, 1941, sent to Swiss Bank samples of all packages used +for export, pointing out that the differences between the new and old +packages were very slight. + +From early in 1940 until Pearl Harbor the supplying of Schering A. G. +firms in Latin America was accomplished in a circuitous manner. Each +of the firms kept in close touch with Basle and so with Berlin. They +advised Atlantis of their requirements. Atlantis, in Basle, cabled the +orders to Delta at Bloomfield and instructed Swiss Bank in New York to +honor Delta’s drafts. Delta delivered the goods to a forwarding agent +of Atlantis in New York, which shipped them to a dummy consignee in +Latin America and they were there received by the particular Schering +firm which had placed the order. + +About 40 or 45 cents of each dollar paid by the Latin American firm +went to Atlantis and thus to Schering A. G. Out of its share, 55 or 60 +cents, Delta (actually Schering Corporation) made its manufacturing +costs and whatever profit there might be for it. The advertising +expense was borne by Atlantis or Schering A. G. The advertising and +continuance of the familiar German packages, labels and Schering +trade-mark constituted an important form of German propaganda. It +was possible for the German agents in Latin America to point to the +continuance of German pharmaceutical supplies as indicative of their +ability to overcome the British blockade and to carry on their commerce +with this hemisphere. + +It has been mentioned that the Germans used pharmaceuticals which +have a high value in proportion to bulk and weight to make up one +third of the air cargoes which were flown into South America along +with propaganda and other materials. Pharmaceuticals also constituted +an important part of the air cargo which was carried eastward, +ranking third among the materials which were flown over the blockade. +One order of 10 kilos (22 pounds) of testosterone propionate, the +semi-manufactured male hormone, valued at $50,000 was shipped one +kilo a week by air mail from Argentina to Spain and from there to the +Schering factory at either Milan or Berlin. This and other similar +orders, were placed by a dummy of Schering A. G. in Portugal. + +Thus far I have been discussing the relations of two firms, one, the +largest of the European manufacturers of synthetic hormones, and the +other its affiliate or subsidiary, the largest American producer. +There are other large European members of the cartel and each has its +subsidiary in this country. + +Ciba (Society of Chemical Industry in Basle, Switzerland) is another +important cartel member. It has been in existence for some sixty years, +engaged in the manufacture and sale of dyestuffs and pharmaceutical +products throughout the world. In July 1936 it organized a subsidiary, +Ciba Pharmaceutical Products, Inc., of Summit, New Jersey. Ciba Basle +also came to own several other corporations in fields other than +pharmaceuticals and hormones in this country, and companies in Canada, +Brazil and Argentina which sell dyestuffs and pharmaceuticals. Ciba’s +close relation to Schering A. G. is indicated by its joint ownership +with the Swiss Bank of the common stock of Chepha, which in turn owns +all the common stock of Schering Corporation. + +Until just before the war Ciba Pharmaceutical of Summit, New Jersey, +produced no hormone products. These were all purchased by it from +Ciba Basle. However, since its organization it has been distributing +hormones under its own label. + +The subservient attitude of Ciba Summit to the Society (Ciba, Basle) is +clearly shown in the following paragraph from a letter of October 17, +1939, from H. Kamp, vice president of the New Jersey corporation, to +James Brodbeck, Secretary of Ciba Basle: + +“As I have repeatedly said, I am not interested in making profits for +Summit out of sales of raw materials or even finished packages sent +to foreign countries. _All I am interested in is to help Society in +getting the business_, but we must have a certain rule as regards +profits for Summit. The simplest way would be if Basle fixed a +percentage profit over our price II on all products shipped in bulk +to any foreign country. The same, of course, could apply to finished +packages if we were to supply finished packages to foreign countries +later on. _We want to help Society as I fully realize that we are +working for the interest of Society and not for the interest of Ciba +Summit alone. Whatever seems most advantageous from your point of view +will meet with my approval._” + +The same attitude is also reflected in a letter of September 22, 1939 +from H. Kamp of Ciba Summit to Dr. J. Weltzien, president of Schering +Corporation: + +“At the meeting which took place on May 10, 1939 in your offices, +among other points, the introduction of desoxycorticosterone acetate +was discussed. It was finally agreed that Ciba would introduce the +product, but would abide by your suggestion that no other indications +be mentioned in the literature than Addison’s Disease. We were, +therefore, more than surprised to read your advertisement in the +‘Druggists Circular’ announcing ‘CORTATE,’ where it is suggested that +the drug may be of use in the more chronic constitutional types of +cortical deficiency, in asthenias, and that certain allergies should be +benefited by the administration of Cortate.... + +“It is again one of your usual methods by putting the other parties +before accomplished facts. I have discussed your tactics very +thoroughly while in Basle, and I can assure you that our friends +in Basle are more than fed up with your _methods. In fact, I have +the full authority to give you a dose of your own medicine at the +next opportunity, and this I am going to do without any hesitation +whatsoever!_” + +N. V. Organon of Oss, Holland, is a large manufacturer of hormone +products and so is F. Hoffman-LaRoche of Basle, Switzerland. The +latter company has had a subsidiary in Nutley, New Jersey called +Hoffman-LaRoche, Inc. N. V. Organon of Oss and Hoffman-LaRoche, Inc., +of Nutley, have jointly owned a corporation called Roche-Organon, Inc., +organized in 1937 and engaged in the sale of hormones. In 1940 Ciba +licensed Roche-Organon to manufacture products in the cortin field +under a patent for which it had made application in 1938. Ciba agreed +to pay Roche-Organon 20 per cent of all royalties collected from other +licensees except Schering. Roche-Organon agreed to pay Ciba 6 per cent +on its entire turnover in the United States in the Cortin field from +January 1, 1940 to June 17, 1955 regardless of whether the turnover +involved products made under Ciba’s patent. + +The German firm of C. F. Boehringer and Sons of Mannheim-Waldhof, +Germany formerly owned 50 per cent of the stock of Rare Chemicals, +Inc., Nepera Park, New York. The president of the German firm was the +father of E. T. Fritzsching, formerly secretary and more recently +president of Rare Chemicals. A memorandum of the younger Fritzsching of +Rare, dated March 29, 1939, contains the following opening paragraph: + +“In view of the boycott situation and in view of a number of other +reasons I have come to the conclusion that the best way to avoid +any further trouble for Rare Chemicals is to arrange for a definite +purchase of the Boehringer shares by an American citizen. It is my +intention to make an offer to Boehringer, by which I shall take over +their assets in this country and pay for them at whatever price I could +possibly obtain them. I am assuming this obligation personally for the +reason that it really makes very little difference whether the shares +are owned by Boehringer or by me, since through this transaction the +assets would morally still remain within the same family interests. It +would also work along the lines of my personal interest and that of my +family in the event of war.” + +The remaining 50 per cent of Rare’s stock was owned by Pyridium +Corporation also of Nepera Park, New York. A letter to Erwin +Fritzsching c/o C. F. Boehringer & Soehne, G.m.b.H., Mannheim-Waldhof +from W. S. Lasdon of Pyridium and president of Rare dated August 18, +1939 contained the following statement: “I agree with your suggestion +to the transfer of the B.&S. stock to a Swiss Company, instead of to +you, and of course, your participation in the profits of Rare is to be +cancelled upon the signing of this agreement, the understanding being +that you and W. S. Lasdon will represent the stockholding interests.” +The products of the two companies were exchanged with definite +restrictions upon their distribution. The following excerpt indicates +that the German firm kept a tight rein on the use by the American firm +of the former’s products. It is taken from a letter from Fritzsching +of C. F. Boehringer & Soehne, G.m.b.H. to Rare Chemicals, Inc., dated +October 31, 1936. It concerns a request of Rare to be allowed to +manufacture a product called Eucupin. + +“We are acknowledging the receipt of your letter of October 19th and +regret to say that we cannot comply with your wishes. + +“We must take into consideration also the German interest when weighing +the question whether it is right to send manufacturing processes to +foreign countries, even though they may go to our friends in these +countries. We cannot be responsible for it to give you manufacturing +processes, the use of which is not to be expected within a reasonable +time. In such a case we cannot truthfully answer any possible questions +from authorities to the effect that we can say that when giving away +a manufacturing process it will make it possible to manufacture and +sell in a foreign country a German preparation, the sale of which from +Germany due to duty difficulties and other restrictions cannot be +considered. In this fact lies the German interest, and this we have to +consider in first line.” + +In the summer of 1942 Rare was taken over by the Alien Property +Custodian and subsequently sold at public auction to a wholly American +independent organization. + +After certain separate agreements and considerable negotiation a five +party agreement was entered into on May 26, 1937 to which the European +firms Schering A. G.; Ciba, Basle; N. V. Organon, Oss, Holland; C. F. +Boehringer & Sons, and Les Laboratoires Francais de Chimiotherapie +of France (Chimio) were the parties. The male hormone, female sex +hormones, and cortin, the cortico adrenal hormone, are covered by the +agreement. It involved a division of territories with certain parties +being definitely excluded from certain territories. Competing producers +of pharmaceutical products were expressly named as firms with which +any kind of cooperation is prohibited. Among these were E. Merck, +Darmstadt, Germany, and Merck & Co., Inc., of Rahway, New Jersey. +Subsequent agreements removed the prohibition as to these firms. + +Of course, one of the chief purposes of the cartel agreement was to +fix prices. The European parties agreed upon prices and their American +affiliates did likewise. A memorandum of a meeting held at Summit +on October 6, 1938 between representatives of Ciba and of Schering +discusses the fixing of prices on various hormones. The artificial and +arbitrary character of the pricing policies is indicated by quotations +from some of the documents which were written following this meeting. +One of them indicates an agreed price of $3 for a certain hormone +product. It then states: “This price was later refused by Mr. Kamp +[Ciba’s general manager] who then advocated $4.00. This was submitted +to the other with our O.K.” + +A memorandum of a discussion held at Bloomfield, New Jersey on October +7, 1938 between representatives of Rare and of Schering, recites a +detailed list of prices agreed upon between Schering and Ciba the +preceding day as having been submitted to Rare. + +As to the item on which the price had been changed as just indicated +an endorsement on this memorandum states: “Informed Mr. Landon [Rare +official] by phone of Summit’s desire to change this price to $4. He +agreed to this.” + +The entire world cartel system has been bound together with patents. +The contracts among the American companies have been carefully planned +and drafted abroad to avoid any appearance of violating the antitrust +laws. They were couched in terms of licensing patents to give the +impression that the parties were merely procuring rights under patents +and not engaging in restraints of competition. The evidence indicates +that the cartel participants in Europe had attempted to allocate the +issue of patents in the United States to the associated firms in such +a manner as to strengthen the defense of the American firms against +charges of antitrust law violations. At a discussion in Berlin on +March 18, 1939 among representatives of Ciba, Organon, and Schering, +A. G. there was set in motion reciprocal concessions of priority in +interferences between Organon and Ciba in the U. S. Patent Office +relating to the male hormone, and to cortin. It was arranged for +Schering to drop out of the interference proceedings. It appears from a +circular letter from Organon to Ciba and Schering that the plan was for +Organon to concede priority to Ciba in the male hormone interference +and for Ciba to concede priority in the interference regarding cortin. +The intent of the parties, as to the male hormone interference, was +to transfer the application of Organon to the United States Ciba +firm. This circular letter of April 4, 1939, from Ciba to Organon and +Schering, A. G. reads in part: + +“It is up to Ciba to take care in accordance with the several single +agreements in the United States for a correct and clear basis of the +agreements relating to the male hormone field because corresponding +proceedings are intended in the paranephros [cortin] hormone field in +which Roche-Organon shall obtain the basic patent claims. In accordance +with the opinion expressed here since Ciba gives its consent already +in the letter of March 9, 1939 to transfer the basic application in +which the patent claims for paranephros are established (Case 1577/1-4) +to Roche-Organon, that however, is dependent upon corresponding +proceedings of the Organon in the male hormone field.” + +The reasons for this “swapping” were very clearly indicated in the last +mentioned document: + +“As it is known in the United States the antitrust legislation is of +extremely great significance. The different agreements which are in +the state of preparation in the United States are intended to put all +contractors into position to sell hormone compounds in the United +States without any violation of those statutes.... So far as ... cross +promises to maintain prices exist, this promise is only lawful if the +licensee, in this case Ciba, possesses the protection of a patent +claim.... + + * * * * * + +“According to the information of Dr. Joseph Engi almost daily new +indictments based on the antitrust legislation are made. Under such +circumstances it is extremely important to obtain as fast as possible +the protection of the most important patent claims.” + +However, Roche-Organon resisted the transfer of the application, +writing in its circular letter to Ciba and Schering, A. G., dated April +15, 1939: “An expert would understand immediately that the transfer of +this application served only aims which have to be considered as lawful +according to the antitrust legislation. We couldn’t even mention any +consideration given the Ciba.” + +Although Organon’s male hormone application was in fact not transferred +to Ciba, the result which the parties contemplated appears to have been +effected. Ciba, apparently relying upon its own male hormone patents in +the United States, became the licensor of Roche, Schering, and Rare, +while Roche-Organon participated in the licensing arrangements only +under its cortin patents. + +There are numerous indications in the Schering correspondence that +the American license agreements are so bound up with the basic cartel +agreements that the sums of money paid by the American firms to each +other are regarded as parts of the total considerations which the +European firms are bound to pay each other. + +As in the case of Schering A. G. and Schering Corporation the other +cartel members bound their United States affiliates to agreements which +precluded exports in any manner which would interfere with the division +of territory among members of the cartel. The agreement of April 1, +1938 between N. V. Organon and Roche-Organon contains the following +provisions: “Roche-Organon agrees not to deal in or manufacture +glandular and hormone preparations other than those originated by Oss +[N. V. Organon], nor to export or sell for export from the territory +any glandular and hormone preparations.” (The territory is defined as +the United States, its territories and possessions, Canada and the +Philippine Islands, and Cuba.) The other agreements contain similar +restrictions with some variations as to the exact territory. + +The principles of competition, price, and research heretofore discussed +are well exemplified by the case of Stilbestrol (diethylstilbestrol), a +recently discovered pharmaceutical which has effects similar to those +of the female sex hormones. It is the product of research supported +by Government grant in England, several scientists of the University +of London and of Oxford University, headed by E. C. Dodds, being +responsible for the development. Throughout all of the work of Dodds +and his colleagues the Medical Research Council, a British government +organization, undertook the necessary financial support. (While +Stilbestrol is not a synthetic hormone, it has most of the valuable +therapeutic effects of these substances although it may not be entirely +free from side reactions. Its cost of manufacture--and the price to the +consumer--are much lower than those of the equivalent hormones). + +The American hormone cartel members were aware of Stilbestrol and its +possibilities as early as 1939. In a conference of Roche-Organon, Ciba +and Schering officials, held on August 1, 1939 the following discussion +took place, according to minutes found in Ciba’s files: + +“Mr. Kamp [Ciba] brought up the subject stilbestrol. + +“Mr. Hammer [Schering] said he thought that any concern would have a +hard time getting stilbestrol accepted in this country. + +“Dr. Oppenheimer [Ciba] pointed out that in this country estradiol +prices may not be too much out of line with those of stilbestrol +compared with Great Britain. + +“The question of side effects from stilbestrol was then discussed. + +“Dr. Josephy [Roche-Organon] told of reports from Amsterdam on the +use of stilbestrol in animal experimentation. He said that he thought +the government would look not only at the favorable reports on a +preparation which was submitted but also the unfavorable ones. + +“Mr. Kamp said he thought some concern had already filed with the +government a request to market stilbestrol.” + +A memorandum in Schering’s file concerning this same conference of +August 1, 1939 is somewhat more revealing: + +“XVIII _Stilbestrol_. Ciba and Roche-Organon want to have it just to +be able to knock it with physicians. They say the hormone business +in England has been destroyed just by this new product. On the other +hand, it is said to injure the liver and there is doubt that the U. S. +Government will allow it to be used.” + +In the minutes (from Ciba’s files) of a conference of representatives +of the three companies on Friday, October 27, 1939, there is this +statement: “During the discussion Stilbestrol was mentioned and Dr. +Weltzien [President of Schering] remarked he hoped ‘none of us will +introduce Stilbestrol’.” These quotations indicate the hostility of +cartel members towards a new product which endangers their control of +the market. Stilbestrol was put on the market in this country late in +1941 and had an immediate effect upon the sales of the higher priced +hormone products. + +From what has been said it seems clear that in the field of synthetic +hormones the cartel control has been such as to be detrimental to our +national interest. When such control can be used to make American +corporations the tools of those of other countries it is exceedingly +unfortunate. When carried to the point of causing corporations in +this country to aid the Axis it could not be and was not tolerated. +The seizure of two of these companies by the Alien Property Custodian +has put an end to the German control. From the point of view of +encouragement of research those two companies are much better off than +they were when tied to the apron strings of their parent companies +in Germany. Complete removal of cartel restrictions from the entire +industry would be definitely in the interest of the general public in +this country and throughout the world. + + + + + 7 + + _Vitamins_ + + +The monopolistic control of one of the most essential products of +our modern era--the sunshine vitamin, also known as Vitamin D--has +been magnified by the fact that it is the poorer elements of our +country which have the greatest need for this product, since it is a +preventative and a cure for certain diseases most commonly found among +the lower economic strata of our population. Vitamin D is essential for +proper bone growth and development, the prevention and cure of rickets, +and the prevention or reduction of tooth decay. + +The Wisconsin Alumni Research Foundation acts as a screen behind +which a group of monopolistic chemical, pharmaceutical and food +companies control Vitamin D. The story of the Wisconsin Alumni Research +Foundation is of extreme importance because it indicates how a +quasi-public research organization can be flagrantly misused. + +At the outset I should like to state that the Wisconsin Alumni Research +Foundation has no formal connection with the University of Wisconsin, +and that the University of Wisconsin has absolutely no control over the +policies and practices of the Alumni Foundation. It should be clearly +understood, therefore, that what I say here does not reflect in any +manner upon the University of Wisconsin. + +A report of the Trustees of the Foundation dated June 22, 1931, defines +the objectives and purposes of the Foundation as follows: + +“Indeed one of the soundest reasons for the development of the +Foundation as a suitable means of handling the Steenbock process lies +in the rigid control through which it is possible to protect the public +and prevent unscrupulous commercialism from capitalizing the Steenbock +discovery.” + +The investigation by the Antitrust Division of the Department of +Justice indicates, however, that somewhere along the line these +laudable objectives were lost. Instead, a summary of our investigation +discloses the following facts about the Wisconsin Alumni Research +Foundation: + +(1) It has been the vehicle for creating a domestic monopoly resulting +in division of fields, price fixing, control of container size, and +limitation of potency of vitamin products--as a result of which the +public has been charged excessive and arbitrarily high prices. (The +Foundation has been described by a licensee as being “merciless in +beating out competition” in the field of vitamins.) + +(2) It has considered plans to denature and adulterate Vitamin D +preparations in order to maintain high prices. + +(3) It has exhibited a lack of interest in research unless a commercial +advantage could be obtained. + +(4) It has used threats of patent litigations under patents which it +knew were very weak to eliminate competition. (Some of these patents +upon which the monopolistic scheme rested were, in fact, declared +invalid in 1943 by the Circuit Court of Appeals for the Ninth Circuit.) + +(5) It has suppressed the use of competing processes. + +(6) It has organized international cartels with I. G. Farben of Germany +and Joseph Nathan & Co., of Great Britain, in order to eliminate world +competition by dividing world territory into noncompetitive areas. + +(7) It has attempted to suppress the publication of scientific research +data which were at variance with its monopoly interests. + +(8) It has acted as a police organization for its licensees--in order +to maintain its price fixing arrangements--by setting up a black list +of price-cutting distributors. + +(9) It has used its licensing scheme to discourage research by its +licensees. + +(10) It has endeavored to suppress or prevent truthful advertising in +order to eliminate competition. + +(11) It has required its licenses to charge unreasonable prices to the +government. + +(12) It has forced farmers to buy vitamin-enriched animal feeds in a +monopoly market. + +Since 1925 the production and use of Vitamin D has been under the +control of the Wisconsin Alumni Research Foundation. The control has +been based upon the so-called Steenbock patents, especially upon patent +No. 1680818, which the Foundation regards as the basic patent on +Vitamin D. + +About 1925 Dr. Steenbock, then a professor at the University of +Wisconsin, conducted experiments which eventually resulted in the +Steenbock patents. Recognizing the commercial possibilities of his +developments, Steenbock offered his patents to the University, but the +Regents of the institution did not feel they were in a position to +commercialize them. The President of the Wisconsin Alumni Association +at that time was George I. Haight, a very able patent lawyer of +Chicago, who immediately recognized the commercial possibilities of +the Steenbock development. Together with some of the other leading +alumni of the University, Haight founded the Wisconsin Alumni Research +Foundation to undertake the exploitation of the Steenbock patents and +such other patents as the Foundation might from time to time acquire. + +The Foundation was chartered on November 14, 1925 as a non-profit +corporation. Its purposes, as stated in its charter were “to promote, +encourage and aid scientific investigation and research at the +University of Wisconsin by the faculty, staff, alumni and students +thereof, and those associated therewith, and to provide or assist +in providing the means and machinery by which their scientific +discoveries, inventions and processes may be developed, applied and +patented, and the public and commercial uses thereof determined, +and by which such utilization or disposition may be made of such +discoveries, inventions and processes, and patent rights or interests +therein, as may tend to stimulate and promote and provide funds for +further scientific investigation and research within said University or +colleges or departments thereof.” + +The Foundation is managed by a Board of Trustees. Originally these +trustees personally handled the work of the Foundation but, in 1931, +they secured the services of Henry L. Russell, former dean of the +University of Wisconsin College of Agriculture. Russell was made +Director and executive head of the Foundation. Later, as business +increased, L. D. Barney was employed as business manager, and Ward +Ross, an associate of Haight, was retained as General Counsel. +Steenbock himself appears to have handled most of the technical matters +of the Foundation insofar as they relate to Vitamin D. The royalties +received by the Foundation are invested and the resulting income is +utilized for research. + +The Foundation has controlled Vitamin D by reason of its ownership of +the Steenbock patents Nos. 1680818, 1871135, 1871136, and 2057399. The +underlying concept of all of these patents is that certain substances +called pro-vitamins may be “activated” so as to result in a product +having a high Vitamin D potency. This “activation” is accomplished by +exposing the pro-vitamin to ultra-violet light, and the basic patent is +limited to activation by ultra-violet light produced by an artificial +source such as a quartz mercury vapor lamp. + +The commercialization of the Steenbock patents was phenomenally +successful almost from the very outset. The report of the Trustees of +the Foundation dated June 22, 1931, states: + +“The accumulation from royalties so far has been almost wholly from the +ultra-violet patents. During the calendar year 1930, the gross income +was $354,590, or very nearly $1,000 a day throughout the year. This +income has been developed within less than three years.” + +The Foundation’s annual royalties showed a steady increase until +1936, when they amounted to nearly $1,100,000. After 1936, the annual +royalties decreased slightly, and in 1939 they amounted to $936,610.70 +or over $2,500 per day. Up to 1940, the Foundation had received more +than $8,500,000 in royalties. + +The royalty rates charged by the Foundation vary from 10% to 3% and +less, with higher royalties applying to only a few products. The +enormous size of the market is indicated by the munificent revenues +yielded by royalties at these rates. + +The first requirement for the success of the Foundation’s licensing +program was the elimination of competition from non-licensees. The +Foundation’s practices in this respect are aptly described in a +memorandum dated February 20, 1935, from Connolly, a du Pont patent +attorney, to Kupperian, of du Pont: “The Foundation has been merciless +in beating out competition throughout the United States whenever such +competition threatened to encroach upon the synthetic vitamin D field.” + +Some of the leading manufacturers in the country are licensees of +the Foundation. Many of these manufacturers have been licensees for +years, while in some cases licenses were obtained by the acquisition of +companies holding licenses. Both du Pont and Standard Brands obtained +their licenses by the latter method. + +Acetol Products, Inc., had a license from the Foundation dated November +15, 1929. Du Pont acquired the assets of Acetol and on April 30, +1935, Acetol assigned its license to du Pont. On November 15, 1935, a +new agreement was executed between the Foundation and du Pont which +superseded the Acetol agreement of November 15, 1929. + +Standard Brands succeeded to the rights of the Fleischmann Company +under an agreement dated August 8, 1928. + +The question naturally arises why these powerful manufacturers paid the +Foundation such large royalties on the basis of the weak and limited +Steenbock patents. The correspondence indicates that the licensees were +not only willing but anxious to pay the royalties in return for the +profit opportunities offered under the Foundation’s schemes. + +The desire of the licensees to cooperate in the Foundation’s +promotional schemes is well expressed in a letter dated July 8, 1935, +from Atkins of du Pont to Barney, the Foundation’s business manager: + +“The writer feels certain that you understand our desire and +willingness to be considered as a part of the Foundation. You know +our desire to prevent the Vitamin D field from falling into disrepute +because of too many producers of various types of so-called Vitamin D. +We would much prefer centralized control in the hands of the Foundation +and you may count on us to support you even though, at times, we may +have differences of opinion.” + +A memorandum dated January 25, 1937, from H. W. Elley, associate +chemical director of du Pont, to a number of the executives of du Pont, +explains the reason for centralizing “control in the hands of the +Foundation”: + +“He [Mr. Protto, assistant general manager of du Pont] felt that it +would be preferable to deal with the Wisconsin Alumni Foundation +since they could be of considerable value to the industry in policing +and regulating matters. If, for any reason such arrangements become +unnecessary, it would then be possible to consider alternative +procedures not involving the use of the Foundation patents, that is, we +might commercialize the Milas process.” + +The Foundation is organized along the lines of an international +cartel insofar as its licensing program is concerned. It is party to +agreements with the omnipresent I. G. Farbenindustrie of Germany and +Joseph Nathan & Co., of Britain. The agreements, following the standard +cartel pattern, create exclusive noncompetitive territories. Nathan +and I. G. are prohibited from exporting to the United States and the +domestic licensees of the Foundation are prohibited from exporting to +Germany or Great Britain. + +The domestic licensing policy of the Foundation is characterized by a +most complex and minute division of fields into noncompetitive areas. +Generally speaking, these fields of activity are made exclusive so that +all competition between the different licensees or groups of licensees +is eliminated. Provisions of the various agreements, which will be +later described, prevent any substantial overlapping of these fields. +Often the provisions merely prohibit the licensee from accurately +describing his product but the essential object, elimination of +competition, is attained. + +Fields are divided along three distinct lines: (a) the product to +be activated, (b) the method of activation, and (c) the use of the +activated product. In the first category there are 13 principal +divisions: (1) the pharmaceutical licensees are permitted to activate +ergosterol, (2) Standard Brands is licensed to activate yeast and yeast +products, (3) du Pont is allowed to activate ergosterol cholesterol +and other sterols except yeast and yeast products, (4) S. S. Kovaks +is allowed to activate sterols derived from yeasts but not yeast, (5) +a group of licensees are permitted to activate evaporated milk, (6) a +number of licensees are permitted to activate fluid milk, (7) Quaker +Oats is allowed to activate cereals, (8) Borden is allowed to activate +a milk product known as Dryco, (9) The Wanter Company is allowed to +activate Ovaltine, (10) the Commander Larrabee Company is allowed to +activate flour, (11) R. B. Davis and Company is allowed to activate +Cocomalt, (12) Loose-Wiles Biscuit Company is allowed to activate +crackers, and (13) Ayerst, McKenna and Harrison are allowed to activate +a food product known as Glucose-D. + +The extent to which the division of fields is carried is exemplified +in an agreement dated June 27, 1938, between the Foundation and the +Loose-Wiles Biscuit Company. This agreement authorizes Loose-Wiles to +activate “Graham Crackers” and “Wafers slightly sweetened to such as +English Style Arrowroot Wafers,” but does not permit the activation of +“cakes” and “cookies.” + +According to the method of activation, fields are divided into direct +irradiation and activation by the introduction of an irradiated +substance. Some few licensees are permitted to use either method of +activation, but most are restricted to a single method. One of the most +curious licenses issued by the Foundation permits the activation of +milk by feeding cows irradiated material. + +The division of fields according to use is most detailed, but can be +broken into several general classes. Licenses are issued for the human +medicine field, for the human food field, for the fluid milk field, for +the evaporated milk field, for the animal feed field, and for a field +in which the product is not intended for internal use. + +At the outset, it was pointed out that the stated objectives of the +Foundation are “to protect the public” and “to prevent unscrupulous +commercialization.” Over the years the Foundation’s devotion to these +objectives appears to have wavered. The Foundation appears to be +primarily interested in royalties, with little or no regard for the +public interest. Article VII of the agreement of November 1, 1938, +with the milk companies states that if “it should be found that the +activation of unsweetened evaporated milk by ultra violet rays under +this license is substantially harmful to the user of such milk, or +to the milk itself, the licensee shall have the right to cancel this +license.” + +In a memorandum dated February 8, 1939, Dr. Russell described a similar +position of the Foundation in regard to high dosages of Vitamin D: +“Steenbock is of the opinion that in view of the fact that Vitamin +D is no longer a distinctive Steenbock product but can be secured +from a variety of sources that the Foundation might as well favor +the commercialization of high dosages unless there is _very_ serious +objection on the part of the A.M.A. officials toward a move of this +sort.” + +It is to be noted that in neither of these cases is the Foundation +concerned with public benefit or medical approval, but only with +_substantial harm_ and a _very serious medical objection_. + +Another instance of the Foundation’s regard for the public interest was +the Snider Packing Company matter. In 1931 the Snider Packing Company +obtained irradiated yeast from Fleischmann to add to Snider’s tomato +juice. The results were apparently not too satisfactory. After this +1931 failure, Snider was persuaded to continue the license and the +Foundation undertook to supervise the activation of the tomato juice. +Steenbock and Scott recommended Acetol irradiated ergosterol and this +recommendation was followed. + +Despite the recommendations and supervision and guarantees of the +Foundation, the Vitamin D content of the Snider tomato juice did not +come up to expectations. This inadequacy was known to Snider, Acetol, +and the Foundation, and on February 27, 1933, Russell wrote to Acetol +stating: + +“It would be most unfortunate if any publicity was to occur as a result +of the reduced potency of the Snider product and it would not only ruin +the Snider business in this product, but would affect most disastrously +you as well as ourselves. If the Government were to discover this +situation and publish the result, it would do irreparable injury to the +whole Vitamin D situation in foods.” + +The correspondence does not show whether any of the Snider products +reached the market under false labels, but the Foundation’s concern in +the matter is clear. The Foundation feared only publicity or discovery +by the Government. + +In 1934 and 1935 some research workers, and especially Dr. Reed of +the University of Illinois, found that large doses of Vitamin D were +highly beneficial in severe cases of asthma, hayfever and arthritis. +These large doses required a highly concentrated product which was +most easily used in the form of gelatin capsules. The Foundation and +its licensees were greatly interested in this project, but feared +the effect this concentrate might have on the pricing structure of +viosterol. These fears and a suggested solution are referred to in a +report of a conference between Russell and Ross of the Foundation and +Nielsen of Abbott, held early in February 1935. This report, signed by +Nielsen, states: + +“Mr. Nielsen stated that if the capsules were priced considerably +lower than the commercial product unit for unit, nothing would prevent +the hospitals from opening the capsules and diluting the content with +vegetable oil to obtain a ‘250D’ solution far below the regular cost. + +“Dean Russell asked for suggestions to prevent this. Mr. Nielsen stated +that Abbott Laboratories would give further thought to this problem. +Tentatively, he suggested that the concentrate might be denatured by +the addition of a drug also indicated in these cases--Ephedrine, for +example--that the product be considered as a drug, not a vitamin, and +that it be distributed for clinical trial under a special name--all +provided that the licensees agree. _Any untoward effects from it thus +would not reflect on the Viosterol products on the market._” + +Despite its lofty objectives, the licensing program of the Foundation +appears to have resulted actually in a substantial reduction of +research and development. Its attitude toward research is indicated in +a letter from Russell to the licensees dated August 24, 1936: + +“We are hardly interested in the prosecution of problems of a purely +scientific character that come to us from outside institutions. +Nevertheless, if this is a problem that has definite commercial +possibilities, we should not make a hasty adverse decision.” + +In a letter dated January 6, 1937, addressed to Elley of duPont, +Waddell of duPont referred to a meeting in Madison with members of the +Foundation and stated: + +“He [Steenbock] mentioned that most of the pharmaceutical licensees +had not been interested in obtaining rights to the manufacture of +crystalline Vitamin D (from ergosterol) and that the present situation +might find them in the same attitude. He admitted, however, that if +the patent situation and licensing arrangements worked out so that the +five pharmaceutical companies were again in a position of having an +exclusive hold on the synthetic Vitamin D field that undoubtedly they +would be very much interested.” + +Thus, in spite of the acknowledged physiological superiority of Vitamin +D₃, the Foundation was reluctant to do any research whatever unless the +willingness and cooperation of the licensees showed a definite promise +of substantial profits. + +The effect of the licensing policy on the research activities of +licensees is explained in a letter from Kupperian of Acetol to Waddell, +research director of Acetol. This letter states: + +“According to my reading of the contract with Wisconsin Alumni +Research Foundation, we are not at liberty to use yeast in connection +with irradiated ergosterol, this field being reserved exclusively to +Fleischmann. In view of this fact, I think we ought not to waste time +and money on experiments in connection with yeast.” + +In at least one case where the Foundation sponsored and financed +research, the publication of the results of the research were +suppressed by the Foundation because they were at variance with the +Foundation’s commercial interests. In an attempt to eliminate the +non-infringing product of General Mills from competition with the +Viosterol of the pharmaceutical licensees, the Foundation attempted +to prove that Viosterol was clinically superior to the General Mills +product. To accomplish this, the Foundation made a grant to Drs. Smith +and Owens of Freedmen’s Hospital in Washington, D. C., to run certain +tests comparing the effectiveness of the General Mills product and +Viosterol, and to prepare an article for the medical journals on the +results. On June 17, 1936, Drs. Smith and Owens submitted to the +Foundation their article, which contains the following conclusion: + +“A comparative study of nine cases of varying degrees of rickets +receiving 800 U.S.P. units of Squibb’s Viosterol daily with eleven +comparable cases receiving 800 U.S.P. units of American Pharmaceutical +Company Viosterol [General Mills’ product] shows no significant +difference in rate or degree of healing as determined (1) by X-ray of +the wrists and (3) Ca and P determination on the blood.” + +The attitude of the Foundation and its licensees to this article is +described in a letter from Lescohier of Parke-Davis to Anderson of +Squibb, dated July 6, 1936: + +“If this article is published the Steenbock group are certainly in the +position of being hung with their own rope. I should like to see the +publication suppressed but am pretty certain that Meade Johnson will +see that it is published since they are no longer vitally interested +in Viosterol. Certainly anything that can be done to delay publication +would be advisable.” + +In a letter dated August 17, 1936, Scott of the Foundation expressed +the Foundation’s attitude on this article as follows: + +“From the outset, of course, we have been opposed to publication of +this paper in any form. We have advised Dr. Smith that it was necessary +to get the opinions of the pharmaceutical committee, and we intend to +confer with them in the near future advising them that publication of +the work is not desirable.” + +The Foundation has also suppressed the use of competing patents. +Article II of the Supplemental Agreement of June 3, 1937, between +the Foundation and Meade Johnson, Squibb, Parke-Davis, and Abbott +provides for the licensing of additional pharmaceutical manufacturers +who had been using Sperti Patent No. 1,676,579 on the irradiation of +pharmaceutical products. This section provides: + +“It is understood and agreed that such additional Licensees shall be +prohibited, by appropriate restrictions in any license agreements that +may be entered into between the Licensor and such additional Licensees, +from employing the process described and claimed in United States +Letters Patent No. 1,676,579 to George Sperti and from advertising the +use of said process in connection with products sold under said license +agreements....” + +Thus, the results of the Foundation’s licensing program have been to +stifle its own research activities and the research activities of +its licensees, to prevent the publication of information which might +jeopardize the Foundation’s financial interests, and to suppress +competing patents. Certainly, these are peculiar results of a program +instituted “to protect the public” and “to prevent unscrupulous +commercialism.” + +One of the most important fields in the Foundation’s scheme of +exploitation is the pharmaceutical field. All Vitamin D products used +in the treatment or prevention of human ills are embraced within the +pharmaceutical field, and restrictions in this field thus have a direct +and immediate effect on the health and well-being of the general +public. Also, at the time the Foundation embarked on its licensing +program, the pharmaceutical field probably was one of the most +promising, both from a publicity and a profit standpoint. + +In or about March 1929, the Foundation made agreements with five +licensees, all manufacturers of pharmaceuticals: Meade Johnson & Co., +Winthrop Chemical Company, Abbott Laboratories, Parke-Davis & Company, +and E. R. Squibb & Sons. These agreements have been amended several +times by letter agreements and supplemental agreements. Two letters, +dated March 20, 1939 and April 27, 1939, offer the licensees certain +royalty reductions, and it is assumed that these reductions were +accepted. These letters do not, however, make any substantial changes +in the restrictive provisions of the agreement. + +This combination in restraint of trade between the Foundation and its +licensees is expressed in various ways throughout the pharmaceutical +licenses. For example, Article XII of the agreement of March 21, +1929, fixed minimum prices for the sale of irradiated pharmaceutical +products. This article contains the following language: “Such prices so +established shall remain in effect indefinitely but may be changed by +the Licensor not less than ninety (90) days after consultation with all +of the Licensees of this group.” + +Article XIII of the agreement of March 21, 1939, states that the +potencies of the pharmaceutical products shall remain fixed “until +and unless changed by the mutual understanding of a majority of the +licensees of this group.” Article XVII prevents the assignment of the +licenses “without the written consent of the Licensor, the Patentee +and the Licensees under similar licenses.” Each of the agreements with +Abbott, Meade Johnson, Squibb and Parke-Davis, executed June 3, 1937, +also contains long recitals regarding the provisions to be introduced +into a new contract with Winthrop Chemical Co., Inc. + +Price stabilization was one of the main considerations offered by the +Foundation to its licensees in exchange for the royalties. It might +almost be said that this price stabilization was the bait which made +the licensing scheme of the Foundation so attractive to the various +manufacturers. Clough of Abbott wrote to Russell of the Foundation +on April 21, 1936, and referred to the importance of price-fixing +activities of the Foundation as follows: “It was argued by your +Trustees that under our arrangement with the Foundation, we were given +certain benefits of price stabilization which was well worth the +additional 5%.” + +That price-fixing was one of the most important points in the +pharmaceutical licensing plan and is described in a memorandum of a +conference between Anderson and Lewis of Squibb and Ross and Barney of +the Foundation on February 23, 1939: + +“We outlined the high potency D situation both with respect to Merrell +and Winthrop. Their reaction was first that Squibb would have no +objection to Merrell’s continuing to sell its concentrated viosterol if +we could line up Merrell on its regular viosterol from the standpoint +of container size and price. We indicated that this latter could be +accomplished.” + +Further, the papers indicate that this price-fixing was carried over +into the field of resale prices. This is brought out in a letter from +R. D. Keim of Squibb to Dean Russell of the Foundation dated July 23, +1934: + +“We gave this matter our very serious consideration and wrote to all +the licensees, under date of July 19, 1934, as per copy enclosed and we +firmly believe that our suggested _Full Retail Prices per package to +the consumer and Minimum Retail Prices per package to the consumer_ for +Viosterol in Oil and Cod Liver Oil with Viosterol are more in line with +present market trends and the present economic market conditions than +those proposed by Parke-Davis & Company. + +“We are desirous of acting in harmony with all the other licensees of +the Wisconsin Alumni Research Foundation in regard to the stabilization +of the market for Viosterol in Oil and Cod Liver Oil with Viosterol. +However, we firmly believe that it is necessary to establish a schedule +of Minimum Retail Prices to the consumer such as we have suggested in +order to bring about such stabilization.” + +Prices were not only fixed; they were fixed arbitrarily at levels which +can only be regarded as extortionate in view of the economic status +of the people whose need for Vitamin D was the greatest. (Barney, the +business manager of the Foundation, once stated on examination in +a lawsuit: “It is my understanding that rickets is found to a great +extent in the so-called poorer class of people.”) Despite this full +awareness of the incidence of their high price policy, the Foundation +and its licensees remorselessly maintained prices on the Viosterol +products so high that their use was practically restricted to those who +had least need for them. This is recognized in a letter dated March +30, 1934, from Russell to the pharmaceutical licensees: “Very severe +criticism from certain prominent pediatricians has been lodged against +the Foundation on account of the alleged high retail prices of certain +Vitamin D preparations.” + +The price-fixing activities of the Foundation also extended to sales to +Federal, State and local governments and government agencies. On May +10, 1940, W. S. Merrell Company wrote to the Foundation: + +“We have an inquiry from the Government for a substantial quantity +of Irradiated Ergosterol and are wondering if we shall have to abide +by the price schedule in our license agreement in quoting. In other +words, would our quotation have to be the same as our minimum price to +wholesalers, or could we figure on a reasonable profit basis taking our +cost on such a large quantity for one shipment into consideration?” + +The letter also contained a postscript: “We know that the price would +have to be much lower than our price to the wholesalers to secure the +order.” In spite of the fact that Merrell was merely asking to quote on +a “reasonable profit basis” and assured the Foundation that the price +would have to be “much lower ... to secure the order,” the business +manager of Foundation replied on May 13, 1940: + +“Under the present license agreement with your company and the other +pharmaceutical licensees of the Foundation under the Steenbock +patents, the minimum price to be quoted to government institutions is +the minimum wholesale price as outlined in your contract, less two per +cent discount for cash if paid by the tenth of the following month. + +“All of the other pharmaceutical licenses of the Foundation have +operated under this arrangement for some time. We note, however, your +postscript which indicates that the quotation to the government will +have to be lower than the price to wholesalers in order to secure the +order. We dislike to see your company or any of our other licensees +lose business.” + +The pharmaceutical agreements fix both the potency and the quantities +in which Vitamin D concentrates may be sold by the pharmaceutical +licensees. The purpose and effect of these additional controls were +stated by an official of the Foundation. “We feel that it is perfectly +proper to control the price of Viosterol and cod liver oil from a legal +standpoint and, unless we control the potency of the product and size +of the container, price control of the product, of course, would be +rather useless.” + +The pharmaceutical agreements specified that potencies could be changed +only by “mutual agreement of Licensees of this group,” while container +sizes could be changed by “mutual understanding of a majority of +the Licensees of this group.” Operations were in exact accord with +these provisions, and only unanimous approval by the licensees could +authorize potency changes. Notes of a phone conversation of March 30, +1932, between Nielsen of Meade Johnson and Russell of the Foundation +state: “Russell said under no condition could such approval be given. +That Meade Johnson had no warrant in changing the potency without the +knowledge and approval and consent, not only of the Foundation but also +of the other four licensees.” + +Prior to December 24, 1936, the Foundation and its pharmaceutical +licensees maintained a very effective black list and white list of +dealers. While the approval of dealers was ostensibly within the +exclusive control of the Foundation, actually it was again a matter +for vote by the licensees. L. D. Barney, business manager of the +Foundation, described the program to Dr. Russell, director of the +Foundation, in a memorandum dated November 6, 1935: + +“As you know, the usual procedure in handling requests of wholesale +drug concerns with respect to their addition to the approved wholesale +list for the sale of Viosterol products is for the Foundation to send +the name and address of this company to the five licensees. They, +in turn, investigate the company and report back to whether or not +they favor the addition of the said company to the list. The general +procedure set up several years ago was that a majority of the licensees +(three) would constitute sufficient authority on the part of the +Foundation to add the name of the company to the approved list. + +“By reason of the manner in which these are handled, it is impossible +for us to tell the licensee when we refuse their request anything other +than the fact that the Committee, which handles the request, did not +approve their application, or, stated in another way, the Committee +voted in the negative. Obviously, we cannot say that our licensees did +not favor the addition of this company to the group.” + +W. N. Larson of Meade Johnson recognized that this black list and white +list might be illegal, and referred to it in a letter dated December +22, 1936, to Ward Ross, Counsel for the Foundation. He sent copies to +each of the other pharmaceutical licensees. Larson’s letter states: + +“We would have no objection to the Foundation acting as a clearing +house for information relative to those to whom wholesale terms on +Viosterol and Cod Liver Oil with Viosterol are extended, except we +wonder if such action might not be construed as a violation of law. +Anyone investigating this activity might well inquire as to why this +was done, if some action which could be construed as collusion or +restraint of trade were not contemplated.” + +One of the principal functions of the black listing and white listing +of wholesalers and retailers was the maintenance of resale prices. +This is explained in a letter dated June 29, 1931, from W. N. Larson +of Meade Johnson to N. A. Buttle of Winthrop, with copies to the other +licensees and to the Foundation. This letter states: + +“To our knowledge there have been very few departures from the +suggested minimum price, and these departures have been confined to a +very few relatively unimportant wholesale druggists whose objectives +unlike ours, are not to stabilize conditions in the drug trade. It is +the legal right of any manufacturer to refuse to sell to a wholesaler +or any other customer in fact, who will not carry out his wishes. +I hope that it will not be necessary, but it is entirely possible +that it may become desirable for the Foundation to make the list of +preferred jobbers a trifle more exclusive than it is at the present +time. We would work with the Foundation in any reasonable steps in that +direction. Better proof of our desire to have this matter straightened +out could hardly be given, we believe.” + +At least as early as 1933, the Foundation and the pharmaceutical +licensees realized that this black list was illegal. On May 11, 1933, +Larson of Meade Johnson wrote to Gunn, attorney for the Foundation, +regarding this black list: + +“Licensees cannot make agreements among themselves in these matters +and must, of course, take the position that they are acting under +instructions from the Wisconsin Alumni Research Foundation. The +revelation that that is not the case might prove to be very +embarrassing, as you probably realize. My suggestion is that, in +cases of this kind, you simply inform the inquiring party that your +action was guided by a committee, operating under the Wisconsin Alumni +Research Foundation, and that this committee does not reveal its +reasons for taking any action of this kind.” + +Probably in part on account of this growing disquietude concerning the +lawfulness of their undercover boycott, in part also, perhaps, because +of the vast amount of detail work involved in maintaining the list, +the Foundation ceased rendering this service for its licensees some +time late in 1936. On December 24, 1936, the business manager of the +Foundation referred a prospective wholesaler to the pharmaceutical +licensees for direct action. + +The pharmaceutical agreements were thus far more than mere restrictive +patent licenses. Prices, potencies, dosages and container sizes were +fixed by the licensees jointly and black lists of price-cutting dealers +were established and maintained. The Foundation offered little more +than a facade of respectability to conceal these activities, and it +was for this concealment that the licensees were willing to pay so +handsomely. + +The remaining agreements of the Foundation prohibit the other +licensees from invading the pharmaceutical field. Several of the +agreements prohibit, in express terms, sales of activated products +for pharmaceutical uses, others so limit the potency of the licensed +product as to make it worthless for medicinal purposes, while still +others merely limit the right of the licensee to claim curative +properties for his product in his advertising. + +All the agreements of the Foundation clearly show the intention to +protect the exclusive market of the pharmaceutical licensees in the +human medicine field. Actually this practice is carried to a ridiculous +extent. The following statement appears in a memo note of November +14, 1935, written by Ward Ross, General Counsel for the Foundation, +regarding a conference with Dr. Hooper of Winthrop: + +“With regard to the comparison between Viosterol and Drisdol, I asked +Hooper how he would like it if our milk licensees said that one quart +of irradiated milk was equal to 10 drops of Viosterol. Hooper claimed +that this would be an invasion of the pharmaceutical field by our milk +licensees and that they would be selling milk as medicine.” + +Apparently, the licensees are prevented from telling the truthful +merits of their products if the truth would cause an overlapping of the +artificial division of fields. + +Another industry capable of using large quantities of Vitamin D was the +bread industry. Under an agreement dated November 15, 1939, this field +is allocated exclusively to duPont. DuPont’s chief concern in the bread +field was price “stabilization” which to duPont meant the maintenance +of high price levels. DuPont was even willing to share the field with +Standard Brands to accomplish this end. A memorandum, dated September +19, 1935, from Mr. Kenneth T. King of duPont to Mr. Ralph Horton and +Mr. W. S. Kies, a Trustee of the Foundation, states: “We would be +willing for the Foundation to grant non-exclusive license for the sale +of Vitamin D from Ergosterol in the bread field to the Fleischmann +Company, providing the price of Vitamin D in the bread field shall be +stabilized.” The agreement between duPont and the Foundation expressly +stipulates the limits of licensees’ discretion in price policy. Article +2 (C) provides: “DuPont shall not sell said irradiated or activated +Ergosterol or its derivatives at a higher price than one dollar and a +half ($1.50) or a lower price than ninety-five cents ($.95) per million +U.S.P.A. (revised 1934) Vitamin D Units.” + +The Foundation’s support of duPont’s policy of high prices is +indicated in a letter dated July 18, 1935, from Barney to Atkins of +duPont which states: “Dr. Waddell stated that it was his opinion +that if General Baking came back into the picture a higher price for +ergosterol should be charged. We discussed the possibility of a price +of $1.25 to $1.50 per million Steenbock units.” + +So long as the Foundation could be “merciless in beating out +competition” price-fixing at these levels was quite attractive. But by +1940 the weakness of the Steenbock patents was so apparent that the +fixed prices became a competitive hazard. On March 5, 1940, King of +duPont wrote to the business manager of the Foundation: + +“In reply to your letter of February 24th we are very much interested +in modifying our contract with respect to the maximum and minimum +provisions in the baking field. In fact, we believe the simplest way +to handle this question is to delete from our present contract the +clause specifying maximum and minimum provisions. This, of course, +was explained to you over the telephone in our recent conversation +concerning General Baking. I believe unless some change is made in the +maximum and minimum provisions all business in this field will be lost +by the licensees of the Foundation.” + +The Foundation recognized the need for abandoning these artificially +high price levels and on March 14, 1940, Barney of the Foundation +wrote to King of duPont referring to “a quotation from General Mills +at a price of 60¢ per million” and stated: “This will acknowledge +receipt of your letter of March 5th regarding the maximum and minimum +price provisions with respect to the baking field. Shortly, Ward +[Ross of the Foundation] will send Art [Connolly of duPont] either a +letter agreement or supplemental contract deleting this provision from +the contract.” On July 19, 1940, Connolly wrote Ross again asking +elimination of the price-fixing provision and finally on July 30, +1940, Ross of the Foundation wrote to duPont deleting the price-fixing +paragraph from Article 2 (C) of the agreement. + +DuPont’s aim in all of its Vitamin D operations was to obtain high, +non-competitive prices for its products. This thought is expressed time +and time again. A memorandum dated July 26, 1932, from Bradshaw to +Atkins, both of Acetol, states: “This morning I reported to Mr. Protto +and Mr. Robinson regarding conversation with Dean Russell and also +the known facts concerning Lever Bros. business. It was Mr. Protto’s +feeling that we should raise our prices as much as possible and not +sell the material cheap.” The next day Atkins replied: + +“It seems obvious to me that we should always try to get the maximum +price for any of our goods, keeping in mind the possible potential +volume and competitive conditions. + +“According to authentic price information which we have secured, +Fleischmann have been selling and offering Vitamin D at slightly less +than $1.00 per 1,000,000 Steenbock Rat Units. This is what influenced +my suggested price of $1.00 to Lever Brothers and I was very much +surprised when you informed me that Fleischmann was not in a position +to furnish irradiated ergosterol. If this were true, I apparently had +gone too low on our initial price in view of the fact that we were the +exclusive source of supply.” + +The profit levels resulting from the Foundation’s activities were +enormous. In a letter dated March 9, 1938, addressed to Ward Ross of +the Foundation, King of duPont stated: “With respect to the Chesney +matter, all I know is that 35¢ per million units was quoted to General +Baking Company.” + +Vitamin D is of the greatest importance to expectant and nursing +mothers, infants, and children and, consequently, milk is one of the +most natural and most important vehicles for this vitamin. The Council +on Foods of the American Medical Association stated in the _Journal of +the American Medical Association_ for January 16, 1937, “Of all the +common foods available, milk is most suitable as a carrier of added +Vitamin D. Vitamin D is concerned with the utilization of calcium +and phosphorous of which milk is an excellent source.” Next to the +pharmaceutical industry, milk was probably the most promising outlet +for Vitamin D from a profit standpoint. The Foundation therefore became +active in promoting the use of Vitamin D in the milk industry. + +On November 1, 1938, the Foundation granted licenses to five producers +of evaporated milk, The Borden Company, Carnation Company, Indiana +Condensed Milk Company, Nestle’s Milk Products, Inc., and Pet Milk +Company, to activate evaporated milk. The agreements allocate the +evaporated milk field exclusively to these five producers. Like the +Foundation’s other agreements, these evaporated milk agreements +provide for the maintenance of the division of fields. Article XX, in +protecting the evaporated milk field, states: “The Licensor agrees +that in all licenses for the activation of fluid milk by the use of +irradiated ergosterol or by direct application of ultra violet rays, +it will incorporate a provision preventing the use or sale of such +activated milk by such licensees for the manufacture of activated +unsweetened evaporated milk.” + +The rights of the evaporated milk producers were similarly restricted +to prevent encroachment on other exclusive fields. Article XII +specifically protects the pharmaceutical field by providing that “said +evaporated milk shall not be intended or sold as a cure for rickets.” +The other fields of use of Vitamin D are protected from invasion by +activated evaporated milk by Article IX which provides: “The Licensee +agrees that it will not knowingly directly or indirectly sell its +unsweetened evaporated milk activated under this license to others ... +as a source of Vitamin D for any other product when such product is +intended to be sold or resold on a commercial basis.” + +There are several methods by which fluid milk may be activated and +the Foundation has issued licenses for each of these methods. In one +method, irradiated yeast is fed to cows to increase the Vitamin D +content of the milk; in the second method, the milk is irradiated +directly; and in the third method, an activated concentrate is +introduced into the milk. + +The Bill of Particulars in the Vitamin Technologists suit lists 138 +dairies licensed to activate milk by feeding irradiated yeast to cows. +In its agreement with West Haven Creamery, Inc., which is typical +of all of the licensees of this class, the Foundation licensed and +empowered the licensee to purchase from Standard Brands, Incorporated, +dried yeast “antirachitically activated” upon the following terms and +conditions: + +“First: The Licensee shall buy and use such yeast for no other purpose +than that of feeding cows to impart antirachitic qualities to milk. + + * * * * * + +“Fourth: The Licensee shall not sell any of its antirachitically +activated milk to others for use or incorporation in any other marketed +product when Vitamin D or antirachitic claims are made or intended to +be made for such other marketed product. + +“Fifth: The activated yeast purchased by Licensee pursuant to this +License shall not be resold or otherwise used except for feeding the +same to the Licensee’s animals, pursuant to the conditions of this +license.” + +The Steenbock patents do not even purport to cover anything more +than a process of irradiating or an irradiated product. Under no +circumstances could the milk from an irradiated-yeast-fed cow be an +infringement of the Steenbock patents. Article Fourth is a bare-faced +attempt to carry out the artificial division of fields. Milk from an +irradiated-yeast-fed cow could, for example, be used in the commercial +making of bread, but such use would be an invasion of the exclusive +bread and breadstuffs field. It was, therefore, necessary for the +Foundation to insert this limitation in the West Haven Creamery’s +license even though the limitation was entirely outside the Steenbock +patents. + +The prohibition of resale in Article Fifth likewise lacks any taint of +legal justification. A patentee’s right under a patent is completely +exhausted by the first sale of the patented product. Here again the +Foundation is seeking to prevent any use of the irradiated yeast which +may in any way conflict with the division of fields. + +As the demand for activated milk increased, the addition of +concentrates was accepted by the medical profession. This business +was so attractive that the Foundation decided to engage in the sale +of these concentrates for addition to milk. The Foundation did not, +however, wish to enter a market in which any competition existed and +since Standard Brands had rights in this field, it was essential that +the Standard Brands competition be eliminated. In the agreement of +February 1, 1939, the Foundation agreed to pay Standard Brands 40% of +the profits derived by the Foundation from the sale of concentrates in +return for Standard Brands’ withdrawal and agreement not to compete. + +Vitamin D is of the utmost importance in the poultry industry since +it is essential for the prevention and cure of rickets and for bone +development, egg production and hatchability. Prior to the war some +Vitamin D could be obtained from cod and other fish liver oils, but at +the present time, the requirements must be obtained almost exclusively +from synthetic Vitamin D. Even apart from war time shortages, synthetic +Vitamin D presents certain advantages over fish liver oils. The +synthetic product may be used for forced feeding without adversely +affecting the flavor of the poultry, while too generous use of fish +liver oils results in a somewhat fishy flavor. + +The size of the poultry market in the United States involves almost +astronomical figures. The crop report of September 1, 1943 of the +United States Department of Agriculture on poultry and egg production +states that there were over 316,000,000 laying hens; over 318,000,000 +pullets and over 224,000,000 chicks. The egg production for August +1943 was 3,863,000,000. This crop report also states that the average +cost of feed for farm poultry ration on August 15, 1943 was $2.13 per +hundred pounds. Dr. Harry Titus of the Poultry Nutrition Section of the +Bureau of Animal Industries of the Department of Agriculture estimates +that 25,000,000 tons of commercial mixed feed are used annually in the +poultry industry and that 75% of this feed is fortified with Vitamin D. + +The wartime demands on meat make the poultry market unusually important +and any artificial restraints or artificial price levels affecting the +poultry market are of the most serious national importance. + +The discovery upon which Steenbock’s patent No. 1680818 is based is +that certain substances, known as pro-vitamins take on antirachitic +properties when irradiated with ultra violet light. These pro-vitamins +are sterols which may be obtained from either vegetable or animal +sources and the effectiveness of the irradiated product is dependent +upon the nature of the pro-vitamin. + +In the early days, vegetable pro-vitamins were used almost exclusively +but it was subsequently found that the animal pro-vitamins were +superior. Vegetable pro-vitamins were unsuitable for poultry feeding +and the exploitation of this market awaited the development of the +animal pro-vitamins, cholesterol and 7-dehydrocholesterol. + +The animal and poultry feed field had been exclusively allocated +to duPont and its predecessor, Acetol. This exclusive arrangement +highlights the artificial nature of the Foundation’s division of +fields. In the case of cows Vitamin D in the feed will result in +a Vitamin D content in the milk. Vitamin D may also have some +antirachitic effect on the cow itself. In interpreting this provision +of its agreement with the Foundation, duPont was obliged to consider +the question whether the effect of the Vitamin D feed is in the cow +or in the milk. Finally, however, duPont resolved the doubt in its +own favor. A letter dated February 20, 1935, addressed to Kupperian +of duPont, from Connolly, a duPont attorney, states: “Irradiated +cholesterol may therefore be used in feed for cows regardless of +whether its purpose is to enhance the Vitamin D content of the milk or +prevent rickets in the cow itself.” + +Prior to 1936, duPont recognized the importance of the animal sterols, +cholesterol and 7-dehydrocholesterol, in the poultry feed field. DuPont +immediately set out to secure a monopoly over these pro-vitamins and +through them to control the entire poultry feed field. The first step +in this direction is described in a letter dated January 21, 1936 from +King of duPont to Nielsen of Abbott which states: + +“We were, of course, largely interested in the poultry field, and to +protect our position had made tentative arrangements to secure all of +the available cholesterol in the country, or perhaps we might say, in +the world.” + +Apart from attempting to corner the sources of animal sterols, duPont +also sought exclusive rights in the field of animal sterols within the +licensing scheme of the Foundation. The agreement of November 15, 1935 +between the Foundation and duPont grants duPont an exclusive license to +irradiate sterols from animal sources. When the Foundation wished to +grant new licenses and submitted the proposed licenses to duPont for +approval, duPont insisted upon retaining exclusive rights in the animal +pro-vitamin field. In a report to the Executive Committee of duPont +recommending approval of the Foundation’s license to Merrell, E. G. +Robinson states: + +“The Foundation now wishes to grant a license to the William S. Merrell +Company of Cincinnati, Ohio, limited to Vitamin D from non-animal +sources for sale only as medicinals or pharmaceuticals for human +use, which this department is willing to approve. It is limited to +non-animal sources in the pharmaceutical field and, therefore, we do +not think it will materially interfere with our own developments. +Also, the Foundation is able to grant a license with respect to yeast +ergosterol without our permission, since that product is not in our +license field; and if the license to Merrell is limited to yeast we +will not have the opportunity of selling Merrell our own ergosterol.” + +Thus, while duPont desired to protect its animal sterol field it +did not wish the Merrell license so limited as to deprive duPont of +a potential market for non-yeast ergosterol. In both instances the +Foundation was most willing to cooperate. + + + + + 8 + + _Quebracho Extract_ + + +Quebracho extract is of great use to the nation in the war effort. +It is a material which has been found most desirable for tanning the +leather which goes into the shoes, harness, straps and other leather +articles of the armed forces. It is of some interest to every man, +woman and child whose ration stamps are used to buy a pair of shoes. + +Practically all heavy leather tanned in this country has been tanned +by use of a blend in which this material is an important ingredient. +It comes from the southern part of South America, and there have been +times when it was difficult, and others when it appeared it might be +impossible, to ship the material to this country. The production and +sale of the material is controlled by a monopoly pool or cartel, and +this country is at the mercy of the pool in procuring the material in +adequate quantities and at a reasonable price. The pool has exercised +its power to curtail the quantity shipped to this country, to prevent +any adequate stock pile in this country, and to raise prices out of +proportion to any increase in costs. + +In the Spring of 1942 the Department of Justice submitted the facts +of this monopoly pool to a Federal Grand Jury in New York, and it +promptly returned an indictment against five American corporations, one +Canadian and one British corporation, and five individuals, officials +of four of the American corporations. Pleas of _nolo contendere_ +were subsequently entered by three of the American corporations and +four of their officials. Fines were levied against and paid by these +defendants, totalling $59,002. A _nolle prosequi_ was entered as to the +two remaining American corporations, the two British corporations, and +one official. The reason for the _nolle prosequi_ in the case of the +two foreign corporations was that they were outside the jurisdiction of +the court. + +The national interest in such a situation plainly warranted a diligent +effort long ago to find an adequate substitute which would relieve us +from entire dependence upon the ability and willingness of a foreign +cartel to supply us with a vital material. + +The extract is obtained from the quebracho tree. For commercial +purposes the growth of these trees is limited to Argentina and +Paraguay. Although there are quebracho forests in southern Brazil, the +extract manufactured from these trees is inferior to Argentine and +Paraguayan extract, and cannot compete favorably with it in the market. +Ninety-eight per cent of the world production of quebracho wood and +extract comes from Argentina and Paraguay. In 1942 the total production +amounted to approximately 300,000 metric tons of extract and was valued +at $25,000,000. + +This war has naturally affected the market for quebracho in Europe. +Several years before the war the German Government took steps to render +that country less dependent upon the continuance of quebracho imports. +Clauses were inserted in all Army and Navy contracts for the purchase +of leather goods that at least 12 per cent of such goods should be +tanned by German-manufactured tanning agents. This resulted in the +development of a new industry based upon the production of tanning +material from German trees. Tannic acid was extracted from the oak +trees of South Germany and was permitted to find a place in the tanning +industry by reason of the Government policy. Thus the German leather +industry gradually became independent of quebracho importation from +South America. + +The loss of the continental European market due to the war was not felt +to any great extent by the quebracho exporters because of the great +increase of exports to the United States. During the war the imports of +quebracho almost doubled due to the tremendous production of leather +goods for the armed forces. + +The quebracho industry consists of twenty-two producers in Argentina +and Paraguay. Five of these are owned or controlled by the British +corporation, The Forestal Land, Timber and Railways, Ltd., through its +Argentine subsidiary, La Forestal Argentina S. A. de Tierras, Maderas y +Explotaciones Commerciales e Industriales. These five companies have a +productive capacity which constitutes approximately 57 per cent of the +total capacity. + +All producers, except four having a capacity of about eleven per cent +of the entire industry, are members of a Quebracho Pool which regulates +the production and sale of the product. Quebracho is sold by official +agents of the Pool, and it recognizes two official agents in the +United States: The Tannin Corporation and the International Products +Corporation, both of New York. + +Forestal of England controls La Forestal of Argentina through the +ownership of a majority of its stock and a substantial portion of its +bonds. One John B. Sullivan, Chairman of the Board of Forestal of +England, is also the manager of Forestal of Argentina. Sullivan is an +Argentine citizen who was formerly a citizen of the United States and +a graduate of Harvard College. + +By reason of La Forestal’s ownership of 57 per cent of the total +productive capacity of quebracho in South America, which is +approximately eight times the capacity of its next largest competitor, +Forestal has completely dominated the quebracho industry. Its policy +has been to restrict production and maintain high prices. Forestal’s +economic dominance in Argentina has enabled it to exert a great +influence upon the government of Argentina. For example, in 1942 the +efforts of John B. Sullivan alone were primarily responsible for +the imposition by the Argentine Minister of Agriculture of highly +restrictive export quotas upon each producer. These restrictions were +imposed upon the industry at a time when it appeared that the efforts +of Forestal to continue similar restrictions upon the South American +producers might fail. + +Forestal’s domination extends not only over the production of +quebracho, but over its distribution as well, including importation +into this country. Through St. Helen’s Ltd., a Canadian corporation, +Forestal of England owns substantially all of the stock of Tannin +Products Corporation, a Delaware corporation, which in turn owns all +the capital stock of The Tannin Corporation, a New York corporation. + +The Tannin Corporation imports approximately 70 per cent of all +quebracho extract consumed in the United States. The Tannin Corporation +has been controlled by Forestal of England since 1913 and during the +past thirty years its controlling officials have been completely +subservient to the policies of Forestal of England. Thus Forestal +controls this material from the tree to the United States consumer. + +The questionable character of the functioning of these American +subsidiaries is indicated by portions of a letter written December 23, +1941, by Carl B. Ely, President of the Tannin Corporation, to J. B. +Sullivan of Forestal, whom he addressed as “My dear Jack”: + +“You will recall the formation for good and practical reasons of +the Tannin Products Corporation in 1925, at which time a very large +dividend was paid, which procedure continued in a more or less degree +during the following years, particularly in 1929 and 1934. The company, +as you will see, earned $3,284,427.28 and paid out dividends of +$4,200,000.00. In other words, we declared practically $1,000,000 more +during the sixteen-year period than we earned. + +“Under the circumstances I have no fault to find with this, provided +our principal stockholders, the Forestal Company, are aware of it and +are prepared to take care of our money situation as the same arises.... + +“To come right down to the last analysis, we have been living on +Government funds, which under proper business procedure should be +reserved for income tax payments, but, as these payments are not due +until next year, it has been possible to use this money. We owe the +Government today $500,000. This money, together with your most helpful +postponement of payments, has made it possible for us to have cash to +pay the dividend we did. I believe that with the extra terms on future +purchases of extract we will make our position stronger during the next +six months, and we are trying diligently not to borrow from the banks, +as in this particular case it would appear that such borrowing was done +to pay dividends. This I believe would have a very bad effect on our +good will and financial standing--and we enjoy today the good will and +respect of the tanning industry as we never have before.” + +I have already pointed out that Forestal controls five of the South +American producers. One of the other seventeen is the International +Products Corporation of New York. Another producer, Samuhi S. A., is +controlled through ownership of a majority of its stock by two American +corporations, Proctor Ellison and Howes Bros. of Massachusetts. +International Products Corporation and Samuhi together have a capacity +of about eight per cent of the entire industry. Both of these producers +have been ineffective in preventing La Forestal from carrying out its +policy of restricted output and high prices, and International Products +has in the past frequently cooperated closely with La Forestal to +further such a policy. + +Since 1934 International Products Corporation has consulted with +Tannin about the prices to be charged to quebracho extract consumers +in the United States, so that the prices of both companies have been +fixed, uniform and high. From May, 1934 to July, 1939, Tannin owned a +substantial amount of the stock of International Products Corporation, +and from May, 1934 until May, 1936, the president of Tannin, Carl B. +Ely, was a member of the Board of Directors of International Products +Corporation. On February 26, 1935, Ely wrote to Sullivan: + +“I am giving the I.P.C. problems a lot of my time, and, as previously +told you, have found that there is a lot to be done to straighten out +that problem. I am working slowly so as not to upset the apple cart any +more than is necessary.... + +“I am getting their sales policies straightened out and believe now +there will be no more monkey business.” + +From 1934 to 1939 International Products Corporation was a member of +the Quebracho Pool, and by reason of its designation as an official +pool agent for the United States gave up its business of selling +extract in England and in Asia. + +American purchasers of quebracho might well wonder whether this +American company was more concerned with giving them a good deal or +with favoring certain foreign concerns, from the concluding paragraph +of a letter from one of its officials to its President dated November +16, 1939: + +“You undoubtedly know that Mr. Seldes was successful in substituting +Casado extract to fill the order we had for Forestal for 535 tons of +Supremo for delivery in Buenos Aires for shipment to Japan. We paid for +the Casado extract with a dollar draft and have since received from +Forestal the sterling representing the sale. The net result of the +whole transaction represents a loss of a little more than a $1.00 per +ton, which, as explained in a previous letter, is really not a loss at +all, as we will use this extract to fill orders for North America which +will net us a nice profit.” + +The production of Samuhi was so small, being about one per cent of the +entire industry, that it could hardly contain any competitive threat +to La Forestal. Nevertheless, our records show that for many years +Forestal harassed this company by every means and sought to buy up its +assets and its stock. + +It is interesting to observe in what manner the quebracho extract +pool operated to carry out Forestal’s policy of restricted output and +high prices. Before the formation of the Pool the price per pound of +quebracho extract was 2½ cents. By the terms of the pool agreement a +directive committee, dominated by Forestal, was empowered to fix the +prices of all its members. The directive committee between November, +1934 and January, 1941, decreed six price rises, raising the basic +price of quebracho extract for the whole world market from 2½ cents +up to 4⅞ cents, an increase of nearly 100 per cent. Sullivan admitted +in July, 1942, that at the then existing price, which prevails at +present, Forestal was making a net profit of 33 per cent on every ton +of quebracho it sold. + +The exorbitant profits of the quebracho manufacturers were severely +criticized by the famous leading Argentine newspaper, _La Prensa_. The +following excerpt was taken from a letter of May 20, 1936, written by +the manager of the Buenos Aires office of the International Products +Corporation to its president: + +“Another matter, which has caused a lot of excitement amongst the +manufacturers has been the inopportune declaration, made by the +Chairman of the Forestal during the annual meeting of the shareholders, +viz. that the understanding of the manufacturers was performed under +the auspices of the Argentine Government, in other words, that the +Argentine Government was really responsible for the agreement and that +it was protecting the same. This news was reproduced all over the +world and the _La Prensa_, the most important paper on the Southern +Hemisphere, has seized the opportunity to denounce the huge profits +made by the quebracho manufacturers, profits which in their opinion +mean a loss for the Argentine Republic on account of the decrease +in the export of both, Quebracho Extract and Logs. I am enclosing +herewith the article, as appeared in the _La Prensa_ of Monday the +18th. inst., and we would add this paper has on more than one occasion +criticized the so-called ‘gentlemen agreement.’ Mr. Marti told me that +he is at a loss to understand how the Baron made these declarations as +Mr. Sullivan has always stressed the necessity of not mentioning the +Argentine Government in connection with the manufacturers’ agreement, a +fact which can be noted in the balance sheets of the other companies, +who, referring to the higher prices, explain that they are due to a +better understanding in the sales policy abroad. Anyway, I hope that +his faux pas will have no serious consequences.” + +To maintain high prices it was necessary to limit the production and +the sale of quebracho in the world market. The method used to limit +production under the pool agreement was to allocate a quota to each +producer in accordance with his respective productive capacity. These +quotas limited the amount of quebracho extract which any manufacturer +could sell during a given period. Each member of the pool was compelled +to make substantial contributions at regular periods to a so-called +“battle fund” of the pool. These contributions were retained by the +pool unless the producers adhered to the pool’s regulations relating +to prices and quotas, in which case a portion of each producer’s +contribution was refunded. So restrictive were these quota limitations +that producers who desired to sell above their quotas often paid +enormous prices to acquire the quota rights of other producers. + +This rigid control of the market so severely limited the production of +many companies that in 1941 several deserted the pool. These companies +were LaChaquena S. A. and Cotan S. A. These two companies, together +with International Products Corporation, Samuhi, and Weisburd & Cia. +Ltda., a new concern, have been the only producers outside of the +pool since 1941. Although the total productive capacity of these five +companies did not exceed 12 per cent of the total industry, their +threat of full production and decreased prices jeopardized its whole +structure. To meet this threat, Forestal succeeded in persuading +the Ministry of Agriculture in February, 1942, to impose export +restrictions upon each producer which prevented exportation of more +than approximately one-third of their total capacity. In addition, +Forestal attempted to prevent companies outside the pool from shipping +their extract to the United States. + +One instance is the experience of Hammond and Carpenter Corporation, +an independent importer which has sought to compete with The Tannin +Corporation and International Products Corporation in the importation +of quebracho. In February or March, 1942, J. A. Barkey, its +Vice-President, attempted to import some extracts produced by Weisburd, +an Argentine extract manufacturer, who entered the industry in 1941. He +called at the offices of the Sprague Steamship Company and spoke to Mr. +Bodemann of that company. Mr. Barkey later described the conference as +follows: + +“Mr. Bodemann retorted that it was very unlikely that our firm would +be given any space for the reason that we were newcomers in the import +of quebracho extract and for the further reason that the ‘Pool’ had +supported his line during the lean years before the war and by reason +of such support his line would be obliged to support the ‘Pool’ during +the present emergency.” + +Similar sentiments were voiced by Mr. Horgan of the Stockard Steamship +Corporation. The aid of the Buenos Aires Agency of Moore-McCormack +was also previously enlisted. In October, 1941, the Moore-McCormack +line stated that “at the request of the Forestal Company they had +promised their cooperation for the purpose of keeping out any of the +new brands.... The understanding was that whenever they were offered +outside extract and they had space they were to reject it and advise +the other manufacturers, who would try to offer replacement.” + +Forestal’s tactics are well illustrated by the case of Mr. T. +Valentine, exporter and concessionnaire of a projected new company. +International Products Corporation was informed in September, 1941: + +“[It] has proved impossible so far to reach a satisfactory agreement +with the new factory at Santiago del Estero. For this reason, the +Forestal Company, in an endeavor to impede the exportation of the +extract, has seen all the steamship companies requesting them not +to give space to any outsiders, but to advise the Forestal who would +immediately offer replacement cargo. The steamship companies promised +to act accordingly.” + +The Basal Agency had obtained shipping space for Valentine in the past. +“The Basal Agency,” an official of International Products wrote to +Feeney a week later, “has informed us that Valentine wants to book a +further 200 tons on the next steamer but that they would refuse to take +it if we or the Forestal would offer them replacement cargo.” + +The effect of the restrictive government decrees and other measures +taken by Forestal has been to force one independent, Cotan, S.A., back +into the Pool, while another, Samuhi, S.A., is contemplating rejoining +the Pool. It appears inevitable that within a short period of time the +remaining independents will be forced into full cooperation with the +Pool and that the industry’s policy of restrictive production and high +prices will continue unless some completely satisfactory substitute may +be found for quebracho extract. Apparently the tanners in this country +find that wattle extract is the only tanning product interchangeable +with quebracho extract, and it is therefore significant to observe that +the wattle extract industry, which is located in South and East Africa, +is also controlled by Forestal of England, and that the principal +importers of wattle in the United States are the Tannin Corporation and +International Products Corporation. + +The chief official of one of the companies which stood up against the +bulldozing tactics of the Pool wrote a letter to American Tanners Ltd., +on February 7, 1935. After discussing in a critical manner the actions +of the Pool and referring to a conversation with an individual whom he +said could be “interpreted as a stool pigeon for Forestal,” he wrote: + +“We also pointed out the fact that if the arbitrary methods of the +gentlemen [the Pool] were pursued, that they were throwing away their +markets, they were encouraging the fields of research and that they +would wake up one day and find that the volume of consumption of +Quebracho Extract had been greatly reduced due to the introduction of +other materials which supplanted Quebracho and I cited the instance +of what the tanners went through with substituted leather and how the +volume of the market had never been regained and that the same thing +would happen to Quebracho.” + + + + + 9 + + _Titanium_ + + +The titanium industry is controlled by a typical cartel. That it is a +cartel there can be no question. The president of one of the American +companies which dominate it was thoughtful or thoughtless enough to +define it. He wrote to one of the European officials as follows: + +“May I call the proposed combination, for simplicity, a cartel? The +whole purpose of the cartel is to obtain a monopoly of patents, so +that no one can manufacture it [titanium] excepting the members of +the cartel, and so can raise the prices by reason of such monopoly to +a point that would give us much more profit on our present tonnage, +but also prevent a growth in tonnage that would interfere with their +greater profits in lithopone [a competing but inferior product].” + +It is typical because it has utilized the devices and followed the +practices which are found in greater or lesser degree in all cartel +arrangements. The members of this cartel include I. G. Farbenindustrie, +the German chemical trust and many other foreign companies. The +American scene is dominated by three American corporations, the +National Lead Company, E. I. duPont de Nemours and Co., and Titan Co., +Inc. (These three companies and four of their leading officials were +indicted by a grand jury in the Southern District of New York on June +28, 1943.) + +The story of the titanium cartel is significant for these reasons: + +1. Titanium, the most valuable and useful of all white pigments for +paints, rubber products, glass, paper, enamel and other materials +has been priced exorbitantly and its use restricted because of the +monopolistic control exercised over it by a worldwide cartel. + +2. American members of the cartel are placed in a position where they +have felt obliged to help the Japanese evade the British embargo. + +3. American members have seen fit to aid I. G. Farben in attempting to +prevent seizure of German owned patents by the American Alien Property +Custodian by the execution of specious patent assignments. + +4. To attain such monopolistic control, the cartel has resorted to +flagrant misuse of patents and has gone so far as to actually pay large +sums to potential competitors to keep them out of the titanium business. + +5. I. G. Farben, the German chemical trust, as one of the leading +parties to the cartel, has dictated the terms upon which American +members might do business. + +6. The fact that duPont, Imperial Chemical Industries and I. G. Farben +are also members of other cartels, such as that involving dyestuffs, +makes their control of a fine pigment such as titanium the more +objectionable. + +It is difficult to think of any material which is more universally used +by private citizens and by governments alike than is paint. In time of +peace, the United States government buys and uses enormous quantities +of paint. In this time of war its purchases account for by far the +greater portion of all the paint manufactured in the entire country. + +It is a fact which is not widely known that the finest of all white +pigments, useful in colored paints as well as white, is titanium +dioxide. It is also not generally known that titanium is the ninth most +abundant element in the earth. Crude titanium is found in combination +with iron in an ore called ilmenite in many places in this and other +countries. It is found in purer form in the sands of Travancore Beach +in India and in lesser concentration in many places. + +While the element itself is abundant, no commercially practical +processes for reducing it to pigment form were known until about the +time of the first World War. In the relatively short period which has +passed since then, technology has been developed which makes possible +the manufacture of the finest pigment from titanium. It has already +displaced white lead, lithopone and other pigments in a large share of +the market. In hiding power (covering qualities), opacity and chemical +inertness--all essential qualities for paints--titanium compounds, +chiefly titanium dioxide, excel all other kinds of pigments. + +Shortly after the Civil War it was discovered that titanium ore +could be reduced to a powder which when mixed with oil resulted in +a paint. It was not until about the beginning of World War I that a +feasible method of separating titanium oxide from the ore was worked +out. This was accomplished by two chemists, Dr. A. J. Rossi and L. E. +Barton, whose research was done for the Titanium Alloy Manufacturing +Company organized by Dr. Rossi and others in 1906. As a result of +their discovery, a new corporation called the Titanium Pigment Company +was formed in 1916. At that time, as well as subsequently, the +leading manufacturer of white pigment was the National Lead Company. +Recognizing the implications of titanium’s excellence in this field, +National Lead purchased a substantial interest in the Titanium Pigment +Company in 1920. The two companies continued to operate more or less +separately until 1932 when National Lead acquired the entire stock of +Titanium Pigment. In 1936, the latter was dissolved as a corporation +and its business and properties were taken over and operated as a +division of National Lead. + +During substantially the same period in which this development was +taking place in this country, a different process for the manufacture +of titanium compounds was being developed in Norway by Gustav Jebsen. +His process was patented and was exploited by a Norwegian corporation +called Titan Co. A/S. At about the same time a Russian chemist named +Joseph Blumenfeld was perfecting, in France, another method of +manufacture, which was likewise patented. Thus prior to 1920 three +groups working independently of one another had developed processes for +utilizing titanium ore for production of pigments. These groups are: + +1. Titanium Pigment Company, subsequently absorbed in National Lead +Company. + +2. Titan Co. A/S, originally organized in Norway by Jebsen for the +exploitation of his developments. Eighty-seven percent of its stock +was purchased by National Lead in 1927, the remaining 13% being +retained by Jebsen. This company was originally intended to exploit +the foreign interests of National Lead, but in 1929 National Lead and +Jebsen organized in Delaware a holding company called Titan Co., Inc., +the sole function of which was to hold all foreign interests of the +parties. Titan Co. A/S remained in existence in Norway solely as the +sales agent for Titan Co., Inc. + +3. The Blumenfeld Interests. Whereas National Lead and Jebsen chose +to exploit their patents by means of operating companies, Blumenfeld +followed a general policy of licensing other interests. + +Titanium Pigment and Titan Co. A/S entered into a contract dated July +30, 1920, which is the foundation upon which the parties and their +successor companies have been able to build a cartel with monopoly +ramifications extending throughout the world. This contract was to +extend to 1936 and was to be automatically renewed for 10-year periods +unless terminated by 5-year notice. By the terms of this agreement, +National Lead (as Titanium Pigment and its successor in interest will +be called) was assigned the markets of North America as its exclusive +territory. Titan Co. A/S was given the rest of the world with the +exception of South America which was to be common territory. The two +companies granted each other exclusive licenses under their patents +for their respective territories, excluding even the licensor from +the licensee’s territory. Each agreed not to ship into the other’s +territory and to prevent its licensees from shipping their finished +products into the other’s territory if it would interfere with the +other party’s sales. Any sublicensee was required to be governed by +the same restrictions as the parties imposed upon themselves. The +parties agreed to exchange know-how and also to permit visits of +representatives to their respective plants. Each party undertook +to secure from its employees assignment of any and all inventions +developed by them. In acquiring rights to inventions from third +parties, each agreed to secure rights for all countries within the +territory of the other party. + +Following the execution of the 1920 agreement, the parties operated +under it until 1927. + +Jebsen, having Europe as part of his territory, set up a selling +company in France. This was originally intended to become a +manufacturing company also, but this idea was never carried out. +National Lead acquired a majority interest in this company in 1927. At +the same time it acquired 87% interest in Titan Co. A/S, the Norwegian +company, Jebsen retaining the remaining 13%. + +Also in 1927 National Lead and Jebsen formed a new company in Germany +in conjunction with I. G. Farben. This company, Titangesellschaft, +G.m.b.H., was organized as part of a series of transactions including +the execution of nine separate contracts. Titangesellschaft was given +as its exclusive territory for manufacture and sale of titanium +compounds the following countries: Germany, Russia, Austria, Hungary, +Czechoslovakia, Switzerland, Rumania, Serbia, Jugoslavia, Bulgaria, +Greece, Turkey, Japan, China and Spain. In 1933 Titangesellschaft +eliminated potential competition on the part of the Sachtleben Company +in Germany by the simple expedient of paying it a large sum of money +for its agreement to stay out of the titanium business. + +In 1929, National Lead and Jebsen organized in Delaware a company +called Titan Co., Inc., for the purpose of holding their foreign +interests. Titan Co., Inc., succeeded to the position of Titan Co. A/S +(the Norwegian firm) under the basic agreement of 1920. Thus we have +National Lead as successor to Titanium Pigment as one party to the +basic agreement and Titan Co., Inc., owned 87% by National Lead, as +the other party. However, the 1920 agreement continues in existence +inasmuch as its territorial and license exchange restrictions form the +basis and pattern for all the subsequent agreements. Thus, Titan Co., +Inc., became entitled to all territory outside North America except as +yielded up by the German agreements and others subsequent to them. + +Blumenfeld transferred all his patent rights to a French company +known as Societe de Products Chemiques des Terres Rares. This concern +then licensed or sold them to different companies operating in various +European countries, the British Empire and United States. + +In the United States, the patents were first owned by the Commercial +Pigments Corporation which sold them in 1931 to the Krebs Pigment +and Color Corporation. At that time, duPont owned 70% of the stock +of Krebs. It subsequently acquired 100% and now operates it as the +Krebs Division of duPont. National Lead entered upon negotiations with +duPont looking toward an agreement which would allow the two companies +to maintain a monopoly of the titanium business in this country and +eliminate competition between them. I. G. Farben insisted that in any +such agreement duPont must obligate itself not to compete or allow its +sublicensees to compete in I. G. Farben’s territory, i.e., the world +outside the Western Hemisphere. When a proposed form of agreement was +submitted to I. G. Farben for approval, it objected because the license +given by duPont for foreign territory was a “non-exclusive license.” +A National Lead official reassured I. G. Farben on this score in the +following language, quoted from a letter written in 1933: + +“In regard to the phrase ‘non-exclusive license’ to which you call our +attention ... we have to refer to the United States Anti-Trust Laws +which absolutely forbid the granting of exclusive licenses between two +manufacturers in the United States as such a practice would tend to +create a monopoly. Therefore, the use of this phrase ‘non-exclusive +license’ is simply to comply with the United States Laws and in +practice the licenses under each other’s patents will undoubtedly prove +to be, to all intents and purposes, exclusive.” + +I. G. Farben’s objections having been met and other difficulties +overcome, Titanium Pigments Co., Inc., and Krebs Pigment and Color +Corporation, subsidiaries of National Lead and duPont, respectively, +entered into an agreement dated January 1, 1933. It provided for a +mutual grant of irrevocable and “non-exclusive rights” and a license +within the United States to use all processes, methods and apparatus +of manufacture including present and future processes and patents. It +also provided that each party might sell the products resulting from +the exercise of the processes in the United States, Central and South +America. The territorial division of the basic agreement of 1920 was +thus preserved. + +The agreement also provided for the exchange of the most detailed +information with respect to technical developments and know-how “to the +end that all the knowledge and experience of each party in the licensed +field shall be at the full disposal of the other.” This provision +caused some little difficulty between the parties. About 1937 I. G. +Farben developed a new titanium pigment (rutile) of exceptionally +fine quality which gave a great competitive advantage. It passed the +information concerning it to National Lead. The latter failed to inform +duPont of this development and when duPont later discovered that such +had been the case, it charged National Lead with violation of its +agreement. The net result was an amendment in 1941 of their agreement +with the elimination of the exchange of information provision. +Actually, duPont itself developed a similar rutile pigment and started +production of it while National Lead was still guarding the secret it +had received from I. G. Farben without producing the pigment. + +The 1933 agreement further provided that each party was to pay a +royalty to the other on the basis of titanium dioxide produced and +packed by it. DuPont was to pay National Lead a royalty of 2½% based +on the average published carload price and National was to pay Krebs +(duPont) 1% on a similar basis. It was provided, however, that in no +event was royalty to either party to exceed $10,000 in any given year +and all royalties were to cease as of December 31, 1936. The parties +undertook to use their best efforts to acquire the rights for each +other from third parties and duPont further agreed to offer licenses to +the foreign associates of National Lead for the various countries of +the world. This virtually was a commitment by duPont to give National +Lead’s foreign subsidiaries a preference in granting licenses. + +Following the execution of the duPont-National Lead Agreement in 1933, +duPont entered into a series of four contracts with Titan Company, Inc. +By these agreements, duPont agreed to turn over all its foreign patents +to the various foreign associates of Titan Company, Inc. The result +was a virtual consolidation of all the important titanium interests +throughout the world. All commercially useful patents were under the +control of the parties involved. Future control was assured by the +various provisions of the agreements requiring the continuing exchange +of licenses and patents to the practical exclusion of all would-be +competitors. + +At the time of the formation of Titangesellschaft, it was the intention +of the National Lead-I. G. groups to extend their facilities into any +country if and when it seemed necessary. From time to time beginning in +1933 the National-Titan-I. G. group because of threatened competition +in one country after another was forced to take action to control the +various competitive forces. This happened in Great Britain, Canada and +Japan. + +As early as 1930 the British Chemical Trust, Imperial Chemical +Industries, Ltd., evidenced a desire to engage in the titanium business +and in fact carried on considerable research work in that connection. +This came to the attention of the National Lead-Titan group and +prompted them to take action to control the development in the British +Empire. At that time, the Blumenfeld British patents were owned by +National Titanium Pigments Co., Ltd. It was feared by the National +Lead-Titan group that National Titanium Pigments, I. C. I. and Imperial +Smelting Corporation would undertake a joint enterprise and thus +offer formidable competition in that territory. After considerable +negotiation, a jointly owned corporation, British Titan Products Ltd., +was formed. The stock was owned 49% by Titan Co., Inc., and 51% by I. +C. I., Imperial Smelting and Goodlass Wall Lead Industries, Ltd., in +equal shares. In conjunction with the formation of the new corporation, +the participating companies executed a series of agreements, the +purpose and result of which was to divide territory and avoid +competition among the various companies. The principal contract between +Titan Co., Inc., and British Titan Products was to extend to 1963 and +to continue in force thereafter until cancelled by either party upon +twelve months’ notice. It is still in effect. The Blumenfeld patents +had been acquired by the British Laporte Co. and negotiations between +Laporte and British Titan Products were carried on in 1940 and 1941. +In August 1941 an agreement in principle was arrived at. This provided +that Laporte was to receive 20% of the British market for the duration +of the war. British Titan Products tried to make it for a longer period +and stated its willingness to concede a larger proportion of the +market, but Laporte refused. Jebsen, now as an officer of a National +Lead subsidiary, gave his approval to this agreement and stated that he +was quite satisfied that it was only for the duration because he felt +that British Titan Products would be much better off after the war as +a result of the developments which they would get from National Lead. +He felt that they could use these developments to advantage in dealing +with Laporte in postwar negotiations. + +The most important chemical company in Canada is Canadian Industries, +Ltd. (C. I. L.), most of the stock of which is owned by duPont and I. +C. I. Under the basic agreement of 1920 Canada was within the territory +assigned to National Lead and it supplied most of the Canadian market +until the early thirties when British Titan Products was allowed to +ship into Canada on a preferential basis. The British Laporte Company +was also shipping into the Canadian market. Although it held the +Canadian Blumenfeld patents, it did not undertake to manufacture in +that country. DuPont also was exporting to Canadian buyers and for a +number of years the various companies participated in price stabilizing +agreements. + +In 1937 National Lead and C. I. L. organized Canadian Titanium +Pigments, Ltd. (51% C. I. L.--49% National Lead) for the manufacture +and sale of titanium in the Canadian market. At the same time, they +purchased the Blumenfeld Canadian patents from Laporte. A series of +contracts executed by National Lead, C. I. L. and Canadian Titanium +Pigments contain the usual provisions for division of territory, +licensing of patents, control of shipment of manufactured products, +exchange of know-how, etc. The principal contract extends until 1967. +National Lead continues to sell Canadian Titanium Pigments all its +requirements for the Canadian market. However, it is obligated to cease +all exports to Canada as soon as Canadian Titanium Pigments builds a +factory which is scheduled for erection immediately after the war. + +The only remaining country of any commercial consequence was Japan. +By virtue of the European cartel agreements, the Japanese market had +been assigned to the Titangesellschaft and to the Blumenfeld French +company in the ratio of 70–30. The Titan Co., Inc., owning 50% of +Titangesellschaft, profited by this arrangement. From the time of the +execution of these agreements until 1937, the Japanese market was +supplied with products manufactured in Germany. From time to time, +however, there were indications of independent competition which +finally became so threatening to their control that the National +Lead-I. G. Farben interests thought it necessary to undertake +development of a domestic manufacturing plant in Japan. + +After considerable negotiation and the overcoming of many difficulties, +the various interested companies executed a series of seven contracts +providing for the formation of a new company known as Titan Kogyo +Kabushiki Kaisha. The participating companies were National Lead +and I. G. Farben operating through their jointly owned subsidiary, +Titangesellschaft, Blumenfeld’s French company, and a Japanese chemical +company, the Kokusan Kogyo Kabushiki Kaisha. Neither National Lead nor +Blumenfeld had any direct contact with the operations of the Japanese +company inasmuch as all matters were handled through I. G. Farben by +its Japanese representative, Doitsu Senryo Gomei Kaisha. By virtue +of the executed contracts, Kokusan was given 50% of the stock of +Titan Kogyo. Titan Co., Inc. (representing National Lead’s interests) +received 17½%; I. G. Farben, 17½% and Blumenfeld’s French company, 15%. +Because of restrictions of the German government, I. G. Farben was +unable to supply capital necessary to subscribe for its share of the +stock. Consequently, Titan Co., Inc., subscribed for I. G. Farben’s +share and gave the latter an option to purchase these shares at any +subsequent time. + +Because of German participation in the Japanese Titanium Company, the +British Government refused to permit titanium from Travancore, India, +to be exported to Japan in the fall and winter of 1940–41. Titanium was +badly needed in Japan and the Japanese government had not permitted +any titanium pigments to be exported for a long time. Knowing this +and in spite of the fact that the situation in this country was very +serious because of disruption of shipping and inadequacy of domestic +supplies, nevertheless Titanium Pigment (National Lead) shipped 700 +tons to Titan Kogyo Kaisha, Ltd. on March 9, 1941, thus aiding the +Japanese to evade the embargo which the British had with good cause +placed on sale to Japan. In a letter dated April 3, 1941, the manager +of Titanium Pigments wrote to the Japanese company: + +“Even at the time we made shipment to you of 700 tons on March 9th, +the situation was so serious that we should have much preferred not to +have released even this quantity, but in view of the fact that we had +promised it to you early last fall, we felt that we should not withdraw +our offer. Incidentally, at the time we made this shipment to you in +March, the replacement value of that ore was more than double the price +at which we invoiced it to you.” + +The extent to which one member of a cartel will go in protecting the +interests of a foreign partner and incidentally in attempting to +safeguard its own monopoly position is indicated by the following +letter and resolution. The letter dated December 11, 1939, is from the +manager of National Lead’s Patent Department to the General Manager of +the Titanium Division. + +“Confirming our recent conversations, regarding exchange of title to +patents, I beg to review the situation for you. + +“On September 7th I wrote Dr. Jebsen, pointing out that in view of the +war certain questions arose affecting the United States patents which +stand in the name of Titangesellschaft and the I. G. Farbenindustrie +under which we enjoy an exclusive license. We suggested to Dr. Jebsen +that it might be desirable to assign to National Lead Company, in +trust, the patents of the I. G. Farbenindustrie and Titangesellschaft +against the possibility of the United States entering the war and +taking over these patents. _The suggestion was primarily designed +to protect the patent property of the I. G. Farbenindustrie and +Titangesellschaft and at the same time would have protected our +exclusive license by insuring that no one else could have petitioned +the government to secure licenses under them._ On December 7th I +received the following cable from Dr. Jebsen: + + “‘YOUR LETTER SEPTEMBER 7 STOP SUBJECT LEADCOS AND TITANINCS APPROVAL + _HAVE AGREED ASSIGNMENT_ TG PATENTS AND APPLICATIONS COUNTRIES + OUTSIDE TG TERRITORY TO TITANINC AND ASSIGNMENT LEADCOS AND TITANINCS + PATENTS AND APPLICATIONS COUNTRIES WITHIN TG TERRITORY TO TG STOP + ASSIGNMENT PATENTS BRITISH EMPIRE FRANCE MUST BE POSTPONED DUE WAR + SITUATION STOP PATENTS AND APPLICATIONS OF IG CANNOT BE INCLUDED + PRESENTLY BUT QUESTION WILL BE STUDIED STOP PLEASE CABLE APPROVAL + STOP GERMAN PATENTS 571387 AND 588230 AND 604311 ARE IN LEADCOS + CZECHOSLOVAKIAN PATENT 39354 IN TITANIUM PIGMENT CO INCORPORATEDS + NAME ALL OTHER PATENTS TG TERRITORY IN TITANINCS NAME STOP CABLE + TITANINC BOARDS AUTHORISATION I ASSIGN TITANINCS PATENTS AND + APPLICATIONS TO TG AS ABOVE OUTLINED STOP SUGGEST FORMAL RESOLUTION + BE MADE GENERAL REGARDING ASSIGNMENT AND MAILED STOP PLEASE + ACKNOWLEDGE CABLE UPON RECEIPT--JEBSEN’ + +“The suggestion here is that Titangesellschaft will assign their United +States patents and applications to National Lead Co. and National Lead +Co. and Titan Co., Inc., will assign their applications and patents +in Germany, and other countries within Titangesellschaft’s territory +to Titangesellschaft.... Several years ago National Lead Company +formally renounced maintenance of any European patents owned by it, +putting upon Titan Co., Inc., the obligation to pay all maintenance +charges and hence, under the Agreement of 1920, Titan Co., Inc., could +have requested formal assignment of these patents. They have not done +so in order to save the expense of preparing the assignments and +recording them in the various countries. The question is, therefore, +whether Titan Co., Inc., should assign its patents and applications to +Titangesellschaft. + +“In discussing this matter with you on December 8th, _it appeared to +us that to assign these patents in Germany to Titangesellschaft might +involve some risks for the future. For instance, if the Germans owned +all the patents now held in Germany by Titan Co., Inc., and if, as a +result of the war they were forced by their government_, or through +other circumstances, _to abrogate the main agreement, they would be +free to export their products and, in general, take themselves outside +of the titanium family cooperation_. I cabled this thought to Dr. +Jebsen, soliciting his views. A reply has just been received which +reads as follows: + + “‘PROPOSAL MY CABLE DECEMBER 7 IS NOT TGS BUT MINE STOP CONSIDER THIS + BEST PRESENT CIRCUMSTANCES TO SECURE LEGAL POSITION ALL AROUND STOP + EXACTLY LEGAL POSTWAR POSITION PATENTS OTHERWISE VERY UNCERTAIN STOP + _PREVENTION IMPORT PARTLY SECURED IN FUTURE BY PATENTS IN RESPECTIVE + COUNTRIES BUT WILL BE CHIEFLY SECURED BY ALL COMPANIES SELFISH + INTEREST IN COOPERATION BECAUSE OF ADVANTAGES ALREADY REALIZED BY + EXPERIENCE_.’ + +“You will see that Dr. Jebsen believes that in view of the war the best +possible legal position for each of the members of the family is to +hold title to all patents in its territory. He believes that prevention +of import and export competition will chiefly be secured in the future +through the individual company’s recognition of the advantages to be +derived from maintaining the cooperation, having through experience +appreciated the value of this cooperation. + +“It should be noted in this connection that even if Titan Co., Inc., +retained title to the patents in Germany, and should the government +force abrogation of the main agreements, particularly with a view +to fostering German exports, they will find means to negate Titan +Co., Inc.’s patent rights also. _Should the situation develop where +Titangesellschaft is forced, perhaps against its will, to engage in +export competition with other members of the titanium family, then, +as pointed out by Dr. Jebsen, that competition can be controlled by +patents owned by the other members of the family in their particular +territories._ Therefore, I believe we should approve Dr. Jebsen’s +proposal.” + +That this plan was put into effect is shown by a resolution adopted by +the Board of Directors of Titan Co., Inc., on December 19, 1939: + +“Resolved, in furtherance of that certain License Agreement between +Titan Co. A/S (predecessor in interest of this corporation) and +Titangesellschaft m. b. H., of Leverkusen, Germany, dated October +3/20, 1937, and pursuant to the recommendation of Dr. G. Jebsen, +Vice-President of this corporation, the officers of this corporation be +and they hereby are authorized and empowered to execute and deliver in +its name and behalf appropriate assignments to said Titangesellschaft +of all patents and patent applications of this corporation, within the +Licensed Field as defined in said Agreement, in countries now embraced +within the territory of said Titangesellschaft as defined in said +Agreement and subsequent amendments thereto, in consideration of the +execution and delivery by said Titangesellschaft to this corporation of +appropriate assignments of all patents and patent applications of said +Titangesellschaft, within said Licensed Field, in countries embraced +within the territory of this corporation as defined in said Agreement +and subsequent amendments thereto; and upon the express understanding +and condition that such reciprocal assignments shall in no way alter or +limit the general intent and operating effect of said Agreement of the +several other rights and obligations of the respective parties thereto.” + +Among the patents so assigned to avoid seizure by the Alien Property +Custodian is one covering the new rutile pigment previously mentioned. + +In the cable which has just been cited, and the action taken pursuant +to it, there is an example of postwar planning which has been all too +prevalent in these cartel groups. This is not the only instance in +which a German company’s United States patents have been taken over +by an American cartel partner to avoid seizure by the Alien Property +Custodian. The understanding that such assignments shall only operate +during the war and that after the war the game shall take up where it +left off is of great importance. Government postwar planning should not +fail to take into account and deal forcefully with the secret postwar +plans of private cartels. + +In a system of free enterprise, the superior product which can be +produced and sold at the lowest price is able to take the place of +competing products inferior in quality or higher in price. Under a +cartel system inferior or more expensive products are allowed to hold a +share of the market which they would lose on a competitive basis. + +This is well illustrated in the case of titanium pigment and an +inferior product called lithopone. The latter is a pigment in the +manufacture and marketing of which duPont has taken a leading part +for many years. Since 1933 National Lead and duPont have maintained +identical prices for titanium compounds. There have been changes in +market prices on the average of twice a year on all grades of pigments +and in every instance the effective date of price change of each party +has been the same. With respect to lithopone which is competitive with +the calcium sulphate composite pigment, there has been maintained a +constant differential. Unless the lithopone were priced below the +titanium compound, it could not sell. Therefore, irrespective of +costs of production the titanium compound has been priced 2 cents a +pound above the price of lithopone. An honest technologist who knows +that a better product can be made at a profit to undersell an inferior +competing product cannot be expected to be happy in a situation which +holds back the better and aids the poorer. + +One of the worst features of cartel control lies in the overlapping of +fields which is found in the case of large companies such as duPont and +I. G. Farben. These companies are largely concerned not only with the +production of pigments but also many other chemical products. + +It is difficult to believe that the public interest has been adequately +served by having the most valuable of white pigments subjected to +complete control in this country and throughout the world by a cartel. +What steps a free technology unfettered by cartel restrictions might +have taken one cannot say with certainty. One may be quite sure that +when the cartel shackles are broken, titanium will take its rightful +place as not only the most important and useful of all pigments but +also for a wide variety of other industrial uses. + + + + + 10 + + _Optical Instruments_ + + +How was it possible for Nazi Germany to emerge as a fully armed +aggressor nation when she had been so thoroughly disarmed as a result +of the Versailles Treaty? What can be done to prevent German technology +from being utilized in preparation for another war? I propose in this +chapter to discuss a particular cartel situation which sheds much light +on the first question and will, I believe, be of value in finding an +answer to the second. + +There were, of course, many factors which contributed to the failure +of the Versailles Treaty to accomplish the permanent peace which was +contemplated at the time of its execution. It is my purpose to show +herein that there was a definite program to sabotage the effectiveness +of the Treaty and that that program was conceived in Germany almost +as soon as the peace was made and many years before Hitler came +into power. Furthermore, I shall prove, on the basis of documentary +evidence, that evasion of the disarmament provisions of the Versailles +Treaty was facilitated by a cartel agreement between a German firm and +an American corporation. The agreement was between Carl Zeiss of Jena, +Germany, and the Bausch and Lomb Optical Company of Rochester, New York. + +In March, 1940, Bausch and Lomb and Carl Zeiss were indicted for +violation of the antitrust laws. Pleas of _nolo contendere_ were +made, fines paid and thus trial of the indictment was avoided. A +civil complaint and consent decree were filed in July 1940. The +investigations in connection with this case revealed the following: + +(1) Action was taken in 1921 to nullify the provisions of the +Versailles Treaty which prohibited Germany from large scale +manufacturing of military equipment. + +(2) The parties caused Zeiss patents in this country to be taken out +in the name of Bausch and Lomb, thus giving an appearance of American +ownership and consequent protection against seizure by an Alien +Property Custodian. + +(3) Secret United States military information was given by Bausch and +Lomb to Germans not only before but after Hitler came into power. + +(4) Unknown to the Navy a secret commission to Bausch and Lomb was +included in prices paid by the Navy for equipment furnished by Zeiss. + +(5) Public declarations were made as to a policy of not selling +military equipment to England and France for fear it might be used +against this country, when the reason such policy existed was because +of the provisions of a secret agreement with a German concern. + +(6) Threats of patent infringement were used to frighten competing +firms bidding upon military equipment for the United States Army. + +(7) The cost to United States users of binoculars was greatly increased +by reason of the efforts of Bausch and Lomb to protect itself from +competition in that field. + +No one factor is of greater importance in the waging of modern +mechanized warfare than the precision instruments which indicate +the exact location of a target and permit the accurate aiming of the +gun or other device which will throw the projectile. The instruments +which come in this category include periscopes, range finders, height +finders, boresights, bombsights, telescopes, torpedo directors, +gunsights, searchlight lenses and reflectors, as well as others. The +glass which is used in making such instruments is of extremely high +quality, it being absolutely essential that it be free from striae or +streaks, bubbles, cloudiness and other defects which would impair its +transparency or refractivity. At the outbreak of the first World War +practically all such glass was made in Germany at the Schott glass +works at Jena. Moreover, practically all first quality military optical +instruments were also made in Germany, at Jena, in the factory of the +Carl Zeiss Stiftung. The latter is a foundation created by bequests +from Carl Zeiss and Dr. Ernest Abbe for the purpose of perpetuating +the instrument business which their research had founded. By the time +of the first World War it had grown into a tremendous establishment +employing something like 10,000 people and supplying most of the +Kaiser’s war machine with optical-gunfire control instruments. Its +continuance as a large scale producer of war instruments was entirely +inconsistent with the aims and provisions of the Versailles Treaty. + +Prior to the first World War Bausch and Lomb had been manufacturing +military optical goods from glass imported from Germany. This had +resulted from an agreement made in 1907. Carl Zeiss had threatened to +establish a factory in the United States and sent a representative, +Professor Tschopski, to this country in that connection. Apparently +frightened by this threat, Bausch and Lomb entered into a series of +transactions intended to eliminate any such competition. This was +the so-called Optical Triple Alliance. The Fauth Instrument Company +of which George Saegmuller was president was absorbed by Bausch +and Lomb, and Saegmuller became vice-president of the latter firm. +Carl Zeiss acquired one-fifth of Bausch and Lomb’s capital stock and +representation on its board of directors. Zeiss abandoned its plan to +establish a factory in the United States, and Bausch and Lomb agreed +to buy its glass for military optical instruments exclusively from +Zeiss. In 1915 Zeiss refused to continue to supply Bausch and Lomb with +glass, under their arrangements of 1907, because the Rochester firm +had been supplying military instruments to countries which were at +war with Germany. The Zeiss interest in Bausch and Lomb was purchased +by members of the Bausch and Lomb families. Upon our entrance into +the war in 1917 it was found that one of the most badly needed war +materials was military optical goods. Neither the glass itself nor the +instruments had been produced in this country in adequate quantities +prior to the war. The Geophysical Laboratory, the Bureau of Standards, +Bausch and Lomb, the Spencer Lens Co., and the Pittsburgh Plate Glass +Co., worked strenuously on a program to produce adequate quantities +of proper quality optical glass. Between April 1917 and November 1918 +over 600,000 pounds of usable optical glass were produced, 65 per cent +of it by Bausch and Lomb. Under the stress of war, the manufacture +of military optical-gunfire control instruments was increased to the +extent necessary to supply the fighting arms of the service. + +Confronted with the restrictions imposed by the Versailles Treaty the +heads of Carl Zeiss were more than glad to work out, in 1921, a secret +agreement with Bausch and Lomb. To summarize this agreement, Zeiss +placed its know-how at the disposal of Bausch and Lomb. The latter +agreed to pay Zeiss a royalty starting at 7% and gradually diminishing +for 25 years on all its military optical business except field glasses. +As indicated quite plainly by the third paragraph of the agreement, the +two companies divided up the world insofar as the sale of military +optical goods was concerned: + +“B. & L. obligate themselves not to sell, directly or indirectly, +Military instruments to countries outside of the United States of +America, and vice versa Carl Zeiss obligate themselves not to sell such +instruments, directly or indirectly to the United States unless the +parties have come to an agreement regarding the conditions of sale and +the respective territories of distribution.” + +In the fourth paragraph, Zeiss was given the power to pass upon who +should become the heads of the Bausch and Lomb “Military Department.” + +“In furtherance of the aims of this agreement B. & L. in Rochester will +create a new Department solely responsible to the Board of Directors, +which is charged with the independent development of all scientific +and technical tasks within the Military scope and the maintenance of +connections with Jena. The parties will come to an agreement as regards +the heads to be placed in charge of this department.” + +In non-military fields the parties, while competing, were to give due +regard to each other’s interests. In the military field they agreed to +full exchange of know-how and to rights under inventions acquired by +them. The eighth paragraph anticipated the possibility of a conflict +between the obligations to each other under the agreement and those +owing to the nation: “The mutual obligation regarding the exchange of +Military designs shall be void whenever the highest home Government +of one party expressly demands that they be kept in confidence in the +interest of the nation.” + +As will be shown, Zeiss subsequently demonstrated a very keen awareness +of the privilege thus accorded it to obey Hitler’s edicts and to keep +its know-how in Germany. Bausch and Lomb on the other hand on more +than one occasion weighed the demand for secrecy by our Army and Navy +against the obligation to keep Zeiss informed and decided in favor +of the latter. Both parties were fully aware of the fact that such +an agreement had to be kept secret. It was intended to give Zeiss a +new lease on life and actually made it possible for that concern to +continue its existence in spite of the disarming of Germany and its war +partners. The contract bluntly stated: “The contracting parties agree +to keep the foregoing agreement in strict confidence as regards a third +party and to guard silence concerning this agreement also with their +own employees as far as this may be practical under the circumstances.” + +In contending that the contract was not secret, Bausch and Lomb states: +“The original contract was shown to the U. S. Naval Observer in Berlin +within a month of its execution, and through him the Bureau of Naval +Intelligence and the Bureau of Ordnance were informed.” As a matter of +fact it seems clear that what was shown to our Naval representative in +Berlin was not the “original contract” but only a portion of it with a +certain other part withheld. The explanation for withholding part was +that it related to matters which did not concern the Navy. The Navy +representative was told that the Bausch and Lomb connection with Zeiss +must be kept strictly confidential to protect Zeiss. The latter was not +permitted under the terms of the Versailles Peace Treaty to continue +the manufacture of military optical goods. In this connection a letter +from George N. Saegmuller to Bausch and Lomb, sent from Jena on May 6, +1921, is of interest (Saegmuller was the vice-president of the firm who +had gone to Germany to execute the agreement with Zeiss): + +“I hope you rec’d our cable via Frankfurt in regard to the signing +of the agreement Apr 29th and also my letter of even date in which I +entered into the subject more fully. In that letter I stated that +Capt. Bechler, Naval representative of the Am. Commission, telephoned +for me to come to Berlin. This I intended to do but upon reflection +I thought it best for him to come here as the various instruments in +which they are interested are here. He assented to this and was to +come yesterday but was taken sick so in place sent his aid, Lieut. +Culbert, U. S. N., who was also accompanied by the Military represt. +of the Am. Commission. What the Navy wants at once are: [enumerating +range-finders, periscopes, sights and other similar instruments]. + +“For these instruments they are in a hurry and most probably we will +have to import the optics from here as it would be impossible for us +to produce them in time even with Zeiss opticians. I thought it best +to go with Fred to Berlin to see Comdr. Bechler & impress upon him +the importance of finding out how many of the various instruments are +wanted, so as to receive the optics in time. + +“_The Navy Department wants to obtain a copy of the agreement as a kind +of a guarantee that if they order from us they will really receive +Zeiss instruments or rather Zeiss quality. I told Lieut. Culbert that +in my opinion there would be no difficulty in giving them a copy of +the agreement which relates to military instruments. An entire copy +we could not give as it relates to matters which does not concern the +Navy; I wrote out what I thought and gave it to Dr. Fischer who will +consult with the others; I don’t think there will be any trouble on +that score. I told both officers that our connection with Zeiss must +be kept strictly confidential, chiefly on acc’t of Zeiss; this they +understand._” + +The reason it was necessary to keep the agreement secret is quite +obvious but it need not be left to inference. On Dec. 27, 1930, +Bausch and Lomb wrote to Interflash Signal Corporation of New York +in reply to an inquiry concerning a range finder for the Grecian Navy +Department. The letter contains this language: + +“Our activities in the military line of instruments in general are +concentrated in supplying the requirements of our own Government. While +we have occasionally supplied foreign Governments with a few of these +instruments, this has only been by chance as far as our facilities +have permitted. We appreciate very much the offer of Admiral Dedes to +become our special representative, but under the circumstances above +stated we are unfortunately not in a position to accept this offer. We +would suggest that he communicate with our friends, the Nederlandsche +Instrumenten Compagnie, Den Haag, Holland, who manufacture the military +line of optical instruments formerly made by Messrs. Carl Zeiss of +Jena, Germany, _the latter not being permitted under the terms of the +Peace Treaty to continue the manufacture of these products_....” + +On October 20, 1926, Bausch and Lomb wrote a letter to one of its +representatives in the New York City office. J. A. Scheick of that +office had quoted a price on two range finders to a New York firm which +intended to ship them to Laredo, Texas for the ultimate use of the War +Department of Mexico. The letter states: + +“We have, on previous occasions, explained to Mr. Scheick that we +must know the customer for whom this Military equipment is ultimately +intended and we have also withdrawn our previous quotations stating +that by reason of the limited supply of instruments on hand, it would +be best to refer all such inquiries first to us, to find out whether +or not we can take care of such an order. _The real reason, as you are +aware, is our agreement with Zeiss, which, of course, we cannot explain +to Mr. Scheick, as we are not only required to keep the nature of the +agreement confidential, but the very existence of such an agreement._ +As you are probably aware, this prevents us from making sales in the +Military line, directly or indirectly, outside of the United States, +unless by previous agreement with Zeiss on the price question; the +price agreed to by Zeiss will be higher than their direct quotation. +Obviously, we cannot accept the inclosed order intended for the War +Department of Mexico.” + +The 1921 agreement was to run for 20 years with Bausch and Lomb +obligated to continue to pay royalties for 25 years on all its military +business whether based on Zeiss patents or not. + +To carry out its agreement with Bausch and Lomb, Zeiss used the device +of a corporation organized in Holland called N. V. Nederlandsche +Instrumenten Compagnie--or Nedinsco, for short. It is a wholly owned +subsidiary of Zeiss with its principal office at The Hague and its +plant at Venlo, a town on the German border. Thus, in the years which +passed before Hitler came into power in the face of the disarmament +provisions of the Versailles Treaty, Carl Zeiss was enabled to continue +in the production of military optical equipment by merely moving its +plant across the border. It was assured of and received royalties from +all sales of such equipment in the United States by Bausch and Lomb, +and assured of and received for Nedinsco freedom from competition in +all the rest of the world so far as Bausch and Lomb was concerned. The +survival of Carl Zeiss and its ability to provide at Jena one of the +most important cogs in the Hitler war machine is clearly understandable +and is in large part the result of the secret agreement of 1921. + +The following paragraphs from a letter from Bausch and Lomb to Zeiss +dated February 10, 1939, substantiates this statement: + +“We are uncertain whether your reference to the more distant past is +intended to cover the period between 1907 and 1915, during which time +we freely admit that you were of assistance to us in the establishment +of our military department, or to the period following the resumption +of our cooperative endeavor after the World War. + +“On the assumption that you are referring to the earlier period, we +believe that you were completely compensated by the dividends which you +received on the stock held in our company and by the appreciation in +the value of this stock which you realized at the time of its sale. + +“If, on the other hand, you are referring to the later period, _we +believe that inasmuch as the arrangement made accomplished the primary +objective of keeping your scientific staff intact at a time when you +could not manufacture war materials, you were adequately compensated, +particularly in view of the fact that, as you then knew, our Government +was at that time very little interested in the development of, and made +but very small appropriations for, fire control apparatus. In other +words, we believe that the development work which you did during this +period was primarily for your own benefit and not of great value to us +here._” + +Here we see quite clearly how an American company aided a German +company avoid both the spirit and the letter of the Versailles Treaty. +Although Germany was prohibited from manufacturing and exporting +military equipment, Bausch and Lomb “accomplished the primary objective +of keeping your scientific staff intact at a time when you [Zeiss] +could not manufacture war materials.” In response to the letter just +quoted, Zeiss replied on July 22, 1939: + +“_In reference to 2._ In the reference to our letter of January 3, +1939, page 2, to a more remote time, that is, the time further back +than 5 years, we have had reference to the first decade of the +operation of the agreement as it now exists. Your assumption that +during that time the development work done for you was above all to our +advantage and had served the purpose of maintaining our design force +is absolutely misjudged. _We had at no time the intention to allow our +experience and knowledge of the military business to rest but have, +as you know, established the Nedinsco branch for the express purpose +so as to keep our place in the world market._ If the Nedinsco was a +successful competitor where high grade equipment of our sphere of +activities was in demand, this success is due to the work and efforts +of our scientific staff and technicians who building on experiences +before and during the war have explored all kinds of military spheres +for our designs. The fruits of this successful, constructive labor +has of course been reaped in general by Nedinsco. Surely we could not +have continued the development work of even a small part of these +activities from the small royalties received from you. From this +follows definitely that you were the one who profited, without merit of +your own, from the advantages of our complex and expensive development +work, and that you unfortunately, notwithstanding repeated urging on +our part, did not sufficiently make use of the given possibilities, a +fact with which we found fault repeatedly verbally and in writing.” + +The sentence which I have italicized is a positive statement by Zeiss +of its utter disregard of the conditions imposed by the Peace Treaty. + +On June 27, 1925 a supplemental agreement was made which slightly +changed the royalty provisions of the 1921 agreement. The division of +world territory remained as before, except that the parties undertook +to protect each other in bidding on government contracts by overbidding. + +Subsequently on October 28, 1925, a further supplemental agreement +was signed by Zeiss at Jena and on December 11 by Bausch and Lomb at +Rochester. After repeating the provisions of the supplemental agreement +of June 27, 1925, it added: + +“In case the inquiries referred to in paragraph 2 and 3 should not come +to Bausch & Lomb from a Government, but exceptionally from a commercial +house of a country outside of the United States, the firm of Bausch +& Lomb is to communicate immediately with the firm of Nedinsco, and, +depending on the situation at Nedinsco, either to make the protective +offer named to her by the latter firm, or to decline the inquiry under +pretense. The information in question will be given to the firm of +Bausch & Lomb by the firm of Nedinsco.” + +The second supplemental agreement also contained the following +provision: + +“If the firm of Bausch & Lomb is furnishing to American shipyards, +optical instruments as equipment for a ship of a country outside of +the United States, all instruments in which the ideas of construction +of the firm of Carl Zeiss have been used, shall, besides the trade +name of Bausch & Lomb, be engraved with the designation, “System +Nedinsco-Zeiss.” Instruments according to the construction of Bausch & +Lomb shall bear only their name. On instruments furnished by Nedinsco +the name of Nedinsco will appear next to the name of Bausch & Lomb.” + +Thus, as early as 1925 there is evidence of the determination to place +the Zeiss name back in the consciousness of the world. One more step +was thereby taken to nullify the effect of the Versailles Treaty and to +reestablish Germany in her place in the sun. + +In 1926 Bausch and Lomb caused the 1921 agreement and its supplements +to be modified because its counsel declared them to be wholly invalid +as violating the antitrust laws. In place of the division of territory +provision in the third paragraph, as quoted previously, the following +language was inserted: “The license hereby granted is exclusive, the +firm of Carl Zeiss agrees that it will grant no license to another +American manufacturer.” + +This was a change in the language of the agreement to give an +appearance of legality. Actually, after 1926, as well as before, the +parties maintained a definite and illegal division of territory. The +following sentences from a memorandum of Edward Bausch, dated January +27, 1927, show that no change in the actual relationship took place +in the previous year: “It is my understanding, in accordance with +the opinion of Carl Lomb, that we are not to bid on any military +instruments for use anywhere outside of the U. S. The agreement is that +if such inquiries come to us we are to refer them to Zeiss.” + +Paragraph 9 of the 1921 agreement, quoted above, providing for strict +secrecy as to the agreement was dropped out as being (in 1926) unwise +and unnecessary. In its place was inserted an innocuous provision that +neither party has any claims against the other arising from previous +agreements. This agreement of 1926, along with the early agreements +which it purported to supersede was declared in violation of the +antitrust laws by the decree entered by the court on July 9, 1940. + +The 1921 agreement and also those which were subsequently executed +contemplated an exchange of information and experience between the +parties. This included the right of each party to send confidential +representatives to the workshops of the other. Bausch and Lomb was +more than anxious to have Zeiss employees visit its plant and its only +complaint in connection with the visit of one such employee was that he +had not been of great help to Bausch and Lomb while in this country. +When Hitler came into power the American company found the door to the +Zeiss designing rooms closed to it. + +In a memorandum of April 19, 1938 Carl L. Bausch, Vice President of +Bausch and Lomb, quoted paragraph VII of the contract providing for +exchange of experience and access to the workshop and then stated: “In +1934, although they allowed me to go through their plant at Venlo, I +could see none of the work that was being done at Jena, although all +the design, part work and optical work was being done there at that +time.” In the same memorandum Mr. Bausch stated: + +“My contention is that over the past five years we have paid out +$139,000 without receiving any benefit from it except for the fact +that our contract might have kept Zeiss out of this market. I doubt +very much whether our government would have purchased any Zeiss range +finders, even if Zeiss was allowed to solicit business.” + +In a letter from Carl Zeiss to Bausch and Lomb dated January 3, 1939 +referring to the period of the past five years, i.e., since Hitler came +into power, Zeiss said: “It certainly cannot be denied that we have +been restricted in many respects in the execution of the agreement out +of national interests particularly as far as visiting our plant is +concerned.” + +In the matter of knowing what Zeiss was building for Hitler, of course, +there was no passing of information to Bausch and Lomb. On the other +hand, Zeiss was kept informed at least until well into the Hitler +regime as to what was being ordered by our military departments. This +was done not by sending the information directly to Zeiss but through +Bausch and Lomb’s German representative. August Lomb of Bausch and +Lomb G.m.b.H. Frankfurt-on-the-Main acted as the conduit for the +information. On July 9, 1929 Bausch and Lomb wrote to August Lomb as +follows: + +“We are appending our report which will bring the Military transactions +up to date. + +“We have nothing further to say at this time than what has already +been stated in our report as regards the confidential nature of this +information. Heretofore, the Government has merely been insistent +that none of the details as regards the design of these instruments +be made public, but lately it seems as if the quantities, prices, +etc., and the amount of equipment purchased, etc., are also considered +secret. _Obviously, our agreement with Messrs. Carl Zeiss cannot work +satisfactorily unless, at least the latter information, becomes common +knowledge to both parties, but some arrangement must be made whereby we +are assured this information will be kept in strictest confidence._” + +The accompanying report is headed “Statement of Military Department +to Mr. August Lomb, For the Months of April, May and June 1929.” It +gave the number of antiaircraft range finders, 26½ ft. range finders, +periscopes, telescopes, and bombsights which it had delivered and +discussed the items for which other bidders had been successful. Near +the end of the report was this paragraph: + +“It will be noted from the foregoing statements that not much +information can be further obtained regarding competitive prices. +While these bids are supposed to be public, it has lately become the +practice to withhold the information from the public. Every letter and +envelope from the Government is marked ‘Confidential’ and we are held +accountable that the information will not become public, and that it +will be treated in strictest confidence.” + +On December 20, 1932, Bausch and Lomb sent August Lomb a letter marked +Military Department 8430 and enclosed a pamphlet dealing with submarine +periscopes which he was to give to Zeiss and make sure that it was +returned to him and by him to Bausch and Lomb. On the following day +Bausch and Lomb wrote Zeiss this letter: + +“We confirm having written you the letter stated in the above +reference. The pamphlet referred to in it has been sent to Mr. August +Lomb, via registered mail. + +“It occurs to us that we were not sufficiently specific regarding the +caution that must be exercised for our protection in keeping the loan +of this pamphlet a secret, and particularly as regards the inspector. +If any question should arise with regard to the pamphlet which you are +preparing, _please do not admit to any one that this has been prepared +analogous to our copy_. + +“_By reason of the great importance which we attach to the secrecy +of this question, the copy has been sent via our Frankfurt office, +and please make sure that after it has served its purpose it is again +safely returned to our Mr. August Lomb._” + +The year 1933--the year Hitler became Chancellor--brought a greatly +enlivened interest on the part of Zeiss in the military secrets of our +country. The following is a translation of a letter from Nedinsco to +Bausch and Lomb dated April 7, 1933: + +“Your last monthly report has given cause to the consideration that +we surely would be better in a position to assist you _if you would +report to us what kinds of instruments are under trial and in use by +your military service_. There must be a great many questions regarding +instruments for _airplanes, tanks, and ships_ which demand special +optical instruments. + +“We would ask that you intensively _find out at the proper places and +that you communicate to us the different problems_, so that we are +placed in a position to name you the necessary instruments which we +also make new to satisfy the actual demands. + +“We believe that thereby the business could be enlivened and also work +could be created for you as well as us.” + +A month later on May 11, 1933 Nedinsco again wrote to Bausch and Lomb +as follows: + +“We find, much to our regret, that the agreement during the course of +the last few years has materialized exclusively in Rangefinders and +Periscopes for the Navy and that also in this respect it has lost more +and more in intensity, whereas all other instruments for Army and Navy +have completely ceased. + +“_It may be assumed with great probability that the many other kinds of +military instruments would find interest in the United States and that +there would be a demand for these so that also for these there should +be certain business chances._ + +“Notwithstanding that we transmitted to you information regarding +many of our products, you have recently made a demand upon us for our +constructive help only to a very limited extent. + +“Business possibilities for foreign countries have never been mentioned +which may result from American credits to foreign countries or from +building contracts of American shipyards, gun factories, etc., and for +which you might be considered as subcontractors. _Such business would +according to Paragraph 3 of the agreement need a special understanding +between us but is not excluded._ In view of the extremely serious +economic situation in the world it would seem most urgent in our mutual +interest that we endeavor to bring about a more intensive cooperation +between us in the frame of our agreement and we therefore ask that you +make known your position and make proposals as to how far and in what +manner these relations could be furthered and the possibilities of +business could be more rationally exploited. + +“_We would also be thankful for a comprehensive economic report which +would enable us to judge conditions._” + +It can hardly be mere coincidence that these repeated requests for +military information came so soon after Hitler’s accession to power. + +On December 14, 1933 Bausch and Lomb wrote to August Lomb as follows: + +“We are sending you herewith our report which unfortunately had to be +delayed by reason of the pressure of work which had to be taken care of +in this department, due to the sudden activity brought about by the N. +R. A. + +“_By reason of special secrecy clauses of late attached to each bid +and contract, these reports, as harmless as they are considering that +they have a commercial purpose only, are contrary to these clauses. We +cannot very well eliminate them under the existing agreement with Carl +Zeiss; however the regulations are so stringent that particular care +must be exercised to keep these reports in strictest confidence and +they should be kept in a separate file under lock and key._ + +“We would ask that you be governed accordingly and that you bring these +facts to the attention of Messrs. Carl Zeiss.” + +August Lomb answered this letter on December 29, 1933. The first three +paragraphs of his reply were as follows: + +“Since writing you December 5th, your letter Nr. 8909 of December 14th +was received. It just arrived before the writer went to Jena and could +therefore be discussed there. + +“_Monthly report._ That enclosed in your letter Nr. 8909 was therefore +transmitted personally, impressing again the _necessity of considering +this information strictly confidential and secret_. This is fully +understood by the management as well as their Mil. Department and +we _were again assured that these reports are locked up and only +accessible to a few people who are fully responsible so that you can +depend on your instructions being carried out_. + +“The contents of this report were very pleasing so far as the +important orders are concerned which you were able to secure. It is to +be regretted that the thirty-four 11 ft. R.F. were lost, but evidently +other firms also have to expect part of the business.” + +It would no doubt have been very reassuring to our War and Navy +Departments to know that these reports were “only accessible to a few +people” in Hitler’s Germany. + +On October 16, 1934 Bausch and Lomb wrote to August Lomb as follows: + +“We are very sorry to find that we neglected to send you our report for +a considerable length of time. _As you know, we are not free to give +you these reports._ This is about the best excuse that we can offer; +_the less reports we make the less the chance of any going astray_. + +“_We shall try to keep you informed more regularly having your +assurance that these matters will be treated by you and Carl Zeiss in +strictest confidence._” + +The report of October 16, 1934 entitled “Statement of Military +Department to Mr. August H. Lomb” lists the number and kinds of range +finders delivered each month and also the total number of various types +of instruments, orders for which Bausch and Lomb has booked since their +last report. There is also the remark that they lost an order for four +13½ ft. height finders awarded to Keuffel and Esser (another American +firm). This report contains the following remarkable statement in +connection with designs for submarine periscopes: + +“Our design force now consists of thirteen men all occupied on present +contracts so that it cannot be assumed that we want to throw the burden +of the design work on Carl Zeiss. _As a matter of fact we could not do +this under the secrecy clauses of the ‘Recovery Act,’ but surely we +ought to be able to rely on Carl Zeiss for support when and where it +is most important._ We are hopeful that the promise made in letter of +October 5 to give us this design by next spring can be considerably +improved, in fact that every effort will be made to bring the solution +of this problem to a point which will enable us to enter into +competition in the next bid.” + +On October 20, 1936 Bausch and Lomb wrote the following letter to Carl +Zeiss: + +“With your letter in reference we received from you a new optical +layout in the form of your drawing A 33 08 65/Opt. L. No. 2 for the +altiperiscopes of 34 foot optical length. + +“_We recently learned that our Government is now contemplating the use +of 40 foot submarine periscopes and that bids for these will soon be +submitted for consideration. These periscopes will be built according +to the identical specifications as those you have in your possession +with the exception that, as already stated, the optical length has been +increased from 34 feet to 40 feet and the reduced section has been +increased in length as shown on our drawing Mil. 458 sent herewith._ +Moreover, the inner diameter of the main body tube now measures 6,500 +inches diameter for a distance of 11 feet from the eye-piece and while +its remaining length has an inner diameter of 6.375 inches as shown on +our drawing Mil. 458. + +“We would ask that you kindly prepare for us immediately a new +optical layout conforming to these changes and that you give us this +information at the earliest possible date. As stated this question will +soon need our consideration and unless we have the data available by +that time we shall have to forego bidding on this new proposition.” + +August Lomb realized the situation in which Bausch and Lomb was placed +in sending written reports of secret military information to Germany. +In a letter of July 9, 1937 to Bausch and Lomb he made this very +helpful suggestion: + +“Prior to the years 1935 and 1936 Zeiss have always received a list of +numbers, kinds and prices of the instruments furnished during one year +when the commission statement for the respective year was rendered. +_Since 1935 such a statement was not received, probably because you +did not want to furnish any such data in accordance with your letter +Nr. 9383 of October 16th, 1934. Zeiss, however, would be satisfied +with very brief and condensed information, for instance Range Finders +abbreviated to R.F. etc., if possible._ + +“Of course you will have to consider this with the Executive Office and +may let us know occasionally whether feasible or not.” + +In a letter of March 24, 1939--the week after Hitler invaded +Czechoslovakia--Carl Zeiss made this demand upon Bausch and Lomb: + +“For this purpose it is _absolutely necessary_, and that is why we +ask you for it, _that you supply us_, before we arrive at our final +decision, with a _precise statement of those patents of ours which +you use in your manufacturing processes, designating at the same time +those instruments in whose manufacture these patents are used, also +indicating the turnover you have had in these instruments during the +last two business years, and the volume of orders which you have at +present on hand for such instruments_. + +“We take it for granted that your Administrative Division can make +up such a statement without trouble and loss of time so that we _may +expect it within a month at the latest_.” + +Instead of the detailed reports which had formerly been sent, Bausch +and Lomb complied with this demand by giving a statement of the +aggregate amount of sales of instruments covered by Zeiss patents in +1937 and in 1938, designating the patents. They stated they had orders +for future delivery of instruments covered by Zeiss patents totaling +approximately $1,000,000 and giving the patent numbers. + +From the foregoing quotations it seems rather clear that Bausch and +Lomb put their own interpretation--and a strange one--upon their +obligation to keep military information secret and confidential. + +The supplemental agreement of June 27, 1925 contained the following +provision: + +“In the case of inquiries, received by Bausch & Lomb from authorities +outside of the United States of America, by Carl Zeiss from the +authorities of the United States, one party informs the other of the +inquiry and is _obligated to make the protective offer named by the +other party. The increase of the protective offer over the normal price +for the corresponding quantity of instruments in question shall not be +higher than 20%._ Both parties are obligated to treat such inquiries as +promptly as possible. _If the party, that has made the protective offer +should, nevertheless, receive the order, it is obligated to cede in +full to the other firm the excess price representing the protection._ +The firm of Bausch & Lomb besides, has to pay to the firm of Zeiss the +royalty on the normal price according to paragraph 2, in case Bausch & +Lomb is awarded the order.” + +This arrangement served the purpose of making a governmental +authority--United States or some other--believe that bona fide bids +were being made in response to requests. Such collusive bidding is a +fraud upon the government and while a similar provision was included +in the supplemental agreement of October 28, 1925, it was omitted from +the agreement of 1926. And yet in 1932 there is evidence of willingness +on the part of Bausch and Lomb to be less than forthright in dealing +with the Navy Department. The following excerpt is from a letter from +Bausch and Lomb to Carl Zeiss dated February 24, 1932: + +“From the copy of the above contract which we have sent you with our +other letter of today, Mil. Dept. 8077, you will take notice that the +contract provides that customs entry will be taken care of by the +Government. _In view of this, and in order not to divulge to the Navy +Department that we earn a commission of 10% on this transaction, it +will be necessary that the consular invoices and export declarations +which you will have to make out be higher in this particular case than +your net invoice prices to us. Your shipping papers, consular invoices, +and export declarations, etc., accordingly should state the following +prices_, f.o.b. Venlo: + + _Item_ _Unit_ _Total_ + 1 --The unit price to be declared by + you will be $7,400 $14,800.00 + 1a--The unit price to be declared by + you will be 470 470.00 + 2 --The unit price to be declared by + you will be 6,780 20,340.00 + (Note: The repeater motor is + here included) + 2a--The unit price to be declared by + you will be 470 940.00 + +“The difference between the above prices and those stipulated in the +official contract are satisfactorily explained by shipping expenses, +etc. + +“It goes without saying that you will bill us for these periscopes in +accordance with your letter of December 29, 1931 (N XIII/6661), less +10% commission.” + +The provisions of the 1921 and 1925 agreements prevented Bausch and +Lomb from selling to any purchaser outside the United States unless +such sale was approved by Zeiss. That the omission of this provision +from the agreement of 1926 did not mean a change in policy is clearly +shown by the following memoranda exchanged by two Bausch and Lomb +officials: + +“From: Mr. M. H. Eisenhart Date: Jan. 11, 1927. + +“To: Mr. Edw. Bausch. + +“I have read the following paragraph in August Lomb’s letter of +December 20, 1926: + +“‘We note that you have decided to give up all military work +in connection with foreign countries, thus doing away with the +supplementary agreement of October 28th, 1925. Its second paragraph on +page 2 treats of instruments which you might be called to supply for +foreign vessels built or equipped on American ship yards, as was the +case for Argentine. We understand that, as this entire agreement is now +canceled, you will renounce to bidding for such instruments hereafter.’ + +“Is it your understanding from this that in the future we will not bid +on any military instruments for use anywhere outside of the United +States? As this is a change over our present procedure, I think we want +to be sure of the definite understanding.” + + * * * * * + +“From: Mr. E. Bausch Reply Date: Jan. 27, 1927. + +“To: Mr. M. H. Eisenhart + +“It is my understanding, in accordance with the opinion of Carl Lomb, +that we are not to bid on any military instruments for use anywhere +outside of the U. S. The agreement is that if such inquiries come to +us we are to refer them to Zeiss. If, on the other hand, any inquiries +come to them which belong to this territory, they are to be referred by +them to us. A condition may arise, as has been the case before, where +a foreign government might want to place an order with us, this to +be under supervision of Army and Navy officers and the inspection as +well. The procedure then would be--I should think--that we defer giving +any definite answer until we had submitted the matter, according to +agreement, to Zeiss, and await their disposition of it.” + +The Edward Bausch who wrote the latter memorandum is the same gentleman +who was quoted in the _Literary Digest_ of December 12, 1936 in the +following item: + +“Millions of dollars of foreign Government orders for military optical +instruments have been rejected by the Bausch & Lomb Co., of Rochester, +New York, because they might conceivably be used against the United +States or its interests in another War. + +“Proudly last week, vigorous, eighty-two-year-old Dr. Edward Bausch, +founder and chairman, declared that to be his company’s settled policy, +developed ‘through a close understanding with the Departments of the +Army and the Navy of our Government.’... + +“Chiefly, Bausch & Lomb’s rejected orders have been offered by England +and France, have been for range-finders, periscopes, gun-sights, +binoculars, artillery fire-control instruments. Business from those +two Governments would have exceeded $1,500,000. Various smaller +nations have also sought to make contracts and have been refused. +Self-sufficient Germany, however, has shown no needs. + +“_War-Time Seller_--During the World War, encouraged by Washington, +Bausch & Lomb made large sales to the Allies, built up an extensive +business with Great Britain. Promptly with the reappearance of European +war-scares several years ago, however, the policy of no supplies to +potential combatants abroad was adopted. ‘They are not prepared for war +over there,’ a company officer gravely explained last week, ‘and if we +refuse to help them prepare, it puts it off just that much.’” + +In the documents taken from Bausch and Lomb’s files there are dozens +of letters in which inquiries from foreign buyers of military optical +instruments were answered by Bausch and Lomb with an expression of +disinterest and a reference to Nedinsco. On March 30, 1938 Bausch and +Lomb wrote the British Military Attache in Washington as follows: + +“In reply to your letter of March 24, 1938 we wish to inform you that +the instruments that we manufacture for the U. S. War Department are 4 +meter Stereo Height Finders. + +“Unfortunately we have to inform you that we are not in a position to +take British Government orders at the present time.” + +On June 20, 1938 the International Standard Electric Corporation of +New York wrote Bausch and Lomb with regard to procuring manufacturing +equipment for its English associate, Standard Telephone and Cables, +Ltd., to manufacture certain lenses and optical systems from British +optical glass. After some conferences and consideration, Bausch and +Lomb wrote to International Standard Electric Corporation on July 1, +1938 as follows: + +“One of the first steps I took in giving consideration to your +proposition which we discussed yesterday was to look into the +contractual arrangements to which we are already obligated which I +spoke to you about in my conversation. + +“_Our attorneys tell us that we are absolutely tied up in a way that +will prevent our giving you the type of assistance you need to get +into the manufacture of optical fire control instruments._ My thought +was that events over the last few years had changed our foreign +relationship in a way that might allow us to work with you, but I am +definitely satisfied now that such is not the case. Because of this +situation, there is no need for us to delay you any further in your +plan. + +“I enjoyed very much your visit here and perhaps at some future +occasion I may have the opportunity of meeting you again.” + +In the October 1940 number of _Fortune Magazine_ which contained an +article about Bausch and Lomb there was a two-page spread devoted to +“The Critical Geography of Industries Essential to U. S. Rearmament.” +With reference to optical goods, this statement appeared: “After +aircraft engines, armor plate, and machine tools this little industry +(range finders, aircraft height finders) stands fourth among defense +bottlenecks.” + +There are undoubtedly many factors which contributed to defense +bottlenecks. It seems quite certain that the Zeiss-Bausch and Lomb +restrictive arrangement has had a substantial part in bringing about +this condition. There is no way of ascertaining how many times +competitors were intimidated by threats from the combination of the two +companies which were the largest in the world. The following quotation +is taken from a letter from Bausch and Lomb to Carl Zeiss dated June +12, 1932 and referring to a new order for Height Finders for which the +Frankford Arsenal was contemplating asking bids: + +“Bids for this new prospective order have not yet been received by us. +It is at present our intention after the bids have been received to +_wait until a few days before the opening of the bids_ and then call +the attention of the Keuffel & Esser Company to the fact that we are +controlling patent No. 1638190 which prohibits their furnishing the +Height Finder in question. _In this manner we hope to be able to make +them afraid of touching this business._ You will understand, therefore, +how anxious we are to receive your opinion that the arrangement +of four compensator wedges on one side of the Range [sic] Finder +infringes your patent.” + +The foregoing quotation indicates one of the reasons for the +arrangement by which all Zeiss inventions were to be patented in the +United States by Bausch and Lomb. There can be little doubt that +American patentees of competing military optical instruments would have +much more to fear in infringement litigation initiated by the American +firm of Bausch and Lomb than would be the case if the real owner of the +patents, the German firm of Carl Zeiss, were the patentee. The other +reason for this arrangement was the fear that Zeiss-owned patents would +again be confiscated by the United States Government as had been done +in the first World War. For the two reasons and possibly others it was +clearly understood that all Zeiss inventions patented in the United +States should result in patents issuing to Bausch and Lomb. What was +just as clearly understood was that at the expiration of their contract +all these patents were to be reassigned to Zeiss. This was stated in +many documents one of which, a letter from Bausch and Lomb to Zeiss, +dated January 17, 1936, should suffice to substantiate the point. + +“We have given consideration to the suggestions which you have made for +further clarification of the interpretations of the existing contract +which was the subject of our letter of October 14, 1935. We are, +therefore, restating the points covered in that letter, as follows: + +[Par. 1 and 2 deals with termination of the contract] + +“3. You are to assign to us all unexpired United States patents and all +pending applications for United States patents in the military field +now standing in your name or the name of any company controlled by you +through stock ownership or otherwise, or in the name of any individual +in the employ of your company or any company so controlled by you. You +are also to assign to us all applications for patents in the military +field which are filed prior to October 31, 1940, on inventions made +by any individual or individuals employed by you or any company so +controlled by you. You are to file and prosecute such applications and +pay all expenses and fees therefor. With respect to such pending and +future applications we suggest that you execute the proper assignment +and send it to us as soon as you receive the notice of allowance in +an application. We will promptly record the assignment in the United +States Patent Office and notify you so that you may pay the final fee +in due time so as to have the patent issued in our name as assignee. +_We shall assign to you or your nominee all your United States patents +or pending applications which have been taken out in our name, or +caused to be assigned to us under the provisions of said agreement +prior to April 30, 1941, reserving to ourselves only the license to +manufacture thereunder upon the payment to you of the royalty as agreed +under 2 hereinabove._” + +Field glasses or binoculars were expressly excepted from the cartel +arrangement between Zeiss and Bausch and Lomb. In 1931 Bausch and +Lomb bid $39.50 each on a United States Navy request for bids on 600 +binoculars. Zeiss bid $26, and this angered Bausch and Lomb to the +extent that they brought about a greatly increased tariff rate on +imported binoculars. The correspondence between the two firms over a +period of years refers to this episode. Edward Bausch of Bausch and +Lomb wrote to August H. Lomb in Frankfurt on November 18, 1932. The +last two paragraphs of his letter are as follows: + +“In all other departments we find the Zeiss competition keen and +aggressive. Zeiss have established themselves in this country and have +been for years making more and more intensive efforts to get business. +As an instance of their efforts we will cite the circumstance of +their having put in a bid for Field Glasses to the government at such +ridiculously low prices that we cannot understand how there can be +any profit in it for them, but leaves us with a feeling that they +are aiming to put us out of competition and acquire the business for +themselves. + +“Such efforts as they are making in this territory will surely lead to +more aggressive action on our part and will certainly lead to anything +but friendly feeling, and ultimately, to a more serious situation.” + +On February 6, 1934, Zeiss wrote Edward Bausch as follows: + +“I received your letter of January 25, and at the same time, a report +from our Dr. Bauer about his interview with you and your associates on +January 15, 1934 in Rochester. First of all, I wish to thank you for +having gone to the trouble to write down the sequence of events, which +brought about the change in duty calculation on our prism binoculars, +with the result that the duty, which will actually have to be paid, +comes very close to doubling the present rate. I expressed myself to +Mr. Lomb in a very general way, and had pointed out merely the effect +of the change of duty, which was probably caused by your initiative, +and I used the expression that the sixty per cent rate had, in reality, +been doubled. + +“The essential consequence is that quality binoculars--and only those +of more than 5× magnification, and of foreign net value of more than +$12--have been affected by this measure. In reality, only Zeiss +Binoculars fall under this arrangement, whereas all the cheap French +prism binoculars, which are not negligible in quantity, are exempt. + +“From your letter, I have noted that the steps taken by you were +prompted by our offer and that of Carl Zeiss, New York, of six hundred +6 × 30 prism binoculars at $26 each, which we made in 1931 to the Navy. +I believe that I do not have to add anything to the explanations +which our Dr. Bauer has given you concerning this matter. The thought +occurs to me, however, whether it would not have been appropriate, +in view of the friendly and long relations between our respective +houses, if one of your gentlemen had communicated with our Dr. Bauer +and had pointed out the low prices to him in order to bring about a +satisfactory solution of the question for the future, and this by +means of a friendly understanding. Such an understanding would have +been readily possible at the time, for we have always been ready to +recognize justified wishes or requests of other houses, especially of +those friendly to us. + +“I would consider it to our mutual interests if this duty arrangement, +which, as I admit frankly, has caused great bitterness on our part, +would disappear again. As you know from several negotiations on other +matters here and there, we and Dr. Bauer are always ready for a price +agreement, which protects your just interests.” + +On February 28, 1935, Bausch and Lomb wrote to Dr. Bauer of Carl Zeiss, +Inc., New York. The first paragraph of his letter is as follows: + +“Although I enjoyed my visit with you last Saturday morning very much, +I have not been able to get out of my mind your statement that you have +not confidence in the younger generation here in Rochester. Since this +is predicated, I believe, entirely upon the binocular situation, I +just want to repeat again what I told you in New York, that I believe +whatever action we took in regard to the tariff on binoculars was +prompted entirely by the fact that you bid a figure on a Navy contract +for binoculars which was absolutely out of reason and made it look +to us as if you were going to get this binocular business from the +United States Navy at any price. When we saw there was no possibility +of getting business from our own Navy at a reasonable figure, we took +the only step that was open to us and made a complaint to one of our +senators that started a Senate Investigation and finally culminated in +an executive order that resulted in changing the method of figuring +tariff to the basis of American valuation.” + +On March 8, 1935, K. A. Bauer of Carl Zeiss, Inc., wrote Bausch and +Lomb. The first three paragraphs of his letter are as follows: + +“I thank you for your letter of February 28, referring to our +conversation of February 23rd. I wish to correct your impression of my +having made the general statement ‘that I have no confidence in the +younger generation in Rochester.’ I said: ‘How can we have confidence, +that an agreement regarding Contact glasses--if possible at all--will +turn out satisfactorily, after the experience we had in the binocular +matter?’ I also said that under the management of the older generation, +such a thing, as this binocular case turned out to be, would not have +been possible. But I do not wish these words to be generalized to the +above blunt statement, and I am sorry, if I may not have expressed +myself clearly enough. + +“Now turning to the binocular matter, you know that I have had +conversations with your firm in which I found a certain degree of +understanding for the untenability of the present tariff situation and +a willingness not to resist a reasonable solution. Due to the political +constellation and to tariff negotiations pending in Washington with +other countries, the flexible tariff clause is at present petrified +and nobody can say, when this may change. In the meantime, importation +of highgrade binoculars continues to be impossible. As long as this +condition lasts, we shall naturally feel irritated and we cannot but +resent the fact that it was brought about by methods which we must +condemn. The nature of the tariff action was camouflaged by the +wording of the Senate Resolution, in order to deceive the importers of +prism binoculars. We ourselves as well as other importers were deprived +of what little right we had under the tariff law to state our side. If +you personally have any doubt as to who engineered this whole affair, I +suggest that you read the stenographic report of the so-called ‘Public +Hearing’ which took place in Washington on October 18, 1932. + +“You say that we quoted on 600 binoculars 6 × 30 such a low price that +it was ‘out of reason.’ Admitted that our price of $26--was low. Your +quotation of $39.50, however, seems to be exorbitant. It is also true +that the quality specified by the Navy was of a higher grade than that +of commercial binoculars. But this fact is more than compensated by the +large number of 600 glasses involved, which were to be manufactured, +shipped and delivered at one time to one party, whose credit is beyond +doubt. The large number called for a special low price. Instead you +quoted to the U. S. Navy--your best single customer--considerably more +than what you asked from a dealer for one single glass. At that time +you sold your 6 × 30 model (with central focusing device) at $66 list, +and at $35.18 and even at $33 net to the trade; a few months later at +even lower prices. If you deduct from these prices an adequate amount +for the central focusing device, which the Navy did not require, +your net trade price for one single 6 × 30 binocular with individual +focusing would have come rather close to our price of $26. What +difference remained might have been cut down further by the quantity +factor as explained above. Had your firm quoted as one should have +expected, considering all that has been said above, we would have had +no chance whatever to get the order under the Budget Law even at a +lower price. In our opinion you bid too high, expecting that under the +Budget Law you would have the monopoly anyhow.” + +One recalls the urgent plea which was made about the time of Pearl +Harbor for all private citizens to make gifts of their binoculars +for use by the armed service. To the extent that a shortage of such +material can be traced to the squabbles among cartelists it is a +condition which should certainly never be allowed to recur. + +One of the most serious problems which will confront our government +and the United Nations in connection with the termination of the war +with Germany is that of eliminating for the future the German war +machine. The relations of Carl Zeiss and Bausch and Lomb show what may +be expected when private business concerns are permitted to handle +such a problem as though it were a matter of private concern. Surely +it is to be hoped that the policy of our government as expressed +in the peace which will be made with Germany will not be rendered +ineffectual because of the private international policy of certain +business concerns. The decree of July 9, 1940, enjoined Bausch and Lomb +from further carrying out any of the provisions of its agreements with +Carl Zeiss. This alone is not sufficient to insure that the public +policy expressed by government action shall not be thwarted by the +machinations of private cartels. + + + + + 11 + + _Miscellaneous Products_ + + +Three recent cases illustrate some interesting characteristics of the +cartel problem. These cases--involving cartelization of pharmaceutical +products, chemicals, firearms and ammunition, and matches--include +industrial concerns and individuals in Germany, England, Canada, +Sweden, Chile, the Argentine, and Brazil. They are significant not +only because of their inherent character, but also because the war has +not materially affected their operation. True, the war forced certain +changes upon them, but these were modifications, not cessations. + +Since the cases in question had not been legally adjudicated at the +time this was written, it is well for the reader to remember that +the statements which follow are allegations which were a matter for +litigation between the government and the various defendants. + +On October 28, 1943, the Department of Justice filed a complaint +charging Merck & Co., Inc., of Rahway, N. J., the largest producer of +pharmaceutical chemicals in the United States, and E. Merck Chemical +Works, of Darmstadt, Germany, with maintaining a cartel agreement in +violation of the antitrust laws. + +Named as defendants in the suit were Merck & Co.; George W. Merck, +President of the firm; and Powers-Weightman-Rosengarten Corp., a Merck +subsidiary. The complaint charged that: + +(1) The Rahway firm and its subsidiary conspired with the Darmstadt +concern to divide world territory into non-competitive areas by means +of what they themselves describe as a “Treaty,” dated November, 1932. + +(2) Under the terms of this “Treaty,” the Rahway firm was assigned the +United States and Canada as exclusive territory, while the Darmstadt +organization was assigned almost all the rest of the world. The +“Treaty” also provided that Cuba, the West Indies and the Philippines +were joint territory in which conditions of sale and prices were fixed +by agreement. + +(3) Since the British blockade after outbreak of the war in 1939 +prevented the Darmstadt firm from exporting to many foreign countries, +particularly to Latin America, it was agreed that the American +company would supply Darmstadt’s agents in South America but that the +territorial provisions of the 1932 “Treaty” remained in effect, with +Latin American markets returned to Merck of Darmstadt as exclusive +territory after the war. + +(4) To carry out this agreement Merck of Rahway revived a dormant +subsidiary, Powers-Weightman-Rosengarten Corporation, to engage during +the war in export business in territory assigned exclusively to +Merck-Darmstadt. The purpose of using this dormant subsidiary was to +enable Merck of Rahway more easily to abandon its export business in +Darmstadt’s territory after the war. + +(5) Merck of Rahway not only intends to abandon all its export business +in Darmstadt’s territory after the war but to continue the territorial +division provided in the 1932 “Treaty” until 1982. + +(6) The agreement covers approximately 400 pharmaceuticals and +chemicals, including quinines, sulfa drugs, vitamines, narcotics and +mercurials. + +The government charges specifically that prior to the last war there +were close ties between Merck of Rahway and Merck-Darmstadt which were +dissolved in 1919 by the Alien Property Custodian. During the last war +the American Merck company gained a large export business in chemicals +and pharmaceuticals in Central and South America only to relinquish +this business and allow it to be recaptured by Merck-Darmstadt after +the war. + +In 1932, the two companies entered into understandings and agreements +to divide world markets into exclusive areas, and as a device to +conceal these arrangements they entered into a so-called “Treaty +Agreement” on November 17, 1932, for a period of 50 years. The German +and American Merck companies, it is charged, divided the use of the +“Merck” trade name and the sales of their products throughout the +world. Under this arrangement, the right to sell exclusively in the +United States and Canada was assigned to Merck of Rahway, which was +also permitted to sell jointly with Merck-Darmstadt in Cuba, the West +Indies and the Philippines. The rest of the world became the exclusive +sales territory of the German company. + +In making the above charges, the Government asked the Court to dissolve +the 1932 “Treaty Agreement”; to cancel the exclusivity of licenses to +use certain patents of the German firm; to enjoin Merck of Rahway from +refusing to fill orders from established chemical and pharmaceutical +dealers in foreign countries; and to enjoin the American firm from +vesting any patent rights in the German company at any future time +without first notifying the Attorney General of its intention to make +such patent transfer; and to prevent the parties from entering any +similar agreements or arrangements. + + * * * * * + +On January 6, 1944, the Department of Justice filed a complaint +charging two American companies, a British company, the American agent +of the British company, and five of their officers, with maintaining +an international cartel agreement to restrain trade in the manufacture +of chemical products, firearms, and ammunition, in violation of the +Sherman Antitrust Act. + +Named as defendants in the suit were: E. I. du Pont de Nemours and +Company, Inc., Wilmington, Delaware, including Lammot du Pont, Chairman +of the Board, Walter Samuel Carpenter, Jr., President; Remington Arms +Company, Inc., Bridgeport, Connecticut, including Charles Krum Davis, +President and General Manager; Imperial Chemical Industries, Ltd., +London, England, including Harry Duncan McGowan, Chairman of the Board, +and Henry Mond, Deputy Chairman; and Imperial Chemical Industries (New +York), Ltd., New York City, American agent of ICI. + +The government charged that beginning sometime prior to 1920 du Pont, +ICI and, from 1933, Remington, had been engaged in a conspiracy and +combination in restraint of trade and commerce in chemical products, +arms, including war materials, and ammunition in the United States and +with foreign nations, and were parties to contracts and agreements in +violation of the Sherman Antitrust Act. + +The alleged conspiracy consisted of an agreement, the terms of which +were: + +(1) That du Pont and ICI not compete with each other. + +(2) That du Pont, Remington and ICI cooperate to eliminate competition +between Remington and ICI. + +(3) That du Pont and ICI each be assigned certain marketing areas as +exclusive territory. + +(4) That the defendants agree to eliminate competition between +themselves in non-exclusive territory by various arrangements, +including the formation of joint companies, to sell their products in +accordance with agreed quotas and prices. + +(5) That du Pont and ICI exchange exclusive licenses under all patents +and processes for the exclusive territories allocated to each, and +non-exclusive licenses for the remainder of the world. + +(6) That du Pont and ICI attempt to obtain for each other the benefit +of agreements and understanding arrived at with third parties for +allocation of world markets or the acquisition of technological +developments. + +(7) That du Pont and ICI cooperate to eliminate the competition of +other companies throughout the world. + +The agreement was estimated to affect thousands of products, ranging +from explosives to paints and varnishes. Du Pont is the largest +manufacturer of chemical products in the United States, with total +assets approximately one billion dollars, including the ownership of +approximately 23 per cent of the stock of General Motors Corporation. +Remington is described as the largest manufacturer of sporting arms and +ammunition in the United States, and since 1933 has been controlled by +du Pont. + +Imperial Chemical Industries, which has a virtual monopoly of the +chemical industry in Great Britain, was formed as the result of a +merger of four major British companies, and it was contended that ICI’s +founders intended not only to gain a monopoly of the chemical industry +in the United Kingdom but to join with the other major manufacturers +of chemicals throughout the world, including I. G. Farbenindustrie of +Germany and du Pont, to safeguard such monopoly position. This policy +was explained by ICI to du Pont as follows: + +“Sir Harry explained that the formation of I.C.I. is only the first +step in a comprehensive scheme which he has in mind to rationalize +chemical manufacture in the world. The details of such a scheme are +not worked out, not even in Sir Harry’s own mind, but the broad +picture includes working arrangements between three groups--the I. G. +in Germany, Imperial Chemical Industries in the British Empire, and +du Pont and the Allied Chemical & Dye in America. The next step in +the scheme is an arrangement of some sort between the Germans and the +British.” + +Imperial Chemical Industries (New York) conducts no independent +business operations of its own but acts solely as agent for ICI for the +transaction of business in the United States. The complaint stated that +in 1935 the then president of ICI (New York) described the corporation +as the “private commercial legation” of ICI. + +Sometime prior to 1920 du Pont and ICI came to an understanding with +each other for the elimination of competition in the sale of explosives +in all parts of the world. By this understanding du Pont was allocated +the United States and Central America as its exclusive sales territory, +and ICI was allocated the balance of the world, with the exception of +Canada, Newfoundland and South America. Both companies were to refrain +from manufacture in or export to each other’s exclusive markets, while +Canada, Newfoundland and South America were to be shared by both +companies on a non-competitive basis. + +It was further agreed that profits from the sale of commercial +explosives in South America would be divided equally; and that in +Canada the firm of Canadian Industries, Ltd., jointly owned by both, +would be utilized to eliminate competition between them. Moreover, it +was agreed that du Pont and ICI would exchange exclusive licenses under +all their present and future patents, processes and inventions for use +in the exclusive territory of each, and that non-exclusive licenses +would be exchanged for the territories shared by both companies. + +By 1925, however, Dynamit Aktiengesellschaft (known as DAG), a German +corporation, had begun to offer serious competition to du Pont and ICI +in all important world markets, and in that year the two companies +reached an agreement with DAG to eliminate competition in commercial +explosives. By this understanding, DAG agreed to abstain from doing +business in certain markets and to adhere to quota arrangements in +other markets including South America. For this agreement, DAG was +awarded as its exclusive market in commercial explosives Germany, +Holland, Poland, Austria, Denmark and Bulgaria. Du Pont and ICI also +subsequently acquired a stock interest in DAG. + +In order to carry out the understanding, it was charged, du Pont, ICI +and DAG about 1925, organized Explosives Industries, Ltd., incorporated +under the laws of the United Kingdom. Du Pont and ICI were each +allocated 37½ per cent of its shares, and DAG 25 per cent; and the +parties agreed to conduct all their exports in explosives to South +America through this corporation. Exports to Chile and Bolivia were +not included, however, as du Pont and ICI had earlier organized a +jointly-owned company, Compania Sud-Americana de Explosivos, to import +and manufacture explosives in Bolivia and Chile. + +At the time du Pont and ICI entered into the conspiracy, it was +asserted, they were primarily explosives manufacturers, but both +continually increased the number of products manufactured until +explosives became but one of many items. The growth of the combination +paralleled the grow of the two companies; as each company made new +products, they were brought into the conspiracy. + +The complaint cited as an example of the functioning of the conspiracy +that during the period 1920–29, du Pont tried to protect ICI from the +competition of American cartridge companies by withdrawing from these +companies discounts and rebates in connection with the sale of powder +so that they might not disrupt ICI’s markets by cutting prices. + +By 1929 the conspiracy had incorporated substantially all of the +products then made by du Pont and ICI, and the complaint alleged that +in 1929 a further agreement was entered into whereby all products other +than explosives would be handled in the British Empire by ICI and in +the United States and Central America by du Pont. It was further agreed +that as to the balance of the world, the two companies would enter into +special arrangements to eliminate competition and would explore the +desirability of utilizing joint companies. Later, two joint companies +were founded to handle products in Argentina and Brazil--Industrias +Quimicas Argentinas “Duperial,” S. A., and Industrias Chimicas +Brazeileiras “Duperial,” S. A. + +Military explosives had been omitted from the 1929 agreement, as +the two companies continued to make certain special arrangements to +eliminate competition between them. After 1933, when Remington joined +the conspiracy, the complaint states that further contracts and +agreements were entered into to eliminate competition between ICI and +Remington in the manufacture and sale of ammunition and sporting arms. + +The parties clearly understood that they would continue the +relationship between them irrespective of governmental action which +might affect the concerns. In July, 1933, Lord McGowan wrote to Lammot +du Pont as follows: + +“I have warned my people that no fiscal alterations in the U. S. +A. must be allowed to affect the interpretation to be placed on +our Patents and Processes Agreement, and the working out of the +co-operation for which the Agreement provides.... I find it is a good +thing to issue such warnings ... so that everything possible is done to +ensure that no prospective political or legislative action on the part +of Governments is permitted to influence relations between du Pont and +ICI.” + +To this letter, Mr. du Pont replied in part: “I feel the same; ... If +any legislation or international agreements are brought about which +affect these ICI-du Pont relations, I am sure we will be able to adjust +ourselves so as to get the continued benefit of our Agreement.” + +The agreement of 1929 was to expire in June, 1939, and at that time +ICI and du Pont entered into another agreement for 10 years and +indefinitely thereafter. The territorial provisions were continued, and +in addition to the patents and products covered by the 1929 agreement, +numerous other products were added, including cellulose compounds, +alkali metals and their products, fertilizers, dyestuffs, synthetic +resins and plastics, perfumes, flavoring compounds, pharmaceutical +chemicals, and new synthetic products, including rubber, nylon and +neoprene. + +The Government charged that competition was restrained successfully +by means of the joint companies in Canada, Argentina and Brazil, +pointing out that because I. G. Farben was encroaching on the field in +Argentina, certain arrangements were made for a further joint company +to be partly controlled by Farben. However, because of the war this +procedure was not carried out, although du Pont’s Foreign Relations +Department stated in February, 1940, that “the du Pont Company informed +I. G. that they intended to use their good offices after the war to +have the I. G. participation restored.” + +The purpose of the Government’s suit was to bring about the abrogation +of the illegal contracts, to secure a perpetual injunction against ICI +from violating the American Antitrust Acts, and to require du Pont and +ICI to take further steps to prevent future use of joint companies. + + * * * * * + +On May 1, 1944, the Department of Justice filed a complaint charging +the maintenance of an international cartel in the manufacture and +distribution of matches, in violation of the Sherman Antitrust Act, by +six American companies, two British companies, a Canadian company, a +Swedish company, two American agents of the Swedish company, and six of +their officers. + +Named as defendants in the suit were: Diamond Match Company, New +York City (including William A. Fairburn, President, and Howard F. +Holman, Vice-President); Berst-Forster-Dixfield Company, New York City +(including Robert G. Fairburn, President); William Gordon Corporation, +New York City; Universal Match Corporation, St. Louis, Missouri; Ohio +Match Company, New York City; Lion Match Company, Inc., New York +City; British Match Corporation, Limited, London, England (including +Sir Clarence Bartholomew, Managing Director); Bryant & May, Limited, +London, England; Eddy Match Company, Limited, Pembroke, Ontario, +Canada; Svenska Tändsticks Aktiebolaget (Swedish Match Company), +Jönköpings, Sweden; Transamerican Match Corporation, New York City +(including Fritz Otterberg, President); New York Match Co., Inc., New +York City, American agents of Swedish Match Company (including Paul +Bertil Lind, President). + +The Government’s complaint made the following charges: + +(1) A cartel comprising American, Swedish, British, and Canadian +match producers eliminated competition throughout the world in the +manufacture and distribution of matches. This cartel has been in +existence since 1901. + +(2) The defendants divided world territories into non-competing areas, +established production and sales quotas, and restricted the production +of matches in the major markets of the world. + +(3) The defendants suppressed inventions and improvements in the +match art. By the acquisition of patents controlling the “repeating” +or “everlasting” match, the defendants have been able virtually to +suppress its production and use. + +(4) Defendants controlled patents, raw materials, chemicals, machinery, +and processes in order to maintain their grip on the industry and +prevent competitive capital from entering the market. + +(5) The defendants acquired competing match producers and distributors +wherever and whenever competition threatened. + +(6) The amounts of matches imported into the United States from Sweden, +Russia, and Japan have been curtailed and prices have been fixed by +agreement with the Diamond Match Company with the approval of the other +American defendants. Imports into the United States from Canada, the +British Empire, and other markets of the world have been virtually +eliminated. + +(7) As part of the conspiracy, match factories in the United States +have been withdrawn from production and scrapped. + +(8) As the result of agreements between the Diamond Match Company and +I. G. Farbenindustrie, American production of chlorate of potash, +essential to match production and certain types of ammunition, was +virtually halted during the period between the first World War and +the second World War. This conspiracy resulted in a grave shortage of +chlorate of potash for military purposes and match production. + +(9) Post-war plans have already been made by the defendants to resume +the conspiracy in full as soon as the difficulties created by the war +disappear. + +The conspiracy in the world match industry against which the complaint +was directed was reinforced by an agreement entered into in 1920 by +Ivar Kreuger, the late so-called “match king,” and William Fairburn on +behalf of their respective companies, the Swedish Match Company and the +Diamond Match Company. + +These two companies are the major factors in the match industry of the +world. The Swedish Match Company is the world’s largest match producer +and exporter. The Diamond Match Company is the largest American match +producer. Diamond, through its President, William A. Fairburn, and his +personal holding company, the William Gordon Corporation, dominates and +controls the policies of Diamond’s partly-owned and affiliated company, +Berst-Forster-Dixfield Company, and the Universal Match Corporation, +Ohio Match Company, and Lion Match Company, Inc.; these companies +together with Diamond, produce approximately 83 per cent of American +matches. The annual sales of matches in the United States are in excess +of $40,000,000. + +Prior to the first World War, Diamond was the exclusive agent for +Swedish Match for the sale in the United States, Canada, Cuba, and +Puerto Rico of safety matches, the type most widely used by the armed +forces. When Swedish imports to the United States were cut off during +the first World War, Diamond, in 1917, erected a large safety match +factory at Savannah, Georgia, to supply the urgent needs of the armed +forces of the United States and its allies and civilian requirements +for this kind of match. + +After the first World War, Kreuger threatened vigorous competition +with Diamond in the United States. Faced with this threat, Diamond +and Swedish Match entered into an arrangement in 1920 described by +Diamond’s President, William A. Fairburn, as the “peace treaty with +the Swedes.” Under the “peace treaty” Swedish Match appointed Diamond +its exclusive agent in the United States for the sale of Swedish +safety matches and agreed to discontinue all other selling agencies +and establishments in the United States. In order to assure Swedish +Match of its share of the American match market, it is charged, Kreuger +and Fairburn entered into a secret agreement which required Diamond +to destroy virtually its entire safety match business, including the +scrapping of its largest plant at Savannah, Georgia. Swedish Match +agreed that it would not otherwise make or sell matches on the North +American Continent; Diamond, in turn, agreed not to make or sell +matches in countries supplied by Swedish Match. + +The understandings reached in 1920 between Diamond and Swedish Match +are still in effect, although the limitation of production feature +has been temporarily suspended. Upon the outbreak of the present war +a match shortage, particularly of the safety match type, resulted +in the United States and in certain South and most Central American +countries. In accordance with the agreement between the parties the +South and Central American markets were Swedish territory. But war +conditions have made it impossible for Swedish Match to supply this +market. Instead of selling directly in these markets, however, Diamond, +through its controlled affiliate, Berst-Forster-Dixfield, supplied +Swedish Match with matches for South and Central American countries. +The condition for Diamond’s policy in thus helping out was expressed to +Swedish Match as follows: + +“We help you now. You stay out of the United States market after the +war.” + +By 1927 Kreuger became dissatisfied with the share of Swedish Match +and its affiliated company, International Match, in the American match +market. In violation of the “peace treaty,” he planned to erect new +match factories and acquire existing concerns in the United States. +William A. Fairburn, on behalf of Diamond, successfully appeased +Kreuger for the time being by acquiring Ohio Match, then the second +largest domestic match producer, and selling Kreuger a half interest +in the company. By 1931 Kreuger, through an arrangement with Fairburn, +acquired a one-third interest in Diamond itself. At the same time, +Fairburn induced Kreuger to scrap a partly-constructed match factory at +Natchez, Mississippi. + +In 1901, the complaint charges, Diamond and Bryant & May, virtually +the sole match producer in Great Britain, came to an understanding +for the elimination of competition between them. Thereafter Bryant +& May refrained from producing and selling matches in the United +States and Diamond in the British Empire. It is also charged that +the Berst-Forster-Dixfield, Universal, Ohio, and Lion companies have +followed Diamond’s policies with regard to non-competitive relations +with Swedish Match, Bryant & May, and the other corporate defendants. + +About 1927 Bryant & May and Swedish Match eliminated competition in the +British home market (the United Kingdom and Ireland) and the remainder +of the British Empire. Fifty-five per cent of the match consumption of +the United Kingdom and Ireland was allotted by Bryant & May’s domestic +production; the remaining 45 per cent was allotted to Swedish Match’s +imports. India was allocated to Swedish Match and the remainder of the +British Empire to Bryant & May. To effectuate the division of markets, +British Match Corporation was formed in 1927 as a holding company, and +acquired all of the stock of Bryant & May. Swedish Match obtained 30 +per cent of the stock of British Match. + +In 1927, it is asserted, Diamond, Bryant & May, and Swedish Match +eliminated competition in Canada by the formation of Eddy Match, which +acquired virtually all of the match factories in that country. + +In 1935, after consultation with and approval by Diamond, Swedish +Match, by agreement with the Japanese producers and the Soviet Match +Monopoly, fixed the price of and limited match imports into the United +States from Japan and Soviet Russia. In about 1937 Diamond became the +exclusive agent for all Russian and Japanese matches sold in the United +States. + +The complaint alleges that about 1922 Diamond’s wholly-owned +subsidiary, Uniform Chemical Products, became exclusive agent in the +United States for the sale of I. G. Farbenindustrie’s German-made +chlorate of potash. Chlorate of potash is a chemical not only essential +in match manufacture, but also in the production of ammunition, +flares, and railway emergency warning signals. In return for Uniform’s +exclusive agency, I. G. Farbenindustrie required Diamond virtually +to cease the manufacture of chlorate of potash in the United States. +As a result of the scrapping of American plants, this country had +practically no plant capacity for the production of chlorate of potash +at the outbreak of the war. Emergency plant construction has not yet +overcome the shortage of this essential chemical. + +The complaint recites the heretofore undisclosed history of the +so-called “everlasting” match, which has long been a matter of +considerable rumor and speculation. About 1932, it is charged, Kreuger +obtained control of the patents on this match, and subsequently +Bryant & May obtained an interest in them. Diamond later was offered +a participation in Swedish Match’s patents and also negotiated with +the inventor of certain improvements. Although it was commercially +successful in Holland and Switzerland, the everlasting match has +never been manufactured commercially by Diamond or any other +American manufacturer. Diamond’s decision not to acquire the patents +and manufacture the everlasting match was expressed as follows in a +document found in their files: “The patents have not so long to run +and if it becomes a marketable commodity by our pushing it, once the +patents are out--as in the case of book-matches--it would be a fertile +field for the rottenest kind of competition. It is to be hoped that if +the item is not put out and pushed by a strong manufacturer, no one +else will take it up even if the patents expire.” + +The Government sought, among other things, the abrogation of the +illegal contracts and agreements and a perpetual injunction against the +defendants, prohibiting them from violating the Sherman Antitrust Act. +The Government also asked that Diamond, Berst-Forster-Dixfield, and the +William Gordon Corporation be required to divest themselves of holdings +in any other match producer, including the foreign corporate defendants. + + + + + 12 + + _The Webb Act_ + + +An expanding foreign trade is one of our chief economic objectives. +Both Government and business should desire and promote policies that +will open up new markets to American enterprise, encourage sound +foreign investment and facilitate the flow of goods between this +and other countries. There can be no issue, surely, over this basic +purpose. Nor is there room for disagreement on the proposition that a +crucial, if not indeed the ultimate, test of our economic policy should +be its efficacy in promoting free enterprise as opposed to a controlled +economy. Differences, if any, relate only to methods. + +However, anyone who has been under the impression that the Webb Act +provides an easy backdoor entrance for American firms to join forces +with cartels seeking domination and control of world markets is in for +sad disillusionment. The Webb Act was intended to strengthen American +competition against foreign cartels. It was enacted by Congress in the +belief that it would provide a means of assistance to American business +in combatting the power of foreign cartels dominating world markets. +The Act was not passed to permit American firms to take part in cartel +restrictions on American trade--such restrictions are directly contrary +to Congressional purpose. + +It should be emphasized that associations organized under the Webb +Act cannot legally enter into international agreements which restrict +production and distribution, divide territories and fields of +operation, fix prices or other wise regiment industry throughout the +world. Neither can they legally enter into agreements which restrain +trade within the United States, restrain the export trade of any +domestic competitor or association, or which enhance or depress prices +or substantially lessen competition within the United States. + +We have instituted a suit against the United States Alkali Export +Association, the California Alkali Export Association and others, +charging them with maintaining international cartel agreements to +restrain trade in the manufacture and distribution of alkalis in +violation of the Sherman Act. In this case we have charged that +activities by the defendants were not authorized by the Webb Act. I +shall refer later to this case in more detail. It is sufficient to +say at this point that other associations are under investigation for +similar activity, and that new antitrust suits will be instituted +whenever evidence discloses illegal activity by export associations or +others. + +The alkali suit may very well have prompted the resolution of the Board +of Directors of the Commerce and Industry Association of New York +to declare that Congress should restudy the Webb Act and by proper +amendments bring it up to date so that there can be achieved under it +all of the objectives that President Wilson sought to attain when he +procured the enactment of this Act in 1918. The resolution recited that +the Department of Justice program for enforcement of the Sherman Act +seemed to be seeking to impose the competitive system and the antitrust +philosophy, as interpreted by the United States Supreme Court, on other +countries, and implied that antitrust enforcement was frustrating the +purposes of the Webb Act. And in other quarters it has been suggested +that perhaps the Webb Act provides a vehicle for attaining cartel +objectives without incurring the penalties of the Sherman Act. + +These suggestions that the enforcement of the Sherman Act in the field +of foreign trade somehow constitutes a betrayal of the Congressional +policy embodied in the Webb Act, and that the Webb Act legalizes +restrictive cartel practices, are based upon a misconception of the +meaning and purpose of the Act. The Webb Act was enacted to help +American business compete with foreign cartels. It was not passed to +provide a conduit for joining them. It was designed to stimulate the +position of American concerns as competitors for world trade and to +stimulate the growth of our export trade. The Act created only a very +limited exemption from the Sherman Act which I shall presently discuss. + +But, before taking up the Act itself, let us look at the conditions +which brought about its enactment. The background of the Act is set +forth extensively in a report by the Federal Trade Commission, dated +June 30, 1916, on cooperation in American export trade. This report +set forth that other nations had certain advantages in foreign trade +because of superior facilities and more effective organizations; it +pointed out that doubt and fear as to legal restrictions prevented +Americans from developing effective organizations for engaging in +international trade, and that as a result the smaller concerns suffered +because of their lack of organization and facilities. It emphasized +that in seeking business abroad, American manufacturers and producers +had to meet aggressive competition from powerful foreign combinations +often international in character. It recited that in some industries +the smaller manufacturers had to compete abroad with great American +companies having much more efficient worldwide selling organizations. +In order to assist these smaller businesses to acquire proper +facilities for doing an international business, and to enable them to +meet the competition in prices and services of major American concerns +and all foreign competitors, the report recommended that small American +producers and manufacturers should be permitted to unite their efforts +for purposes of conducting foreign trade. By combining their efforts it +was thought that these small firms would be better able to advertise, +maintain an adequate selling force, and create markets abroad. + +But, while recognizing the desirability of a certain degree of +cooperation in seeking international markets, the Federal Trade +Commission in its 1916 report was fully cognizant of the possibility +of misuse of export associations and of the necessity to prevent their +misuse by legislative safeguards and antitrust enforcement. Thus the +Commission said: + +“Two chief dangers from cooperation export organizations of American +manufacturers and producers are apparent. They may be used to exploit +the home market and they may be used unfairly against individual +American exporters in foreign trade. The dangers in cooperative action +must be faced frankly and provided against fully. + +“The Commission is confident that this can be done without sacrificing +the essential advantages of joint action and without altering the +policy of the antitrust laws or interfering with their enforcement.” + +And the Commission further declared that “This recommendation is made +subject to the condition that the legislation shall be carefully +safeguarded and shall make absolutely clear that the combinations for +export business are subject to all of the rigors of the Sherman law if +they are used to restrain trade in the United States.” + +Bills were then introduced in Congress by Senator Pomerene and +Congressman Webb, and were considered by Congressional committees +and debated from 1916 to 1918, when the law was enacted. The Webb +Act as finally passed provides that nothing in the Sherman Act shall +be construed as declaring to be illegal an export association or any +agreement made or act done in the course of export trade by such +association, provided that such association, agreement or act does +not: (a) restrain trade within the United States; or (b) restrain the +export trade of any domestic competitor or association; or (c) enhance +or depress prices within the United States, substantially lessen +competition within the United States, or otherwise restrain trade +therein. + +Since the Webb Act is a statute creating an exception to the Sherman +Act’s general application, the principle of interpretation governing +all statutes which create such exceptions must be applied here; that +is, the Webb Act must be strictly construed. It must not be taken +to cover any more ground than appears to have been intended by the +language of the Act itself read in the light of the legislative history. + +The legislative history leaves no doubt whatever as to what Congress +intended. In its report of May 11, 1917, the House Judiciary Committee +stated: + +“The bill is drawn so as to leave in full force our antitrust laws +as applied to our own markets and as affecting different American +exporters in their dealings with each other.... The bill does not +authorize any violation of the present antitrust laws.... The bill +prohibits the slightest violation of our antitrust laws within the +United States.” + +The Senate Committee report contained a similar declaration. + +The House and Senate debates abound with declarations by the sponsors +of the bill that it did not in any way interfere with the application +of the Sherman Act to the domestic commerce of the United States and +to agreements to restrain the export trade of competitors of the +associations. In referring to antitrust jurisdiction over proposed +export associations, Representative Webb stated: “If the combination +for export trade affects unduly or artificially the prices in the +United States then they come within the Sherman Antitrust Law.” + +Senator Pomerene made the following significant arguments during debate +on the bill: + +“The position was taken in substance that this bill was a repeal of +the Sherman Antitrust Law, and if it became the law of the land and +these associations were authorized they would at once seek to control +the foreign market and probably enter into a combination with foreign +companies and cartels engaged in the same line of business and thus +reenforced and worldwide in their control of products they would reduce +the prices of food animals, of grain, and of other products and raise +the prices to the consumer when it suited their purposes.” + +“If the Senator when making this argument had recited facts instead +of fancies, there might have been some force in his utterances but +he was giving free reign to his imagination. The Senator overlooked +the fact that this bill does not repeal the Sherman Law. He had in +mind one paragraph only and lost sight of all the restrictions and +qualifications it contains. I submit that when this bill is construed +judicially it will be analyzed as a whole and not one part separate +from the other. + +“The Senator forgets that neither the associations, nor their +agreements, nor their actions can be in restraint of trade within the +United States, nor in restraint of the foreign trade of any domestic +competitor and they cannot by any agreement, conspiracy, or act +artificially or intentionally and unduly either enhance prices or +reduce prices domestically, and if they do they violate the law of the +land.” + +During the debates some members of Congress, foreseeing the +possibility that export associations might join in a combination with +foreign companies, questioned the sponsors of the bill as to the effect +of the bill upon such practices. In the House debates, Mr. Moore of +Pennsylvania asked: “Suppose a combination in which Americans join with +foreigners had been formed?” To this query Congressman Webb replied: +“Then you violate the antitrust law and it has been so held by the +court.” Later, in the Senate debates, Senator Pomerene stated: “There +is nothing in this bill authorizing the division of territory abroad.” + +Attempts to amend the Act between 1921 and 1928 failed. Amendments +proposed in 1928 would have extended the Act to include combinations +for importation of crude rubber, potash, sisal and other raw materials +not made, produced, or grown in substantial quantities within the +United States. The bill proposed that year was stated by the House +Judiciary Committee to be designed “to meet an acute situation +affecting the import trade of the country” by reason of the fact that +certain foreign governments controlled and operated monopolies dealing +in rubber, potash and sisal for which this country depended materially +upon importations. Because of the operation of these foreign monopolies +the price to American importers had been greatly increased. The +Committee thought that the best way of meeting “these alien government +combinations” was to allow American buyers of the monopolized products +to combine for the purpose of importing them. During debates on the +bill it was attacked, among other things, on the ground that if it were +passed, import associations would be permitted to join with foreign +producers in worldwide agreements arranging world markets and fixing +world prices. The bill failed to pass, Congress thus indicating its +unwillingness to extend further the application of the Webb Act. + +Thus it is clear that from the very beginning of the agitation for +the Act it was understood that the activities of export associations +would have to be strictly limited to the promotion of foreign export +trade, and that any agreements or activities which restrain domestic +competitors either in domestic or foreign commerce would still be +illegal under the Sherman Act. This, it seems to me, is what has been +overlooked by those who now question the application of the Sherman +Act to activities of export associations which restrain domestic +competition and the export trade of competitors. + +The Department of Justice is not seeking any novel interpretation of +the Sherman Act or of the Webb Act. We have thus far instituted one +suit involving associations formed under the Webb Act and it requires +no novel interpretation of the Act to sustain the allegations involved. + +In that suit, filed on March 16, 1944, we charged two American export +associations, 13 American manufacturers, and a British corporation and +its American agent, with maintaining international cartel agreements +to restrain trade in the manufacture and marketing of _alkalis_, in +violation of the Sherman Antitrust Act. Our complaint asserted that +the 17 defendants and four co-conspirators--two American corporations, +one German, and one Belgian--had conspired to allocate and maintain +exclusive marketing areas and export quotas throughout the world, +eliminating competition and restraining exports in alkalis by means of +illegal contracts, agreements and understandings still in effect! + +The following were named as defendants in the complaint: United States +Alkali Export Association, Inc. (“Alkasso”), a Delaware corporation +with principal offices in New York City; California Alkali Export +Association (“Calkex”), a California corporation with principal +offices in Los Angeles; Imperial Chemical Industries Ltd. (“ICI”), +a British corporation with principal offices in London, England; +Imperial Chemical Industries (New York) Ltd., a New York corporation +wholly owned and controlled by ICI, London; Pittsburgh Plate Glass +Company, Inc., a Pennsylvania corporation with principal offices in +New York City; Church & Dwight Company, Inc., a Delaware corporation +with principal offices in New York City; Diamond Alkali Company, Inc., +a Delaware corporation with principal offices in Pittsburgh, Pa.; +Dow Chemical Company, Inc., a Michigan corporation with principal +offices in Midland, Mich.; Hooker Electrochemical Company, Inc., a +New York corporation with principal offices in Niagara Falls, N. +Y.; The Mathieson Alkali Works, Inc., a Virginia corporation with +principal offices in New York City; Niagara Alkali Company, a New York +corporation with principal offices in New York City; Pennsylvania +Salt Manufacturing Company, a Pennsylvania corporation with principal +offices in Philadelphia; Southern Alkali Corporation, a Delaware +corporation with principal offices in New York City; Westvaco Chlorine +Products Corporation, a Delaware corporation with principal offices in +New York City; Wyandotte Chemicals Corporation, a Michigan corporation +with principal offices in Detroit; West End Chemical Company, Inc., +a California corporation with principal offices in Oakland; and +Pacific Alkali Company, Inc., a limited partnership organized and +registered in California with principal offices in Los Angeles. Named +as co-conspirators were: American Potash & Chemical Corporation, +a Delaware corporation with principal offices in New York City, +substantially all of whose capital stock beneficially owned by the +German potash trust, was seized by the Alien Property Custodian in +1942; Solvay Process Company, a New York corporation with principal +offices in New York City; Solvay et Cie. (“Belgian Solvay”), a Belgian +corporation with principal offices formerly in Brussels but now in +London, England; and I. G. Farbenindustrie Aktiengesellschaft, a German +corporation with headquarters in Frankfort-am-Main, Germany. + +This suit is of major importance in the drive to eliminate the effect +of cartels on American commerce. It is the first suit which the +Antitrust Division has filed involving the activities of associations +organized under the Webb Export Trade Act. It should serve as a warning +of our determination to prevent cartel groups from carrying out their +illegal plans by use of the Webb Act. + +“Alkalis,” it should be explained, include soda ash (sodium carbonate), +caustic soda (sodium hydroxide) and bicarbonate of soda. Soda ash is +used in the manufacture of glass, textiles and chemicals. Caustic soda +is used in the manufacture of soap, textiles, rayon and paper and in +the refining of petroleum products. Sodium bicarbonate is used for +many industrial, chemical and drug purposes and, purified, as baking +soda. In 1939, there were produced in the United States approximately +2,900,000 tons of soda ash, worth more than $50,000,000; approximately +1,000,000 tons of caustic soda, worth more than $40,000,000; and +approximately 140,000 tons of refined bicarbonate of soda, worth more +than $5,000,000. + +All the domestic defendants in the suit, with the exception of +Alkasso, Calkex and ICI (N. Y.), were engaged in the manufacture and +sale of alkalis in the United States and conduct substantially all +of their export trade in alkalis through Alkasso and Calkex. Alkasso +was organized in 1919 and filed a verified statement with the Federal +Trade Commission to obtain benefits and immunities provided by the +Webb Export Trade Act. Alkasso’s members, who control and manage all +its activities, include defendants Pennsylvania Salt, Pittsburgh Plate +Glass, Hooker Electrochemical, Diamond, Mathieson, Westvaco, Church +& Dwight, Dow, Niagara and Southern. Alkasso obtains alkalis from its +members, transporting from warehouses maintained at Hoboken, N. J., +and New Orleans, La., to markets throughout the world. Calkex was +organized similarly in 1936 by American Potash & Chemical, West End +Chemical and Pacific Alkali, who control and manage its activities. +It obtains alkalis from member companies and ships from Pacific Coast +ports to various world markets. Prior to 1940, Alkasso and Calkex +together exported 95% of the alkalis exported from the United States. +Since then, because of war conditions and the resignation of Solvay +from Alkasso in 1941, the alkalis exported by the two associations have +amounted to 75% of the total alkali exports from the U. S. + +It is charged that beginning in 1924 and continuing to the present day +the defendants have engaged in an unlawful combination and conspiracy +in restraint of trade and commerce in alkalis and that they have +been and are parties to contracts, agreements and understandings in +violation of the Sherman Act. This continuing agreement, it is alleged, +provides: + +(1) That Alkasso, Calkex, their respective members, ICI, I. G. Farben, +and Belgian Solvay not compete with each other in the sale of alkalis +in any market of the world outside of the United States, and that ICI, +I. G. Farben and Belgian Solvay refrain from importing alkalis into the +United States; + +(2) That Alkasso, Calkex and their respective members be assigned +certain marketing areas as their exclusive territory (including +the U. S.) and that ICI, I. G. Farben and Belgian Solvay refrain +from exporting alkalis to such territory and prevent other European +manufacturers from doing so; + +(3) That exclusive market areas be assigned to ICI (the British Empire +exclusive of Canada), I. G. Farben (Scandinavia), and Belgian Solvay +(Continental Europe exclusive of the Scandinavian countries), and that +Alkasso and Calkex and their respective members refrain from exporting +alkalis to such territories and prevent other American manufacturers +from doing so. + +(4) That the rest of the world markets be shared jointly by Alkasso, +Calkex, their respective members, and ICI, with competition therein +eliminated by allocating quotas to British and American companies and +limiting their exports to certain fixed percentages of the total sold +in such areas and by agreeing among themselves on the prices at which +alkalis are sold in such markets; + +(5) That Alkasso, Calkex and their respective members prevent other +American manufacturers and dealers from exporting to joint territory +except in compliance with quota and price agreements fixed for such +markets. + +(6) That Alkasso, Calkex, and their respective members conduct their +export trade and utilize the aforesaid arrangements and their practices +thereunder in such manner as to enhance, stabilize and maintain at +uniform and non-competitive levels the prices at which caustic soda is +sold in the United States. + +It is alleged that the results of this conspiracy have been: + +(1) To eliminate competition by Alkasso, Calkex and their members with +ICI and European producers of alkalis in the manufacture and marketing +of alkalis throughout the world; + +(2) To eliminate exports of alkalis by ICI, Belgian Solvay and I. G. +Farben to the United States; + +(3) To eliminate exports of alkalis by Alkasso, Calkex and other +American manufacturers to many markets of the world; and to restrict +and curtail by quota arrangements the export of alkalis from the United +States to many world markets; + +(4) To eliminate competition by Alkasso and its members with Calkex and +its members in exports of alkalis from the United States; + +(5) To curtail and limit the production of alkalis within the United +States; + +(6) To prevent competition between manufacturers of alkalis in the +United States (who are not members of Alkasso and Calkex) and Alkasso, +Calkex, ICI, Belgian Solvay and I. G. Farben in world markets; + +(7) To prevent independent exporters of alkalis in the United States +from engaging in the export of such commodities; and + +(8) To enhance, stabilize and maintain at arbitrary price levels the +prices at which caustic soda is sold in the United States. + +The Department of Justice sought the abrogation of the illegal +contracts and agreements and a permanent injunction against the +defendants restraining them from violating the Sherman Act. The +Government also asked that the defendants be enjoined from entering +into any future contract, agreement or understanding with any foreign +company in any manner restricting their exports of alkalis from the +United States by division of export markets, allocation of territories, +fixing of prices in export sales, or fixing or observing any export +quotas. The Government further asked that the domestic defendants be +enjoined from selling alkalis exported from the United States in any +foreign markets through ICI (N. Y.) or through any agent or dealer +selling alkalis for or on behalf of ICI or ICI (N. Y.). + +Thus, in this case, we allege a conspiracy to restrain the exports of +American competitors; to restrict imports to the United States and +thereby restrain trade within the United States; to curtail and limit +production in the United States, and to enhance, stabilize and maintain +price levels within the United States. These allegations clearly charge +a violation of the Sherman Act. The Webb Act, I am confident, does not +protect activities of this type. + +The allegations in this single instance against a Webb Export +Association raise serious questions of law violation which cannot be +ignored. The suggestion that we are stretching the Sherman Act by +novel interpretation simply does not stand up. Associations organized +under the Webb Act should take warning that the Alkali case represents +the view of the Department of Justice as to the application of the +Sherman Act to the activities of such associations. The position of the +Department is in accord with the purpose, history and language of the +Webb Act. + +It is the policy of the Department of Justice to enforce the Sherman +Act as vigorously as possible whenever evidence establishes probable +violation. The Sherman Act represents a Congressional policy of more +than fifty years’ standing. The Department of Justice did not create +the Act although it has the responsibility of making it effective. The +Department of Justice does not interpret the Act. That is the task of +the courts. It is true, however, that the attitude of the Department of +Justice toward antitrust law enforcement is predicated, frankly, not +on a passive interest in the matter--a grudging willingness to perform +an unwelcome duty--but on a deep conviction that Congress is right, +and that the public economic policy embodied in the Sherman Act is +basically sound. + +So long as the conditions which gave rise to the Webb Act still exist, +the Act, if properly employed, may be useful in promoting trade within +the special and limited domain to which the Act applies. To meet +centralized buying by centralized selling, and to stand up against the +exclusionary tactics and monopolistic practices of well-established +foreign cartels is sometimes necessary. Joint action by American +exporters may serve to secure an equal footing in foreign trade in +markets where combination is permitted or even encouraged. No doubt +such retaliatory measures are wasteful as ways of organizing world +trade, and no doubt we and other nations would be better advised to +join hands in getting rid of international trade restraints, theirs +and our alike. Meanwhile, however, the Webb Act has a use in defending +American interests in markets which are too often cartelized. + +If export associations are to be economically useful in the postwar +world, approved by public policy and serving the purpose for which they +were created, they must be the spearhead of American industry as it +enters into competition with foreign industry for a fair share of world +markets, rather than the tool of international monopolists to draw +American industries into restrictive cartel agreements which contain +provisions in conflict with the Sherman Act. + +I have given some thought to the question whether the Webb Act should +be tightened--whether additional legislation should be enacted to +assure that possible abuses shall be eradicated. Some of those who have +suggested such legislation apparently feel that export associations, +operating under the cloak of the Webb Act, may be used to carry +American industries into private international cartels which operate +contrary to our public policy, and that serious consideration should be +given now to legislation that would make such abuses impossible. + +But at present, I am not ready to believe that additional legislation +is necessary. Vigilant enforcement of the Sherman Act against those who +misuse the Webb Act together with the understanding and cooperation +of industry will make additional legislation unnecessary and prove +adequate to prevent export associations from becoming screens for +illegal cartel activity. The appreciation by industry itself of the +advantage of avoiding restrictive agreements is an important factor +in our future policy. But if antitrust enforcement should prove +ineffectual, and if the postwar period should be characterized by +widespread misuse of export associations operating under the cloak of +the Webb Act, then, of course, serious consideration will have to be +given to legislation which will end the abuses. + + + + + 13 + + _Private Governments_ + + +One of the foremost problems facing our government today is the +formulation of an economic policy for the future. The development of +this policy is the concern of every American and will affect vitally +(1) the domestic prosperity of this country, (2) our role in world +affairs, (3) our national security. I should like to point out in this +connection certain important considerations which must be taken into +account if errors of the past are to be avoided and progress in the +future guaranteed. + +No economic policy adopted by the government can be effective if the +industrial policies of the country in the international field are +determined, controlled, and executed by private agreements of which the +government has no knowledge. The formulation and conduct of the foreign +policy of the United States is provided for in the Constitution: “[The +President] shall have Power, by and with the Advice and Consent of the +Senate, to make Treaties, provided two thirds of the Senators present +concur.” + +Past history demonstrates clearly that our economic foreign policy +has in many instances been rendered ineffectual by the operation of +secret agreements conceived and ratified by cartels. These agreements +admit of no sovereignty other than their own, and serve no interests +other than the shortsighted aims of monopoly. This has only too often +resulted in situations which have endangered our national security, +injured our position in the world economy, and denied us opportunity +for the fullest use of our resources and labor. Domestically, +businessmen have had to yield to the dictates of large aggregates of +power vested in international cartels. What and how much they might +produce, and to whom and at what price they might sell, have been +decided for them. If they did not yield, they risked elimination. + +Internationally, our foreign policy has in many respects been +frustrated. The Good Neighbor policy governing our relations with Latin +America, the reciprocal trade treaties, our alien property policy, and +other basic principles of America’s conduct of foreign affairs have in +many instances been seriously weakened by the interference of cartel +activities. Indeed, it is difficult to see how our future policies--for +example the Atlantic Charter--can be executed successfully, if the +dispositions made by cartels continue into the postwar world. + +Cartels will find it difficult to operate if the agreements upon which +they are based are open to public scrutiny and examination. Any law +requiring the filing of international agreements should operate like +the Foreign Agents’ Registration Act. It should not give immunity to +cartels, but should let the government and the public know of their +existence, their identity, and their scope. + +The cost of secrecy is illustrated by the following examples. Two very +basic raw materials necessary to any industrial community are petroleum +and rubber. The crucial nature of these materials to our industrial +economy and military operations is clearly apparent. Without them, +practically all industrial activity would cease. Yet our oil and +rubber supplies have been dependent upon policies arrived at secretly, +operated clandestinely, and run in a manner contrary to the fundamental +foreign policy of our country. The public had no voice in making these +private policies, yet today it bears the burden of their effects. + +The very nature of modern warfare and industrial life is such that both +petroleum and rubber have political and military, as well as economic, +aspects. Not all countries have petroleum within their borders and, +prior to the present war, only Britain, for practical purposes, had +rubber. Access to these raw materials is a prime military requisite to +any nation desirous of maintaining a strong international position. +Without them, no nation could hope to wage a war, maintain a healthy +industrial economy, or impose a treaty of Munich. + +Among Germany’s raw material deficiencies, oil and rubber have been the +two greatest. Within her own borders there is little, if any, oil, and +no rubber. This fact has certainly been a consideration in the basis of +our own as well as the French and British foreign policy. Hence, the +discovery in 1926 that petroleum could be made from Germany’s plentiful +coal was a political event of the first magnitude. That synthetic +rubber became a reality in Germany shortly afterward served to magnify +the shock. + +The petroleum industry, dominated in this country by Standard Oil +Co. (New Jersey), was shaken at its very foundation. A Standard Oil +official, Frank Howard, wrote at the time from Mannheim, Germany, +on March 28, 1926, to Walter Teagle, president of Standard Oil, the +following: + +“Based upon my observations and discussion today, I think that this +matter is the most important which has ever faced the company since the +dissolution. + +“The Badische can make high grade motor fuel from lignite and other low +quality coals in amounts up to half the weight of the coal. This means +absolutely the independence of Europe on the matter of gasoline supply. +Straight price competition is all that is left.... + +“They can make up to 100% by weight from any liquid hydrocarbon, tar, +fuel oil, or crude oil. This means that refining of oil will have as a +competitive industry in America and elsewhere, catalytic conversion of +the crude into motor fuel. + + * * * * * + +“I shall not attempt to cover any details, but I think this will be +evidence of my state of mind.” + +Standard Oil was worried about its monopoly position. The discovery +threatened competition and Standard Oil met the threat. + +The process of making oil from coal was controlled by I. G. +Farbenindustrie, the German chemical trust. In 1926 a meeting between +Standard Oil and I. G. Farben was arranged. The result was a series +of treaties. The agreements preserved the position of the parties in +the fields which they respectively dominated. As stated by a Standard +Oil official: “The I. G. are going to stay out of the oil business +proposition and we are going to stay out of the chemical business +insofar as that has no bearing on the oil business.” + +Competition between I. G. Farben and Standard Oil was eliminated, and +the technology of chemistry and petroleum was made part of their feudal +preserve. The economic effect was the maintenance of monopoly. + +Stated in a more detailed way, Standard Oil was given the world right +on the oil process and I. G. Farben was given the chemical business +of the world. But there was one exception. While I. G. was given +the right to engage in the oil business in Germany, Standard Oil was +permitted to engage in the chemical business in the United States only +as a junior partner to I. G. The staggering implications of this are +clear. Germany could not afford, considering her aims, to permit any +outsider to control within her own borders as important a development +to her national life as the production of oil from coal. + +But when Standard Oil gave up its rights in the chemical field, +including those in the United States, the repercussions were to +seriously affect our wartime efforts. + +Included in the chemical field was the synthetic rubber, buna. Under +the agreements, therefore, it was a German-controlled monopoly. When +the war broke out in September 1939, the Germans had not permitted +buna to be manufactured in the United States. We had no experience, +information, or know-how, and we had not obtained permission from +Germany to produce synthetic rubber. Of equal importance is the fact +that the United States Government had no knowledge of these facts. The +terms of the Standard Oil-I. G. Farben treaty were secret. + +When corporations outside the I. G.-Standard Oil orbit attempted +to manufacture buna rubber, they were confronted with the combined +strength, wealth and power of the private coalition. Goodrich and +Goodyear attempted such production, but the former was sued for +patent infringement and the latter formally threatened with suit by +the Standard Oil Company under the I. G. patents. This took place in +October 1941, a few weeks before Pearl Harbor. Thus, not only did +Standard Oil agree with I. G. Farben that the latter should control +the exploitation of synthetic rubber, but cooperated in preventing +anyone else from producing. In fact, on April 20, 1938, a Standard Oil +official wrote as follows: + +“Until we have this permission, however, there is absolutely nothing +we can do and we must be especially careful not to make any move +whatever even on a purely informal, personal or friendly basis, without +the consent of our friends. We know some of the difficulties they have, +both from business complications and interrelations with the rubber and +chemical trades in the United States, and from a national standpoint in +Germany, but we do not know the whole situation--and since under the +agreement they have full control over the exploitation of this process, +the only thing we can do is to continue to press for authority to act, +but in the meantime loyally preserve the restrictions they have put on +us.” + +On its own, Standard Oil received little, if any, information on +synthetic rubber from I. G. The following quotations from Standard Oil +letters and documents are clear: + +“Our people have never made buna ... the I. G. has not furnished anyone +technical information.” + +“The only information our people have is derived from published +patents.” + +“Information ... about the technical aspects of this development +has not been forthcoming as a result of the German Government’s +refusal because of military expediency to permit I. G. to reveal such +information to anyone outside Germany.” + +The ambiguous position in which Standard found itself arises from the +fact that Standard never considered that it was making foreign policy, +or took into account the political implications of its acts. We neither +expect nor require this of our businessmen. After all, they are not +supposed to have such responsibility. Nevertheless, neither Standard +Oil nor the country could escape the consequences of these agreements. +It would seem, in the light of this experience, that the least the +Government can do is to provide a mechanism for acquainting itself with +the existence and terms of such agreements. The Government, on the +other hand, is unable to make proper judgments if it does not have +complete information. + +The Monroe Doctrine and the Good Neighbor policy are both pillars +of our foreign relations. Nevertheless, many cartel agreements ran +directly counter to these policies. The causes of conflict are not +difficult to understand. In a large number of cartel agreements, +world territory is divided into exclusive, non-competitive domains. +In the drug, magnesium, optical glass, dyestuffs, plastics and a host +of fields, the United States was the exclusive territory of American +cartel members. The rest of the world was allocated to Germany. This +included Latin America. As a result, the Germans were able to set up +economic colonies in Latin America and elsewhere free from American +competition. The large members of Nazis in South America were a partial +consequence of the character of these agreements. + +When the Nazis came to power in Germany, they immediately utilized +the cartel system as a device for political, as well as economic, +infiltration in countries outside of Germany, particularly in the +Western Hemisphere. A bold assertion of this policy is set forth in a +communication, written in 1933, from a director of Robert Bosch, A. G., +of Germany, to the president of the United American Bosch Corporation, +which states: + +“With regard to the political situation ... only one thing is very +evident, namely, that all forces of administrative and economic +endeavour such as the different cartels, etc., are to be brought into +one definite line of endeavour coinciding, of course, with the policy +of the ruling [Nazi] party and that individual opinions and utterances +will be submitted to a similar rule.” + +When the present war broke out, Germany, because of the sea blockade, +was unable to supply goods to Latin America. Cartels made full +provision for the contingency of war. The South American market was +preserved for the German firms by cartel members of other countries, +notably the United States. Not only did American cartel members supply +products to the German agents in South America, in many cases they +used German labels. What is most important, they agreed to withdraw at +the end of the war and once again give Germany a free hand in Latin +America. In some cases, realizing that the blacklist might make this +kind of arrangement difficult, dummy firms in South America stood ready +to replace those blacklisted. Many instances of efforts by cartels to +maintain their usual relations, and to preserve the restrictions by +which German dominance in South American markets was achieved, are +available. A characteristic attitude is indicated in the statement made +by the head of the Chemical Marketing Co., an American firm, which had +relations with the Deutsche Gold-und-Silber Scheideanstalt of Germany. +In the early period of the war, this officer of the American company +wrote: + +“We insure thereby that the German trade up to the present with our +South and Central American friends can be held firmly in our hands +and, should export from Germany become impossible--as you yourself can +well visualize--the loss would be much less if for the duration of the +war American chemicals can be delivered, rather than complete loss +of business for many, many years, if we place our clients in such a +position that they can continue to serve their customers.” + +The dyestuffs industry ranks among the most strategic branches of +production. During the first World War, the United States and the +Allies experienced severe and crippling shortages of dyestuffs, +medicines and related products which were controlled by the German +dyestuffs cartel. In the years between the Armistice in 1919 and the +outbreak of the present war in 1939, the United States endeavored to +build up a strong dyestuffs industry because of its peacetime as well +as its wartime importance. The German dye trust, however, succeeded +in re-establishing a substantial and significant degree of control in +this industry through a series of cartel agreements. In addition, I. +G. Farben, through its American subsidiary, General Aniline & Film, +was able to exert direct influence on the dyestuffs market in the +United States. In the many agreements made between American, British +and German dyestuffs producers, the American companies were generally +restricted to the domestic markets. + +Upon the outbreak of war, when the British blockade threatened to +cut off the exports of I. G., it nevertheless attempted to insure +the maintenance of its control over various markets. The boldness of +I. G.’s tactics is indicated in a cable addressed to General Aniline +& Film on September 19, 1939, which released that firm from export +restrictions for the purpose of supplying I. G.’s customers and agents +in the British Empire. This communication stated: + +“In addition to Canada we release you from export restriction in regard +to the following countries: Great Britain, British India, Australia, +New Zealand but only for duration of present state of war and as far +as supplies to following firms are concerned.” [A list of distributing +agents within the British Empire is included.] + +This cable was modified on September 21, 1939, when I. G. communicated +further with General Aniline & Film, stating: “Replace in first +telegram ‘for duration of present state of war’ by ‘until further +notice’ and act accordingly.” Similar arrangements were made regarding +I. G.’s distributing agencies in South America. This effort on I. G.’s +part to circumvent the British blockade is further illustration of the +implications which inhere in such cartel arrangements. + +The same type of practice was no less significant in other parts of +the world. In the winter of 1941, while Congress was debating the +Lend-Lease Act, cartel agreements had already decreed that certain +critical types of products could not be sold to Great Britain. +For example, when Great Britain attempted to place an order for +tetrazene-primed ammunition, a cartel agreement between du Pont and I. +G. Farben forbade their sale, and it was not made. + +In this case the patent attorney for the Remington Arms Company, a +subsidiary of du Pont, wrote a memorandum dated January 23, 1941, +stating: + +“The further sale of Tetrazene Primed Ammunition to the British +Purchasing Commission or to the Government of the Union of South Africa +or to the Government of Canada is most undesirable by reason of our +Tetrazene contract with R. W. S. [Rheinische Westfalische Sprengstoff, +a wholly-owned subsidiary of I. G. Farben]. + +“Article III, Paragraph D of the original contract of November 14, +1929, reads as follows: ‘Remington shall not sell military ammunition +containing any Tetrazene in Germany and in any or all of the countries +in the British Empire.’ + + * * * * * + +“There can be little if any question that pistol and revolver +ammunition sold at this time to his Majesty’s Government in the United +Kingdom is military ammunition ... or that such sale is a sale in a +country of the British Empire within the intent of Article III D of the +contract. + +“We understand that the Process Division have recommended the use of +Tetrazene priming in certain ammunition to be sold to the British +Purchasing Commission. It appears obvious that this should not be done.” + +Similar situations existed in aviation precision equipment, drugs, +and chemicals. Thus, I. G. Farben sought to obtain assurances from du +Pont that information on certain industrial processes would not be +transmitted to the British. On October 4, 1939, I. G. wrote to du Pont, +stating: + +“You advise us that for the duration of the war, you will not pass the +experiences and applications which you receive from one licensee on to +another. We thank you for having quickly taken the necessary steps for +meeting the altered conditions.” + +A significant and clear-cut example of the way in which cartel +agreements enabled the German Government to influence the policies of +American cartel partners of German industry is provided in the case of +aviation instruments. In this instance Siemens-Halske, the great German +electrical equipment producer, wrote to Bendix Aviation Company on +October 25, 1939, as follows: + +“Under our agreement your geographical contract territory includes the +United States, its territories and Canada. A state of war exists at the +present time between Canada and ourselves. + +“Notwithstanding the war we are of course willing to live up to the +agreement as far as possible. However, we would appreciate receiving +your assurance that the records which you will receive from us within +the scope of our agreement will not be given to Canada for the duration +of the war and that you will supply no instruments, built under a +license, if you know that they are destined for our enemies.” + +An official of Bendix answered: + +“As regards the drawings sent over you may rest assured. As regards +fabrication ... we will arrange to the best of our ability to keep +within the orbit of domestic use.” + +One of the most necessary economic measures of war is the seizure of +enemy property. Although we have a policy concerning enemy property, +the Antitrust Division of the Department of Justice has come across +frequent attempts to nullify this policy by private agreement. + +In one case, I. G. Farben transferred over 2,000 patents to the +Standard Oil Company. While there may be some dispute as to the purpose +of the assignment, the fact is clear. The Alien Property Custodian, +even though he has vested this property, found himself in litigation as +to whether the patents were in fact transferred in a bona fide manner. +Taken together with the provision in the Standard Oil-I. G. Farben +contract, this instance presents the result of a carefully-conceived +and well-developed policy of not only considering the war as an +unfortunate interlude, but as a method of defeating public policy. +The clause in question provides that even if the agreement should +be interfered with by the government of the United States or if, in +effect, war should take place between the countries of the respective +parties, then at the conclusion of such interruption the parties shall +come to a new agreement “in the spirit of the old.” + +Another phase of the relationships between Standard Oil and I. G. +Farben with respect to the eventuality of war between the United +States and Germany is indicated in a letter written by the Assistant +Comptroller of Standard Oil to one of the directors of the company, on +September 8, 1939. The body of this letter deals with the Standard-I. +G. Corporation, a joint subsidiary in which Standard Oil owned 80% +and I. G. 20%, which had been formed to carry out the purposes of +the Standard Oil-I. G. agreements. Standard Oil was considering the +purchase of I. G.’s holdings in this subsidiary company. One paragraph +in the letter indicates clearly the objective which Standard Oil +sought. This paragraph states: + +“Of course what we have in mind is protecting this minority interest in +the event of war between ourselves and Germany as it would certainly be +very undesirable to have this 20% interest in Standard-I. G. passed to +an Alien Property Custodian who might sell to an unfriendly interest.” + +Another case shows how devious and complex cartel schemes can be. +Briefly, the Siemens-Halske Company of Germany and the Beryllium +Corporation of America entered into an agreement concerning the +production and distribution of beryllium alloys which had all the usual +characteristics of a cartel, such as the division of world territory, +etc. + +Before this highly interesting agreement was entered into, however, +Siemens-Halske attempted to protect its position by assigning its +patents in this field to the Metal & Thermit Company of New York. +Actually these patents were held by Metal & Thermit in escrow for the +Siemens-Halske Company. For this service, the Metal & Thermit Company +received $10,000. + +Without such a bill as is now contemplated, no Alien Property Custodian +could have known that the above patents were really property of an +enemy national. They would have remained concealed in this instance if +it had not been for the fortuitous action of an investigation by the +Department of Justice. + +The titanium and optical goods cases previously related are other +examples of this practice. + +The development of the magnesium industry in the United States provides +further illustration of the political effects of cartels in addition to +the corrosive effects of monopoly upon industrial expansion. From an +international standpoint the cartelization of the magnesium industry +prior to the outbreak of the present war had equally serious effects. +As a consequence of both monopoly and international cartel arrangements +in the industry, Germany obtained an initial lead in the production of +magnesium while at the same time Germany’s potential opponents were +restricting magnesium output. According to estimates made by the U. S. +Bureau of Mines, Germany produced 61% of the world’s total output of +magnesium in 1937. The United States produced 10%. In 1940 Germany was +still producing one-half of the world’s output while the United States +was producing about 14%. + +The importance of magnesium is indicated by the uses for which it is +employed. In general, its principal consumer is the aircraft industry. +Magnesium is used in the construction of aircraft engines, the frames +of airplanes, various interior parts, wheels, and other similar +portions of aircraft. Magnesium is also employed in the manufacture of +incendiary bombs, tracer bullets, and flares. + +The two principal producers in this country during the years 1919 to +1927 were the Dow Chemical Company and the American Magnesium Company, +a subsidiary of the Aluminum Company of America. In 1927, the American +Magnesium Company ceased production, and the Dow Chemical Company +thereafter enjoyed a monopoly in the production of magnesium in the +United States. The American Magnesium Company by agreement purchased +all of its requirements from Dow and constituted Dow’s largest +customer. In tracing the relationship between Dow, the sole producer of +magnesium, and Alcoa, the sole producer of aluminum, during the period +in question, it is essential to bear in mind that magnesium is the +principal technological rival to aluminum. Nearly all of the functions +for which aluminum is employed can also be fulfilled by magnesium with +greater efficiency, in many instances, because magnesium is not only +one-third lighter than aluminum, but is more readily machined and, when +properly alloyed, has greater tensile strength. + +In the year 1931, I. G. Farbenindustrie, the principal producer of +magnesium in Germany, entered into an agreement with the Aluminum +Company of America known as the Alig Agreement. According to the terms +of this contract, a joint corporation, the Magnesium Development +Company, was formed in which Alcoa and I. G. each held 50% control. +The Magnesium Development Company was primarily a patent-holding +corporation to which I. G. transferred some patents for the fabrication +of magnesium and to which Alcoa contributed process patents. In +addition to participating in the Magnesium Development Company, I. G. +also obtained a 50% interest in Alcoa’s own subsidiary, the American +Magnesium Company. + +The significance of the arrangements between Alcoa and I. G. was +twofold: Alcoa was interested in obtaining a secure foothold in +the magnesium industry in order to protect its primary interest in +aluminum; I. G. was endeavoring by its usual tactics to extend the +sphere of its influence. It is especially significant to note that in +the Alig Agreement it was stipulated that any licenses issued by the +jointly-owned Magnesium Development Company were to be restricted to +the United States. It was also provided that: + +“As long as magnesium is produced by any ... producing company under +a license or licenses granted ... the holders of the I. G. shares in +Alig ... shall have the right to limit the increases in production +capacity of every such producing company after the initial contemplated +production capacity shall have been reached. The initial contemplated +production capacity shall in no case be more than 4,000 tons per annum.” + +Dow Chemical Company was not a party to the 1931 agreement between +Alcoa and I. G. During the period immediately following the Alig +Agreement, every effort was made to bring Dow into the cartel +picture, with the consequence that, on January 1, 1934, Dow entered +into a patent-holding agreement with Magnesium Development Company. +In 1933 also Dow and American Magnesium Company had entered into a +five-year purchase contract by which the American Magnesium Company was +guaranteed a position as a preferred customer of Dow. In return, Dow’s +position as the sole producer of magnesium was protected. + +In 1934 also Dow entered into a sales contract with I. G. Farben. This +contract stated: + +“Dow agrees to confine its sales in Europe solely to the I. G., with +the exception that it reserves the right to sell the British Maxium or +its successors not more than 300,000 pounds (150 tons) per annum at a +price not lower than the price quoted to I. G. for the same quantities, +plus an extra charge of not less than 4¢ per pound for I. G.’s larger +consumption. Dow further promises to use its best endeavor to keep +British Maxium or its successors from reselling magnesium in ingot form +and will try to limit its purchases to its own use in fabricating.” + +During 1934 and 1935 Dow delivered to I. G. (which was, of course, +the principal producer of magnesium in the world) more than 3,800,000 +pounds of magnesium out of Dow’s total production of little more +than 4,000,000 pounds. This magnesium was sold to I. G. at a price +approximately 30% below the price to Dow’s other customers, with the +exception of American Magnesium Corporation, which also enjoyed a +preferential position. It is interesting to note that, during this same +period, the sales manager of Dow Chemical travelled to England and +wrote to his home office as follows: + +“They [British Maxium] are very much in need of additional magnesium +for the balance of 1935, but they understand our position perfectly +well and do not blame us at all because we are not in a position to +furnish them the metal they want. They were at fault in not getting in +touch with us sooner regarding their increased demands. They advised me +that they had exported 20 tons of ingot to Europe but I later obtained +definite proof from Mr. Ziegler of the I. G. that they had exported 60 +tons in Europe. If they had kept this metal in England they would have +had sufficient supplies for this year.” + +It may be remarked that, in consequence of these arrangements between +Dow and I. G., I. G.’s position in the European magnesium market was +enormously strengthened. One particularly significant result of I. +G.’s dominance was that Great Britain was rendered primarily dependent +upon Germany for its magnesium imports. As late as 1938, 87.9% of the +magnesium imported into Great Britain was obtained from Germany. When +war broke out, Great Britain was at once cut off from a large part of +its magnesium supply. + +From the standpoint of the development of the industry in the United +States, it is clear that the total effect of the arrangements among +Alcoa, I. G., and Dow was to restrict magnesium production. The extent +of the disparity in the magnesium output of Germany and the United +States is clearly evident in the production figures for the years 1937 +to 1940. In 1940, the year in which France fell, the United States +produced 5,680 tons, while Germany produced more than 19,000 tons. +Strenuous efforts on the part of the government and industry have been +necessary to expand magnesium production sufficiently to meet our +minimum wartime needs. The large plant construction undertaken by the +government in cooperation with various magnesium producers has achieved +initial success. It is clearly evident, however, that the magnesium +program had to be inaugurated and carried out under the tremendous +handicap of the monopoly situation which existed in the industry prior +to the war. + +It is equally clear that, from a political standpoint, the government +began its operations completely in the dark. It is scarcely credible +that, had the arrangements between Alcoa and I. G. and between Dow and +I. G. been known to the government at the time at which they were made, +the risks inherent in the private treating making of this type would +have been permitted to stand. + +It is characteristic of many cartel agreements which are arrived at +secretly and maintained in silence that concealment of their provisions +is motivated by the desire to avoid scrutiny of their operations by +public authority. In some instances, the illegal nature of the terms +of cartel agreements explains the cloak of secrecy which is cast over +their provisions. Moreover, it is often stipulated in cartel agreements +that, in any eventuality of action taken by government, the parties to +the agreements shall cooperate in order to maintain their relationships +despite anything that government may do. + +There are numerous examples among the many agreements which have been +investigated by the Department of Justice which clearly reveal the +intent as well as the necessity for secrecy from the point of view of +the cartels. Thus, in a letter from Canadian Industries, Limited, to +the du Pont Company, the writer states: + +“In the course of recent meetings in connection with the new Patents +and Processes Agreement, I understand a suggestion has been made by +the du Pont legal representatives which will involve the new agreement +making specific reference to the respective territorial rights of +du Pont and ICI. I cannot help feeling that on broad grounds this +is undesirable both from the viewpoint of C-I-L and of the major +stockholders. For instance, should any investigation take place in +Canada which will require the production of this agreement, the clause +in question would automatically necessitate the production in its +term of the ICI and du Pont agreements: at least that is the way we +would read it, and this would be bound to lead to publicity of a very +undesirable nature in regard to the division of world territories. My +practical suggestion is that, as the detailed prior commitments are now +to be dealt with in the form of a letter separate from the agreement +(this at the suggestion of the du Pont legal representatives) it might +be possible to include the point in question in that separate letter +also.” + +The attitude of cartels toward the relation between their own policies +and the policies of government are epitomized in the exchange of +correspondence between Sir Harry McGowan, Chairman of the Board of +Imperial Chemical Industries, and Lammot du Pont in May 1933. Sir Harry +wrote: + +“With a large organization such as we have I find it is a good thing +to issue such warnings from time to time--one went out at the time of +the Ottawa Conference--so that everything possible is done to ensure +that no prospective political or legislative action on the part of +governments is permitted to influence relations between du Pont and +I.C.I.” + +On June 17, 1933, Lammot du Pont replied as follows: + +“I am much interested in what you say and have heartily approved your +attitude toward our Patents and Processes Agreement and the relations +between the two companies. I feel the same; namely that our relations +have been so happy and have produced such satisfactory results that we +should let nothing in the way of international agreements interfere in +any way with the progress we have made or may make in the future. If +any legislation or international agreements are brought about which +affect these I.C.I.-du Pont relations I am sure we will be able to +adjust ourselves so as to get the continued benefit of our agreement.” + +A striking and instructive illustration of the role of secrecy +in cartel agreements is provided in the terms of an arrangement +concerning the pharmaceutical industry, between the Schering +Corporation of Bloomfield, New Jersey, and the Schering, A. G., of +Germany. One clause in this agreement, which was made in 1938, stated +that “the existence, the content, and the details of operation of this +agreement have to be kept secret by both parties notwithstanding the +possible obligation of disclosing it to public officials.” + +In connection with an agreement concerning the plastics industry, the +consideration taken into account by the Rohm & Haas Company and du Pont +are indicated in a memorandum written by the latter company in 1936, in +which it is stated: + +“We discussed the whole situation again. They repeated over and over +again that there is not the slightest possibility of the I.C.I.’s +coming into the American market, but du Ponts are afraid to write a +letter to this effect because in the case of an investigation of their +firm by politicians, the politicians might make capital of such a +statement, i.e., they might attempt to point out that the world was +divided up between I.C.I. and du Ponts. + +“I told Mr. Wardenburg that I had implicit faith in all the assurances +which they had made to me, but that for my own protection I had to +have a letter from du Ponts, in which they can assure us, in one way +or another, that the I.C.I. will not take the opportunity to come +into this market. After a lengthy discussion of the different ways to +accomplish this purpose, it was agreed that Mr. Wardenburg will write +a letter saying that while it is true that the I.C.I. under their +contract have a right to come into the American market, they [du Ponts] +happen to know that the I.C.I.’s development in the methacrylic ester +field has taken a direction which is quite different from the one that +is being taken by du Ponts and ourselves, so that it will be highly +improbable that the I.C.I. will attempt to come into the U. S. market. +I told him that such a letter will be satisfactory.” + +It is clear that cartel interests fear that the revelation of the +provisions of their agreements might impede the functioning of the +agreements or perhaps draw down upon them action by public authority. +Very often cartel agreements endeavor to discount this possibility in +advance. In the case of the agreements between Standard Oil and I. G. +Farbenindustrie it is provided that: + +“It is our understanding ... that each party proposes to hold itself +willing to take care of any future eventualities in a spirit of +mutual helpfulness particularly along the following lines: In the +event the performance of these agreements ... by either party should +be hereafter restrained or prevented by operation of any existing or +future law, or the beneficial interests of either party be alienated +to substantial degree by operation of law or governmental authority, +both parties should enter into new negotiations in the spirit of the +present agreements and endeavor to adapt their relations to the changed +conditions which have arisen.” + +Because most cartel agreements provide for their resumption at the +end of the present war, efforts to rehabilitate world trade may be +insuperably handicapped unless prompt and effective action is taken by +the government with full knowledge of the existence and character of +such cartel agreements. Regardless of the particular form or direction +of this nation’s trade policies after the war they could not become +effective if secret agreements among the large industrial groups of the +world contain arrangements which clash with the government’s program. + +It is well to recall that the provisions of the Versailles Treaty at +the end of the first World War which prohibited the manufacture of +certain strategic products in Germany were rendered ineffective in many +instances. Through foreign subsidiaries and under the cloak of cartel +agreements with concerns in the United States and other countries, +German producers of military equipment were able to nullify the +application of the conditions imposed by the Treaty. + +Public authority must not be left in the position of having to work +in ignorance. Only by compelling the official acknowledgement and +registration of the existence and provisions of agreements which affect +our foreign and domestic commerce can government acquaint itself with +the arrangements which have been made and which affect so vitally +national security and national welfare. + +During the present war one of the most serious problems with which +the fighting services have had to contend on the battle fronts is +the frequency of malaria, one of the most widespread diseases in the +world. There are two standard remedies for malaria: one is quinine, a +natural product obtained from the cinchona trees of Java; the other +is atabrine, a synthetic coal-tar product. Because the production and +distribution of quinine were controlled by one of the most closely-knit +cartels in existence, a shortage developed almost immediately when the +Japanese seized Java. The dwindling stockpile of quinine in the United +States compelled the government to call upon druggists and housewives +alike to turn over whatever small quantities were on hand in order to +keep the fighting front supplied. + +In the case of atabrine, only one company in the United States had +a license to manufacture the drug under the I. G. Farben patents. +It required the concerted effort of manufacturers and government to +institute expanded production in order to make up for the deficiencies +of quinine. Fortunately, these efforts have met with some success. +With regard to the future, however, it must be borne in mind that +cartels which are able to control and restrict the output of medical +products, in particular those which are so widely needed, as quinine +and atabrine, exert a direct influence on the military position of the +United States and other countries, as well as upon the general health +of the population. The opportunities for abuse which are present in +monopolistic control of medical products are obvious. It is equally +obvious that this government cannot afford to tolerate them. It would +seem a minimum precaution to require that where cartels control the +supply, the price, and the distribution of medical products, they +should be compelled to record the terms on which control is based, in +order that government might in its turn develop adequate safeguards for +the general welfare. + +I believe it has been clearly demonstrated that certain fundamental +decisions affecting our relations with the rest of the world have +been formulated and put into effect by private groups without the +sanction or knowledge of government. These decisions concerning +our strategic materials, industries and trade, our Good Neighbor +and our European policies, our disposition of enemy property, +considerations of espionage, secrecy and the evasion of our laws, have +all been accomplished without the knowledge of our government or its +acquiescence. + +If cartels are permitted to continue to enter into their secret +agreements, then it will be impossible for the peoples of the world +to develop mutual understanding or to share industrial experience and +progress. Cartels have been a focus of conspiracy and distrust among +nations in the past. It is not too much to say that they will form a +nucleus of future distrust and intrigue. A world partitioned by cartels +breeds economic friction and disunity. We must face the fact that a +cartelized postwar world would inevitably be a world of suspicion and +of clandestine international intrigue. Full reciprocity in respect of +trade and technology can only be founded on mutual confidence and good +faith. + +There is current a school of thought which believes we must +differentiate between good cartels and bad cartels. Do these people +still propose to leave the conduct of our foreign economic policy +in the hands of private monopolists, with the one caveat that these +people be good monopolists and not bad monopolists? With all the best +intentions in the world, it is neither the role nor the responsibility +of businessmen to determine political questions which can only be +resolved by constituted government. This is a responsibility which +I believe businessmen should not undertake, and one which I believe +that they do not wish to undertake. Even those businessmen who have +engaged in these practices would be shocked to realize the implications +of their acts. At the time they were operating in this manner they +never thought in political terms, but rather in terms of the local +market. Once operating in the international market, however, these +businessmen found themselves in ambiguous positions where they were +forced to make choices which they never contemplated. What would they +do when confronted with the problem of choosing between national policy +as it should be and their own private interests? It would seem, from +the standpoint of public interest, that when questions of national +concern arise they should be handled by properly constituted government +authority. + +American businessmen have not realized the significance of the +relationship between their foreign cartel partners and the foreign +governments involved. I doubt that they knew, for example, that the +following statement was made by Mr. Meinhardt of Osram, a member of the +international lamp cartel: “An international cartel has no right of +existence and a German businessman has no right to become a member of +such a cartel if this cartel is acting against the common interests of +Germany.” + +The attitude of American businessmen is typified in the following +statement by an executive of the General Motors Company: “an +international business operating throughout the world, should conduct +its operations in strictly business terms, without regard to the +political beliefs of its management, or the political beliefs of the +country in which it is operating.” + +All American businessmen and the Congress particularly should weigh +with care the type of thinking which results from a cartelized economy +such as Germany’s. Carl Duisberg, formerly chairman of the board of I. +G. Farbenindustrie, expressed succinctly the philosophy of Germany’s +cartel system when he said, in 1932: “The narrowness of the national +economic territory must be overcome by trans-national economic +territories.... For a final settlement of the problem of Europe ... a +close economic combine must be formed from Bordeaux to Odessa as the +backbone of Europe.” The ultimate consequences of such cartel aims have +been reckoned across the council tables of Munich and the battlefields +of Europe and Asia. + + + + + 14 + + _Freedom or Control?_ + + +All of us want our country to be strong and prosperous after this war +is won. In attaining strength and prosperity, foreign trade will play +an important part. Manufactured goods will leave the shores of this +country and will find their way through the miracle of new forms of +transportation, as well as on the tramp steamer, to the four corners of +the world. Raw materials, and finished products as well, will come from +these same four corners into the hands of the American consumer. The +foreign trade of this country will be measured in billions of dollars. +And our nation will take its place and play its part in what we believe +can be a healthy world economy. + +I do not think that there is any basic difference of opinion in this +country as to the importance of our foreign trade. There appears to +be some difference of views, however, as to how our foreign trade +shall be conducted in the post-war world. It is argued that since +Europe has a cartel system, if we wish to carry on trade on commerce +with Europe or in the world, we must permit our foreign businesses +to become cartelized. We are told, in short, that we must join hands +with the cartels if we are to engage in foreign trade. Most of the +people who make this argument do so regretfully. They know that the +Sherman Antitrust Act, which prohibits restraints on both domestic and +foreign trade or commerce, has reflected the free enterprise spirit of +this country for more than fifty years. They know that the people of +this country are unalterably opposed to a cartel system under which +either the government or one’s competitors can determine what may be +manufactured, how much can be made, and what price may be charged. They +know that you cannot have a democratic system if enterprise is to be +subjected either to government bureaucracy or to the rule of private +trade councils. Nevertheless, these people, seeing a cartelized world +around us, believe that much as we may dislike it, we cannot conduct +foreign trade unless we join hands with the cartels. + +There is a small minority in this country, of course, which has always +opposed our own free enterprise system. If these people could manage +it, they would have the economy of this country run by enlightened +and benevolent monopolists. These people make the argument, not at +all regretfully, that we must join hands with foreign cartels. They +know that once we have joined hands with foreign cartels, we will have +opened the door to monopoly at home, and that is what they want. + +Let me venture a prediction. This country will engage in foreign trade +and commerce on a scale never before imagined, and we are not going to +join hands with any foreign cartels. There will be a drive to get us +into the foreign cartels; that drive in fact is now going on. It will +fail. It will fail for two good reasons. The first of these is that +our foreign trade would not be helped in the least if we joined with +the cartels. The second and even more important reason is that this +country is in no mood to give up an American way of life because Europe +believes in cartels. + +We have been willing to subject ourselves to all kinds of governmental +controls over American business in order to win this war. When the war +is over, these controls must go, and as soon as possible. We are not +going to keep these controls either in the hands of the government or +in the hands of a few private individuals. We are not going to imitate +the very foreign economic system which we have defeated. + +The monopolist tells us that European industry is cartelized and +that it will remain so after this war is over. What kind of wishful +thinking makes the monopolist so sure of that? I do not believe that +the French or the Belgians will wish to embrace an economic system +after this war is over which took their basic industries and put them +into the hands of an international set of cartelists dominated by the +Germans. I do not believe that the British will wish to encourage a +system which in March 1939 gave birth to the announcement between the +Federation of British Industries and the German Reichsgruppe Industrie +that the two groups would eliminate competition between British and +German industries, would fix prices, and would seek the aid of their +governments against the industry of any third country, clearly meaning +the United States, which did not join in this limitation of production +plan. Great Britain needed its own full production in those days, and +American production as well. I do not believe, for that matter, that +the British will wish to have an economic system which has made the +British consumer pay high prices and has restricted production in both +Great Britain and the Dominions. + +It is clear, of course, that in each country of the world, there are a +few monopolists who will benefit from the cartel system. We have them +in our country also. But we are not going to let these few determine +our own economic life, and we should not let them control our attitude +or actions in Europe. Certainly it is too early to predict that Europe +will remain cartelized after this war. I think it is not unlikely that +the consumers of Europe will decide they have had enough of that system +and will demand a change. + +But no matter what Europe does, our foreign trade will not be helped +in the least by our joining foreign cartels. The very reverse is true. +The way to kill American foreign trade is to have American producers +enter into international cartels. One reason for the current drive to +get American firms into foreign cartels is precisely that. There are +a few monopolists who do not look with favor upon sales by American +firms in the rest of the world. They are terrified that our mass +production methods may benefit consumers in the rest of the world. They +will not be able to maintain their own prices if this should occur. +Their invitation for us to join them in cartel agreements is not an +invitation to engage in trade or commerce; it is an invitation to +discover upon what terms and conditions we will keep our trade at home. + +The record is very clear. A small number of powerful American firms +entered into illegal cartel agreements before the war, particularly in +the halcyon days of the twenties. These were agreements to restrict +American exports. Typically, the American firms agreed not only not +to export themselves but wherever possible to keep other American +firms from exporting. These agreements occurred in synthetic nitrogen, +aluminum, magnesium, optical glass, electric lamps, pharmaceuticals, +plastics, chemicals and a host of other items. It is quixotic to think +of these agreements as having promoted foreign trade; their whole +purpose was to prevent it. Where was our foreign trade when these firms +agreed to turn over the Latin American market in pharmaceuticals to the +Germans? What foreign trade was being promoted when we agreed not to +export to Great Britain more than a limited quantity of magnesium? The +underlying philosophy of these agreements was that if the foreign firms +would stay out of the American market, we would stay out of the foreign +market. + +There is no mystery about this. The monopolists know it very well +as do the other American companies, large and small, who were not +permitted to export because if they did so, they would interfere with +the arrangements to keep trade and commerce from flowing in either +direction across the borders of this country. The reasoning is clearly +set forth by an official of an American company in explaining why his +company cannot export: + +“... you spoke of a possible license from the G.E. to export lamps to +certain countries. I don’t know whether I explained the situation to +you, but the fact is that in the world at large, the more important +electrical interests, such as the G.E., Siemens of Germany, Phillips +of Holland, etc., are closely bound together in a cartel with the +result that they have entered into binding agreements, apportioning +world markets between the respective companies. Accordingly you can see +that if the G.E. broke their agreement and allowed us to export into +a foreign country which was assigned under the cartel agreement to a +European manufacturer, that European manufacturer would have a claim to +enter the American market in competition with us and probably could not +be restrained from doing so. This is something which would probably not +be to our advantage.” + +One might as well urge that a railway wreck promotes transportation as +to urge that a cartel agreement promotes trade. + +The cartelist lives in a land of make-believe. I do not suppose that +we can object to anyone having his own private fairy tale, but this +kind of fairy tale can be dangerous to the future peace and security of +this country. It is a self-perpetuating fairy tale. It is founded on +economic maladjustments and it tends to prolong these maladjustments +by collecting a hidden tax from consumers and by donating the proceeds +to monopolists who have no incentive to change their ways. The +consequences can be disastrous in both the military and the political +sphere. As for our own economic life, international cartels breed +domestic monopolies. Their final result is complete government control +and management of business. + +The cartelist appears to believe that the way to engage in foreign +trade is to have a conference--a kind of Alice in Wonderland mad +tea party. At this conference the world is divided up; markets are +allocated; and, if he is fortunate, an American enterpriser will be +given some business. At the end of the conference he can telephone his +office and say “Men, we have been given the Shangri-La market; it’s +all ours.” Sometimes the cartelist sounds as though he were too lazy +to attend the conference himself. He wants his Government to go for +him. He wants the Government to tell him what to do, what markets he +can have, and what he can sell. One gets the impression that foreign +trade is conducted in an armchair, that it is better if you can get the +Government to do it for you, and that it does not make much difference +what you have to sell. + +This kind of thinking is dangerous. It is a denial of the principle +of private property with the profit reward for private initiative and +risk taking. Foreign trade presents special problems, but it is none +the less true in foreign as well as in domestic trade that if you +want to sell you have to make a product the consumer wants to buy. In +the development of the foreign market there is no panacea, no easy +substitute for ingenuity and efficiency. We cannot expect the foreign +consumer to adjust his desires to whatever it is we want to sell. +We have to make the kind of a product he wants to buy. The truth of +the matter is that many of the large concerns that have made cartel +agreements have not been particularly anxious to sell in the foreign +market. They have been more anxious to keep independent enterprise in +this country from gaining access to foreign markets than they were +to sell themselves. As a consequence we must frankly admit that in +many industries, American enterprise has not shown the competitive +alertness it has at home. If it does not show competitive alertness, +it does not deserve the business. And you cannot find a substitute for +competitive alertness in an armchair cartel conference or even in an +intergovernmental cartel conference. + +The cartel conference is a kind of legislature, imposing hidden taxes +on consumers and bestowing bounties on others, without the necessity +for disclosure or responsibility to any electorate. It is truly a +method of imposing taxation without representation. This is true +in every cartel case. Some time ago it was fashionable to scoff at +international relief or development projects as being international +WPAs. Americans were asked rhetorically whether they wished to take +care of inhabitants on some other portion of the globe. But no relief +scheme has ever been imagined, and no one would dare to present it, +which could begin to compare with the international relief societies +maintained for themselves by the international cartels. Gigantic sums +are drained from the American consumer each year and given outright to +domestic monopolists and to foreign companies operating in protected +markets. When it is urged that American companies should be allowed to +join with foreign cartels in order to promote foreign trade, it should +be remembered that what is there called foreign trade is in reality a +gigantic relief enterprise supported by the American consumer. I can +illustrate this with an example taken from one of our earliest cartel +cases. + +The story begins prior to the First World War with the discovery +and development in Germany of a way of making synthetic nitrate of +soda by taking nitrogen out of the air. Prior to that discovery, the +world was dependent upon Chile for its nitrate of soda for use in both +fertilizer and the making of munitions. The discovery of this new way +of making nitrate of soda changed the history of the world for it made +it possible for the Germans to wage war without depending upon a raw +material to be found only in the Western Hemisphere. It is probable +that if synthetic nitrogen had not been discovered, the Germans could +not have been able to go to war. + +The Allies at that time were dependent upon Chilean nitrate of soda, +and as a military matter, this dependence made the Allied position in +the first years of the war exceedingly precarious. The Germans knew +that Great Britain could not stay in the war for any considerable +length of time if it were cut off from its only source of nitrogen, +and accordingly in 1917, the Germans set up a blockade outside of +Valparaiso. The first attempt of the British to break this blockade was +unsuccessful, but the blockade was finally removed as a result of the +battle of the Falkland Islands when Admiral Von Spee was defeated. As +an economic matter, this dependence of the Allies upon Chilean nitrate +of soda was, of course, good for Chile. The United States in 1917 and +1918 purchased almost four million tons of nitrate from Chile; we paid +on the average of about $82.50 per ton. At one time, the price rose to +$150.00 per ton. In those days, Chile had a unique product, a natural +monopoly, and we had to pay for it. The First World War gave to Chile +the chance to receive large revenues on a valuable asset, but the First +World War also created a situation where in the days to come that asset +would depreciate enormously. + +The asset of Chilean nitrate of soda was depreciated enormously because +all of the important countries of the world, including our own, began +to produce synthetic nitrate of soda. Chile no longer had a natural +monopoly safe from effective competition. The producers of synthetic +nitrate of soda began to compete with each other and with the Chileans. +In order to remove this competition they formed a cartel. + +The cartel was formed in 1926 and by 1938 it had reached its full +growth. The cartel was dominated in Europe by the so-called DEN group, +composed of Imperial Chemical Industries, Ltd. for the British, +Stickstoff-Syndikat, controlled by I. G. Farbenindustrie for the +Germans, and Norsk Hydro for the Norwegians. The European end of +the cartel formed an international company in Switzerland to handle +the cartel affairs, and thus to represent the thirty-five principal +European producers. By special agreements the cartel was extended +to cover the Chilean producers of natural nitrate, and I am sorry +to say, the important American producers as well. The cartel was an +international combination to restrict production, maintain prices and +to allocate territories. The world was divided up into special zones of +influence; quotas were assigned, and sales in forbidden areas or above +the allowed quota resulted in the assessment of penalties. Mexico, for +instance, was allocated to the German producers. The American producers +were required to refrain from exporting to certain areas. The Barrett +Company could not sell substantial quantities of nitrate of soda into +foreign markets reserved for the Chilean producers. Du Pont was kept +from selling a nitrogenous product in the Philippine Islands. This +was not an international trade agreement; as is true with all cartel +agreements, this was an agreement to restrict trade. + +The cartel agreements covered the American market. Imports by a foreign +company to this country had to be included in determining whether +that company had exceeded its quota of the world market. American +companies were restricted in their exports and to some extent in their +production. And sales in the American market, whether for Chilean, +European or American producers were at agreed upon prices. An elaborate +system of distribution was worked out and adhered to so that these +agreed upon prices could be maintained down through the wholesalers and +retailers. The cartel thus reached down and touched the American farmer +buying in the country store. + +Now nitrate of soda is important to the American farmer as are the +other fertilizer nitrogen products which were covered by this cartel. +In 1937, approximately 700,000 tons of nitrate of soda were imported +from Chile for distribution to the American farmer. If there is a +cartel in fertilizer nitrogen, it is the American farmer who pays. And +he has paid in millions of dollars--a hidden tax to the foreign and +domestic producers. + +Production was restricted and prices were fixed by this cartel. Some of +the higher prices went to Chile; some of them went to our own producers +and abroad. The consumer, who in this country happened to be the +American farmer, paid a tax in the form of higher prices to keep this +cartel going. He did not know he was paying this tax. He did not have +the opportunity to elect a representative who might have been for or +against this tax. And yet, out of every dollar the farmer paid, a part +of it was an involuntary offering to the cartel. + +And what was the good from all of this? A hidden tax was collected; +purchasing power was destroyed. And all of this was done so that +productive capacity could go unused. Out of the hidden tax paid by the +American farmer, only a part of it went to the Chilean companies; a +good deal of it went to American and European producers. + +Whenever the argument is made that a cartel supports a distress +industry, the complete answer is that it would be cheaper and better +to make an outright gift, raised, if necessary, by lawful general +taxation through the Congress. It would be cheaper because consumers +would not be required to pay an additional amount to those who are not +distressed as they have to do when the cartel keeps the general price +up. It would be better because if it were a gift, it would not be +raised from only one group of consumers, as in this case, the farmers. +It would be better because the contributors to the gift fund would +have some chance to know what they were doing and to decide whether +they wanted to do it. Nor would the gift be as likely to disappear +under the burden of an inefficient method of production as is the case +with the hidden tax which is collected every year and which imposes no +incentive upon the monopolist to change his ways. You cannot expect +the monopolist to change his ways when he can collect a hidden tax +every year. No doubt after this war, it will be argued that synthetic +nitrogen capacity should go unused by agreement between the large +companies. We should remember that if this is done, as with all cartel +agreements, there is a hidden and unlawful tax; in this case it would +be the American farmers who would pay. + +I do not revive this synthetic nitrogen story in order to make charges, +but merely as a specific illustration of the way cartels operate. The +actual cases are the best answers to the argument that cartels promote +trade. The synthetic nitrogen cartel was typical in many ways. The +particular occasion for the birth of this cartel was the development of +a synthetic process which threatened to destroy the capital value of a +natural product. After this war, there will be many new processes whose +existence will destroy old capital values and which can be looked upon +either as keys to open the doors of new opportunities or as occasions +for restrictive agreements. The synthetic nitrogen cartel brought +together producers fearful of each other’s productive capacity. As +is true in almost every important cartel, the restrictive agreements +might have had important military consequences, even though many of the +private producers were only thinking in terms of a peace-time market. +And finally, this foreign cartel, as is so frequently the case, bred a +domestic cartel. + +The effect is far-reaching both politically and economically. You +can never deal with just one cartel separate from the others because +the cartel world is an intricate and interrelated maze. Thus the +foreign participants in the nitrogen cartel include the German I. G. +Farbenindustrie and the British Imperial Chemical Industries--each a +member of a variety of world dividing cartels. The American producers, +whether they knew it or not, were entering into an international game +to divide markets in which every market and every type of product was +involved if the full scope of the cartel agreements of their partners +were revealed. They were dealing in secret international diplomacy. + +In many cases they were in reality dealing with foreign governments, +despite the fact that it has not been the policy of this country to +have the conduct of our foreign affairs in private hands. Since 1799 +an Act of Congress has prohibited every citizen of the United States, +without the permission of the Government, from carrying on any written +or verbal correspondence or intercourse with any foreign government +with an intent to influence the measures or conduct of any foreign +government in relation to any disputes or controversies with the United +States. Quite apart from whether this criminal statute is applicable, +its spirit would deny to any citizen the right to barter away the trade +of the United States by agreement with a foreign government. + +One need only think of the possible disastrous effects of permitting +Germany to build up a monopoly position in Latin America. The economic +effects grow like a snow-ball. Thus in the instance of the synthetic +nitrogen cartel, the American consumer lost purchasing power; that +meant that American producers could sell less and could therefore buy +less. The Chileans received only a portion of the amount of money +taken out of purchasing power, but the related cartels operate in +Chile, such as the chemical cartel of which both Imperial Chemical +Industries and du Pont’s are members. And these cartels do the same +thing to Chile that the synthetic nitrogen cartel did to us. Economic +life is so related today that you cannot restrict one part and not have +almost endless repercussions. For instance, if American movies should +be kept out of foreign areas, the effect is immediate on all kinds of +American products which are advertised continually through the medium +of the motion picture. If the motion picture producers enter into a +cartel agreement, they are restricting a good deal of American trade in +addition to their own. + +What then is the solution? There is no solution if the problem is how +can you have American firms enter into foreign cartel agreements but +not restrict American trade and commerce. It is surely no solution to +say that in the future we will have the governments enter into cartel +agreements for us. As an economic matter, it makes no difference +whether an agreement to restrict trade is private or governmental. As +a political matter, I would agree that if we are going to have such +agreements, with their widespread economic diseases, they had better be +the responsibility of the government, if only because, the government +which makes such agreements can be changed by the voters. But I would +suggest that effective governmental control over such agreements would +require such a degree of interferences and surveillance over private +industry as to place in great jeopardy our own free enterprise-private +property system. The history of attempts to control cartels by +legalizing and controlling them is not particularly inspiring. Germany +is one example. + +There is not any one solution because there is not just one problem. +There are many things which must and can be done if this country is to +encourage foreign trade. + +_First_, we must encourage domestic research. Any country which wishes +to engage in trade and commerce in the future industrial era must +develop its own laboratories and encourage its own domestic research. +It has sometimes been suggested that the reason why some of our larger +American companies entered into agreements to stay out of important +markets such as Latin America was because such was the price they had +to pay to get the benefits of European research. It has sometimes even +been suggested that we have been dependent upon European research +acquired in this manner for many of the important developments which +have helped us in this war. + +There will probably always be a certain amount of obscurity about +this claim that we are dependent upon European research. The files +of some of the Antitrust Division cases, however, indicate that even +though German firms may have been bound under their agreements to make +their research available to their American friends, in many important +instances they did not do so. In any event, I think we would agree that +it is of the utmost importance that American firms be able to stand on +their own feet, and that they should not be dependent upon research +from abroad. It has been quite natural, of course, for European +research to be in advance of our own in some fields. But failure to +develop our own laboratories and our own scientists would be criminal +negligence. + +I suggest that we ought to have an impartial and searching survey +begun as soon as possible as to American research facilities and the +state of American research. This is not a matter which concerns only +our foreign trade. It goes to the very heart of our future domestic +well-being. + +Of course, I do not mean to suggest that we should cut ourselves off +from European research. There is every reason to believe that research +in the future will be truly international in the sense that a partial +discovery in England will be supplemented by work done in France +or in this country. Possibly some inter-governmental agency can be +developed which will act as a kind of international clearing house +in order to speed the development of common research carried on in +separate areas. It is likely that private institutions in this country +and the government itself, as suggested by Senator Kilgore, could aid +in the performing of this function. If a study were made of our own +domestic research facilities, I would expect that out of that study a +recommendation might well come to set up some kind of an international +clearing house for research. + +There is a further step we can take. The research which has been +developed in Germany during the last ten years under the Nazi regime is +research which in right belongs to the people of the United Nations. It +was Nazi government sponsored research used for the purpose of making +war upon us. It is research which should now be put to use for the +general good of mankind. It should not be considered as belonging to +private hands either in Germany or elsewhere. The United Nations should +make sure that steps are taken to make available this research so that +it can be used generally. + +_Second_, we must remove, through inter-governmental action, the waste +and misuse of resources which occur when industries cannot compete and +are artificially maintained. It will be much cheaper for this country +to offer transitional credit to be used to develop new industries than +to continue paying hidden taxes which don’t accomplish anything. We +should set up an international mechanism whereby substantial credit +can be made available to other countries upon such terms as will +encourage the readjustment of the use of their resources so that these +resources can be employed, without the crutch of a trade barrier, in +the free trade of the world. Consistent with this aim, we can urge +also the adoption of minimum wage and health standards so that labor +exploitation does not become the means of providing a hidden subsidy +for industry in countries having substandard labor conditions. + +_Third_, it is, of course, imperative that this country make known its +determination to encourage foreign trade and to make it possible for +American firms, large and small, to bring their goods to the consumers +who will buy. Through vigorous antitrust action, we can break up the +activities of a great number of foreign cartels. And American firms +are perfectly capable of engaging in vigorous competition with the +old monopolistic companies of Europe. Where American industry is +competitive at home, such as the automobile industry, there is no +way a foreign company effectively can keep out American goods, and +foreign consumers would be the first to object if that were tried. It +is the industries which are monopolistically dominated at home which +seem to have the greatest difficulty. I suspect, however, that in +those industries there are smaller firms who will be glad to have the +opportunity of selling abroad. + +_Fourth_, we should stand ready to help create an international +forum to which countries denied access to raw materials or allowed +to purchase them only on the basis of monopolistic prices can go to +present their case. This does not mean that we should take part in +any international control of business, but it does mean that for +those few areas where monopolies continue to persist, we must create +a world where there is a remedy within the structure of the peace. +Many of these raw materials no longer have their former importance. +Poetic justice may come to rubber, quinine and eventually to diamonds. +Persistence in monopoly prices usually stimulates the development +of a substitute. The international forum which I urge will probably +not have to hear too many cases. The power of competition has grown +more powerful during the war because of the development of myriads of +substitutes for the key raw materials. + +The opportunities are tremendous. The tools needed for the job are the +productive facilities and materials which we will have in abundance. +We can play our part with energy and initiative; we would not have it +otherwise. We believe in competition, and we are ready to compete. We +are ready to engage wholeheartedly in rebuilding a world of peace in +which every man and every country can have a stake. We know that we +cannot maintain, let alone advance our standard of living save upon the +basis of an active and expanding international trade. Our expanding +trade will enlarge the area of the interests which we have in common +with other peoples, and for us, as well as for them, will narrow the +intensity of our differences. And we will have played our part in +foreign trade in such a way as to preserve the symbol of our political +and economic democracy. + + + + + APPENDIX I + + _Recent Cases_ + + +The most effective weapon presently available for combatting the +influence of monopoly and cartel-minded international groups is +vigorous enforcement of the antitrust laws. Congress has recognized +that the natural effect of competition is to increase commerce--to +extinguish or prevent the free play of competition is to hinder +commerce. As was stated by Mr. Chief Justice Stone in the _Trenton +Potteries_ case: + +“Whatever difference of opinion there may be among economists as to the +social and economic desirability of an unrestrained competitive system, +it cannot be doubted that the Sherman Law and the judicial decisions +interpreting it are based upon the assumption that the public interest +is best protected from the evils of monopoly and price control by the +maintenance of competition.” + +By passage of the antitrust laws, Congress has expressed the American +policy of free competition not only in interstate trade and commerce +but also in our foreign trade and commerce. The provisions of Section +73 of the Wilson Tariff Act further exemplify this doctrine with +specific reference to imports to this country. Section 11 of the Panama +Canal Act prohibits passage through the Panama Canal of ships owned +or operated by persons doing business in violation of the antitrust +laws. Thus, the practices of foreign cartels, involving elimination +of competition and collectivization of industry, are inconsonant +with the basic concepts of our antitrust laws and national economic +policy. The type of arrangements which are the cornerstone of European +cartelization, such as agreements dividing markets, allocating +customers, controlling production and prices, and apportioning business +have all been long declared to be in violation of our antitrust +statutes by the courts. + +By and large, the antitrust laws can be effectively applied to combat +restraints upon the domestic and foreign commerce of the United States +whether the practices, agreements or conspiracies complained of have +their inception in this country or elsewhere. + +It has become an accepted principle of law that acts done or agreements +entered into in a foreign jurisdiction, even though lawful there, may +be prosecuted or enjoined in this country where the effect or result +of such acts or agreements is a violation of our laws. This principle +has been applied in antitrust cases, and agreements which restrain our +trade with foreign nations have been uniformly declared illegal. Our +courts may control foreign citizens or corporations operating wholly in +foreign territory, where their operations extend into the domestic and +foreign commerce of this country, just as we may undoubtedly control +the activities of our own citizens and our own corporations which +impinge upon our domestic and foreign trade and commerce. + +The mere fact that a combination is formed in a foreign country does +not prevent the application of our laws where it affects the foreign +commerce of this country and is put into operation here. Conversely, +combinations or agreements entered into in the United States and +adversely affecting the foreign trade of this country are subject +to the antitrust laws even though the acts done to effectuate the +restraints are performed outside this country. It is recognized that +some cartel arrangements are instigated by or under cover of foreign +governmental authority, but unless the cartel arrangements complained +of are solely participated in by the foreign government, the situation +is not altered. + +While a foreign sovereign may have immunity from suit, such immunity +does not apply to private individuals or organizations even though +they may be acting pursuant to the laws of their own country, or as +agents for their government or though a foreign government may have +a substantial financial interest in the challenged organization and +activities. + +The practical difficulty of acquiring personal jurisdiction over +some of the foreign individual or corporate participants in a cartel +which affects our foreign or domestic commerce is often confused with +the question of whether or not a violation of our antitrust laws is +involved. This, however, is a technical problem depending upon an +aggregation of facts rather than a question of substantive law involved +in restraints upon commerce. + +The following is a list of antitrust cartel cases instituted by the +Department of Justice since 1937: + +_Aircraft Accessories_: Bendix Aviation Corporation, et al.; complaint +filed November 19, 1942; postponement of trial requested by War and +Navy Departments. + +_Alkali_: United States Alkali Export Assn., Inc., et al.; complaint +filed March 16, 1944; argument had May 10, 1944 on motions to dismiss. + +_Aluminum_: Aluminum Company of America, et al.; petition filed April +23, 1937; judgment denying Government relief filed July 23, 1942; on +appeal. + +_Chemicals_: Imperial Chemical Industries, Ltd., et al.; complaint +filed January 6, 1944. + +_Chemicals and Petroleum (Including Synthetic Rubber)_: Standard Oil +Company (N. J.), et al.; complaint filed March 25, 1942; consent decree +entered March 25, 1942; supplemental judgment filed April 7, 1943. +Information filed and pleas of nolo contendere on March 25, 1942; fines +levied totaled $50,000. + +_Dyestuffs_: Allied Chemical & Dye Corp., et al.; indictment returned +May 14, 1942; Attorney General acquiesced to postponement of trial +until it will not interfere with defendant’s war production. General +Dyestuff Corp., et al.; indictment returned December 19, 1941; pending +on preliminary motions. + +_Fertilizer_: American Potash & Chemical Corp., et al.; complaint filed +May 15, 1940; consent decree entered May 21, 1940. Chilean Nitrate +Sales Corp., et al.; indictment returned September 1, 1939; dismissed +as to 18 defendants June 3, 1941 to August 28, 1942; pleas of nolo +contendere by 6 defendants August 28, 1942; fines levied totalling +$35,000. Allied Chemical & Dye Corp., et al.; complaint and consent +decree entered May 29, 1941. Imperial Chemical Industries (N. Y.), +Ltd., et al.; complaint and consent decree February 17 and 18, 1942. +Mutual Chemical Company of America, et al.; indictment returned June +26, 1942; Attorney General acquiesced to requests by War and Navy +Departments for postponement of trial. Synthetic Nitrogen Products +Corp., et al.; complaint and consent decree, September 5, 1941. + +_Fluorescent Lamps_: General Electric Company, et al.; complaint filed +December 9, 1942; Attorney General acquiesced to postponement of trial +requested by War and Navy Departments. + +_Fuel Injection Equipment_: American Bosch Corp. and Donald P. Hess; +complaint and consent decree, December 29, 1942. + +_Glass Bulbs_: Corning Glass Works, et al.; indictment returned +August 28, 1940; pleas of nolo contendere and fines totalling $47,000 +September 9, 1941. + +_Gyroscopic Instruments_: The Sperry Corporation, et al.; complaint and +consent decree entered September 1, 1942. + +_Hormones_: Ciba Pharmaceutical Products, Inc., et al.; information +filed and pleas of nolo contendere, December 17, 1941; fines of +$18,000. Roche-Organon, Inc., and Elmer H. Bobst; information filed +and pleas of nolo contendere, December 17, 1941; fines of $6,000. +Schering Corporation, et al.; information filed and pleas of nolo +contendere, December 17, 1941; fines of $24,000; complaint and consent +decree entered same day. Swiss Bank Corporation; complaint and consent +decree, December 17, 1941. Julius Weltzien and Schering Corporation; +information filed and pleas of nolo contendere, December 17, 1941; +fines of $6,000. + +_Incandescent Lamps_: General Electric Company, et al.; complaint filed +January 27, 1941; Attorney General acquiesced to postponement of trial +requested by War and Navy Departments. + +_Magnesite Brick_: Harbison-Walker Refractories Company, et al.; +indictment returned January 20, 1941; pleas of nolo contendere and +fines of $76,500, July 22, 1941; pending as to Veitscher Magnesitwerke +Aktiengesellschaft and Magnesit Co., Ltd., whose motion to vacate +services of summons has been referred to a special master, also as to +Magnesit Industrie Aktiengesellschaft. + +_Magnesium_: Aluminum Company of America, et al.; complaint filed; +consent decree entered April 15, 1942; indictment returned January 30, +1941; pleas of nolo contendere, April 15, 1942, and fines of $104,993. +To be set for trial as to I. G. Farben and Dietrich Schmitz. American +Magnesium Corporation, et al.; indictment returned January 30, 1941; +pleas of nolo contendere and fines of $15,003, April 15, 1942; case to +be set for trial as to I. G. Farben and Gustav Pistor. Dow Chemical +Company, et al.; indictment returned January 30, 1941; pleas of nolo +contendere and fines of $20,004, April 15, 1942; to be set for trial as +to I. G. Farben. + +_Matches_: Diamond Match Company, et al.; complaint filed May 1, 1944. + +_Military Optical Instruments_: Bausch & Lomb Optical Company, et al.; +indictment returned March 26, 1940; pleas of nolo contendere and fines +of $41,000, May 27, 1940 and March 5, 1941; pending as to Carl Zeiss (a +German firm). Complaint filed July 9, 1940, and consent decree entered +same day as to all defendants except Carl Zeiss. + +_Molybdenum_: Climax Molybdenum Company, et al.; complaint filed August +19, 1942 and consent decree entered August 21, 1942. + +_News Reporting_: The Associated Press, et al.; complaint filed August +28, 1942; Decree for Government January 13, 1944; appeal of defendants +docketed in Supreme Court, April 13, 1944. + +_Newsprint Paper_: Crown Zellerbach Corporation, et al.; indictment +returned July 12, 1939; 6 defendants pleaded nolo contendere and were +fined $30,000, May 2, 1941; remaining defendants dismissed. + +_Pharmaceutical Products_: Alba Pharmaceutical Company, Inc., et al.; +information filed, pleas of nolo contendere, and fines of $26,000, +September 5, 1941; complaint filed and consent decree entered same day. +The Bayer Company, Inc., et al.; complaint filed and consent decree +entered, September 5, 1941. Merck & Company, Inc., et al.; complaint +filed October 28, 1943; Government moved to join the Alien Property +Custodian as party plaintiff, May 8, 1944. + +_Photographic Materials_: General Aniline & Film Corporation, et al.; +indictment returned December 19, 1941; pending on preliminary motions. +Dietrich A. Schmitz, et al.; indictment returned December 19, 1941; +pending on preliminary motions. + +_Plastics_: E. I. du Pont de Nemours & Company, et al.; indictment +returned August 10, 1942; Attorney General acquiesced to postponement +of trial requested by War and Navy Departments. + +_Quebracho_: The Forestal Land, Timber and Railways, Ltd., et al.; +complaint filed December 20, 1943; pending on preliminary motions. The +Tannin Corporation, et al.; indictment returned November 24, 1942; +pleas of nolo contendere and fines of $59,003, January 12, 1943 and +April 19, 1943; dismissed as to the remaining defendants, August 24, +1943. + +_Titanium Compounds_: National Lead Company, et al.; indictment +returned June 28, 1943; case set for trial on October 3, 1944; +complaint filed July 1, 1944. + +_Tungsten Carbide_: General Electric Company, et al.; indictment +returned August 30, 1940; superceding indictment returned October 21, +1941; Attorney General acquiesced to postponement of trial requested by +War and Navy Departments. + + + + + APPENDIX II + + _Bibliography_ + + +Arnold, Thurman W., _The Bottlenecks of Business_, New York, 1940. + +Ballande, Laurence, _Essai d’etude Monographique et Statistique sur les +Ententes Economiques Internationales_, Paris, 1936. + +Boehm, Franz, _Wettbewerb und Monopolkampf_, Berlin, 1933. + +Borkin, Joseph and Welsh, Charles A., _Germany’s Master Plan_, New +York, 1943. + +Burns, Arthur R., _The Decline of Competition_, New York, 1936. + +Clark, John B., _Control of Trusts_, New York, 1912. + +Conte, Roger, _Report on International Industrial Ententes_, Paris, +1927. (International Chamber of Commerce Brochure No. 46). + +Domeratzky, Louis, _The International Cartel Movement_, Washington, +1928. (U. S. Department of Commerce, Bureau of Foreign and Domestic +Commerce, Trade Information Bulletin No. 556). + +Edwards, Corwin, _Economic and Political Aspects of International +Cartels_, Washington, 1944. + +Elliott, William Y., and May, Elizabeth S., and Rowe, I. W. F., and +others, _International Control in the Nonferrous Metals_, New York, +1937. + +Ely, Richard T., _Monopoly and Trusts_, New York, 1912. + +Ertel, Erich, _Internationale Kartelle und Konzerne der Industrie_, +Stuttgart, 1930. + +Fetter, Frank A., _The Masquerade of Monopoly_, New York, 1931. + +Friedlaender, Heinrich, _Die Rechtslage der Konzerne und Kartelle in +Europa_, Zurich, 1938. + +Greaves, H. R. G., _Raw Materials and International Control_, London, +1936. + +Hamilton, Walton H., _The Pattern of Competition_, New York, 1940. + +Hantos, Elemer, _Mitteleuropaeische Kartelle im Dienste des +Industriellen Zusammenschlusses_, Berlin, 1931. + +Hexner, Ervin, _The International Steel Cartel_, Chapel Hill, 1943. + +Hodson, H. V., _Slump and Recovery_, 1929–37, London, New York, +Toronto, 1938. + +Holland, W. L., Editor, _Commodity Control in the Pacific Area_, +Stanford, 1935. + +International Labor Office, _Intergovernmental Commodity Control +Agreements_, Montreal, 1943. + +Jenks, Jeremiah W., _The Trust Problem_, New York, 1929. + +Johnson, Eric, _America Unlimited_, New York, 1944. + +Kyrpriotis, M., _Les Cartels Internationaux_, Paris, 1936. + +Laidler, Harry W., _Concentration of Control in American Industry_, New +York, 1931. + +League of Nations Council, Report of the Committee for the Study of Raw +Materials, _Official Journal_, December, 1937. + +League of Nations, _Economic Aspects of Several International +Industrial Agreements_, Geneva, 1930. + +Levi, Edward H., “Cartels and the War” in _War and the Law_, edited by +B. W. Puttkammer, Chicago, 1944. + +Liefmann, Robert, _Cartels, Concerns and Trusts_, London, 1932. + +MacGregor, David H., _Industrial Combinations_, London, 1938. + +MacGregor, David H., _International Cartels_, Geneva, 1927. + +Marquand, Hilary A., _Dynamics of Industrial Combinations_, New York, +1931. + +Meyers, Ernest S., & Lewis, Seymour D., “The Patent ‘Franchise’ and the +Antitrust Laws,” _Georgetown Law Journal_, December 1941 and January +1942. + +Michels, Rudolf, _Cartels, Combines and Trusts in Postwar Germany_, +London, 1928. + +Notz, William F., _Representative International Cartels, Combines, and +Trusts_, Washington, 1929. (U. S. Department of Commerce, Bureau of +Foreign and Domestic Commerce, Trade Promotion Series No. 81). + +Oualid, William, _International Raw Materials Cartels_, Paris, 1938. +(League of Nations, International Studies Conference.) + +Piotrowski, Roman, _Cartels and Trusts_, London, 1933. + +Plummer, Alfred, _International Combines in Modern Industry_, London, +1938. + +Pribram, Karl, _Cartel Problems_, Washington, 1935. + +Rappeport, Samuel, _Les Cartels en Pologne_, Nancy, 1935. + +Razous, Paul, _Cartels, Trusts, et Divers Ententes de Producteurs_, +Paris, 1935. + +Reimann, Guenter, _Patents for Hitler_, New York, 1943. + +Robbins, Lionel, _Economic Planning and International Order_, London, +1937. + +Rowe, I. W. F., _Markets and Men_, New York, Cambridge, 1936. + +Staley, Eugene, _Raw Materials in Peace and War_, New York, 1937. + +Tschernoff, J., _Ententes Economiques et Financieres_, Paris, 1933. + +United States Congress, _Hearings Before the Temporary National +Economic Committee, 76th Congress, 3rd Session on Public Resolution No. +113, Investigation of Concentration of Economic Power_, Testimony of +Theodore J. Kreps, Part 25, Washington, 1940. + +United States Congress, _Hearings Before the Senate Committee on +Patents, 77th Congress, 2nd Session on S-2303, Patents_. Washington, +1942. + +Veblen, Thorstein, _Imperial Germany and the Industrial Revolution_, +New York, 1942. + +Voorhis, Jerry, _Beyond Victory_, New York, 1944. + +Wallace, Benjamin Bruce and Edminster, Lynn Ramsey, _International +Control of Raw Materials_, Washington, 1930. + +Warriner, Dorun, _Combines and Rationalization in Germany_, London, +1931. + +Watkins, Myron W., _Industrial Combinations and Public Policy_, Boston, +1927. + +Wheeler, Leslie, “Agricultural Surpluses in the Postwar World,” +_Foreign Affairs_, v. 20, 1941. + +Wiedenfeld, Kurt, _Cartels and Combines_, Geneva, 1927. (League of +Nations publication.) + + + + + _Index_ + + + Abbe, Dr. Ernst, 144 + + Abbott Laboratories, 92, 95, 96, 110 + + Acetol Products, Inc., 87, 91, 93, 105, 110 + + Addison’s disease, 61, 73 + + Agriculture, Dept. of, 109 + + Aircraft accessories, 252 + + Airplanes, 157 + + Alba Pharmaceutical Co., 256 + + Alien Property Custodian, 34, 59, 64, 76, 81, 125, 140, 143, 178, + 200, 219, 220, 256 + + Alig Agreement, 222 + + Alkasso (See United States Alkali Export Ass’n.), 193, 199–204, 252 + + Allied Chemical and Dye, 181, 253 + + Allies, 215, 240 + + Aluminum, 11, 33, 221, 222, 236, 253 + + Aluminum Co. of America, 221–225, 253, 255 + + Aluminum production, French, 6 + + American Bosch Corp., 254 + + American Magnesium Corp., 221–223, 255 + + American Medical Ass’n., 90, 106 + + American Potash and Chemical Corp., 200, 202, 253 + + American Tanners, Ltd., 122 + + American Telephone and Telegraph Co., 21 + + Animal Industries Bureau, 109 + + Antitrust Division of Dept. of Justice, 35, 83 + + Antitrust laws, 38, 48, 58, 77, 130, 154, 176, 198, 205, 250, 251 + + Argentina, 71, 113–115, 119, 165, 176, 183, 184 + + Armistice, 215 + + Army Air Corps, 22, 23, 25 + + Arthritis, 57, 91 + + Associated Press, 256 + + Asthma, 91 + + Atabrine, 229, 230 + + Atlantic Charter, 10, 209 + + Atlantis S. A. Panama, 69, 70, 71 + + Ayerst, McKenna and Co., 89 + + + Badische Anilin und Sodafabrik A.G., 211 + + Barkey, J. A., 121 + + Barney, L. D., 85, 87, 97, 100, 104 + + Barrett Co., 241 + + Bartholomew, Sir Clarence, 185 + + Barton, L. E., 126 + + Basal Agency, 122 + + Bauer, K. A., 173 + + Bausch and Lomb G.m.b.H. Frankfort-on-the Main, 155 + + Bausch and Lomb Optical Co. (Rochester), 24, 142–175, 255 + + Bausch, Carl L., 155 + + Bausch, Dr. Edward, 154, 165, 166, 170, 171 + + Bayer, 205 (See Germanin), 55 + + Bayer Co., Inc., 256 + + Bayliss, 60 + + Belgian Congo, 1 + + Belgian Solvay (See Solvay et Cie), 202–204 + + Bell Laboratories, 21 + + Bell System, 22 + + Bendix Aviation Corp., 218, 252 + + Berst-Forster-Dixfield Co., 185–189, 191 + + Beryllium, 34, 47, 220 + + Beryllium Corp. of America, 220 + + Binoculars, 143, 166, 170–174 + + Blacklisting, 101 + + Blumenfeld, Joseph, 127, 129 + + Bobst, Elmer H., 254 + + Boehringer and Sons, C. F. (Mannheim), 61, 74–76 + + Bombsights, 144, 156 + + Borden Co., 89, 106 + + Bosch, Robert, A. G., 214 + + Brazil, 113, 114, 176, 183 + + British Cabinet, 5, 8 + + British Laporte Co., 133 + + British Match Corp., Ltd., 185 + + British Maxium, 223 + + British Purchasing Commission, 217 + + British Titan Products, Ltd., 133, 134 + + Brodbeck, James, 72 + + Bryant and May, Ltd., 185, 189, 190 + + Bulbs, glass, 254 + + Buna, 212 + + Buttle, N. A., 101 + + + California Alkali Export Ass’n., 193, 199–204 + + Canada, 16, 79, 132, 176–178, 181, 186, 187, 190, 203, 217, 218, 225 + + Canadian Industries Ltd., 134, 181, 184, 225 + + Canadian Titanium Pigments, Ltd., 134 + + Carnation Co., 106 + + Carpenter, Walter Samuel, Jr., 179 + + Casado extract, 118 + + Chamberlain, Joseph, 5 + + Chemical and Pharmaceutical Enterprises, Ltd., 64, 68–70 + + Chemical Marketing Co., 215 + + Chemical pharmaceutical industry, 54 + + Chemicals, 253 + + Chepha, 64, 68–70 + + Chilean Nitrate Sales Corp., 253 + + Chimio (See Les Laboratoires Francais de Chimiotherapie), 61, 76 + + Chlorate of potash, 186, 190 + + Cholesterol, 89, 110 + + Church and Dwight, Inc., 200, 202 + + Ciba (Basle) (See Society of Chemical Industry (Basle)), 61, 72–81 + + Ciba Pharmaceutical Products, Inc., 72, 254 + + Climax Molybdenum Co., 255 + + Cocomalt, 89 + + Cod Liver Oil with Viosterol, 97, 100 + + Commander Larrabee Co., 89 + + Commerce and Industry Ass’n., of N. Y., 193 + + Commercial Pigments Corp., 130 + + Compania Sud-Americana de Explosivos, 182 + + Congress, 16, 36, 37, 192, 193, 197, 198, 217, 232, 243, 244, 250 + + Corning Glass Works, 254 + + Cortate, 73 + + Cotan, S. A., 120, 122 + + Crown Zellerbach Corp., 256 + + Czechoslovakia, 14, 129, 162 + + + Davis, Charles Krum, 179 + + Davis and Co., R. B., 89 + + Delta Pharmaceutical Corp., 69–71 + + D.E.N., 241 + + Deutsche Gold-und-Silber Scheideanstalt, 215 + + Diabetes, 52, 53, 57 + + Diamond Alkali Co., Inc., 200, 202 + + Diamond Match Co., 185–191, 255 + + Dodds, E. C., 80 + + Doitsu Senryo Gomei Kaisha, 135 + + Dow Chemical Co., Inc., 200, 202, 221–225, 255 + + Drisdol, 103 + + Duisberg, Carl, 232 + + du Pont de Nemours and Co., E. I., 24, 124, 125, 130–134, 140, + 141, 179–185, 218, 225–227, 241, 244, 245, 256 + + du Pont, Lammot, 179, 183, 226 + + Dusseldorf, peace of, 14, 16 + + Dyestuffs, 6, 30, 43, 184, 214, 215, 253 + + Dynamit Aktiengesellschaft, 182 + + + Economy, American, 36–39, 51 + + Eddy Match Co., Ltd., 185, 190 + + Edison, Thomas, 44, 46 + + Egeler, Mr., 28 + + Ehrlich’s “Magic Bullet” (See Salvarsan), 47 + + Eisenhart, M. H., 165 + + Elley, H. W., 88, 92 + + Ely, Carl B., 116, 117 + + Engi, Dr. Joseph, 78 + + Ephedrine, 92 + + Ergosterol, 89–93, 103, 104, 111 + + Ergosterol, Irradiated, 98 + + Espionage, Nazi, 12 + + Ethyl Gasoline Corp., 24, 25, 26, 27 + + Explosives Industries, Ltd., 182 + + + Fairburn, William A., 185–189 + + Falkland Islands, 240 + + Fauth Instrument Co., 144 + + Federal Trade Commission, 194, 195, 201 + + Federation of British Industries, 13, 235 + + Fertilizer, 253 + + Fleischmann Co., 87, 90, 93, 103, 105 + + Fluorescent lighting, 44, 254 + + Foreign Agents’ Registration Act, 209 + + Forestal Land, Timber and Railways, Ltd., 114, 116, 118, 121, 122, 256 + + Forinvent, 68, 70 + + Fortune Magazine, 168 + + Freedmen’s Hospital, 93 + + Fritzsching, E. T., 74, 75 + + + General Aniline and Film Corp., 256 + + General Aniline Works, 31, 216 + + General Baking Co., 104, 105 + + General Dyestuff Corp., 253 + + General Electric Co., 42–45, 237, 254, 257 + + General Mills, 93, 104 + + General Motors Corp., 26, 180, 232 + + Geophysical Laboratory, 145 + + George, Lloyd, 5, 6 + + Germanin (See Bayer 205), 55 + + Germany, 5, 14, 15, 22–27, 33, 62, 64, 129, 135, 138, 142–147, 151, + 161, 166, 175, 176, 182, 210–215, 219–221, 224, 227, 228, 231, + 232, 235, 240, 246, 247 + + Glass container industry, 41, 42 + + Glucose-D, 89 + + Goodlass Wall Lead Industries, Ltd., 133 + + Good Neighbor policy, 10, 12, 209, 214, 230 + + Goodrich, 212 + + Goodyear, 212 + + Gordon Corp., William, 185, 187, 191 + + Graham crackers, 89 + + Great Britain, 14–17, 80, 132, 166, 216, 217, 224, 235, 237, 240 + + Grecian Navy Dept., 149 + + + Hague, The, 150 + + Haight, George I., 84, 85 + + Hammond and Carpenter Corp., 120 + + Harbison-Walker Refractories Co., 255 + + Hayfever, 91 + + Hess, Donald P., 254 + + Hitler, Adolf, 142, 143, 146, 150, 154–159, 162 + + Hoffman-La Roche, Inc., 73, 74 + + Holland, 27 + + Holman, Howard F., 185 + + Hooker Electrochemical Co., Inc., 200, 202 + + Hormones, 58, 59, 60, 61, 67, 69, 72, 74, 76, 254 + + Horton, Ralph, 103 + + House Judiciary Committee, 196, 198 + + Howard, Frank, 210 + + Howes Bros., 117 + + Hydrogenation, 22 + + Hydrogenation plants, 23 + + + I. G. Farbenindustrie, 24, 25–27, 54, 84, 88, 124, 125, 129–132, + 135, 137, 141, 180, 181, 184, 186, 190, 201–204, 211–213, + 216–225, 228, 229, 232, 241, 255 + + Illinois, University of, 91 + + Imperial Chemical Industries, 125, 132, 133, 179–185, 199, 203, 204, + 225–227, 241, 245, 253 + + Imperial Chemical Industries (N. Y.), Ltd., 200, 201, 204 + + Imperial Smelting, 133 + + Indiana Condensed Milk Co., 106 + + Industrias Chimicas Brazeileiras “Duperial,” S.A., 183 + + Industrias Quimicas Argentinas “Duperial,” S.A., 183 + + Instruments, gyroscopic, 254 + + Instruments, military optical, 255 + + Insulin, 52, 53, 60, 66 + + Interflash Signal Corp., 148 + + International Match, 189 + + International Products Corp., 114, 117, 119–122 + + International Standard Electric Corp., 167 + + + Jackson Laboratory (du Pont’s), 31 + + Japan, 118, 129, 132–136, 186, 190 + + Japanese Titanium Co., 135 + + Jebsen, Gustav, 127, 128, 129, 133, 136, 137, 139 + + Jewett, Dr. F. B., 21 + + Justice, Dept. of, 3, 35, 39, 46, 58, 112, 176, 179, 185, 193, 195, + 199, 204, 220, 225, 252 + + + Kaiserism, 3, 5 + + Kamp, H., 72, 73, 76, 80 + + Keim, R. D., 97 + + Keuffel and Esser, 160, 168 + + Kewley, Joseph E., 254 + + Kies, W. S., 103 + + Kilgore, Senator Harley, 247 + + King, Kenneth T., 103 + + Kokusan Kogyo Kabushiki Kaisha, 135 + + Kovaks, S. S., 89 + + Krebs Pigment and Color Corp., 130 + + Kreuger, Ivar, 187, 188, 189, 190 + + Krupp Works (Germany), 42 + + + La Chaquena, S. A., 120 + + La Forestal Argentina, S.A., 114, 117, 118 + + Lamps, electric, 43, 236 + + Lamps, flashlight, 28 + + Lamps, incandescent, 254 + + La Prensa, 119 + + Larson, W. N., 100 + + Lasdon, W. S., 75 + + Latin America, 12, 13, 68–71, 176, 214 + + Les Laboratories Francais de Chimiotherapie (See Chimio (France)), + 61, 76 + + Lever Bros., 105 + + Light metals, 33 + + Lignite, 211 + + Lind, Paul Bertil, 185 + + Lion Match Co., Inc., 185, 187, 189 + + Literary Digest, 166 + + Lithopone, 126, 140, 141 + + Lomb, August, 155–161, 170 + + Lomb, Carl, 154, 165 + + London, University of, 86 + + Loose-Wiles Biscuit Co., 89 + + + Magnesit Co., Ltd., 255 + + Magnesite Brick, 255 + + Magnesit Industrie Aktiengesellschaft, 255 + + Magnesium, 11, 34, 214, 220–224, 236, 237, 255 + + Magnesium Development Co., 222 + + Malaria, 57, 229 + + Matches, 186, 255 + + Mathieson Alkali Works, Inc., 200, 202 + + McGowan, Harry Duncan, 179, 181, 183, 226 + + Meade-Johnson and Co., 94, 95, 96, 99–101 + + Medical Research Council, 80 + + Meinhardt, 231 + + Merck and Co., Inc. (N. J.), 76, 176–178, 256 + + Merck, E. (Darmstadt, Germany), 76, 176, 177, 178 + + Merck, George W., 177 + + Mercurials, 178 + + Merrell Co., W. S., 98, 111 + + Metal and Thermit Co. of N. Y., 220 + + Metals, Alkali, 184 + + Methyl Methacrylate, 28, 29 + + Milas process, 88 + + Milk of Magnesia, 66 + + Mines, U. S. Bureau of, 221 + + Molybdenum, 255 + + Mond, Henry, 179 + + Monroe Doctrine, 214 + + Moore-McCormack Steamship Co., 121 + + Munich, peace of, 14 + + Mutual Chemical Co., of America, 254 + + + Narcotics, 55, 178 + + Nathan and Co., Joseph (Great Britain), 84, 88 + + National Lead Co., 124–137, 140, 257 + + National Titanium Pigments Co., Ltd., 133 + + Navy, U. S., 143, 147, 148, 158, 163, 164, 166, 170–174 + + Nederlandsche Instrumenten Compagnie (Nedinsco), 149–153, 157–158, 167 + + Neoprene, 184 + + Nestle’s Milk Products, Inc., 106 + + News reporting, 256 + + New York Match Co., Inc., 185 + + Niagara Alkali Company, 200, 202 + + Nieuwe Nederlandsche Maatschappij Tot Vervaardigen Van Spiegelglas + N.V., 254 + + Nitrate of soda, 240, 241, 242 + + Nolo contendere, 113, 142, 254–256 + + Norsk Hydro, 241 + + N.R.A., 159 + + Nylon, 184 + + + Office of Facts and Figures, 8 + + Ohio Match Co., 185, 187, 189 + + Optical glass, military, 24, 214, 236 + + Optical Triple Alliance, 144 + + Ordnance, Bureau, 147 + + Organon, N. J., 61 + + Organon, N. V. (Oss, Holland), 73, 76, 77, 79 + + Ottawa Conference, 226 + + Ottawa Journal, 17 + + Otterberg, Fritz, 185 + + Ovaltine, 89 + + Oxford University, 80 + + + Pacific Alkali Co., Inc., 200, 202 + + Palladium, A. G., 68 + + Panama Canal Act, 250 + + Paper, newsprint, 256 + + Paraguay, 113 + + Parke-Davis and Co., 94–97 + + Patent Office, U. S., 77, 170 + + Patent system, 3, 6, 36, 37, 38, 47, 48, 51 + + Patents and processes agreement, 184, 225, 226 + + Patents, 5, 36–47, 53, 56, 59, 64–66, 77, 83, 85, 86, 92, 128, 130, + 133, 136, 139, 140, 162, 184, 190, 191, 220 + + Pearl Harbor, 34, 36, 70, 175, 212 + + Pellagra, 57 + + Penn. Salt Manufacturing Co., 200, 201 + + Periscopes, 144, 148, 156, 166 + + Pet Milk Co., 106 + + Petroleum, 253 + + Pharmex, Inc., 69, 70 + + Phillips of Holland, 237 + + Pistor, Gustav, 255 + + Pittsburgh Plate Glass Co., 145, 200, 201 + + Plastics, 24, 28, 34, 43, 184, 214, 227, 236, 256 + + Plexiglass, 24 + + Pomerene, Senator, 195, 198 + + Powers-Weightman-Rosengarten Corp., 177 + + Price fixing, 83, 84, 97, 104 + + Proctor, Ellison, 117 + + Pure Food and Drug Act, 29, 30 + + Pyridium Corp., 75 + + + Quaker Oats, 89 + + Quebracho, 112–123, 256 + + Quinine derivatives, 55, 229, 230, 249 + + + Range-finders, 144, 148, 155, 156, 166, 168 + + Rare Chemicals, Inc., 74, 75, 77 + + Reciprocal trade pacts, 10 + + Reichsgruppe Industrie of Germany, 14, 235 + + Remington Arms Co., 179, 183, 217 + + Resins, synthetic, 184 + + Rheinische Westfalische Sprengstoff, 217 + + Rickets, 57, 82, 98 + + Robinson, E. G., 111 + + Roche-Organon, Inc., 74, 78–81, 254 + + Rohm and Haas (Darmstadt, Germany), 24 + + Rohm and Haas Co. (Philadelphia), 24, 29, 30, 227 + + Ross, Ward, 85, 91, 97, 100, 102, 104, 105 + + Rossi, Dr. A. J., 126 + + Russell, Dr. Henry L., 85, 90, 91, 92, 96–100, 105 + + Russia, 186, 190 + + + Sachtleben Co., 129 + + Saegmuller, George, 144, 147 + + Salvarsan, 46, 54 + + Samuhi, S. A., 117, 118, 120, 122 + + Saraka, 66, 69 + + Schering A. G. (Berlin), 61–71, 74, 77, 79, 80, 227 + + Schering Corp. (Bloomfield, N. J.), 64–69, 73, 76, 77, 79, 80, 227, + 245 + + Schering, Ltd., (London), 68 + + Schmitz, Dietrich, 255 + + Schweitzer, Dr. Samuel, 68, 70 + + Shangri-La, 238 + + Sherka Chemical Co., 69 + + Sherman Act, 1, 13, 16, 37, 179, 185, 191, 193–199, 202, 205, 206, + 234, 250 + + Siemens-Halske Co., 218, 220, 237 + + Sights, gun, 144, 148, 166 + + Smith, Adam, 19 + + Snider Packing Co., 90, 91 + + Societe de Products Chemiques des Terres Rares, 130 + + Society of Chemical Industry (Basle), 61, 72 + + Soda ash, 201 + + Soda, caustic, 201 + + Solvay et Cie, 200, 203, 204 + + Solvay Process Co., 200 + + South America, 12, 55, 56, 71, 112, 115, 128, 131, 177, 181, 182, + 215, 216 + + Southern Alkali Corp., 200, 202 + + Soviet match monopoly, 190 + + Spain, 71, 129 + + Spencer Lens Co., 145 + + Sperry Corp., 254 + + Sperti, George, 95 + + Sprague Steamship Co., 121 + + Squibb and Sons, E. R., 95–97 + + Squibb’s Viosterol, 94 + + St. Helen’s, Ltd., 115 + + Standard Brands, Inc., 87, 89, 103, 107, 108 + + Standard-I. G. Corp., 219, 220 + + Standard Oil Co. (New Jersey), 22, 24, 26, 210–213, 219, 228, 253 + + Standards, Bureau of, 145 + + Standard Telephone and Cables, Ltd., 167 + + Starling, 60 + + Steenbock patents, 84–87, 90, 92, 99, 107, 108 + + Sterols, 89, 109, 111 + + Stickstoff-Syndikat, 241 + + Stilbestrol, 79, 80, 81 + + Stockard Steamship Corp., 121 + + Stragnell, Gregory, 69, 70 + + Sulfa drugs, 55, 178 + + Sullivan, John B., 114, 116, 119 + + Svenska Tandsticks Aktiebolaget (See Swedish Match Co.), 185–190 + + Swedish Match Co. (See Svenska Tandsticks Aktiebolaget), 185–190 + + Swiss Bank Corp. (Basle), 68, 70, 254 + + Synthetic nitrogen, 236, 243, 245 + + Synthetic Nitrogen Products Corp., 254 + + Synthetic rubber, 24, 47, 67, 184, 210, 212 + + Synthetic rubber manufacture, 7, 8 + + System Nedinsco-Zeiss, 152 + + + Tanks, 157 + + Tannic, acid, 114 + + Tannin Corp. (N. Y.), 114–116, 120, 122, 256 + + Tannin Products Corp. (Dela.), 115–116 + + Teagle, Walter, 210 + + Tetra-ethyl lead, 25 + + Tetrazene primed ammunition, 217 + + Thyroid, 66 + + Titan Co. A/S, 127–129, 139 + + Titan Co., Inc., 124, 127, 132–139 + + Titangesellschaft, G.m.b.H., 129, 132–139 + + Titanium Alloy Manufacturing Co., 126 + + Titanium Pigment Co., 126–130 + + Titan Kogyo Kaisha, Ltd., 135, 136 + + Titus, Dr. Harry, 109 + + T.N.E.C., 46 + + Transamerican Match Corp., 185 + + Truman Committee, 63 + + Tschopski, Prof., 144 + + Tungsten carbide, 42, 257 + + + Uniform Chemical Products, 190 + + United American Bosch Corp., 214 + + United Nations, 16, 20, 33, 175, 247 + + United States Alkali Export Ass’n, 193, 199, 201–204, 252 + + United States Army, 143, 147, 158, 160, 166 + + Universal Match Co., 185, 187, 189 + + + Valentine, T., 121, 122 + + Veitscher Magnesitwerke Aktiengesellschaft, 255 + + Vernon-Benshoff Co. (Pittsburgh), 29, 30 + + Versailles Treaty, 142–153 + + Viosterol, 91–94, 97, 98, 100, 103 + + Vitamin D, 82–87, 90–99, 103–111 + + Vitamins, 55, 60, 92, 178 + + Vitamin Technologists, Inc., 107 + + Von Spee, Admiral, 240 + + + Waddell, Dr., 104 + + Wanter Co., 89 + + War Department, Mexico, 149, 150, 160 + + War Department, U. S., 167 + + Wardenburg, 227 + + Webb Act, 192–196, 199, 205–207 + + Webb, Congressman, 196, 197, 198 + + Webb, E. W., 24 + + Weisburd and Cia, Ltda., 120, 121 + + Weltzien, Dr. Julius, 62, 70, 73, 81, 254 + + West End Chemical Co., Inc., 200, 202 + + West Haven Creamery Co., Inc., 107, 108 + + Westvaco Chlorine Products Corp., 200, 202 + + White lead, 126 + + Whitelisting, 101 + + Wilson, Tariff Act, 250 + + Wilson, Woodrow, 7, 193 + + Winnipeg Free Press, 17 + + Winthrop Chemical Co., 95–97, 101, 103 + + Wisconsin Alumni Research Foundation, 82–111 + + Wisconsin, University of, 82–85 + + World War I, 39, 126, 144, 151, 186, 187, 215, 228, 239, 240 + + WPA, 239 + + Wyandotte Chemicals Corp., 200 + + + Zeiss, Carl, 24, 142–156, 159–164, 168–175, 255 + + + + + Transcriber’s Note + + +Some inconsistencies in spelling, hyphenation, and punctuation have +been retained. + +p. 42: changed “th” to “the” (complete control of the situation) + +p. 90: changed “violent” to “violet” (by ultra violet rays) + +p. 90: changed “Fleischman” to “Fleischmann” (irradiated yeast from +Fleischmann) + +p. 109: changed “moxed” to “mixed” (tons of commercial mixed feed) + +p. 115: changed “Tanning” to “Tannin” (The Tannin Corporation imports +approximately) + +p. 117: changed “Lo” to “La” (cooperated closely with La Forestal) + +p. 127: changed “Jebson” to “Jebsen” (National Lead and Jebsen +organized) + +p. 132: changed “entere dinto” to “entered into” (entered into a series) + +p. 143: changed “an dconsent” to “and consent” (civil complaint and +consent decree) + +p. 154: changed “violatio nof” to “violation of” (violation of the +antitrust laws) + +p. 157: changed “de-demands” to “demands” (satisfy the actual demands) + +p. 182: changed “Explosives” to “Explosivos” (Compania Sud-Americana de +Explosivos) + +p. 191: changed “hope” to “hoped” (It is to be hoped that) + +p. 193: removed duplicated word “the” from “Board of Directors of the +the Commerce and Industry Association” + +p. 205: changed “Sheriman” to “Sherman” (embodied in the Sherman Act) + +p. 206: changed “would would” to “would make” (would make such abuses +impossible) + +p. 210: changed “every” to “ever” (which has ever faced the company) + +p. 211: removed duplicated word “was” from “petroleum was was made part +of” + +p. 229: changed “authortiy” to “authority” (Public authority must not +be left) + +p. 229: changed “securtiy” to “security” (national security and +national welfare) + +p. 231: changed “thees” to “these” (engaged in these practices) + +p. 243: changed “an dunlawful” to “and unlawful” (hidden and unlawful +tax) + +p. 246: changed “say” to “stay” (stay out of important markets) + +p. 256: changed “ofr” to “of” (and fines of $59,003) + +p. 262: changed “Scheidenstalt” to “Scheideanstalt” (Deutsche +Gold-und-Silber Scheideanstalt) + +*** END OF THE PROJECT GUTENBERG EBOOK 78077 *** diff --git a/78077-h/78077-h.htm b/78077-h/78077-h.htm new file mode 100644 index 0000000..2c268a8 --- /dev/null +++ b/78077-h/78077-h.htm @@ -0,0 +1,10845 @@ +<!DOCTYPE html> +<html lang="en"> +<head> + <meta charset="UTF-8"> + <meta name="viewport" content="width=device-width, initial-scale=1"> + <meta name="format-detection" content="telephone=no,date=no,address=no,email=no,url=no"> + <title> + Cartels: Challenge to a Free World | Project Gutenberg + </title> + <link rel="icon" href="images/cover.jpg" type="image/x-cover"> + <style> + +body { + margin-left: 10%; + margin-right: 10%; +} + +h1,h2,h3,h4,h5,h6 { + text-align: center; /* all headings centered */ + clear: both; +} +h1 { font-size: 300%; letter-spacing: 0.08em; } +.subtitle { font-size: 150%; font-weight: bold; } +.author { font-size: 120%; font-weight: bold; } +.publisher { font-size: 140%; font-weight: bold; } +.dadname { font-size: 115%; } +.dadtext { max-width: 25em; margin: auto } +.small { font-size: 90%; } +.xsmall { font-size: 75%; } + +p { + margin-top: .5em; + text-align: justify; + margin-bottom: .5em; +} + +.p2 {margin-top: 2em;} +.p4 {margin-top: 4em;} + +hr { + width: 33%; + margin-top: 2em; + margin-bottom: 2em; + margin-left: 33.5%; + margin-right: 33.5%; + clear: both; +} + +hr.tb {width: 45%; margin-left: 27.5%; margin-right: 27.5%;} +hr.chap {width: 65%; margin-left: 17.5%; margin-right: 17.5%;} +@media print { hr.chap {display: none; visibility: hidden;} } + +div.chapter {page-break-before: always;} +h2.nobreak {page-break-before: avoid;} + +ul.index { list-style-type: none; } +li.ifrst { + margin-top: 1em; + text-indent: -2em; + padding-left: 1em; +} +li.indx { + margin-top: .5em; + text-indent: -2em; + padding-left: 1em; +} +table { + margin-left: auto; + margin-right: auto; +} +table.autotable { border-collapse: collapse; } +table.autotable td, +table.autotable th { padding: 0.25em; } +table.autotable th { font-weight: normal; } + +.tdl {text-align: left;} +.tdr {text-align: right;} + +.tdt { vertical-align: top; } +.tdb { vertical-align: bottom; } + +.pagenum { /* uncomment the next line for invisible page numbers */ + /* visibility: hidden; */ + position: absolute; + left: 92%; + font-size: small; + text-align: right; + font-style: normal; + font-weight: normal; + font-variant: normal; + text-indent: 0; +} /* page numbers */ + +blockquote { + margin-top: 0; + margin-bottom: 0; + margin-left: 5%; + margin-right: 10%; +} + +.center {text-align: center; text-indent: 0;} + +.right {text-align: right;} + +.smcap {font-variant: small-caps;} + +figcaption {font-weight: bold;} +figcaption p {margin-top: 0; margin-bottom: .2em; text-align: inherit;} + +/* Images */ + +img { + max-width: 100%; + height: auto; +} +/* Transcriber's notes */ +.transnote {background-color: #E6E6FA; + color: black; + font-size:small; + padding:0.5em; + margin-bottom:5em; + font-family:sans-serif, serif; +} + + +/* indent paragraphs */ +p { text-indent: 1em; } + +/* de-emphasize page numbers */ +.pagenum { color: #bbbbbb; } + +/* TN styling */ +.transnote { + background-color: inherit; + border: 1px dashed #bbbbbb; + margin-top: 3em; + page-break-before: always; +} + +/* don't visibly style abbr */ +abbr { + border: none; + text-decoration: none; + font-variant: normal; +} +/* abbrs that should be read letter-by-letter */ +abbr.spell { speak: spell-out; } + </style> +</head> +<body> +<div style='text-align:center'>*** START OF THE PROJECT GUTENBERG EBOOK 78077 ***</div> + + +<p><span class="pagenum" id="Page_i">[Pg i]</span></p> + +<h1 title="CARTELS: Challenge to a Free World">CARTELS</h1> + +<p class="center subtitle">Challenge to a Free World</p> + +<p class="center author p2"><i>By</i> WENDELL BERGE</p> + +<p class="center"><i>Assistant Attorney General of the United States</i></p> + +<p class="center publisher p2"><i>Public Affairs Press</i></p> + +<p class="center small">WASHINGTON, D. C.</p> + + +<p><span class="pagenum" id="Page_ii">[Pg ii]</span></p> + + +<p class="center p4"><i>To My Father</i></p> + +<p class="center dadname">GEORGE W. BERGE</p> + +<div class="dadtext"> +<p class="center"><i>who throughout his life and in his public career was +guided by the conviction that the people’s rights +are not won without struggle and will not +be maintained without vigilance</i>.</p> +</div> + +<p class="center p4"><i>Public Affairs Press, 2153 Florida <abbr title="Avenue">Ave.</abbr>, Washington, D. C.</i></p> + +<p class="center"><i>Copyright, 1946, by American Council on Public Affairs</i></p> + +<p class="center"><i>M. B. Schnapper, Executive Secretary and Editor</i></p> + + +<hr class="chap x-ebookmaker-drop"> +<div class="chapter"> + +<p><span class="pagenum" id="Page_iii">[Pg iii]</span></p> + + + <h2 class="nobreak" id="Preface"> + <i>Preface</i> + </h2> +</div> + + +<p>Plastics, television, new chemical and electrical techniques +are but a few of the instruments which will furnish the stuff for +the pioneers of a new age. The challenge of housing will excite +bold minds to action, on a scale never before attempted, to wipe +out slums and give dwellers in country and city alike a new and +higher standard of living. Not only at home, but also abroad, +the opportunities for daring enterprise which will be offered by +the needs of world reconstruction will surpass anything ever +before known.</p> + +<p>How are we going to meet this challenge? At the outset, we +must face frankly the greatest obstacle to making the most of +our opportunity. It is the threat of cartel control of major +world industries. Unless this threat is understood and dealt +with decisively, our opportunity to realize the great potential +benefits of a free economy will be lost. And worse still, the +hope of maintaining democratic political institutions will be +seriously impaired.</p> + +<p>The pattern of cartel operations has been clearly revealed in +recent years by antitrust investigations. From public records in +antitrust proceedings and congressional hearings, information +about cartel operations is now available. The public should be +familiar with the facts. As head of the Antitrust Division of +<span class="pagenum" id="Page_iv">[Pg iv]</span>the Department of Justice, I have frequently been called upon +to discuss cartel problems before congressional committees, +trade associations and civic groups. Since my testimony and +speeches received varying degrees of public notice at the time +they were given, the casual reader of newspaper reports necessarily +obtained only an impressionistic picture of the far-flung +ramifications of the subject. Something more is needed for +thorough understanding.</p> + +<p>With this thought in mind, a number of friends and associates +have suggested from time to time that my material should +be woven together in book form. This I have undertaken to +do in the present volume.</p> + +<p>Merely to make assertions about the evil effect of cartels is a +simple matter. But I believe that the real usefulness of this +book will depend upon its fairly detailed explanation of the +operation of particular cartels, with direct quotations from letters, +memoranda and other documents.</p> + +<p>While I have not tried to compile a complete source-book, I +have striven to make this discussion as non-technical as possible. +The factual material is drawn largely from the documents +of the Kilgore, Truman and Bone Senate Committees, and from +the public records of antitrust cases.</p> + +<p>The investigations which unearthed the facts cited in this +book were, of course, the work of a great many men and women +in the Antitrust Division extending over a period of years. +Acknowledgment of credit to all of them would be impossible. +Many of the men who have developed these facts are now +serving their country in the armed forces.</p> + +<p>I cannot praise too highly the ability, energy and devotion to +public service of the men and women of the Antitrust Division. +It is a privilege to head such a splendid staff, as it is to serve +under such an able and distinguished Attorney General as +<span class="pagenum" id="Page_v">[Pg v]</span>Francis Biddle, who has maintained at all times an extremely +deep interest in our cartel work and has given it his fullest support. +Attorney General Biddle has repeatedly impressed upon +me his own conviction that the vigorous enforcement of the +antitrust laws against cartels is an indispensable condition to the +maintenance of a free competitive economy in this country.</p> + +<p>In the preparation of this book I am particularly indebted to +Joseph Borkin of my staff, who is in my opinion one of the best +informed men in America on the activities of international cartels. +For more than five years <abbr>Mr.</abbr> Borkin has devoted his +great resourcefulness and energy to investigation and study of +cartel problems. His contribution in this field has been invaluable.</p> + +<p>I also want to acknowledge my deep obligation to my First +Assistant, Edward H. Levi, with whom I have spent many +hours discussing the legal and economic problems of cartels, and +on whom I have relied so heavily in the practical administration +of the Antitrust Division. And I am greatly indebted to Myron +W. Watkins, Charles A. Welsh, Ernest S. Meyers, George P. +Comer, Herbert A. Berman, Bartholomew Diggins, Robert +Hunter, and Heinrich Kronstein of the Antitrust Division staff, +all of whom have been of great assistance in the preparation +of this book and in the cartel work of the Division. Professor +Walton Hamilton of Yale, who has been a part-time member +of the staff, has also worked closely with me on these +matters and has made a signal contribution to our work.</p> + +<p><abbr>Mr.</abbr> M. B. Schnapper, Executive Secretary of the American +Council of Public Affairs, has been of greatest assistance in the +planning of this book and in the editorial work which it has +involved.</p> + +<p class="right"> + <span class="smcap">Wendell Berge</span> +</p> + + +<hr class="chap x-ebookmaker-drop"> +<div class="chapter"> + +<p><span class="pagenum" id="Page_vi">[Pg vi]</span></p> + + + <h2 class="nobreak" id="CONTENTS"> + CONTENTS + </h2> +</div> + + +<table class="autotable"> + +<tr> +<td class="tdl"> + <i>1</i>: + <a href="#Page_1">Trusts to Cartels</a> +</td> +<td class="tdr">1</td> +</tr> + +<tr> +<td class="tdl"> + <i>2</i>: + <a href="#Page_10">Enterprise Eclipsed</a> +</td> +<td class="tdr">10</td> +</tr> + +<tr> +<td> + <i>3</i>: + <a href="#Page_19">Technology</a> +</td> +<td class="tdr">19</td> +</tr> + +<tr> +<td class="tdl"> + <i>4</i>: + <a href="#Page_36">Patents</a> +</td> +<td class="tdr">36</td> +</tr> + +<tr> +<td> + <i>5</i>: + <a href="#Page_52">Medicines</a> +</td> +<td class="tdr">52</td> +</tr> + +<tr> +<td class="tdl"> + <i>6</i>: + <a href="#Page_58">Synthetic Hormones</a> +</td> +<td class="tdr">58</td> +</tr> + +<tr> +<td class="tdl"> + <i>7</i>: + <a href="#Page_82">Vitamins</a> +</td> +<td class="tdr">82</td> +</tr> + +<tr> +<td class="tdl"> + <i>8</i>: + <a href="#Page_112">Quebracho Extract</a> +</td> +<td class="tdr">112</td> +</tr> + +<tr> +<td class="tdl"> + <i>9</i>: + <a href="#Page_124">Titanium</a> +</td> +<td class="tdr">124</td> +</tr> + +<tr> +<td class="tdl"> + <i>10</i>: + <a href="#Page_142">Optical Instruments</a> +</td> +<td class="tdr">142</td> +</tr> + +<tr> +<td class="tdl"> + <i>11</i>: + <a href="#Page_176">Miscellaneous Products</a> +</td> +<td class="tdr">176</td> +</tr> + +<tr> +<td class="tdl"> + <i>12</i>: + <a href="#Page_192">The Webb Act</a> +</td> +<td class="tdr">192</td> +</tr> + +<tr> +<td class="tdl"> + <i>13</i>: + <a href="#Page_208">Private Governments</a> +</td> +<td class="tdr">208</td> +</tr> + +<tr> +<td class="tdl"> + <i>14</i>: + <a href="#Page_233">Freedom or Control?</a> +</td> +<td class="tdr">233</td> +</tr> + +<tr> +<td class="tdl"> + <i>Appendix <abbr title="1">I</abbr></i>: + <a href="#Page_250">Recent Cases</a> +</td> +<td class="tdr">250</td> +</tr> + +<tr> +<td class="tdl"> + <i>Appendix <abbr title="2">II</abbr></i>: + <a href="#Page_257">Bibliography</a> +</td> +<td class="tdr">257</td> +</tr> + +<tr> +<td class="tdl"> +<a href="#Page_261">Index</a> +</td> +<td class="tdr">261</td> +</tr> + +</table> + + +<hr class="chap x-ebookmaker-drop"> +<div class="chapter"> + +<p><span class="pagenum" id="Page_1">[Pg 1]</span></p> + + + <h2 class="nobreak" id="1"> + 1 + <br> + <i>Trusts to Cartels</i> + </h2> +</div> + + +<p>The problem of monopoly is no longer a distinctively domestic +and national phenomenon. It has come to encompass the +wide world. Like a parasite upon its host, monopoly has grown +with the marketplace. Today hardly a corner of the world +remains free from the malignant influence of its latest and most +sinister form, the cartel. Diamonds discovered in Arkansas may +prompt agitated conferences within 48 hours in London and +the Belgian Congo; a lawsuit in New York challenging the +aluminum monopoly brings simultaneous outbursts of oratory +in the House of Lords and of vituperation on the Axis radio.</p> + +<p>For over half a century, the Sherman Act has stood as a +positive expression of the inflexible will of the American people +to preserve freedom of economic opportunity. When this +measure was enacted the oil, whiskey, and sugar trusts had +placed barriers directly athwart the arteries of commerce and +were exacting tolls for every gallon or pound of product permitted +to pass. Since nation-wide industrial monopoly of a +comparatively stable character first took the form of a simple +trust agreement the Sherman Act came to be designated an antitrust +statute. But its thrust was positive: the maintenance of +<span class="pagenum" id="Page_2">[Pg 2]</span>free, competitive markets and a democratic system of industrial +control.</p> + +<p>If such an Act were passed today, I am quite sure it would +be called an “Anti-Cartel Act.” For our attention is at the +present time focused on industrial monopoly in a different form, +operating in a wider orbit. But our basic concern is the same. +We are as determined today as were our grandfathers, two +generations ago—indeed, as were the founders of the republic—to +countenance no infringement of the right to engage in any +legitimate enterprise and to conduct business without let or +hindrance from any self-constituted group presuming to monopolize +trade or industry.</p> + +<p>The Sherman Act has proved an effective instrument no less +for dealing with the cartel problem than for curbing the trusts. +It must be conceded, however, that, in default of proper implementation +and appropriate supplementation, it has not fully +realized the salutary object for which it was designed. In particular, +our policies with regard to patents, trademarks, the +tariff, monetary and credit matters, interstate commerce, and +foreign trade, all have a direct bearing upon competition and +the pattern of industrial organization. They are important factors +conditioning the efficacy of a free market for performing its +basic economic functions. To our comparative neglect of the +incidence of these policies on the problem of maintaining healthful +competitive conditions in industry must be attributed a large +share of the responsibility for the difference between antitrust +goal and business practice.</p> + +<p>In these circumstances, cartels—which, in effect, are trusts +magnified to an international scale—have been able by clandestine +means to impress their sinister mark upon our economy. +In mobilizing for war, we discovered, almost too late, that they +were responsible for shortage after shortage of vital materials. +<span class="pagenum" id="Page_3">[Pg 3]</span>The fact is that they have retarded technological advance and +the introduction of improved devices and products, whenever +such developments seemed to threaten their vested interests +despite the fact that thereby national security might be jeopardized. +They have, indeed, obstructed and in no small measure +thwarted the declared foreign policies of the American government, +placing their own business interests above the public +interests.</p> + +<p>In peace time, their high-price, restricted-output strategy has +impeded the advance of our living standards and general economic +well-being. Through the abuse of our patent system, +cartel controls have been established over large segments of +technology. With this leverage, industrial monopolies of international +compass have at times deliberately brought about the +deterioration of quality standards. When it might be to their +advantage in maintaining or exploiting their monopoly position, +they have adulterated their products to an extent and in a +manner endangering the health, and even the lives, of consumers. +Almost incredible as these assertions may be, they are +not subject to contradiction—the incontrovertible facts are clearly +set forth in Congressional investigations and in the evidence +in antitrust cases of the Department of Justice.</p> + +<p>Cartels are in essence private governments which threaten +to subvert and even engulf duly constituted authority. In Germany, +Kaiserism and later Nazism received enormous impetus, +indeed decisive support, from the regimented, cartelized structure +of the national economy.</p> + +<p>Totalitarianism represents simply the ultimate consummation +of cartelism—the final, full expression of the reactionary +forces stemming from special privilege. In totalitarian states all +industrial enterprise is subservient to the predatory interests and +fear-dominated will of a government which openly flouts the +<span class="pagenum" id="Page_4">[Pg 4]</span>democratic principle of consent of the governed. In the economic +sphere, the investment of fresh capital, the volume of +production, the prices to be charged, the markets to be served, +are determined by arbitrary decrees. Risk-taking, managerial +discretion, bargaining freedom, the essential elements of the +capitalistic system as we have known it, are absent. One can +neither start a new industry, launch a new enterprise, or change +one’s occupation without first obtaining official consent. It is in +the nature of cartels that they should operate in a similar fashion, +even if in their application the devices used for consolidating +the vested interests of established concerns and throttling +the dynamic forces which economic freedom would release may +lack something of the rigor they exhibit under totalitarian +“leadership.” In order to maintain their control over production +and prices cartels must determine who may enter the industry, +how they shall operate and where they may sell.</p> + +<p>The basic American concept of free enterprise is the antithesis +of a cartelized market. Yet, all too frequently, some of our industrialists +have had the effrontery to attempt to promote a +pro-cartel policy by a specious appeal for free enterprise. The +pretension is that freedom to compete in trade must encompass +freedom to suppress competition! As though the right to start +a fire in order to heat a house must include the right to burn +down the house in complete disregard of the peril to the whole +community! The common sense of ordinary men has no difficulty +in distinguishing between the right to start a fire and the +“right” to commit arson.</p> + +<p>Unless I am greatly mistaken, the American public will no +more tolerate a cartel-sanctioning abrogation of the antitrust +laws in the name of “free enterprise” than they would countenance +a repeal of the laws against arson in the name of “freedom +of self-preservation”—the right to keep warm!</p> + +<p><span class="pagenum" id="Page_5">[Pg 5]</span></p> + +<p>It is significant, and deserves thoughtful reflection that Germany, +the “classic land of the cartel,” where regimented economic +restrictionism is the accepted “way of life,” has in the +course of two generations farrowed Kaiserism and Hitlerism—the +natural offspring of militarism and cartelism. Even in times +of peace, the militarists and industrial monopolists of Germany +found cartel restrictions an excellent means for conducting covert +warfare. In this way industrial “colonies” were acquired +and prospective victims “softened up.” Back in 1883, Joseph +Chamberlain, as a member of the British Cabinet, declared, in +sponsoring a bill designed to forefend the sub-rosa “invasion” +tactics of imperialistic Germany:</p> + +<p>“It has been pointed out especially in an interesting memorial +presented on behalf of the chemical industry that under the +present law it would have been possible, for instance, for the +German inventor of the hot blast furnace, if he had chosen to +refuse a license in England, to have destroyed almost the whole +iron industry of this country and to carry the business bodily +over to Germany. Although that did not happen in the case of +the hot blast industry, it had actually happened in the manufacture +of artificial colors connected with the coal products, and +the whole of that had gone to Germany because the patentees +would not grant a license in this country.”</p> + +<p>A quarter century later, Lloyd George, introducing a more +drastic bill for curbing these insidious depredations on strategically +vital British industries, pointed out:</p> + +<p>“Big foreign syndicates have one very effective way of destroying +British industry. They first of all apply for patents on +a very considerable scale. They suggest every possible combination, +for instance, in chemicals, which human ingenuity can +possibly think of. These combinations the syndicates have not +tried themselves. They are not in operation, say, in Germany or +<span class="pagenum" id="Page_6">[Pg 6]</span>elsewhere.... A good many of these patents have been taken +out not for the purpose of working the patents in this country, +<em>but for the purpose of preventing their being worked</em>.”</p> + +<p>The “big foreign syndicates” to which George referred were, +of course, the German cartels.</p> + +<p>The adroit strategy of stealthily sapping the industrial foundations +of the national security of countries capable of resisting +the German <i lang="de">drang nach</i> all-points-of-the-compass has been relentlessly +pursued and resourcefully developed, through thick +and thin, decade after decade. If the cartels are thwarted in the +use of the patent system as a weapon for disarming potential +competitors abroad, they may inveigle the intended victims of +German aggression to a ‘simulated’ love-feast at which the +latter are gorged with the poisoned food of production quotas, +technology restrictions, market-territory limitations, and pricing +inhibitions. What these tactics accomplished in the way of +immobilizing French industry is now a familiar story. To cite +the record of only three of the most strategic industries, through +cartel manipulations the Germans succeeded in (a) reducing the +relative output of French steel from substantial equality with +German output in 1926 to 40 percent thereof in 1938, (b) retarding +the growth of French aluminum production to a rate +which fell short of doubling the output in the same period, +while German production was increasing five-fold, and (c) restricting +the French dyestuffs industry in such fashion that its +output in 1937 was barely two-thirds of what it had been in +1924, whereas German production, even according to official +estimates (none too reliable though they are) had increased five +percent in the same period.</p> + +<p>Nor were the European countries alone the “potential enemies” +whose vital economic defenses were thus impaired by +subtly imposed cartel restrictions. In this hemisphere, likewise +<span class="pagenum" id="Page_7">[Pg 7]</span>and not least of all in our own country, the cartel device was +sedulously—and effectively—used for the same ulterior purpose. +As President Woodrow Wilson declared shortly after the +first World War,</p> + +<p>“Our complete dependence upon German [dyestuffs] supplies +before the war made the interruption of trade a cause of +exceptional economic disturbance. The close relation between +the manufacture of dyestuffs on the one hand and of explosives +and poisonous gases on the other, moreover, has given the industry +an exceptional significance.... It will ... be a policy of +obvious prudence to make certain of the successful maintenance +of many strong and well-equipped chemical plants. German +chemical industry, with which we will be brought into competition, +was and may well be again <em>a thoroughly knit monopoly, +capable of exercising a competition of a peculiarly insidious and +dangerous kind</em>.”</p> + +<p>Despite this warning in 1919, we were only slightly better +off, relatively, in respect of the arts of organic chemicals manufacture +twenty years later, when Germany decided the time was +ripe for another attempt at world conquest, than we had been +in 1917. In the matter of synthetic rubber technique, today the +most strategically critical of all these processes, I. G. Farbenindustrie +had succeeded, through its cartel arrangements with +the leading American firms in the petroleum and chemical +fields, in keeping this country in an extremely vulnerable position—as +all the world now knows. Partly through persistent +stalling tactics, partly through playing one American firm off +against another, partly through cajolery, and partly through +deliberate deceit, the German cartelists had not only stifled +the development of American technology in this field, even by +their “partners” on this side of the Atlantic, but had done even +better, from their standpoint. They had obtained the German +<span class="pagenum" id="Page_8">[Pg 8]</span>patent rights and the essential know-how for the most signal +contributions of American technicians to the art of synthetic +rubber manufacture. And, incredible though it may seem, they +had obtained these advantages without divulging a single significant +detail of their own carefully guarded know-how!</p> + +<p>As the President’s Office of Facts and Figures ruefully +summed up the situation in 1942:</p> + +<p>“[The enemy] has worked for many years to weaken our +military potential. Through patent controls and cartel agreements +he succeeded in limiting American production and export +of many vital materials. He kept the prices of these materials up +and the output down. He was waging war, and he did his work +well, decoying important American companies into agreements, +the purpose of which they did not sense.”</p> + +<p>Thus, sixty years after a member of the British Cabinet first +testified to its awareness of the menace in the insidious penetration +of German cartels in the international sphere, a branch of +the American Executive confirms the continuing pertinence of +his observations.</p> + +<p>How, in the face of this record, in the light of this evidence +of the persistence of the cartel movement and of its chronic +tendency to pervert the processes of industrial production to +ulterior ends leading indefeasibly to the devastation and slaughter +of war can it be contended that cartels represent a promising +way to order the post-war world economy? Is it not plain, +rather, that “if we would guide by the light of reason,” we must +reaffirm our pledge of democratic equality of opportunity for +all in trade and industry, and resolutely set about the task of +putting our house in order in accordance with that basic principle +of American life? Is it not plain, too, that monopolistic industrial +control in the domestic sphere cannot be completely +achieved without the uprooting of the foci of cartel infection in +<span class="pagenum" id="Page_9">[Pg 9]</span>German industry? Once German industry is purged of its cartel +hook-ups and monopolistic animus and all non-German industry +is released from the haunting fears and seductive temptations +which go so far to explain these international industrial alliances, +I am confident that the prospects for the restoration of +genuine freedom of enterprise and healthy competitive markets +will be good. While I am not sanguine of the goal being +reached forthwith and easily, “at one bound” as it were, I have +an abiding faith that the dynamism of economic freedom will +enable us, in the end, to surmount every obstacle erected by +special privilege or vested interest on the highroad to full utilization +of resources. A truly great adventure is ahead.</p> + + +<hr class="chap x-ebookmaker-drop"> +<div class="chapter"> + +<p><span class="pagenum" id="Page_10">[Pg 10]</span></p> + + + <h2 class="nobreak" id="2"> + 2 + <br> + <i>Enterprise Eclipsed</i> + </h2> +</div> + + +<p>It is the determination of our people not only to gain victory +over the military power of aggressors, but to establish securely +the lasting conditions of peace. We know that beyond victory +we shall have to face a multitude of perplexing economic problems. +We must also realize that we shall meet new dangers to +those free institutions on which our national economy is based. +If the problems of peace are to be solved, we shall have to come +to grips with these difficulties in the same spirit of resolution +with which the war has been waged.</p> + +<p>It seems abundantly clear that America can never have a +foreign policy based on the principles of democracy and international +good will as long as international trade is dominated +by cartels. It does not seem possible that the Atlantic Charter, +the Good Neighbor policy, and the reciprocal trade pacts can +effectively prevail if the special privileges of cartels dominate +trade and politics in the postwar world.</p> + +<p>In many respects cartels form one of the central issues of the +present period. The greatest threat to our success in achieving +full production and full employment at home, and friendly cooperation +with other nations abroad, is the philosophy and practice +of privilege embodied in cartels. If there is to be a free and +productive economy in the United States, or a free exchange of +<span class="pagenum" id="Page_11">[Pg 11]</span>goods in world markets, the power of cartels must be broken.</p> + +<p>It is essential to understand that cartels seek to divide and +rule world industry on the basis of economic privilege. If cartels +are successful in gaining a foothold in the postwar period, +it will almost be impossible for this nation to maintain a high +level of peacetime production or to cooperate in the reconstruction +of world trade.</p> + +<p>In general, cartels restrict rather than promote trade. Cartels +typically engage in such practices as dividing fields of operation +and market areas between members so as to eliminate competition, +restricting production by agreement, and fixing prices so as +to avoid price competition. They also promote various kinds of +patent licensing contracts which enable them to control and limit +the use of new inventions and thus restrict the benefits of technological +advance. The effects of these practices include reduced +production and employment, higher prices and profits, retarded +spread of technological improvements and a lower standard +of living.</p> + +<p>The conduct of cartels before and during this war has been +one of the tragic pages of our history. The shortages of aluminum +and magnesium resulting from cartel restrictions forced us +to strip the kitchens of America and scar our public squares with +scrap piles. The scarcity of rubber is a never-ceasing threat to +our productive effort. Our armed forces plead with us to +contribute our binoculars. The lack of vital drugs and medicines +has jeopardized our men fighting in fever stricken areas. +In fact, almost wherever there was a cartel there was a shortage.</p> + +<p>But cartels have an even more serious aspect. These private +governments threaten the sovereignty of democratic nations. +The political implications of cartel activity threaten to subvert +future national public policy of the United States.</p> + +<p>There is a close relation between a country’s economic policies +<span class="pagenum" id="Page_12">[Pg 12]</span>and its foreign relations. It is generally recognized now that +economic freedom cannot be attained at home if private groups +are permitted to acquire monopoly power over industry. Likewise, +it must be equally recognized that friendship and cooperation +between this country and other nations cannot be established +without the free exchange of goods and services. Reciprocal +trade treaties and good neighbor policies can have little effect +if private cartels can shut off American markets to foreign producers +or prevent American producers from selling abroad.</p> + +<p>The Good Neighbor policy is one of the fundamental principles +of our relations with Latin America. While our Government +was bending every effort to bring about the conditions of +sound and mutually advantageous cooperation, cartels were +systematically undermining these efforts. Latin America was +turned over by private cartels as a colony to hostile foreign interests. +By giving German industry virtually a free hand in +Latin America, and by agreeing not to compete, American cartelists +made possible the creation of a German sphere of influence. +Nazi propaganda, espionage, and subversive activity all +stem directly from this unhampered German penetration. +When South Americans sought to purchase drugs, metals, precision +equipment, and munitions from the United States, private +cartel treaties had already provided that American concerns +could not engage in this trade. Not only was the healthy development +of South American trade and industry checked, but +even today we struggle desperately to overcome the political +consequences of cartel activity.</p> + +<p>We have long cherished the principle of open covenants +openly arrived at. In fact, this policy is an essential part of +America’s conduct of foreign affairs. Every treaty commitment +made by this country is debated publicly by the people’s representatives. +Without the agreement of two-thirds of the Senate +<span class="pagenum" id="Page_13">[Pg 13]</span>and the President, no treaty may be made. Yet agreements +have been made in international industry affecting both the +American economy and our foreign policy which were secretly +contrived and clandestinely arrived at. The American people +had no voice, but they bore the burden of these private treaties.</p> + +<p>Make no mistake—the war has not interfered with cartel +plans. Cartel agreements invariably provide for the contingency +of war. Long before the war, cartels worked out a <span lang="la">modus +vivendi</span>—a method of continued existence—for they felt that +their relations must be preserved, war or no war. Thus we find +American and British cartelists agreeing to preserve the German +position in Latin American markets after the war. Agreements +between the cartel members of countries now at war provide for +a resumption at the war’s close. In case legislation or government +action interfere, then they will cooperate to adapt their +relations, as one agreement states, “in the spirit of the present +agreements.”</p> + +<p>Therefore, the necessity for vigorous action in keeping open +the channels of trade becomes apparent when we consider that +those who create cartels hold themselves above the law or seek +to control legislation and Government policy in the many countries +where they operate.</p> + +<p>These same groups are making their own postwar plans. Because +they have found the enforcement of the Sherman Act a +hindrance in the past they have expressed a desire to have the +antitrust laws repealed.</p> + +<p>It should be recalled that the political deal which Munich +represented had its economic counterpart in one made at Dusseldorf, +in which the Federation of British Industries and the +German industrial overlords expressed their intention of stabilizing +and rationalizing world trade. As indicated at Dusseldorf, +cartel groups regard governments as handy instruments +<span class="pagenum" id="Page_14">[Pg 14]</span>to be used in working out their schemes of restriction.</p> + +<p>Although the peace of Munich has received considerable public +consideration, little attention has been given to the peace of +Dusseldorf, a peace which, while obscured in the welter of political +and military crises, epitomized the spirit and the power of +international industrial monopoly.</p> + +<p>On March 15 and 16, 1939, immediately after Hitler’s invasion +of Czechoslovakia, representatives of the Reichsgruppe +Industrie of Germany and of the Federation of British Industries +held an intensive conference at Dusseldorf. At the conclusion +of the conference representatives of German and British +industry issued the following joint declaration:</p> + +<p>“The Reichsgruppe Industrie and the Federation of British +Industries, having concluded a general discussion on Anglo-German +trade relations, issue the following agreed statement:</p> + +<p>“1. The two organizations welcome the opportunity which +these discussions have given of developing still further the +friendly relations which have existed between the two bodies +for so many years.</p> + +<hr class="tb"> + +<p>“4. The two bodies are agreed that the objective to be attained +is that the export of all countries should be conducted +in such a way as to ensure a fair return for the producers of those +countries. Hence it is agreed that it is essential to replace destructive +competition wherever it may be found by constructive +cooperation, designed to foster the expansion of world trade, +to the mutual benefit of Great Britain, Germany and all other +countries.</p> + +<p>“5. The two organizations are agreed that it is desirable that +individual industries in both countries should endeavor to arrive +at industrial agreements which will eliminate destructive +competition, wherever occurring, but prices must be fixed at such +<span class="pagenum" id="Page_15">[Pg 15]</span>a level as not to diminish the buying power of the consumers.</p> + +<p>“6. The two organizations realize that agreements upon +prices or other factors between Germany and Great Britain are +only a step, although a most important step, towards a more +ordered system of world trade. They would welcome the participation +of other nations in such agreements.</p> + +<hr class="tb"> + +<p>“8. The two organizations realize that in certain cases the +advantages of agreements between the industries of two countries +or of a group of countries may be nullified by competition +from the industry in some other country that refuses to become +a party to the agreement. In such circumstances it may be necessary +for the organizations to obtain the help of their governments +and the two organizations agree to collaborate in seeking +that help.</p> + +<p>“9. The two organizations agree that it is their objective to +ensure that as a result of an agreement between their industries +unhealthy competition shall be removed. Their aim is to secure +as complete cooperation as possible throughout the industrial +structure of their respective countries.</p> + +<p>“10. The two organizations have agreed to use their best +endeavors to promote and foster negotiations between the individual +industries in their respective countries. They are encouraged +in this task owing to the fact that a considerable number +of agreements between individual German and British industrial +groups are already in existence. There is thus available +a large body of experience which inspires confidence that an immediate +extension of this policy is both practicable and advantageous.</p> + +<p>“They are glad to state that approximately a further fifty +industrial groups have already signified their willingness in +principle to negotiate at an early date.</p> + +<p><span class="pagenum" id="Page_16">[Pg 16]</span></p> + +<p>“They also report with satisfaction that negotiations have already +been started and are now taking place between ten industrial +groups.”</p> + +<p>The spirit exemplified in the above declaration is not dead. +It is awaiting the moment of peace to step in and resume control +of those very industries which are most essential to the rehabilitation +of a war-torn world, to the fullest use of our labor +and resources.</p> + +<p>Surely we must realize now that if the program of Dusseldorf +prevails in the postwar world it will produce World War +<abbr title="3">III</abbr>. Surely we must recognize that we cannot build a free +world without a free economy.</p> + +<p>The close and constant cooperation of the United Nations +after the war is all-important. This cooperation should rest, +among other things, on active and healthy international trade. +We want to see that trade grow unhampered by private restrictions. +In attacking these illegal activities the Government +of the United States is aiming at a condition which obstructs +healthy international trade and threatens the effectiveness of +governmental foreign policies.</p> + +<p>To combat the influence of monopoly groups, the United +States has two effective weapons: (1) the vigorous enforcement +of the Sherman Act, and (2) the power which Congress possesses +to investigate and make public the hidden dealings of +cartel interests.</p> + +<p>It is significant that in Great Britain increasing interest in +the purposes and activities of cartels is being manifested—principally +as the result of American antitrust investigations which +have revealed that British industry, no less than our own industry, +has suffered the burden of restrictive practices imposed by +cartel arrangements.</p> + +<p>Moreover, there has been developing in Canada a substantial +<span class="pagenum" id="Page_17">[Pg 17]</span>interest in the cartel problem. Thus, the <cite>Ottawa Journal</cite> recently +stated editorially that “it is fairly clear to all that cartels, +large combinations of industries parcelling out territories among +themselves, controlling patents and fixing prices, may be a +menace to the general well-being, and what is more vital, a +menace to world peace.”</p> + +<p>And the <cite>Winnipeg Free Press</cite> declared not long ago that +“it is gradually dawning upon Britain that rationalization of +industry has its dangers. They are discovering that monopolies +can and do develop evil practices.... Thus there is arising there +[in Great Britain] a demand for control of monopolies, the +breaking down of cartels and the restoration of competition between +the great industrial giants.” After pointing out some of +the evils that flow from monopoly control, <cite>Winnipeg Free +Press</cite> went on to say: “National monopolies which restrain trade +are bad enough of themselves. But when combined with international +cartels they are intolerable. The Canadian government +should pay particular attention to the antitrust proceedings +in the United States. They reveal a most unhealthy state +of industrial health and if the economy of this country is to be +saved from disaster steps will have to be taken to break up the +evil monopolies and their cartels.”</p> + +<p>It would certainly be in the mutual interest of Great Britain +and ourselves if we could take a joint stand against private restrictive +arrangements in the postwar world and together seek +to stamp them out.</p> + +<p>There is ample reason to believe that American exposure of +secret cartel practices may have its effect on the public policy +of other countries and promote common understanding that +certain types of activity should be outlawed in other countries +as well as here. But irrespective of the extent to which other +governments adopt policies similar to ours, there can be no +<span class="pagenum" id="Page_18">[Pg 18]</span>doubt that American business can thrive in competition with +foreign cartels if it does not enter into cartel restrictions. If +freed of cartel shackles, American enterprise should well be +able to expand in world markets and render foreign cartel control +ineffective. It is doubtful, indeed, whether any major international +cartel can effectively control world markets without +the participation and cooperation of the American segments of +the industry. There is a real question whether foreign cartels +can long survive in many industries if American cooperation is +not extended to them.</p> + +<p>If and when some measure of control and regulation becomes +economically necessary on an international scale in a particular +industry, a question is presented for governmental action—not +for private cartel action. If, for example, in a particular industry +it seems necessary to control production in order to avoid +waste of a scarce natural resource, the solution of such a problem +is properly a responsibility of national or international governmental +action. Where control is needed, it must be by public +authority. If international restrictive agreements are ever needed, +they must be determined upon by governments—not by +private cartels.</p> + +<p>But the situation where control would be required on an international +scale is decidedly the exception. Most foreign trade +in the postwar world can be conducted on a competitive basis +if we give competition a chance. The period following the war +will present an unprecedented challenge to the ingenuity of +mankind. Men of brains and imagination should have a chance +to rebuild the world, to take risks, to engage in foreign trade +and to win in competitive struggle, unhampered by private decrees. +The world is not a private hunting preserve which can be +divided at will among monopolists who think they have gained +squatters’ rights.</p> + + +<hr class="chap x-ebookmaker-drop"> +<div class="chapter"> + +<p><span class="pagenum" id="Page_19">[Pg 19]</span></p> + + + <h2 class="nobreak" id="3"> + 3 + <br> + <i>Technology</i> + </h2> +</div> + + +<p>In the days of Adam Smith it was possible to measure the +wealth of nations in terms of mineral resources, possession of +fertile lands and control of strategic geographical areas. Today +we have a new index to the wealth and security of nations. +Technology and applied science have become principal instruments +in the maintenance of a high standard of living and for +the protection of national interests. In fact, when we speak of +the balance of power in the modern world, we must take into +account the extent and quality of industrial and technological +resources as a dominant factor in national welfare. The horizons +which have been opened by applied science and research offer +to the world, and to our own nation in particular, new industries, +greater opportunities for our youth, higher levels of health and +comfort, and the attainment of that genuine social security which +comes with all great advancements in human knowledge.</p> + +<p>Technology—its direction, its applications, and its enjoyment—is +today a primary concern of government. In a system +based upon freedom of enterprise, access to technology is the +fundamental condition of rapid advancement toward the goals +for which our nation is striving. The power that goes with the +<span class="pagenum" id="Page_20">[Pg 20]</span>development of modern technology has been perverted in totalitarian +countries to provide instruments of aggression. Because +totalitarian states have regimented science and have made +it subservient to imperial ambitions, it has been used to destroy +rather than to create. One of the principal problems which +the United Nations will encounter in the peace to come will be +the prevention of any abuse of new discoveries for the purpose +of establishing war machines which can threaten the peace of +the world.</p> + +<p>The control of vital areas of research by monopolistic interests +is a condition which cannot be tolerated. Monopoly control +seeks to protect vested interests and to perpetuate its grip on +the advancement of science and technology. It retards the introduction +of new goods and services and the maintenance of +full employment in time of peace. Our experiences in this war +have demonstrated conclusively that monopolistic control of +critical sectors of industrial research has a paralyzing effect on +mobilization of our national strength. One of the most difficult +problems we have encountered in arming this country has been +the domination and restriction of technology by small privileged +groups. It has required strenuous efforts on the part of government +and industry alike to overcome the stifling effects of complacent +monopoly.</p> + +<p>With rare exceptions industrial research at the present time +can only be carried on by large numbers of scientists and technicians +combining their ingenuity to resolve the complex problems +of both pure and applied science. In the last fifty years +technology has moved at such a rapid pace that no longer is +the small businessman in a position to maintain laboratories of +sufficient size. Today we witness the gigantic research organizations +of all major corporations, and no one desires to impair +their efficiency.</p> + +<p><span class="pagenum" id="Page_21">[Pg 21]</span></p> + +<p>There is, nevertheless, a gap between the promise of organized +research conducted on a huge scale by great corporations +and the fulfillment as measured by accomplishments for the +public interest. So that there shall be no misunderstanding, I +should like to pay tribute to the vast army of scientists and +research workers who have done such remarkable work in the +years of peace as well as in the years of war in bringing forth a +multitude of amazing discoveries. It is not their fault that their +contributions have not been fully realized. The trouble is that +in many instances the misuse of research by monopolistic and +cartelized groups has resulted in the restricting of production, +withholding new products, and fencing in and blocking off new +developments.</p> + +<p>One of the ablest and clearest statements of the effect of restrictive +arrangements upon research was made by <abbr>Dr.</abbr> F. B. +Jewett, vice-president of the American Telephone & Telegraph, +and chief of Bell Laboratories. In discussing an agreement between +his company and other parties, he stated:</p> + +<p>“Broadly speaking, the practical effect of the agreement is +to limit the field of possible development of each party to its +present major activities....</p> + +<p>“Thus, while a casual reading of the agreement by one not +thoroughly conversant with all the factors may appear to establish +the basis for an enlarged free development in most of +the fields, this is not actually the case.</p> + +<hr class="tb"> + +<p>“The far-reaching effect of the proposed agreement on the +character and scope of our research and development work is +apparent. Viewed both from the standpoint of the research +worker in our laboratories and from the standpoint of those +responsible for the expenditures incurred by the Laboratories, +the inevitable result would be a narrowing of the field of activity +<span class="pagenum" id="Page_22">[Pg 22]</span>and failure to undertake anything which at the outset is not +clearly directed to the field of our current business. From the +standpoint of the man who has a brilliant idea which in its first +nebulous form seems to be applicable outside our business, there +will be little or no urge to go ahead in the face of a situation +where he knows that the results of his work have been sold in +advance outside of the Bell System. From the standpoint of +management there will likewise be no incentive, but quite the +reverse, to urging him on and appropriating money for his investigations.”</p> + +<p>A member of a monopoly or cartel group all too often finds +itself in a position where it must choose between the national +interest on the one hand and its cartel obligations on the other. +This difficulty is accurately stated in a document taken from +the Standard Oil <abbr title="Company">Co.</abbr> (<abbr title="New Jersey">N. J.</abbr>) files with reference to the development +of 100 octane gasoline, one of the most vital materials +of modern warfare:</p> + +<p>“This possibility is, of course, extremely attractive to the +Army Air Corps, but there is one difficulty involved which <abbr>Mr.</abbr> +Russell quite frankly discussed. The hydrogenation development +originated in Germany, and through cooperation all +around has now passed into the hands of the oil industry of the +entire world, and, to a certain extent, into the hands of the foreign +chemical industry as well. There is a full and free exchange +of technical information between all of the companies +and units involved in the hydrogenation development and this +exchange is not only by means of reports but by constant visits +of technical men. To cut off these reports and shut our hydrogenation +plants against these visitors would be not only a violation +of these agreements, which would involve us in many difficulties, +but would also be tantamount to a confession that we +were engaged in some work of special military value which +<span class="pagenum" id="Page_23">[Pg 23]</span>would mean that the plants would become a focal point for espionage. +The costs and difficulties of protecting against leakage +of information about large commercial operations under such +conditions is hard to estimate. <em>It seems that the only practical +way to handle this problem is to avoid carrying out the operation +of producing 100 octane number aviation gasoline commercially +as long as possible.</em> We would, of course, also have +to breach our agreements to render full and complete technical +reports to all of the companies associated with us (even to the +American companies, for fear of leakage). We should also forfeit +the advantage in producing at the least cost the best available +gasoline for commercial purposes.</p> + +<p>“<em>Any program by which the Army Air Corps can obtain their +objective of a one or two year start over the rest of the world +on this vital matter bristles with difficulties and sacrifices from +our standpoint.</em> We will not have to cross the bridge finally until +our present experiments are completed. When and if we are +able to demonstrate that the hydrogenation plants are capable +of turning out an aviation product which with the usual quantity +of lead can be brought up to 100 octane number, we shall be +faced with the situation mentioned above. <em>To meet the very +proper desires of the Air Corps as expressed to us we shall have +to violate our agreements and perhaps forfeit the confidence of +our associates, both American and foreign, and beyond this we +shall either have to avoid any commercial use of the new method +or run the very grave risk of finding that our efforts at +secrecy have been abortive.</em>”</p> + +<p>In pointing out the inevitable conflicts between national loyalties +and business interests which arise when industry is carried +on through private international cartel agreements, I do not attack, +nor do I intend to cast inferences against, the patriotic motives +of any men or companies. I assume that the persons who +<span class="pagenum" id="Page_24">[Pg 24]</span>have taken part in these transactions have not consciously acted +against the best interests of their country. But it is the cartel +system that is at fault. The individuals caught up in the system +are faced with a dilemma because it imposes on them choices +which it is almost impossible to make without violation of an +obligation to one of two conflicting interests.</p> + +<p>One of the most serious limitations upon research has been +the division of fields of technology by cartel groups. If a company +is barred by agreement from an aspect of technology, there +is little if any incentive to do research in that field. One possible +consequence of such division of technology is that it permits +foreign interests to exercise influence amounting to domination +over research in this country.</p> + +<p>No one doubts that synthetic rubber is a matter of national +interest. The cartel arrangement between Standard Oil <abbr title="Company">Co.</abbr> +(<abbr title="New Jersey">N. J.</abbr>) and I. G. Farbenindustrie was such that the latter dominated +the development of synthetic rubber in this country as +well as in Germany.</p> + +<p>In the case of the Bausch & Lomb (Rochester)-Carl Zeiss +(Jena, Germany) cartel on military optical glass, the heads of +the Bausch & Lomb department responsible for military research +were to be appointed only with the agreement of the +Zeiss firm.</p> + +<p>In regard to the cartel involving Plexiglass, probably one of +the most important plastics, and one which has innumerable +military uses, the Rohm & Haas Company (Philadelphia) +stated: “We could think of a price agreement on the finished +product, or a division of our interests ... we have not only our +own interests at stake, but also the ones of our German house +[Rohm & Haas of Darmstadt, Germany] and the I. G.”</p> + +<p>In December 1934 a high official of the duPont Company +wrote to E. W. Webb, president of the Ethyl Gasoline Corporation +<span class="pagenum" id="Page_25">[Pg 25]</span>(copies were sent to every member of its Board of Directors) +as follows:</p> + +<p>“I learned through our Organic Chemicals Division today +that the Ethyl Gasoline Corporation has in mind forming a +German company with the I. G. to manufacture Ethyl lead in +that country.</p> + +<p>“I have just had two weeks in Washington, no inconsiderable +part of which was devoted to criticising the interchanging with +foreign companies of chemical knowledge which might have a +military value. Such giving of information by an industrial +company might have the gravest repercussions on it. The Ethyl +Gasoline Corporation would be no exception, in fact, would +probably be singled out for special attack because of the ownership +of its stock.</p> + +<p>“It would seem, on the face of it, that the quantity of Ethyl +lead used for commercial purposes in Germany would be too +small to go after. It has been claimed that Germany is secretly +arming. Ethyl lead would doubtless be a valuable aid to military +aeroplanes.</p> + +<p>“I am writing you this to say that in my opinion under no +conditions should you or the Board of Directors of the Ethyl +Gasoline Corporation disclose any secrets or ‘know how’ in +connection with the manufacture of tetra-ethyl lead to Germany.”</p> + +<p>Yet, in the face of this warning from duPont, on January 12, +1935, Webb wrote the Chief of the Army Air Corps that “There +is no technical data of military importance known to us which +would be involved in the building of such a plant that has not +already received wide publicity, or is of common knowledge in +the aviation field.”</p> + +<p>This statement strikingly ignores the warning received from +duPont only one month earlier that such a disclosure would +<span class="pagenum" id="Page_26">[Pg 26]</span>“doubtless” be prejudicial to our national security. In this connection +it should not be overlooked that duPont and Dow were +the sole producers of the chemical components of tetraethyl lead +and, as such, were the concerns which alone possessed the essential +know-how.</p> + +<p>Why did Ethyl Gasoline disregard duPont’s warning? Webb +himself has supplied the answer in the final paragraph of his +letter of January 12, 1935:</p> + +<p>“There is, furthermore, an equally, if not more, important +business aspect to the German situation. We are owned by +Standard Oil and General Motors in equal shares. General +Motors has important investments in Germany, producing there +in excess of 50 percent of the motor cars. Standard Oil has large +investments in all phases of the petroleum business in Germany.... +We feel ... for the reasons specifically mentioned +here, that it would be extremely unfortunate for all concerned +if we do not proceed to carry out the agreement with I. G.... +A refusal or undue delay on our part ... might bring on +some serious reprisal measures.”</p> + +<p>This leaves nothing for surmise. It is not unfair to conclude, +in view of these facts, that for the directors of Ethyl Gasoline +the preservation of I. G. good-will conflicted with the maintenance +of good faith in dealings with their own government. +Though duPont, from the beginning, was opposed to the entire +deal on grounds of patriotic scruples, nevertheless it eventually +deferred. In an inter-office memo of the duPont Company +appears the following:</p> + +<p>“I think we should tell <abbr class="spell">I.C.I.</abbr> that the technical and engineering +information which we are giving I. G. in connection +with Tetraethyl Lead is being given them entirely at the request +of the Ethyl Gasoline Corporation. As they no doubt know, +Ethyl Gas and I. G. set up some arrangements whereby they +<span class="pagenum" id="Page_27">[Pg 27]</span>are going to participate jointly in the manufacture and sale of +Ethyl Lead in Germany and we are turning over our information +to Ethyl Gas which they in turn can submit to I. G. as part +of the bargain in connection with this joint enterprise.”</p> + +<p>The full extent of the dilemma in which cartel members are +placed by the conflict of their cartel commitments with national +interest is indicated in two statements made by a representative +of one of the world’s great industrial combines. In a letter written +in 1939, after the outbreak of war, a Standard Oil official +stated:</p> + +<p>“Pursuant to these arrangements I was able to keep my appointments +in Holland, where I had three days of discussion +with the representatives of the I. G. They delivered to me +assignments of some 2,000 foreign patents and <em>we did our best +to work out complete plans for a <span lang="la">modus vivendi</span> which would +operate through the term of the war, whether or not the <abbr title="United States">U. S.</abbr> +came in</em>. All of the arrangements could not be completed, but +it is hoped that enough has been done to permit closing the most +important uncompleted points by cable. It is difficult to visualize +as yet just how successful we shall be in maintaining our +relations through this period without personal contacts.”</p> + +<p>It is of significance also that this same representative of a +cartel group brilliantly expressed the cartel point of view when +he said:</p> + +<p>“Upon completion of that agreement, the war intervened +because our grouping of interested parties included Americans, +British, Dutch, Germans, and the war introduced quite a number +of complications. <em>How we are going to make these belligerent +parties lie down in the same bed isn’t quite clear as yet.</em> We +are now addressing ourselves to that phase of the problem and +I hope we will find some solution. <em>Technology has to carry on—war<span class="pagenum" id="Page_28">[Pg 28]</span> +or no war</em>—so we must find some solution to these last +problems.”</p> + +<p>It is in their very nature that cartels restrict the fullest developments +of new products and that they attempt to place rigid +handicaps on output. Very often they even adulterate the +quality of products in order to exact the greatest possible toll +from the public. Several examples may be used to indicate the +practices and mental attitude of monopoly groups in relation to +the quality of material. The following quotation concerning +flashlight bulbs speaks for itself:</p> + +<p>“Two or three years ago we proposed a reduction in the life +of flashlight lamps from the old basis on which one lamp was +supposed to outlast three batteries, to a point where the life of +the lamp and the life of the battery under service conditions +would be approximately equal. Sometime ago, the battery +manufacturers went part way with us on this and accepted lamps +of two battery lives instead of three. This has worked out very +satisfactorily.</p> + +<p>“We have been continuing our studies and efforts to bring +about the use of one battery life lamps. I think you will be +interested in the attached analysis which <abbr title="Misters">Messrs.</abbr> Prideaux and +Egeler have worked up covering the various points involved +in going to the one battery life basis. If this were done, we +estimate that it would result in increasing our flashlight business +approximately 60 per cent. We can see no logical reason either +from our standpoint or that of the battery manufacturer why +such a change should not be made at this time.</p> + +<p>“<abbr title="Misters">Messrs.</abbr> Parker and Johnson now have this matter up with +the battery manufacturers and I would urge that every assistance +be given them to put it over.”</p> + +<p>Methyl methacrylate, the name of one of the best known +plastics, is used not only in the industrial field to make airplane +<span class="pagenum" id="Page_29">[Pg 29]</span>windshielding and many other structural materials, but it also +has excellent qualities for the making of dental plates or dentures. +As a result of the monopoly control of this material by +the duPont Company and Rohm & Haas, its uses were divided +into two fields: industrial and dental. At the time these firms +were indicted a sharp difference in price was maintained. When +methyl methacrylate was sold for industrial purposes, it cost 85 +cents a pound, while the price to dental users was $45 a pound. +The dental profession soon learned that there was no difference +in the material, whether it was designed for industrial or dental +use. As a result they began to purchase their requirements +from industrial users, in order to gain the advantage of the +cheaper industrial price which, we could assume, might possibly +be passed on to the dental patient.</p> + +<p>The monopoly clique considered this a form of bootlegging. +On March 15, 1940, the Vernon-Benshoff Company (Pittsburgh), +a member of the clique, made various suggestions to +the Rohm and Haas Company which, although they were not +placed in actual effect, offer valuable insight into the shocking +extremes to which monopolists will consider going:</p> + +<p>“Our discussion of the Pure Food and Drug Law and pulling +the acrylic denture under it leads me to wonder if the manufacturers +of the commercial molding powders might not add an +ingredient which would not effect the molding properties, but +which would disqualify it under the act. Apparently a slight +trace would suffice. Naturally it would be omitted from the +strictly denture powder.</p> + +<p>“Recently I asked <abbr>Dr.</abbr> Johnson to suggest an addition which +might interfere with distillation of monomer or retard polymerization. +He could not think of anything that wouldn’t spoil +the molding properties or clarity of the powders. But there the +quantity needed to accomplish the result was the handicap.</p> + +<p><span class="pagenum" id="Page_30">[Pg 30]</span></p> + +<p>“Under the very finicky regulations of the above act however, +it may be the slightest trace of the right agent, too little +to constitute harm to molding (or health either as a matter of +fact) would suffice to have bootleg products in bad.</p> + +<p>“A millionth of one per cent of arsenic or lead might cause +them to confiscate every bootleg unit in the country. There +ought to be a trace of something that would make them rear +up.”</p> + +<p>In its reply the Rohm & Haas Company said that it was in +agreement with the general principles presented in the letter +quoted above and that it would ask its research department to +work on the matter. This was expressed in a letter of March +21, 1940 to the Vernon-Benshoff firm:</p> + +<p>“With reference to your letter of March <abbr>15th</abbr>, we shall be +glad to investigate whether denture materials come under the +Pure Food and Drug Act. We agree with you that if we could +put some ingredient in our commercial molding material which +would disqualify it under the Pure Food and Drug Act, this +would be a very fine method of controlling the bootleg situation. +We shall take this matter up with our development department +and advise you whether any such material could be +used.”</p> + +<p>A striking way in which research can be perverted is illustrated +by another example. The dyestuffs industry is one which +is basically monopolistic and cartelized. A tight grip is maintained +over its price structure. This is especially true of dyestuffs +for textiles. Recently the duPont Company’s research +laboratories developed a pigment which can be utilized either +in paints or as a dye for textiles. The duPont research laboratories +considered various ways to be sure that the pigment could +be limited in use to the paint and finishing field so as not to +disturb the price structure of the textile dyestuffs field. The +<span class="pagenum" id="Page_31">[Pg 31]</span>trend of duPont’s research thought on this subject was stated +by the director of one of its laboratories:</p> + +<p>“Further work may be necessary on adding contaminants to +‘Monastral’ colors to make them unsatisfactory on textiles but +satisfactory for paints.”</p> + +<p>After working on this problem for some time, duPont’s Jackson +Laboratory reported on its progress somewhat dolefully. +(DuPont says of Jackson Laboratory that it is “one of the +largest organic chemical research laboratories in the world.”) +The particular task involved was difficult, according to a report +by the Jackson Laboratory dated June 26, 1940:</p> + +<p>“<abbr>Mr.</abbr> Chantler was of the opinion that pigment mixtures, +unsuitable for textile printing would be very difficult to obtain.</p> + +<p>“(B) <i>Agents Injurious to Textile Printing.</i>—The suggestion +was made that certain compounds that were white under ordinary +conditions but that would be oxidized to give colored bodies +when the prints are subjected to chlorine bleach, could be +used. A few experiments had been made along this line using +such compounds as Chlorostain N, dianisidine and DuPont Oxy +Black Base. Complete data on this work are not available. <abbr>Mr.</abbr> +Dahlen expressed the opinion that the addition of such compounds +probably would cause as much or more damage to the +paint trade as to textile printing.</p> + +<p>“Such substances as ground glass and carborundum were suggested +for incorporation with the pigment. While these materials +would undoubtedly scratch printing rolls, there is considerable +doubt as to their effect in paints and lacquers.”</p> + +<p>Two days later the problem was again attacked at a meeting +between the representatives of General Aniline Works and the +duPont Company. Eight possible methods of adulteration +were considered. I quote a few from the confidential memorandum +of their discussion:</p> + +<p><span class="pagenum" id="Page_32">[Pg 32]</span></p> + +<p>“1. A new type of copper phthalocyanine (<abbr class="spell">CPC</abbr>) for the +paint and lacquer trade which would be unsuitable for application +textiles.</p> + +<hr class="tb"> + +<p>“The importance of solving these problems was recognized, +and it was agreed that both parties would work on promising +ideas which resulted from this discussion. The three problems +are closely related, and it is possible that the solution of one or +two will automatically solve the third. It was agreed that a +powder would be the preferable standard. After detailed discussion +of various modes of attack, the following appeared to +be outstanding:</p> + +<p>“1. (a) Mixtures of <abbr class="spell">CPC</abbr> with Lakes.—The most promising +mode of attack appears to lie in the formulation of a mixture +of <abbr class="spell">CPC</abbr> with a lake, especially a lake of <abbr class="spell">CPC</abbr>. Such a mixture +should have fairly good fastness to light and <em>yet be poor in wash +fastness on textiles</em> or incompatible with the usual textile printing +lacquers....</p> + +<hr class="tb"> + +<p>“(d) Deteriorate Cotton.—Compounds might be incorporated +into <abbr class="spell">CPC</abbr> which when applied to textiles and followed by +bleaching or heating treatment <em>might increase the deterioration +of the cloth</em>. Compounds such as chlorates or aliphatic halides +which would produce hydrochloric acid were specific examples.</p> + +<hr class="tb"> + +<p>“(g) Irritating Substances.—<em>It is known that certain resins +and solvents are irritating to the skin, often causing dermatitis. +It might be possible to formulate a <abbr class="spell">CPC</abbr> composition which will +make textile materials irritating to the skin.</em></p> + +<p>“(h) Incorporation of Grit.—It seemed too dangerous to +attempt to add gritty material to <abbr class="spell">CPC</abbr> since, although it would +<span class="pagenum" id="Page_33">[Pg 33]</span>interfere with the use of the material for textiles, it would also +offer serious disadvantages in grinding on application of surface +coatings.</p> + +<p>“It was agreed that the mere dulling of the material would +not be a satisfactory solution since dull shades are often used in +the textile trade. Most of the above comments are often based +on work on blue, and many of the solutions would apply equally +well to the green. In fact it is believed that there is a larger +market for the sale of green than the blue.”</p> + +<p>It seems to me that we cannot afford to place our sole reliance +upon monopolistic corporations whose interests have only +too often been divided, who have sought restricted production +rather than full employment of our resources and labor, and +who have sought for monopoly control rather than public welfare. +We must learn by the bitter lessons of the early years of +this war which found us lacking both materials and the know-how +to make them, resulting from the restrictive practices of +monopolies which instinctively seek to produce as little as possible +for the greatest profit.</p> + +<p>In war and peace alike technology is a vital factor in our +national life. The present war is being waged with weapons +and equipment which represent the last word in scientific development. +Careful planning and rigorous adherence to the plans +enabled Germany to have, in 1939, the most efficient war machine +the world had ever seen. Now, after several years of +feverish activity, the United Nations have at last caught up with +and passed Germany in the race for armament superiority.</p> + +<p>Now that our war effort has finally been put in high gear an +entirely different kind of problem seems to be emerging. Under +the forced draft of war urgency and unlimited government expenditure, +materials and products are being made the like of +which we have not heretofore known. The light metals, aluminum +<span class="pagenum" id="Page_34">[Pg 34]</span>and magnesium, the wonder metal beryllium, the miraculously +efficient diamond tools and the tungsten carbide tools, the +plastics and dozens of other new developments will unquestionably +make the postwar world something entirely different from +that to which we have been accustomed. Many of the processes +which can revolutionize our mode of living are owned by the +government. Some are in the custody of the Alien Property +Custodian. Others have been developed with federal funds, +either by government agencies or by private concerns. No one +will seriously dispute the wisdom of retaining control of these +government-owned processes and of fostering the fullest possible +use of them for the benefit of all.</p> + +<p>There can be no denying that the war has resulted in a concentration +of productive facilities in the hands of a relatively +small number of gigantic corporations. Even before Pearl Harbor +some of them were enormous concerns capable of wielding +irresistible power in the competitive struggle with other, smaller +companies. Today and after the war the smaller competitors +which have survived will find the odds against them a great deal +more disheartening than before. It is not in the public interest +to allow the small competitors to be killed off in the uneven +fight. Neither is it in the public interest to place hampering +restrictions upon the effects of the large companies to fully utilize +their research laboratories and technical experience for the +purpose of strengthening their competitive position.</p> + +<p>Without doubt the sensible thing for us to do is to make research +and technology available to the little fellow as well as to +his big competitor. In agriculture this policy has amply demonstrated +its soundness. Experiment stations financed by state and +federal funds extend the benefits of their research to the +small farmer as well as to the large. It is doubtful that one +could find a single intelligent farm operator, large or small, who +<span class="pagenum" id="Page_35">[Pg 35]</span>would voice the opinion that governmentally financed agricultural +research has not been worth many times the money spent +for it. The small industrialist has the same right to expect that +a government wishing him to continue to make his contribution +to the national welfare shall offer him those benefits of research +and expert advice which he cannot afford to provide for himself +but which can easily be provided by the government.</p> + +<p>There are those who scoff at all mention of cartels and refer +to them as bogies conjured up to justify an attack on all big +business. Such an attitude is dangerous. Cartels present the +greatest challenge to our system of free enterprise.</p> + +<p>In every cartel arrangement which has come to the attention +of the Antitrust Division of the Department of Justice technology +has been a vital factor. It is the responsibility of government +to see that technology remains free from artificial +control and monopoly perversion.</p> + +<p>Every instance of this sort is evidence of the possibility of +service to the public which might be expected if the government +should see fit to provide itself with an adequately financed and +numerically sufficient staff of technologists. It is my belief that +the time has arrived for the adoption of legislation which will +adequately protect and advance the public interest in technological +development.</p> + + +<hr class="chap x-ebookmaker-drop"> +<div class="chapter"> + +<p><span class="pagenum" id="Page_36">[Pg 36]</span></p> + + + <h2 class="nobreak" id="4"> + 4 + <br> + <i>Patents</i> + </h2> +</div> + + +<p>The importance and the position of patents in the American +economy have been sharply defined since the outbreak of the +present war. While the problem which patents have presented +to our economy did not begin with the attack on Pearl Harbor, +our experience within the past few years has crystallized many +of the questions and issues at stake.</p> + +<p>Patents are fundamental factors in the cartel problem because +patent agreements are quite frequently used as the basis of cartel +arrangements. The vital importance of control over technology +and research to the achievement of cartel power enhances the +significance of patents as the foundation stones of cartel structures. +At the same time, the effects of patent abuses upon the +economy are magnified to a critical degree.</p> + +<p>We are all familiar with the historical background of the +patent system and with the intent of the authors of the Constitution +in stating that Congress shall have the power to promote +the progress of science and useful arts by the grant of a patent. +It is no accident that the original clause in the Constitution was +phrased in careful terms. The framers of the Constitution inherited +a concern toward the grant of any monopoly by government. +<span class="pagenum" id="Page_37">[Pg 37]</span>They were specific in limiting the scope of the patent +monopoly because they did not wish the patent to become the +basis of a system of privilege.</p> + +<p>When the American patent system was born, we were a frontier +nation. Pioneers in every branch of science had before them +an inviting horizon of discovery. The recognition of their contribution +towards the promotion of science and useful arts +served as a stimulus to their initiative and ingenuity. During +this period the patent system served our country well and acted +as a major incentive in the making of industrial America.</p> + +<p>Our patent system was designed to “promote the progress +of science and useful arts.” In many respects it has done so, and +has given proper protection to inventors and enterprising businessmen. +Where it operates to carry out this purpose, there can +be no just complaint. But in many instances the patent system +has been perverted to accomplish exactly the opposite effect. +The patent has become the principal power weapon of modern +monopoly, and the misuse of patents the major tactic of industrial +cartels. This perversion has become so widespread as to +jeopardize the whole patent system.</p> + +<p>The patent problem as it exists today arises in an environment +vastly different from the handicraft era in which modern +industry found its beginnings. It is not the patent grant as such +nor is it the operation of the individual inventor that brings the +patent system into question. Invention today is a large-scale +industry in a complex economy. In many branches of industrial +production vast monopolies exercise a dominating influence over +research. It is the abuse and misuse of patents by such concentrated +groups wielding tremendous economic power which have +brought patents into conflict with the fundamental purpose of +the patent law and with the Sherman Act.</p> + +<p>Monopoly interests, which have violated the antitrust laws in +<span class="pagenum" id="Page_38">[Pg 38]</span>the course of their abuse of patents, have made the claim that +the Antitrust Division of the Department of Justice is endangering +the patent system by prosecuting restraints of trade based +on patents. Many honest and innocent bystanders have been +confused and misled by this propaganda. The fact of the matter +is that danger to the patent system arises not from enforcement +of the antitrust laws but from the flagrant abuses of those +who use patents as the foundation stone of illegal monopolistic +control of industry. If the patent system is finally wrecked we +shall have to thank those who brought it into disrepute by their +unflagging attempts to use the patent grant in a manner contrary +both to the law and to the national interest.</p> + +<p>Because patents have become an instrument of power-hungry +and power-seeking groups in industry, grave doubt now exists +as to whether our economy can longer tolerate and permit the +control and consolidation of patents by industrial oligarchies.</p> + +<p>Among the many serious abuses to which patents have become +subject within the last few decades, it is necessary only to +specify a few.</p> + +<p>1. Patents have been used illegally to establish regimented +systems of industrial control by private groups.</p> + +<p>2. Patents have been used, contrary to the tradition and intent +of the American economy, to stifle new enterprise, to limit +capacity and production, to divide world markets, to impose +artificial and arbitrary price levels, and to set up private tariff +walls.</p> + +<p>3. In their determination to eliminate competition among +themselves and to prevent the emergence of new enterprise, +monopoly groups in industry have used patents as a shield for +conspiracy to violate the antitrust laws.</p> + +<p>4. Employing the instruments of law designed to secure +justice and protection to the small inventor and small businessman, +<span class="pagenum" id="Page_39">[Pg 39]</span>monopoly interests have used litigation and threats of +litigation based on patents to compel the submission or surrender +of independent enterprise to the dictates of monopoly control.</p> + +<p>5. Patents have been used by industrial giants here and +abroad to fasten their grip on international trade by setting up +patent cartel agreements which slice world markets into exclusive +trade areas. In many instances these international patent +cartels have made it plain that they consider adherence to +monopoly rules to be above and beyond the laws of the United +States and other countries.</p> + +<p>6. Our experiences in the first World War and the present +global war have demonstrated conclusively that the interests of +hostile countries have been able to use patents as weapons in +economic warfare against the United States. By delaying the +development of strategic new industries, by withholding know-how, +and by strangling the market with exorbitant prices for +critical materials, monopoly groups in aggressor nations have +sought to weaken the war potential of the American economy.</p> + +<p>7. In numerous instances, scientific research has been perverted +and misused in order to strengthen monopoly restrictions +illegally based on patents.</p> + +<p>In the scores of Department of Justice cases involving patents +and illegal agreements based on patents and in the testimony +before various congressional committees investigating the facts, +it has become overwhelmingly clear that if free enterprise is to +be maintained, patent abuses must be eliminated. At the same +time, the protection which the patent right was designed to give +to the independent inventor and businessman must be strengthened +and restored. If the system of economic competition on +which this nation depends for its well-being is to be preserved, +it is imperative that economic opportunity be granted to all on +<span class="pagenum" id="Page_40">[Pg 40]</span>equal terms. This cannot be accomplished if privileged groups +are able to obtain unfair advantage over new enterprise or to +amass huge patent structures which block the road to industrial +initiative.</p> + +<p>In a whole roster of industries, patents have been employed +as the police power of private economic governments. Our industrial +history is replete with examples of industries dominated +by a few small monopoly groups whose power rested on +patents. In the radio industry, in explosives, in spectacles, in +glass containers, in magnesium, in vitamins, in medicines, in +building materials, in dyestuffs, in electrical equipment and +in synthetic rubber, to mention prominent examples, the development +of the industry has been decided by the arbitrary discretion +of groups controlling concentrated patent structures. +Using patents as an excuse, monopolists have sought to determine +who shall be given permission to manufacture, to buy and +to sell. They have determined what prices should be fixed and +in what markets sales might also be made. Illegally wielding +their patent power such groups have completely squelched free +enterprise in these and in many other industries. Such control +is regimentation and bureaucracy in an extreme and pernicious +form. The independent businessman who falls victim to this +system of control is without recourse.</p> + +<p>Many businessmen seriously object to the regulation of industry +by government. What they do not realize is that it is +not public government but private government which exercises +the most rigid control over industrial conduct. Such regimentation +violates the fundamental and elementary principles of +economic liberty. If we believe in free enterprise, we cannot +at the same time tolerate the existence of private economic government +which bears no responsibility to the public. This type +of regimentation has acquired such influence in numerous +<span class="pagenum" id="Page_41">[Pg 41]</span>branches of industry that free enterprise no longer operates.</p> + +<p>A striking example of the manner in which patents are misused +to create private industrial governments is afforded by the +glass container industry. For more than a generation this industry +has been dominated by a monopoly group whose main +function it has been to acquire and license patents. This private +governing body produced nothing itself, yet the production of +practically all the glass containers made in this country was subject +to its will. The amount of glass containers to be produced +by any manufacturer was closely regulated and limited. The +type of bottle he could make was determined by a system which +permitted practically no competition. Outsiders who attempted +to enter the industry were promptly eliminated by vigorous +and costly patent suits.</p> + +<p>The patent policy of the monopoly group was neatly set +forth in a company memorandum which states:</p> + +<p>“In taking out patents we have three main purposes: (a) To +cover the actual machines which we are putting out and prevent +duplication of them ... (b) to block the development of machines +which might be constructed by others for the same purpose +as our machines, using alternative means; (c) to secure +patents on possible improvements of competing machines so as +to ‘fence in’ those and prevent their reaching an improved +stage....”</p> + +<p>In the administration and regulation of the glass container +industry, this group pursued a licensing policy equally intended +to perpetuate its monopolistic position. In a memorandum outlining +this aspect of its control, the following statement appears:</p> + +<p>“Consequently, we adopted the policy which we have followed +ever since, of restricted licensing. That is to say, (a) We +licensed the machines only to selected manufacturers of the better +type, refusing many licenses whom we thought would be price +<span class="pagenum" id="Page_42">[Pg 42]</span>cutters, and (b) We restricted their fields of manufacture, in +each case, to certain specific articles, with the idea of preventing +too much competition. (c) In order to retain more <span id="TN1">complete +control of the situation</span>, we retained title to the machines and simply +leased them for a definite period of years, usually 8 or 10 +years, with the privilege of renewal of a smaller additional +term.”</p> + +<p>Obviously, the patent and licensing policy in the glass container +industry constitutes a system of oppressive regulation +which neither promotes the progress of science and the useful +arts nor permits the operation of competitive economic processes. +Yet, instances like the glass container industry could be multiplied +for it is by no means unique in modern American industry.</p> + +<p>The restrictive effects of patent abuses on the production of +critical materials in this country became clearly apparent following +the outbreak of war. Shortage followed shortage, and in +nearly every instance the basic device restricting our expansion +of capacity and output was found to be a patent cartel agreement.</p> + +<p>A dramatic illustration of a shortage resulting from a restrictive +patent agreement enforced by cartel groups is provided +in the case of tungsten carbide. Few items are as important as +machine tools to our economy both in peace and in war. The +best cutting edge for machine tools is made from tungsten carbide. +Because of a patent cartel agreement between the General +Electric Company of this country and the Krupp Works of +Germany, the price was maintained at such a high level that the +second largest manufacturer of this commodity said:</p> + +<p>“The control of the tungsten carbide patents by the General +Electric Company and the Krupp Company has resulted in +keeping the prices at exorbitant levels. Now when the emergency +has come, industry has not learned how to use tungsten +<span class="pagenum" id="Page_43">[Pg 43]</span>carbide and has not the machines, the skilled men, or the technique +which it would have had if the material had been available +at the same low prices at which it was available to German +industries.”</p> + +<p>Before the patent cartel was organized, the price in the +United States was less than $50 a pound. After the cartel was +formed in 1928, the price of tungsten carbide rose to as high +as $453 a pound or, in other words, much more than the price +of gold. Significantly enough, the price in Germany never rose +above $50 a pound.</p> + +<p>While we recognize that technology is the most dynamic +factor of change in the modern world, it is not sufficiently +realized that in the struggle to control technological development +and to confine research within their feudal domains, monopolistic +interests divide the universe of technology in exactly +the same way that they parcel out world territory. Using the +huge patent structures which they have amassed, industrial +giants divide among themselves the major branches of technology +and allow no one to encroach on their preserves.</p> + +<p>Although we depend upon research as the principal source +of those advances which promise a better and a healthier world, +we tend to overlook the fact that the power which modern monopoly +wields over research, by virtue of patents, often perverts +the spirit of discovery. How the deliberate misdirection of research +is carried out is clearly indicated in at least three cases involving +electric lamps, plastics, and dyestuffs.</p> + +<p>Electric lamps in the United States are practically the private +preserve of a domestic monopoly. The history of this industry +can be written in terms of the elimination of competition, based +largely on the abuse of patent litigation and price fixing. One +of the great threats to monopoly control can come from the +virility and imagination of our inventive genius. For this reason +<span class="pagenum" id="Page_44">[Pg 44]</span>the vested interests attempt not only to control their current +monopoly, but take every precaution to project their control +into the future and to guard against the development and exploitation +of inventions by outsiders.</p> + +<p>One of the greatest developments in the lighting art since +Edison invented the incandescent lamp is fluorescent lighting. +It has already proven to be many times more efficient, and +cheaper, than incandescent lighting. The rapid development of +this newer type of lighting which would come from a competitive +situation has been carefully suppressed by the monopoly +group. Patent control by the monopoly group controlling incandescent +lamps has been the main instrument for the suppression +of fluorescent lighting. Not only the monopoly group governing +incandescent lighting, but the electric utility companies +as well, fear the effects of the widespread use of more efficient +means of lighting, since it would reduce their sale of electricity +and hence their profits. A letter from the manager of the lighting +bureau of a large power company to the General Electric +Company should be of interest to the public:</p> + +<p>“Increasingly I seem to become the ‘father confessor’ on +fluorescent lighting as far as the utility men are concerned. This +concerns one of the displays dealing with fluorescent lighting in +your G. E. building at the New York World’s Fair. I must +confess that although I have been in your exhibit twice I did +not see this particular display.</p> + +<p>“It appears that 20 watts of fluorescent lighting are compared +with 20 watts of incandescent lighting, the sign purporting to +read something to the effect ‘See the difference between equal +wattages of fluorescent and mazda lighting.’ Of course, the +readings on the foot candle meters show dramatic differences.</p> + +<p>“If this demonstration is as explained to us, I think it does +<em>violate the spirit of the understanding that our group had in +<span class="pagenum" id="Page_45">[Pg 45]</span>Cleveland. As a matter of fact, I would think it violated the +fundamental concept of the lamp department that advances in +the lighting art should not be at the expense of wattage</em>, but +should give the customer more for the same money. I hope you +can find a way to change this exhibit, so that it does not give +misleading impressions to the crowd who will see it.”</p> + +<p>Here is the reply by the General Electric Company:</p> + +<p>“When Miss Winters showed me the attached letter ... I +immediately got in touch with Al Reas with regard to the demonstration +at the fair. Apparently this particular demonstration +was temporarily loaned for use at the fair, and is now being +returned to the exhibit shop. <em>Therefore, by removing this particular +exhibit, Sharp and the other utility men need have nothing +to worry about.</em>”</p> + +<p>Even if such flagrant misuse of patents did not occur, the +grip on our economic life which monopoly holds through patents +would be a threat to our system of enterprise. The spirit +and substance of free enterprise cannot exist in an environment +where an independent businessman with an independent idea, or +an inventor with a new discovery in a monopoly-ridden field, +finds himself compelled either to submit to monopoly control +or to be barred from the market. It is ironical but true that +while a patent is supposed to give protection and encouragement +to the inventor, possession of a patent today is little more than +an invitation to predatory litigation. The threat of expensive +and protracted patent litigation is perhaps the most effective +means by which monopoly enforces its private rule on industry +to eliminate competition.</p> + +<p>The small businessman facing such obstacles has limited +choices of action. He can sue the large group, or risk suit, but +in either event will find himself involved in a costly, lengthy +<span class="pagenum" id="Page_46">[Pg 46]</span>process. He generally emerges with a broken spirit and a petition +in bankruptcy.</p> + +<p>The files of the Department of Justice are crowded with +complaints and pleadings of these little men. They have found +these handicaps insuperable in their attempts to compete. In +giving testimony before the Temporary National Economic +Committee, one small manufacturer in the glass container industry +recited a tale which is frequently and tragically repeated +throughout many branches of production. This particular witness, +sued for infringement on nine or ten counts, stated:</p> + +<p>“We naturally were finally forced to hire a patent attorney. +We had to acquire the services of a Texas attorney, and I think +there are some two or three patent attorneys in the State. They +brought us into court in April of 1935, as I recall. Well, when +I arrived in San Angelo and met them there in the hotel, I can +conservatively say there was a half train load of attorneys and +equipment. There were motion picture projectors and attorneys +all over the place. I don’t know anyone of the Hartford legal +staff that was not there. They were prepared to give us a nice +battle. Well, I had only one attorney and he was considerably +lost in that crowd. I wish you might have seen his face that +morning. So I promptly asked for a recess until the afternoon +in order to see if we couldn’t settle the case out of court.”</p> + +<p>As the witness testified at the time, the “settlement” was “a +sort of slow death arrangement.”</p> + +<p>This situation has become a common condition, but it is not +new. Thomas Edison once stated that patent litigation cost +him more than he ever made from an invention. Unfortunately, +the government has not as yet developed any procedure to protect +the legitimate rights which a patent is supposed to confer +on the little man. I have hopes that this aspect of the problem +will be considered and met in the not too distant future.</p> + +<p><span class="pagenum" id="Page_47">[Pg 47]</span></p> + +<p>Even if every other charge of malpractice or problem of monopolistic +abuse of patents were ignored, there would remain a +crucial question. Technology is an index of national security, +and technological strength depends upon technological freedom. +Yet, in two world wars we have learned that the infiltration of +American industry by foreign and hostile interests has been +conducted through patents and patent agreements.</p> + +<p>In 1914, we experienced severe and crippling scarcities of +dyestuffs and medicines, because patents held by German interests +had prevented the development of American production. +In the case of salvarsan, Ehrlich’s “magic bullet” for the cure +of syphilis, we found that a patent protected the product, but +did not reveal the method of its manufacture. The same situation +occurred in other drugs, such as veronal and novocaine, and +in other fields, such as metal alloys and special electrical equipment.</p> + +<p>Since the outbreak of the present war, our vulnerability to +this method of attack has been revealed once more. The use +of patents as the spearheads of attack in industrial and economic +warfare, intended to weaken our war potential, is illustrated in +the beryllium industry, in synthetic rubber, in pharmaceuticals, +in optical goods, and in other important military and civilian +supplies. It is clear that abuses of this nature, having consequences +which affect both our national security and our standards +of living, cannot be tolerated.</p> + +<p>Whether at the hands of domestic or foreign interests, misuse +of the patent system and abuses of patent power militate against +the best interest of the American people. It is our task and our +responsibility to uproot these malpractices. Within the space of +four years the Antitrust Division of the Department of Justice +has brought more than forty cases involving these typical +abuses, and this Division is investigating many more.</p> + +<p><span class="pagenum" id="Page_48">[Pg 48]</span></p> + +<p>I should like it clearly understood that I believe the patent +system in many respects has served this country well. As long +as it stays within its proper orbit it can continue as a great force +in the industrial and scientific development of our country. Indeed, +it must be one of our aims to strengthen the patent system +to make it more effective for the protection of small business +and for the encouragement of new invention. Those who +have a deep belief in the patent system should support the government’s +action in uprooting and eliminating the abuses which +have done so much to discredit the patent system generally.</p> + +<p>The vigorous enforcement of the antitrust laws is, of course, +our greatest guarantee that democratic opportunity will be kept +alive in our economic system. Something more is needed, however, +to make certain that free enterprise has a fighting chance. +In this connection, it is encouraging to note that the Senate has +had under consideration legislation intended to provide access +to technology to government and public alike. It is, of course, +absolutely necessary that in the present stage of technological +development, where the military security of the nation may depend +upon the quality of its technology, that the government +have every facility at its disposal to keep abreast of technological +change. From the standpoint of economic health, however, +means must be found of granting to the small businessman or +the small inventor, who cannot hope to compete on an equal +footing with the massive strength and enormous resources of +great industrial laboratories, a chance to initiate and develop +new ideas, new processes and new products.</p> + +<p>In numerous instances patents have been used to discourage +research by independent inventors and businessmen. What incentive +is there to inventors to develop new products or processes +when they may be, in effect, inventing themselves into a +patent infringement suit? Very often in such cases the fact of +<span class="pagenum" id="Page_49">[Pg 49]</span>infringement is never determined. We all know that patent litigation +is costly and time consuming. In disputes between monopoly +groups and smaller opponents the difference in economic +strength between the two parties is usually the determining factor. +In this situation small competitors often find it less expensive +to depend upon the research and the largesse of great +corporations, by accepting licenses which are usually restrictive. +Under such conditions neither the opportunity nor the fact of +free enterprise can flourish.</p> + +<p>Conduct of research by government does not mean that it +would enter into competition with industry. Rather, research +sponsored and carried on with the facilities and support of the +government would constitute a strong stimulus to private initiative.</p> + +<p>The government would enter no business as a result of carrying +on research. It would sell nothing, and it would not prevent +others from going into business. The fruits of discoveries +produced by government research would be open to all. It is +primarily those interests which seek to deny access to technology +by independent enterprise that are opposed to the entry of government +into this field.</p> + +<p>The great need of small business in the post-war world for +new opportunities and new directions cannot be fulfilled if the +small businessman is denied access to technology. If the government +provided the scientific and technical resources which +placed small enterprise on an equal footing with great corporations, +we should undoubtedly witness a revival of the spirit of +industrial adventure.</p> + +<p>Ultimately, the entire public as consumers would receive the +benefits of a government research program. When competition +is absent and research is dominated by monopoly groups, the +consumer not only pays higher prices for what he does get, but +<span class="pagenum" id="Page_50">[Pg 50]</span>has no assurance that he is obtaining the best possible products. +Monopoly has no incentive to progress, and so long as it is able +to control research it need not strive to make better products at +lower prices.</p> + +<p>In addition to meeting the needs of small business and consumers, +the maintenance of scientific research by an over-all +public agency is a direct concern of government. The importance +of technology to national welfare has been shown strikingly +during the present war. There are many areas of scientific +research and development which private industry cannot adequately +explore and develop. There are many branches of science +and technology, as well as of industrial development, +where government cannot afford to be dependent upon the +efforts of private monopoly groups. The lists of shortages +which hampered our war effort in early days of the present +struggle resulted in nearly every instance from restrictive effects +of monopoly control. Government was forced to turn to +monopoly groups which dominated the market. It is essential +for the future that the hazard of dependence on monopoly be +removed.</p> + +<p>Industry itself, large as well as small, would profit tremendously +if research conducted by the government supplemented +private efforts and increased our stock of scientific knowledge. +The creation of new industries would open up new channels for +private investment and would help to eliminate the periodic +effects of depression. The constant flow of new ideas into industry +is essential if we wish to have both full production and full +employment. Government research could become one of the +principal means of stimulating and encouraging new industry +and at the same time overcoming the effects of the business +cycle.</p> + +<p>The means of correcting patent abuses and of renewing competitive +<span class="pagenum" id="Page_51">[Pg 51]</span>opportunity in industry are available in existing law +and with relatively minor modifications in the scope of governmental +authority. Unless we are willing to accept private industrial +government as a substitute for a free economy, it must +be our determination that the spirit and purpose of the patent +laws and the conditions necessary to competition shall be securely +established. If we would avoid the destruction of the +patent system as the consequence of its abuse, it must be made +clear to monopoly groups and industry that they cannot base +their restrictive practices and policies on patent privileges.</p> + + +<hr class="chap x-ebookmaker-drop"> +<div class="chapter"> + +<p><span class="pagenum" id="Page_52">[Pg 52]</span></p> + + + <h2 class="nobreak" id="5"> + 5 + <br> + <i>Medicines</i> + </h2> +</div> + + +<p>In a very real sense the producers and distributors of medical +products occupy a position of public responsibility. On the +whole, those in the drug industry who are charged with this +responsibility have carried out their obligations in a highly +praiseworthy manner. They are to be commended and congratulated.</p> + +<p>In nearly every instance in which the standards of service +and of public welfare have not been maintained we find that +monopoly groups have been responsible for the abuse of public +confidence. When monopoly is able to impose restrictive conditions +on the production, the price and the distribution of vital +medicines and to determine who may buy and sell products, it +is in the interests of the drug industry and the public alike +for government to intervene.</p> + +<p>Thus when it was found that a small ring of producers had +been able to maintain fixed prices on insulin and to pick and +choose those who would be allowed to distribute insulin to the +public, it was necessary for the government to act.</p> + +<p>There are approximately two million persons in the United +States suffering from diabetes. Most of these sufferers require +<span class="pagenum" id="Page_53">[Pg 53]</span>one or more daily injections of insulin. They are dependent for +their very lives on an adequate supply of the drug at a reasonable +price. Yet a monopoly group exploiting its privileged position +took advantage of the industry and of the public to impose +arbitrary prices and unreasonable conditions of distribution. +Wholesalers, distributors, and retailers were compelled to adhere +to the edicts of the monopoly group under the threat that +if they did not do so, no insulin would be sold to them.</p> + +<p>The possible consequences of this exercise of monopoly power +on the well-being of victims of diabetes are appalling, yet in +the hands of monopoly the needs of the public become subordinated +by the edicts which are imposed on the industry and the +public alike. It is for this reason that the industry itself, as well +as government, must continuously be vigilant to oppose the +growth and exercises of monopoly power and to stimulate +wholesome competition.</p> + +<p>Few effects of monopoly have been more insidious than the +consequences of cartel control over many areas in the drug and +medical field.</p> + +<p>Because of cartel and patent agreements which carve up world +markets and divide fields of production, American drug manufacturers +have in some cases been denied the right and the +chance to develop the American drug industry to its full possibilities. +Because international cartels have been able to set up +their own trade restrictions, American drug manufacturers have +been prevented from competing within the United States. In +many cases American manufacturers have been barred from engaging +in competition in other countries and from exporting to +such countries. In particular, American producers have found +themselves shut off from South American markets. Illegal patent +abuses and agreements have in other cases prohibited American +manufacturers from entering production or carrying on +<span class="pagenum" id="Page_54">[Pg 54]</span>research in many important fields dominated by foreign interests.</p> + +<p>The fight against disease is a primary concern of society +everywhere. Yet the brilliance and the industry of modern +scientists have all too often been perverted by the efforts of +selfish groups to fasten the grip of monopoly on products essential +to health and welfare. There have been numerous illustrations +of the malignant effects of monopoly on national +health and on the maintenance of free enterprise in the pharmaceutical +industry. It is instructive to recall some of the more +flagrant examples of the abuse of monopoly power in the drug +and medical field.</p> + +<p>The cartel spirit in the pharmaceutical field is exemplified +by the following paragraph, written in July 1938 by the German +company, I. G. Farbenindustrie:</p> + +<p>“There is an agreement between German and Swiss firms of +the Chemical Pharmaceutical Industry for the protection of +original preparations which are marketed by the individual +members of the group.... This agreement provides that products +which compete with the original products of members of +the association and their subsidiaries or affiliated firms shall not +be introduced in any country throughout the world.”</p> + +<p>This agreement may be described as a conspiracy to deprive +the world of the benefits of research in new drug products +wherever such benefits may conflict with the vested interests of +any of the participating drug manufacturers.</p> + +<p>The present war is not the first time that the United States +has found itself dependent in a period of crisis for vitally needed +drugs and medicines on cartels dominated by foreign interests. +During the first World War the scarcity of salvarsan, of veronal, +of novocaine, and similar synthetic medical products seriously +affected the health of our people. It was not until after +<span class="pagenum" id="Page_55">[Pg 55]</span>the war was over that we were able to relieve some of these +shortages. In the years between the World War and the present +global war cartel interests once more were able to reestablish +their monopolistic control over new pharmaceutical products.</p> + +<p>The myth of German superiority in the production of organic +medical compounds has been dispelled for many years. +It is necessary, however, to recall that this prestige rested not +on superior skill but on the abuse of monopoly and patent privileges. +A well-known instance of the way in which the German +cartel interests sought to exploit their monopoly position is the +story of Bayer 205, sometimes called Germanin. Shortly after +the end of the World War I. G. Farben announced that it had +discovered a cure for sleeping sickness, the disease which is so +prevalent in Africa. The Germans refused to reveal the formula +for Bayer 205. Instead they sought to use their discovery +as the basis of an exchange of the secret process in return for the +restoration of Germany’s lost colonies. While this bold attempt +to balance medical achievement against political advantage +is an extreme case, it nevertheless reflects a cartel attitude.</p> + +<p>From the standpoint of the progress and growth of the +American drug industry it must be realized that the influence +of cartels has been the principal factor in keeping American +products from world markets. Foreign concerns, by making +treaties with monopoly groups in the American drug industry, +have been able to monopolize practically the entire continent of +South America. One typical agreement between an American +corporation and a German concern divided the world market +for more than 400 pharmaceutical and chemical products into +non-competitive areas. Among the fields included in the agreement +were quinine derivatives, sulfa drugs, vitamins and narcotics. +The American firm was prohibited from exporting. This +same pattern of restriction by which American producers were +<span class="pagenum" id="Page_56">[Pg 56]</span>barred from selling to South America has been found in a whole +roster of cartel agreements involving pharmaceutical products. +The effects of these agreements have severely handicapped our +good neighbor relations with South America and have made +more difficult the establishment of healthy trade between the +United States and Latin American countries.</p> + +<p>If we are to succeed in our efforts to create a better postwar +world, it should be evident that we must uproot every vestige +of illegal monopoly control over products essential to the +health and welfare of our people. Whether the restriction stems +from the efforts of a cartel to confine American industry to the +domestic market, or to strangle research and production by +American concerns, or to use patents to impose unlawful restraints +on trade in the drug industry, it must be our determined +purpose to restore free enterprise in the pharmaceutical field. +Given freedom of opportunity and the incentive to enter +branches of the industry heretofore dominated by cartel interests, +we may rest assured that American drug manufacturers +will demonstrate their outstanding capabilities in research and +their ability to compete both at home and abroad. Competition +will benefit the American drug industry and permit it to attain +its maximum development. What is perhaps even more important, +this country will be assured that in the future the +health and welfare of its citizens will not be dependent upon +the arbitrary exercise of monopoly power.</p> + +<p>I am sure that responsible persons in the pharmaceutical industry +will not argue that European technology in this field is +so superior to ours that competition is futile. If American +manufacturers have free access to technology and are not barred +by the misuse of patents and the resurrection of cartel arrangements, +then the industry will find itself in a healthier financial +and technological position as well as in a position more fully to +<span class="pagenum" id="Page_57">[Pg 57]</span>discharge its obligations to the American people. The myth of +European superiority in the medical field has been carefully +nurtured by foreign interests which have used this propaganda +as a commercial device. Only free competition and free enterprise +can fully dispel this myth. This cannot be done, however, +unless the pharmaceutical industry sees to it that victims of +diabetes, malaria, pellagra, rickets and arthritis are not at the +mercy of privileged groups who have abused public confidence +and exploited human suffering.</p> + +<p>The laboratories of our pharmaceutical industry have brought +forth wonderful discoveries. Their achievements have been a +boon to the human race. But they have a responsibility to erase +the blemish caused by those few who have misused their economic +power to violate their trust.</p> + +<p>The promotion of public welfare as well as the best interests +of the pharmaceutical industry are served when research, production +and distribution are carried on free from the taint of +monopoly. National health, like national economic well-being, +demands that freedom of opportunity to conduct research, to +engage in business, and to compete in domestic and foreign +markets be preserved. No compromise is possible with monopoly +control in an industry which is so directly concerned with +human welfare.</p> + + +<hr class="chap x-ebookmaker-drop"> +<div class="chapter"> + +<p><span class="pagenum" id="Page_58">[Pg 58]</span></p> + + + <h2 class="nobreak" id="6"> + 6 + <br> + <i>Synthetic Hormones</i> + </h2> +</div> + + +<p>The use of synthetic hormones in the United States has grown +to such an extent that the annual sales amount to many millions +of dollars. Something more than half of the entire business in +this country has been carried on by four companies. Each of +these companies is the subsidiary or affiliate of a corresponding +company in Europe. The European companies belong to a +hormone cartel which has controlled the hormone business most +effectively abroad and in the United States.</p> + +<p>After investigating the ramifications of the cartel’s activities +in this country the Department of Justice prosecuted the four +American companies for violations of the antitrust laws. Pleas +of <span lang="la">nolo contendere</span> were entered by the four corporations and +by five of their officials and fines totalling $54,000 were assessed +and paid. At the same time, on December 17, 1941, the defendants +consented to the entry of a decree in a civil action +brought by the government, which enjoined them from further +activities in violation of the antitrust laws.</p> + +<p>These are the basic aspects of the hormone cartel:</p> + +<p>1. Research has been seriously affected by restrictions imposed +by foreign cartel members.</p> + +<p><span class="pagenum" id="Page_59">[Pg 59]</span></p> + +<p>2. German interests have entered into patent licensing arrangements +with American affiliates under which they—the +latter—agreed to withhold their products from Latin American +markets.</p> + +<p>3. During the war American companies have aided their +German affiliates in evading the British blockade.</p> + +<p>4. American companies have participated in the use of paper +corporations and dummy consignees to avoid the effects of the +Black List in Latin America.</p> + +<p>5. American concerns have devised deceptive labels to preserve +markets for their German affiliates and to aid the spread +of German propaganda in Latin America.</p> + +<p>6. Members of the cartel have misused patents in schemes +to camouflage flagrant violations of the laws of the nation.</p> + +<p>7. The recognized benefits which might be obtained by the +widespread use of hormones have been to a large extent curtailed +by reason of the restrictions and illegal policies of the +cartel members.</p> + +<p>8. In the case of one of the synthetic hormones, there is evidence +indicating that it may have a substantial contribution to +make in connection with treatment of wounded soldiers for +shock. The cartel restrictions have had their effect upon the +production and wide use of this hormone as well as the others.</p> + +<p>9. Two of the American companies have been taken over +by the Alien Property Custodian and one of these has been sold.</p> + +<p>The following explanation of the nature of hormones does +not purport to be a scientific discussion. It represents my understanding +of the subject based upon what I believe to be reliable +authority. I merely give it for what it may be worth as background +for the discussion of this cartel.</p> + +<p>Hormones are the secretions of certain ductless glands. As +they enter the bloodstream they regulate chemically practically +<span class="pagenum" id="Page_60">[Pg 60]</span>every function of the human body. They are really special +agents of chemical coordination of the body. They regulate, +order and correlate bodily functions with the same precision as +that achieved by the nervous system. Since their first definite +isolation by the great English physiologists, Bayliss and Starling, +in the early years of this century, there has grown up a +whole new field of research. Infinitely small amounts of certain +hormones have the most profound effects upon the human +body and its emotions. As in the case of vitamins, much of our +present knowledge is the result of observing the striking pathological +defects and abnormalities produced by excess or deficiency +of hormones.</p> + +<p>Thus deficiency of certain of these drug-like substances from +the small thyroid gland causes a marked decrease in metabolism +and mental and physical sluggishness. Excess of this same hormone, +or complex of substances, has the opposite effect, increasing +oxidation and pulse rate, and causing nervousness and emaciation. +It also has striking effects upon growth and development. +Deficiency in children results in dwarfism and idiocy.</p> + +<p>Other hormones such as those from the anterior lobe of the +pituitary gland affect the growth of bone. Hormones from the +adrenal glands, located near the kidneys, cause constriction of +blood vessels, accelerate the heart beat and cause discharge of +glucose from the liver. Insulin, one of the most widely known +of the hormones, plays an essential role in the metabolism of +carbohydrates. Its absence causes diabetes which is characterized +by a failure of normal carbohydrate metabolism.</p> + +<p>Medical investigators and chemists have been exploring this +vast new field of research for many years. They have learned +more and more about the actions and composition of these complex +substances. For many years they have worked with the +extracts from the glands of certain animals to obtain the hormone +<span class="pagenum" id="Page_61">[Pg 61]</span>itself, or as much of it as could be saved in the process of +extraction. At the same time they have been analyzing the composition +of the hormones, and endeavoring to synthesize the +active principles. Among those which have been produced in +synthetic form are the male sex hormone, testosterone; the follicular +and <span lang="la">corpus luteum</span>, both being female sex hormones; and +desoxycorticosterone acetate, a synthetic substance which has +effects similar to those of cortin.</p> + +<p>Cortin is derived from the cortex of the adrenal glands. +There is still some question as to the role which this hormone +plays, but there is no doubt that it is essential to life. It apparently +affects the metabolism of sodium, potassium, and carbohydrates. +This hormone plays an important role in the +concentration of body fluids and their distribution between the +inside and outside of body cells. The hormone is therefore of +some use in diseases or conditions where there occur marked +changes in the distribution of the body fluids. Specifically, it +means the hormones of the adrenal cortex are useful in the treatment +of Addison’s disease, where it seems to strike a balance in +the intake of salt. It has also been suggested that since surgical +shock is associated with unbalance of body fluids, this hormone +may be of value in counteracting the shock effects. Shock is +so complex a condition, however, that there is no general agreement +on the effects of the hormone. However, the hormone, +or crystalline preparations possessing hormonal activity, are +being used by army surgeons both here and abroad for whatever +value they possess.</p> + +<p>It is with these and certain other pharmaceutical specialties +that the hormone cartel has concerned itself. The cartel is composed +of five large European companies: Schering A. G. (Berlin); +Ciba (Basle); N. J. Organon (Oss, Holland); C. F. +Boehringer & Sons (Mannheim); and Chimio (France). Each +<span class="pagenum" id="Page_62">[Pg 62]</span>of the first four has had a subsidiary or affiliate in this country +which has been used to carry out the policies of the European +company and of the cartel. I shall describe in some detail the +practices which were followed in aiding the German companies +to avoid the effect of the British blockade and Black List in +Latin America.</p> + +<p>The Schering A. G. firm is one of the most important pharmaceutical +and chemical manufacturers in Germany. It makes +photographic supplies, soaps, cosmetics and many other products. +However by far the largest part of its production consists +of medicinal specialties and fine chemicals, the former being the +more important. It is the largest German exporter of pharmaceutical +and medical specialties, specializing in sex hormones, +vaccines, remedies for venereal and other contagious diseases, +rheumatism, tuberculosis, <abbr>etc.</abbr>, and also laxatives, anti-acids, opiates, +<abbr>etc.</abbr> It is also one of the larger German exporters of fine +chemicals, laboratory chemicals and plant protection chemicals.</p> + +<p>At the time of the first World War, Schering A. G. did comparatively +little export business. Its export system, established +and carefully developed after 1918, is mainly the result of the +work of one man, its former president <abbr>Dr.</abbr> Julius Weltzien. +This export system spreads over the entire world. The procedure +in establishing outlets abroad has been as follows: At +first sales are made to all who may wish to buy; then, with increasing +turnover, a local firm is made sole agent. When the +yearly turnover reaches about $25,000, an expert sent from Berlin +is coordinated with the sole agency firm. When the yearly +turnover exceeds about $50,000, Schering A. G. sets up a firm of +its own, directed by managers sent from Berlin. Germans, or +men of German descent, are placed in all key positions, and the +remainder of the staff is partly German, partly persons of the +country in which the agency is located. The final step is to set +<span class="pagenum" id="Page_63">[Pg 63]</span>up factories in the most important markets which are equipped +to ampule the finished solutions and to tablet the finished substances +which are used in that form. The supervision of all +firms abroad is strongly centralized in Berlin.</p> + +<p>Until recently, Schering A. G. was one of the largest sellers +of pharmaceutical and medicinal specialties in South and Central +America. Testimony before the Truman Committee indicated +that approximately one-third of all materials shipped into South +America by airmail over the German controlled <i>Lati</i> airline, +during a six months period in 1941, were chemical and pharmaceutical +products. Approximately the same amount of books, +maps, <abbr>etc.</abbr>, intended for espionage and propaganda work was +also shipped by air since it was the only means of avoiding the +British blockade. On the return trips four-fifths of the air +cargoes were of mica for the Nazi war machine and most of the +remaining fifth was made up of other important war materials. +The important role played by the pharmaceutical exports in providing +the exchange for purchase of war materials should not +be overlooked.</p> + +<p>The interruption of exports due to the war caused Schering +A. G. to adopt several different methods of continuing its foreign +business. Prior to the invasion of Belgium and Holland, +firms in those countries and in the Scandinavian countries were +used as blinds to avoid the British blockade. Before Italy +entered the war, the Milan factory was utilized as a point from +which the German goods, labeled in Italy, could be sent out to +the rest of the world.</p> + +<p>The final step was to transfer to the United States the business +of supplying the markets cut off by the blockade. In +preparation for this emergency, several measures had been +taken long before the actual outbreak of the war.</p> + +<p>The center of the new supply system was Schering Corporation +<span class="pagenum" id="Page_64">[Pg 64]</span>(Bloomfield, New Jersey), a firm now held by the <abbr title="United States">U. S.</abbr> +Alien Property Custodian. This firm was established as a +Schering A. G. subsidiary in 1929 to manufacture medical specialties +for the market in this country. Differing from most +other Schering factories outside Germany it developed the +finished solutions and substances out of raw or semi-manufactured +imported materials, where the others merely finished the +process by placing the material in ampule, tablet and package +form. Gradually extending its research, laboratory and manufacturing +facilities it came to be as fully equipped to manufacture, +although on a much smaller scale, all Schering medical +specialties as Schering A. G. itself.</p> + +<p>All of the common stock of this New Jersey corporation was +owned by Chemical and Pharmaceutical Enterprises, <abbr title="Limited">Ltd.</abbr> +(Chepha) and held in the name of a nominee of the Swiss Bank. +Chepha was owned 51 per cent by the Swiss Bank and 49 per +cent by other related interests. However, it has recently come +to light that the transaction in 1937 by which Chepha and the +Swiss Bank got apparent control of the Schering Corporation, +included an option agreement which made it possible for Schering +A. G. to regain its interest at any time it so desired. Obviously +the transaction was a mere sham to make it appear that +the American corporation was controlled from Switzerland +rather than from Germany. Actually Schering A. G. had never +ceased to exercise its domination over Schering Corporation up +to the very outbreak of war between Germany and the United +States.</p> + +<p>As of January 1, 1938 the two corporations entered into an +extensive and detailed agreement. Two paragraphs of the preamble +of this agreement are as follows:</p> + +<p>“Schering A. G. is engaged in the development, manufacture +and/or sale of medicinal, pharmaceutical, biological, and bacteriological +<span class="pagenum" id="Page_65">[Pg 65]</span>preparations. It is the owner of processes and +formulae used in the production of such preparations and is also +the owner of <abbr title="United States of America">U. S. A.</abbr> patents and patent applications pertaining +to such preparations. For many years it has maintained and operated +and still does maintain and operate laboratories to carry +on research and development work in connection with such preparations, +and has thereby acquired valuable scientific knowledge, +data and material concerning the aforesaid sphere of activities.</p> + +<p>“Schering <abbr title="Corporation">Corp.</abbr> has an organization suited for national distribution +and promotion of such preparations in the United +States of America, and is equipped to manufacture such preparations. +It also maintains and operates laboratories to carry +on research and development work in connection with such +preparations, but has not acquired the extensive scientific knowledge +and practical experience in this field that Schering A. G. +commands by reason of its longer and more extensive research +work and experience.”</p> + +<p>This language portrays the true relationship of the parent +and subsidiary companies.</p> + +<p>The parties agreed to exchange patents and information and +to deal in each other’s products in their respective territories. +The division of territory, as in so many of these German-American +agreements, gave the United States to the American corporation +as its territory and the remainder of the world to the +German firm.</p> + +<p>Article <abbr title="5">V</abbr>, Paragraph 5 is as follows:</p> + +<p>“Schering A. G. agrees not to deal in selected preparations +nor to sell selected preparations to any corporation or person +in the <abbr title="United States of America">U. S. A.</abbr> except to Schering <abbr title="Corporation">Corp.</abbr>, nor knowingly to sell +them to any corporation or person for purposes of exportation +to or resale in the <abbr title="United States of America">U. S. A.</abbr> unless Schering <abbr title="Corporation">Corp.</abbr> shall first +have given its written consent.”</p> + +<p><span class="pagenum" id="Page_66">[Pg 66]</span></p> + +<p>Article <abbr title="5">V</abbr>, Paragraph 7 is as follows:</p> + +<p>“Schering <abbr title="Corporation">Corp.</abbr> undertakes not to export, either directly or +indirectly, from the <abbr title="United States of America">U. S. A.</abbr>, or knowingly to sell for purposes +of export to any third party any such preparations unless Schering +A. G. shall have previously given its written consent.”</p> + +<p>A letter from Schering Corporation to Schering A. G. dated +June 2, 1939 contained the following:</p> + +<p>“In view of your assignment to us of certain patents in the +female-sex-hormone field and your assistance in connection with +the acquisition by us of licenses under patents in the male-sex-hormone +and cortin fields, we agree not to sell or offer for sale +any product made pursuant to the said assigned and/or licensed +patents or any of them in any country outside of the <abbr title="United States">U. S.</abbr>”</p> + +<p>All Schering A. G. patents and trademarks in the United +States are owned by Schering Corporation or its affiliates. However, +the agreement is not limited in its terms to the mere fixing +of compensation for the use of patents and trademarks. The +American corporation agreed to pay Schering A. G. a royalty +on all its sales of pharmaceutical products which had nothing +to do with Schering A. G. patents and trademarks. It even +went so far as to agree to pay the German firm a royalty of not +to exceed <abbr title="12 and a half">12½</abbr> per cent on sales of new preparations developed +by itself in this country. The following provisions of Article +<abbr title="10">X</abbr> of the agreement make clear this unusual relationship:</p> + +<p>“In either of such cases [if net sales of Saraka, a proprietary +laxative, are more or less than $1,200,000] the royalty shall +be as follows:</p> + +<p>“(b) On that portion of such amount derived from sales of +preparations commonly available in the open market and not +sold under a trademark, such as insulin, milk of magnesia, thyroid, +or codliver oil, and in the manufacture of which no special +Schering A. G. process is utilized, <abbr title="6 and one-quarter percent">6¼%</abbr>;</p> + +<p><span class="pagenum" id="Page_67">[Pg 67]</span></p> + +<p>“(c) On that portion of such amount derived from sales of +new preparations developed by Schering <abbr title="Corporation">Corp</abbr>, wholly independent +of Schering A. G. and which do not fall within a field +of preparations already developed or in process of development +by Schering A. G., a percentage, less than <abbr title="12 and a half percent">12½%</abbr>, to be determined +and agreed upon by the parties from time to time.”</p> + +<p>Up to the outbreak of the war there was a constant exchange +of experience and knowledge by frequent mutual visits. This +differs radically from the conditions which prevailed in many +other fields. In the case of synthetic rubber for instance, the +Hitler government flatly prohibited the giving out of technical +information while using every means of securing the information +of developments in this country. It seems obvious that in +the case of Schering A. G., the plan, as subsequently carried +out, was to place Schering Corporation in a position of being +able to carry on Schering A. G.’s overseas business. In this +rapidly changing field of hormones, this meant keeping the +American corporation completely informed as well as getting +from it all available information.</p> + +<p>Schering Corporation, before the outbreak of war, was provided +with complete instructions about the technicalities of exporting +Schering products, with a complete set of Schering export +packages, labels, prescriptions, <abbr>etc.</abbr>, indicating all details +of the complicated system of packages which differ from country +to country and from product to product. This was done to +enable Schering Corporation to start exporting without delay +in case of emergency. For these products which, before the +war had not been made by Schering Corporation, the necessary +manufacturing directions were sent from Berlin. About these +products until as recently as 1941 there was a constant exchange +between Bloomfield and Berlin.</p> + +<p>In addition to establishing a “neutral” manufacturer and supplier +<span class="pagenum" id="Page_68">[Pg 68]</span>in the United States which in case of emergency could +be resorted to as a new center of the overseas business, Schering +A. G. took other measures as well. The Schering subsidiary in +London, Schering, <abbr title="Limited">Ltd.</abbr>, was also sold to Chepha. It is understood +that it has since been or is being wound up by the British +government. Shortly before the outbreak of the war in 1939, +all Schering A. G. firms in the British Empire, except London, +and those in Latin America, were transferred to Foreign Investments +and Invention Company, <abbr title="Limited">Ltd.</abbr> Basle (Forinvent.) This +was done to “neutralize” these Schering firms and thus to protect +them from seizure in the British Empire or blacklisting +in Latin America. Forinvent is wholly owned by Palladium +A. G., also a Swiss holding company which in turn is wholly +owned by the Swiss Bank Corporation, Basle. Forinvent, like +Chepha, is within the premises and organization of the Swiss +Bank. The president is the same <abbr>Dr.</abbr> Samuel Schweitzer of the +Swiss Bank, who is in charge of Chepha, and the connections of +Forinvent and Chepha with the Swiss Bank are practically identical. +Due to the fact that the selling transaction in the case of +Forinvent took place immediately before the outbreak of war, +Forinvent could not escape being placed on the blacklist. The +same holds true for the Forinvent (Schering A. G.) subsidiaries +in Latin America, while the Forinvent (Schering A. G.) subsidiaries +in the British countries were placed under enemy alien +control.</p> + +<p>The carefully laid plans were put into effect upon the outbreak +of war. Forinvent advised the British Empire companies +to get their further supplies from Schering Corporation and at +the same time advised the latter to supply them, which it did.</p> + +<p>The fact that the British government acted quickly and placed +Forinvent and its subsidiaries in Latin America on the blacklist +partially upset the plans which had been made. In view of the +<span class="pagenum" id="Page_69">[Pg 69]</span>increasing anti-German attitude in the United States and the +possibility of this country entering the war sooner or later, +Schering Corporation had to be very careful of its outward connections +with the Schering A. G. set-up. Therefore when Schering +Corporation was finally advised to supply Latin America, +steps were taken to conceal any connections with the blacklisted +Forinvent firms. On January 2, 1940 Schering A. G. gave a +release to Schering Corporation as to all products excepting hormones, +and on March 1, 1940, cabled a blanket release in the +following terms: “We authorize you until further notice to deliver +pharmaceutical and technical chemicals to our South and +Central American representatives or through their mediation +to their customers.” These releases, of course, did not apply to +foreign firms not associated with Schering A. G., and evidence +shows that the restrictions as to these other companies were still +continued, and Schering Corporation refused to sell to them.</p> + +<p>Two paper corporations were created to avoid use of the name +Schering although both corporations are in the same building +with Schering Corporation and are completely identified with +it except as to name. Pharmex, <abbr title="Incorporated">Inc.</abbr>, owned by Gregory Stragnell, +vice president of Schering Corporation, dealt directly with +the ex-Schering A. G. subsidiaries in the British Empire, except +Schering Corporation, Limited, of Canada. The latter deals +directly with Schering Corporation of Bloomfield.</p> + +<p>Delta Pharmaceutical Corporation, owned by Sherka Chemical +Company (which was in turn owned by Chepha), purchased +raw materials from Sherka and hormone products from Schering +Corporation and sold them to Atlantis, a corporation organized +in Panama. These two companies, Pharmex and Delta, were +really the export department of Schering Corporation. Part of +their employees were on the pay roll of Schering and part on the +pay rolls of Pharmex, Delta and Sherka. Both companies were +<span class="pagenum" id="Page_70">[Pg 70]</span>under the direction of <abbr>Dr.</abbr> Weltzien and <abbr>Dr.</abbr> Stragnell, then +president and vice president, respectively, of Schering <abbr title="Corporation">Corp.</abbr></p> + +<p>Atlantis S. A., Panama, is a wholly owned subsidiary of Forinvent +organized in 1940. Its president is <abbr>Dr.</abbr> Samuel Schweitzer, +who is likewise in charge of Chepha and Forinvent. At first it +was considered advisable to set up an actual office in Panama. +However since so many technical questions, passport difficulties +and tax questions were involved, the whole Atlantis business +was centralized in Basle, Switzerland, under the direct supervision +of the Swiss Bank Corporation, in closest cooperation +with Schering A. G. of Berlin.</p> + +<p>One of the problems faced by Schering Corporation in its +new foreign trade was that of packaging and labeling the products +so that they would seem to be identical with those formerly +supplied by Schering A. G. Since one of the chief considerations +prompting this whole scheme was preservation of good will, +in order that the business could be turned back to Schering A. G. +after the war, this factor was most important. On February +10, 1940 Forinvent cabled Pharmex as follows: “fundamental +changes of packing latinamerica may jeopardize turnover on account +customers mentality and will probably cause difficulties +with registration authorities therefore please adopt present +style of packing and labeling ... suggest airmailing you immediately +films for making plates [for printing Schering A. G. +type of labels].” It was not necessary to use the films in question +inasmuch as Delta had samples of all the Latin America +packages it had used as a standard pattern. Delta on January +28, 1941, sent to Swiss Bank samples of all packages used for +export, pointing out that the differences between the new and +old packages were very slight.</p> + +<p>From early in 1940 until Pearl Harbor the supplying of +Schering A. G. firms in Latin America was accomplished in a +<span class="pagenum" id="Page_71">[Pg 71]</span>circuitous manner. Each of the firms kept in close touch with +Basle and so with Berlin. They advised Atlantis of their requirements. +Atlantis, in Basle, cabled the orders to Delta at +Bloomfield and instructed Swiss Bank in New York to honor +Delta’s drafts. Delta delivered the goods to a forwarding agent +of Atlantis in New York, which shipped them to a dummy consignee +in Latin America and they were there received by the +particular Schering firm which had placed the order.</p> + +<p>About 40 or 45 cents of each dollar paid by the Latin American +firm went to Atlantis and thus to Schering A. G. Out of +its share, 55 or 60 cents, Delta (actually Schering Corporation) +made its manufacturing costs and whatever profit there might +be for it. The advertising expense was borne by Atlantis or +Schering A. G. The advertising and continuance of the familiar +German packages, labels and Schering trade-mark constituted +an important form of German propaganda. It was possible for +the German agents in Latin America to point to the continuance +of German pharmaceutical supplies as indicative of their ability +to overcome the British blockade and to carry on their commerce +with this hemisphere.</p> + +<p>It has been mentioned that the Germans used pharmaceuticals +which have a high value in proportion to bulk and weight to +make up one third of the air cargoes which were flown into +South America along with propaganda and other materials. +Pharmaceuticals also constituted an important part of the air +cargo which was carried eastward, ranking third among the +materials which were flown over the blockade. One order of +10 kilos (22 pounds) of testosterone propionate, the semi-manufactured +male hormone, valued at $50,000 was shipped +one kilo a week by air mail from Argentina to Spain and from +there to the Schering factory at either Milan or Berlin. This +and other similar orders, were placed by a dummy of Schering +<span class="pagenum" id="Page_72">[Pg 72]</span>A. G. in Portugal.</p> + +<p>Thus far I have been discussing the relations of two firms, +one, the largest of the European manufacturers of synthetic +hormones, and the other its affiliate or subsidiary, the largest +American producer. There are other large European members +of the cartel and each has its subsidiary in this country.</p> + +<p>Ciba (Society of Chemical Industry in Basle, Switzerland) is +another important cartel member. It has been in existence for +some sixty years, engaged in the manufacture and sale of dyestuffs +and pharmaceutical products throughout the world. In +July 1936 it organized a subsidiary, Ciba Pharmaceutical Products, +<abbr title="Incorporated">Inc.</abbr>, of Summit, New Jersey. Ciba Basle also came to own +several other corporations in fields other than pharmaceuticals +and hormones in this country, and companies in Canada, Brazil +and Argentina which sell dyestuffs and pharmaceuticals. Ciba’s +close relation to Schering A. G. is indicated by its joint ownership +with the Swiss Bank of the common stock of Chepha, which +in turn owns all the common stock of Schering Corporation.</p> + +<p>Until just before the war Ciba Pharmaceutical of Summit, +New Jersey, produced no hormone products. These were all +purchased by it from Ciba Basle. However, since its organization +it has been distributing hormones under its own label.</p> + +<p>The subservient attitude of Ciba Summit to the Society (Ciba, +Basle) is clearly shown in the following paragraph from a letter +of October 17, 1939, from H. Kamp, vice president of the New +Jersey corporation, to James Brodbeck, Secretary of Ciba Basle:</p> + +<p>“As I have repeatedly said, I am not interested in making +profits for Summit out of sales of raw materials or even finished +packages sent to foreign countries. <em>All I am interested in is to +help Society in getting the business</em>, but we must have a certain +rule as regards profits for Summit. The simplest way would +be if Basle fixed a percentage profit over our price II on all +<span class="pagenum" id="Page_73">[Pg 73]</span>products shipped in bulk to any foreign country. The same, of +course, could apply to finished packages if we were to supply +finished packages to foreign countries later on. <em>We want to +help Society as I fully realize that we are working for the interest +of Society and not for the interest of Ciba Summit alone. +Whatever seems most advantageous from your point of view +will meet with my approval.</em>”</p> + +<p>The same attitude is also reflected in a letter of September +22, 1939 from H. Kamp of Ciba Summit to <abbr>Dr.</abbr> J. Weltzien, +president of Schering Corporation:</p> + +<p>“At the meeting which took place on May 10, 1939 in your +offices, among other points, the introduction of desoxycorticosterone +acetate was discussed. It was finally agreed that Ciba +would introduce the product, but would abide by your suggestion +that no other indications be mentioned in the literature than +Addison’s Disease. We were, therefore, more than surprised +to read your advertisement in the ‘Druggists Circular’ announcing +‘CORTATE,’ where it is suggested that the drug +may be of use in the more chronic constitutional types of cortical +deficiency, in asthenias, and that certain allergies should be +benefited by the administration of Cortate....</p> + +<p>“It is again one of your usual methods by putting the other +parties before accomplished facts. I have discussed your tactics +very thoroughly while in Basle, and I can assure you that our +friends in Basle are more than fed up with your <em>methods. In +fact, I have the full authority to give you a dose of your own +medicine at the next opportunity, and this I am going to do +without any hesitation whatsoever!</em>”</p> + +<p>N. V. Organon of Oss, Holland, is a large manufacturer of +hormone products and so is F. Hoffman-LaRoche of Basle, +Switzerland. The latter company has had a subsidiary in Nutley, +New Jersey called Hoffman-LaRoche, <abbr title="Incorporated">Inc.</abbr> N. V. Organon +<span class="pagenum" id="Page_74">[Pg 74]</span>of Oss and Hoffman-LaRoche, <abbr title="Incorporated">Inc.</abbr>, of Nutley, have +jointly owned a corporation called Roche-Organon, <abbr title="Incorporated">Inc.</abbr>, organized +in 1937 and engaged in the sale of hormones. In 1940 +Ciba licensed Roche-Organon to manufacture products in the +cortin field under a patent for which it had made application in +1938. Ciba agreed to pay Roche-Organon 20 per cent of all +royalties collected from other licensees except Schering. Roche-Organon +agreed to pay Ciba 6 per cent on its entire turnover in +the United States in the Cortin field from January 1, 1940 to +June 17, 1955 regardless of whether the turnover involved +products made under Ciba’s patent.</p> + +<p>The German firm of C. F. Boehringer and Sons of Mannheim-Waldhof, +Germany formerly owned 50 per cent of the +stock of Rare Chemicals, <abbr title="Incorporated">Inc.</abbr>, Nepera Park, New York. The +president of the German firm was the father of E. T. Fritzsching, +formerly secretary and more recently president of Rare +Chemicals. A memorandum of the younger Fritzsching of +Rare, dated March 29, 1939, contains the following opening +paragraph:</p> + +<p>“In view of the boycott situation and in view of a number of +other reasons I have come to the conclusion that the best way +to avoid any further trouble for Rare Chemicals is to arrange +for a definite purchase of the Boehringer shares by an American +citizen. It is my intention to make an offer to Boehringer, by +which I shall take over their assets in this country and pay for +them at whatever price I could possibly obtain them. I am assuming +this obligation personally for the reason that it really +makes very little difference whether the shares are owned by +Boehringer or by me, since through this transaction the assets +would morally still remain within the same family interests. +It would also work along the lines of my personal interest and +that of my family in the event of war.”</p> + +<p><span class="pagenum" id="Page_75">[Pg 75]</span></p> + +<p>The remaining 50 per cent of Rare’s stock was owned by +Pyridium Corporation also of Nepera Park, New York. A letter +to Erwin Fritzsching <abbr title="care of">c/o</abbr> C. F. Boehringer & Soehne, +<abbr class="spell">G.m.b.H.</abbr>, Mannheim-Waldhof from W. S. Lasdon of Pyridium +and president of Rare dated August 18, 1939 contained the +following statement: “I agree with your suggestion to the transfer +of the B.&S. stock to a Swiss Company, instead of to you, and +of course, your participation in the profits of Rare is to be cancelled +upon the signing of this agreement, the understanding +being that you and W. S. Lasdon will represent the stockholding +interests.” The products of the two companies were exchanged +with definite restrictions upon their distribution. The following +excerpt indicates that the German firm kept a tight rein on +the use by the American firm of the former’s products. It is +taken from a letter from Fritzsching of C. F. Boehringer & +Soehne, <abbr class="spell">G.m.b.H.</abbr> to Rare Chemicals, <abbr title="Incorporated">Inc.</abbr>, dated October 31, +1936. It concerns a request of Rare to be allowed to manufacture +a product called Eucupin.</p> + +<p>“We are acknowledging the receipt of your letter of October +<abbr>19th</abbr> and regret to say that we cannot comply with your wishes.</p> + +<p>“We must take into consideration also the German interest +when weighing the question whether it is right to send manufacturing +processes to foreign countries, even though they may +go to our friends in these countries. We cannot be responsible +for it to give you manufacturing processes, the use of which is +not to be expected within a reasonable time. In such a case +we cannot truthfully answer any possible questions from authorities +to the effect that we can say that when giving away a manufacturing +process it will make it possible to manufacture and sell +in a foreign country a German preparation, the sale of which +from Germany due to duty difficulties and other restrictions +<span class="pagenum" id="Page_76">[Pg 76]</span>cannot be considered. In this fact lies the German interest, +and this we have to consider in first line.”</p> + +<p>In the summer of 1942 Rare was taken over by the Alien +Property Custodian and subsequently sold at public auction to +a wholly American independent organization.</p> + +<p>After certain separate agreements and considerable negotiation +a five party agreement was entered into on May 26, 1937 +to which the European firms Schering A. G.; Ciba, Basle; N. +V. Organon, Oss, Holland; C. F. Boehringer & Sons, and Les +Laboratoires Francais de Chimiotherapie of France (Chimio) +were the parties. The male hormone, female sex hormones, and +cortin, the cortico adrenal hormone, are covered by the agreement. +It involved a division of territories with certain parties +being definitely excluded from certain territories. Competing +producers of pharmaceutical products were expressly named as +firms with which any kind of cooperation is prohibited. Among +these were E. Merck, Darmstadt, Germany, and Merck & <abbr title="Company">Co.</abbr>, +<abbr title="Incorporated">Inc.</abbr>, of Rahway, New Jersey. Subsequent agreements removed +the prohibition as to these firms.</p> + +<p>Of course, one of the chief purposes of the cartel agreement +was to fix prices. The European parties agreed upon prices and +their American affiliates did likewise. A memorandum of a +meeting held at Summit on October 6, 1938 between representatives +of Ciba and of Schering discusses the fixing of prices on +various hormones. The artificial and arbitrary character of the +pricing policies is indicated by quotations from some of the documents +which were written following this meeting. One of them +indicates an agreed price of $3 for a certain hormone product. +It then states: “This price was later refused by <abbr>Mr.</abbr> Kamp +[Ciba’s general manager] who then advocated $4.00. This +was submitted to the other with our O.K.”</p> + +<p>A memorandum of a discussion held at Bloomfield, New +<span class="pagenum" id="Page_77">[Pg 77]</span>Jersey on October 7, 1938 between representatives of Rare and +of Schering, recites a detailed list of prices agreed upon between +Schering and Ciba the preceding day as having been +submitted to Rare.</p> + +<p>As to the item on which the price had been changed as just +indicated an endorsement on this memorandum states: “Informed +<abbr>Mr.</abbr> Landon [Rare official] by phone of Summit’s desire +to change this price to $4. He agreed to this.”</p> + +<p>The entire world cartel system has been bound together with +patents. The contracts among the American companies have +been carefully planned and drafted abroad to avoid any appearance +of violating the antitrust laws. They were couched in +terms of licensing patents to give the impression that the parties +were merely procuring rights under patents and not engaging +in restraints of competition. The evidence indicates that the +cartel participants in Europe had attempted to allocate the issue +of patents in the United States to the associated firms in such +a manner as to strengthen the defense of the American firms +against charges of antitrust law violations. At a discussion in +Berlin on March 18, 1939 among representatives of Ciba, Organon, +and Schering, A. G. there was set in motion reciprocal +concessions of priority in interferences between Organon and +Ciba in the <abbr title="United States">U. S.</abbr> Patent Office relating to the male hormone, +and to cortin. It was arranged for Schering to drop out of the +interference proceedings. It appears from a circular letter from +Organon to Ciba and Schering that the plan was for Organon +to concede priority to Ciba in the male hormone interference +and for Ciba to concede priority in the interference regarding +cortin. The intent of the parties, as to the male hormone interference, +was to transfer the application of Organon to the +United States Ciba firm. This circular letter of April 4, 1939, +from Ciba to Organon and Schering, A. G. reads in part:</p> + +<p><span class="pagenum" id="Page_78">[Pg 78]</span></p> + +<p>“It is up to Ciba to take care in accordance with the several +single agreements in the United States for a correct and clear +basis of the agreements relating to the male hormone field because +corresponding proceedings are intended in the paranephros +[cortin] hormone field in which Roche-Organon shall +obtain the basic patent claims. In accordance with the opinion +expressed here since Ciba gives its consent already in the letter +of March 9, 1939 to transfer the basic application in which the +patent claims for paranephros are established (Case 1577/1-4) +to Roche-Organon, that however, is dependent upon corresponding +proceedings of the Organon in the male hormone field.”</p> + +<p>The reasons for this “swapping” were very clearly indicated +in the last mentioned document:</p> + +<p>“As it is known in the United States the antitrust legislation +is of extremely great significance. The different agreements +which are in the state of preparation in the United States are +intended to put all contractors into position to sell hormone +compounds in the United States without any violation of those +statutes.... So far as ... cross promises to maintain prices +exist, this promise is only lawful if the licensee, in this case +Ciba, possesses the protection of a patent claim....</p> + +<hr class="tb"> + +<p>“According to the information of <abbr>Dr.</abbr> Joseph Engi almost +daily new indictments based on the antitrust legislation are +made. Under such circumstances it is extremely important to +obtain as fast as possible the protection of the most important +patent claims.”</p> + +<p>However, Roche-Organon resisted the transfer of the application, +writing in its circular letter to Ciba and Schering, A. G., +dated April 15, 1939: “An expert would understand immediately +that the transfer of this application served only aims which +have to be considered as lawful according to the antitrust legislation. +<span class="pagenum" id="Page_79">[Pg 79]</span>We couldn’t even mention any consideration given the +Ciba.”</p> + +<p>Although Organon’s male hormone application was in fact +not transferred to Ciba, the result which the parties contemplated +appears to have been effected. Ciba, apparently relying +upon its own male hormone patents in the United States, became +the licensor of Roche, Schering, and Rare, while Roche-Organon +participated in the licensing arrangements only under +its cortin patents.</p> + +<p>There are numerous indications in the Schering correspondence +that the American license agreements are so bound up with +the basic cartel agreements that the sums of money paid by the +American firms to each other are regarded as parts of the total +considerations which the European firms are bound to pay each +other.</p> + +<p>As in the case of Schering A. G. and Schering Corporation the +other cartel members bound their United States affiliates to +agreements which precluded exports in any manner which would +interfere with the division of territory among members of the +cartel. The agreement of April 1, 1938 between N. V. Organon +and Roche-Organon contains the following provisions: +“Roche-Organon agrees not to deal in or manufacture glandular +and hormone preparations other than those originated by +Oss [N. V. Organon], nor to export or sell for export from the +territory any glandular and hormone preparations.” (The territory +is defined as the United States, its territories and possessions, +Canada and the Philippine Islands, and Cuba.) The other +agreements contain similar restrictions with some variations as +to the exact territory.</p> + +<p>The principles of competition, price, and research heretofore +discussed are well exemplified by the case of Stilbestrol (diethylstilbestrol), +a recently discovered pharmaceutical which +<span class="pagenum" id="Page_80">[Pg 80]</span>has effects similar to those of the female sex hormones. It is +the product of research supported by Government grant in +England, several scientists of the University of London and of +Oxford University, headed by E. C. Dodds, being responsible +for the development. Throughout all of the work of Dodds +and his colleagues the Medical Research Council, a British government +organization, undertook the necessary financial support. +(While Stilbestrol is not a synthetic hormone, it has most of the +valuable therapeutic effects of these substances although it may +not be entirely free from side reactions. Its cost of manufacture—and +the price to the consumer—are much lower than +those of the equivalent hormones).</p> + +<p>The American hormone cartel members were aware of Stilbestrol +and its possibilities as early as 1939. In a conference +of Roche-Organon, Ciba and Schering officials, held on August +1, 1939 the following discussion took place, according to +minutes found in Ciba’s files:</p> + +<p>“<abbr>Mr.</abbr> Kamp [Ciba] brought up the subject stilbestrol.</p> + +<p>“<abbr>Mr.</abbr> Hammer [Schering] said he thought that any concern +would have a hard time getting stilbestrol accepted in this country.</p> + +<p>“<abbr>Dr.</abbr> Oppenheimer [Ciba] pointed out that in this country +estradiol prices may not be too much out of line with those of +stilbestrol compared with Great Britain.</p> + +<p>“The question of side effects from stilbestrol was then discussed.</p> + +<p>“<abbr>Dr.</abbr> Josephy [Roche-Organon] told of reports from Amsterdam +on the use of stilbestrol in animal experimentation. He +said that he thought the government would look not only at +the favorable reports on a preparation which was submitted but +also the unfavorable ones.</p> + +<p>“<abbr>Mr.</abbr> Kamp said he thought some concern had already filed +with the government a request to market stilbestrol.”</p> + +<p><span class="pagenum" id="Page_81">[Pg 81]</span></p> + +<p>A memorandum in Schering’s file concerning this same conference +of August 1, 1939 is somewhat more revealing:</p> + +<p>“<abbr title="18">XVIII</abbr> <i>Stilbestrol</i>. Ciba and Roche-Organon want to have +it just to be able to knock it with physicians. They say the hormone +business in England has been destroyed just by this new +product. On the other hand, it is said to injure the liver and +there is doubt that the <abbr title="United States">U. S.</abbr> Government will allow it to be +used.”</p> + +<p>In the minutes (from Ciba’s files) of a conference of representatives +of the three companies on Friday, October 27, 1939, +there is this statement: “During the discussion Stilbestrol was +mentioned and <abbr>Dr.</abbr> Weltzien [President of Schering] remarked +he hoped ‘none of us will introduce Stilbestrol’.” These quotations +indicate the hostility of cartel members towards a new +product which endangers their control of the market. Stilbestrol +was put on the market in this country late in 1941 and had an +immediate effect upon the sales of the higher priced hormone +products.</p> + +<p>From what has been said it seems clear that in the field of +synthetic hormones the cartel control has been such as to be +detrimental to our national interest. When such control can +be used to make American corporations the tools of those of +other countries it is exceedingly unfortunate. When carried to +the point of causing corporations in this country to aid the Axis +it could not be and was not tolerated. The seizure of two of +these companies by the Alien Property Custodian has put an +end to the German control. From the point of view of encouragement +of research those two companies are much better +off than they were when tied to the apron strings of their parent +companies in Germany. Complete removal of cartel restrictions +from the entire industry would be definitely in the interest +of the general public in this country and throughout the world.</p> + + +<hr class="chap x-ebookmaker-drop"> +<div class="chapter"> + +<p><span class="pagenum" id="Page_82">[Pg 82]</span></p> + + + <h2 class="nobreak" id="7"> + 7 + <br> + <i>Vitamins</i> + </h2> +</div> + + +<p>The monopolistic control of one of the most essential products +of our modern era—the sunshine vitamin, also known as +Vitamin D—has been magnified by the fact that it is the poorer +elements of our country which have the greatest need for this +product, since it is a preventative and a cure for certain diseases +most commonly found among the lower economic strata of our +population. Vitamin D is essential for proper bone growth and +development, the prevention and cure of rickets, and the prevention +or reduction of tooth decay.</p> + +<p>The Wisconsin Alumni Research Foundation acts as a screen +behind which a group of monopolistic chemical, pharmaceutical +and food companies control Vitamin D. The story of the Wisconsin +Alumni Research Foundation is of extreme importance +because it indicates how a quasi-public research organization +can be flagrantly misused.</p> + +<p>At the outset I should like to state that the Wisconsin Alumni +Research Foundation has no formal connection with the University +of Wisconsin, and that the University of Wisconsin has +absolutely no control over the policies and practices of the +Alumni Foundation. It should be clearly understood, therefore, +<span class="pagenum" id="Page_83">[Pg 83]</span>that what I say here does not reflect in any manner upon +the University of Wisconsin.</p> + +<p>A report of the Trustees of the Foundation dated June 22, +1931, defines the objectives and purposes of the Foundation +as follows:</p> + +<p>“Indeed one of the soundest reasons for the development of +the Foundation as a suitable means of handling the Steenbock +process lies in the rigid control through which it is possible to +protect the public and prevent unscrupulous commercialism +from capitalizing the Steenbock discovery.”</p> + +<p>The investigation by the Antitrust Division of the Department +of Justice indicates, however, that somewhere along the +line these laudable objectives were lost. Instead, a summary +of our investigation discloses the following facts about the Wisconsin +Alumni Research Foundation:</p> + +<p>(1) It has been the vehicle for creating a domestic monopoly +resulting in division of fields, price fixing, control of container +size, and limitation of potency of vitamin products—as a result +of which the public has been charged excessive and arbitrarily +high prices. (The Foundation has been described by a licensee +as being “merciless in beating out competition” in the field of +vitamins.)</p> + +<p>(2) It has considered plans to denature and adulterate Vitamin +D preparations in order to maintain high prices.</p> + +<p>(3) It has exhibited a lack of interest in research unless a +commercial advantage could be obtained.</p> + +<p>(4) It has used threats of patent litigations under patents +which it knew were very weak to eliminate competition. (Some +of these patents upon which the monopolistic scheme rested +were, in fact, declared invalid in 1943 by the Circuit Court of +Appeals for the Ninth Circuit.)</p> + +<p>(5) It has suppressed the use of competing processes.</p> + +<p><span class="pagenum" id="Page_84">[Pg 84]</span></p> + +<p>(6) It has organized international cartels with I. G. Farben +of Germany and Joseph Nathan & <abbr title="Company">Co.</abbr>, of Great Britain, in +order to eliminate world competition by dividing world territory +into noncompetitive areas.</p> + +<p>(7) It has attempted to suppress the publication of scientific +research data which were at variance with its monopoly interests.</p> + +<p>(8) It has acted as a police organization for its licensees—in +order to maintain its price fixing arrangements—by setting +up a black list of price-cutting distributors.</p> + +<p>(9) It has used its licensing scheme to discourage research +by its licensees.</p> + +<p>(10) It has endeavored to suppress or prevent truthful +advertising in order to eliminate competition.</p> + +<p>(11) It has required its licenses to charge unreasonable +prices to the government.</p> + +<p>(12) It has forced farmers to buy vitamin-enriched animal +feeds in a monopoly market.</p> + +<p>Since 1925 the production and use of Vitamin D has been +under the control of the Wisconsin Alumni Research Foundation. +The control has been based upon the so-called Steenbock +patents, especially upon patent <abbr title="Number">No.</abbr> 1680818, which the Foundation +regards as the basic patent on Vitamin D.</p> + +<p>About 1925 <abbr>Dr.</abbr> Steenbock, then a professor at the University +of Wisconsin, conducted experiments which eventually resulted +in the Steenbock patents. Recognizing the commercial possibilities +of his developments, Steenbock offered his patents to +the University, but the Regents of the institution did not feel +they were in a position to commercialize them. The President +of the Wisconsin Alumni Association at that time was George I. +Haight, a very able patent lawyer of Chicago, who immediately +recognized the commercial possibilities of the Steenbock +development. Together with some of the other leading alumni +<span class="pagenum" id="Page_85">[Pg 85]</span>of the University, Haight founded the Wisconsin Alumni Research +Foundation to undertake the exploitation of the Steenbock +patents and such other patents as the Foundation might +from time to time acquire.</p> + +<p>The Foundation was chartered on November 14, 1925 as a +non-profit corporation. Its purposes, as stated in its charter +were “to promote, encourage and aid scientific investigation +and research at the University of Wisconsin by the faculty, +staff, alumni and students thereof, and those associated therewith, +and to provide or assist in providing the means and machinery +by which their scientific discoveries, inventions and +processes may be developed, applied and patented, and the public +and commercial uses thereof determined, and by which such +utilization or disposition may be made of such discoveries, inventions +and processes, and patent rights or interests therein, as +may tend to stimulate and promote and provide funds for further +scientific investigation and research within said University +or colleges or departments thereof.”</p> + +<p>The Foundation is managed by a Board of Trustees. Originally +these trustees personally handled the work of the Foundation +but, in 1931, they secured the services of Henry L. Russell, +former dean of the University of Wisconsin College of Agriculture. +Russell was made Director and executive head of the +Foundation. Later, as business increased, L. D. Barney was +employed as business manager, and Ward Ross, an associate of +Haight, was retained as General Counsel. Steenbock himself +appears to have handled most of the technical matters of the +Foundation insofar as they relate to Vitamin D. The royalties +received by the Foundation are invested and the resulting income +is utilized for research.</p> + +<p>The Foundation has controlled Vitamin D by reason of its +ownership of the Steenbock patents <abbr title="Numbers">Nos.</abbr> 1680818, 1871135, +<span class="pagenum" id="Page_86">[Pg 86]</span>1871136, and 2057399. The underlying concept of all of these +patents is that certain substances called pro-vitamins may be +“activated” so as to result in a product having a high Vitamin +D potency. This “activation” is accomplished by exposing the +pro-vitamin to ultra-violet light, and the basic patent is limited +to activation by ultra-violet light produced by an artificial +source such as a quartz mercury vapor lamp.</p> + +<p>The commercialization of the Steenbock patents was phenomenally +successful almost from the very outset. The report +of the Trustees of the Foundation dated June 22, 1931, states:</p> + +<p>“The accumulation from royalties so far has been almost +wholly from the ultra-violet patents. During the calendar year +1930, the gross income was $354,590, or very nearly $1,000 a +day throughout the year. This income has been developed +within less than three years.”</p> + +<p>The Foundation’s annual royalties showed a steady increase +until 1936, when they amounted to nearly $1,100,000. After +1936, the annual royalties decreased slightly, and in 1939 they +amounted to $936,610.70 or over $2,500 per day. Up to 1940, +the Foundation had received more than $8,500,000 in royalties.</p> + +<p>The royalty rates charged by the Foundation vary from 10% +to 3% and less, with higher royalties applying to only a few +products. The enormous size of the market is indicated by the +munificent revenues yielded by royalties at these rates.</p> + +<p>The first requirement for the success of the Foundation’s +licensing program was the elimination of competition from non-licensees. +The Foundation’s practices in this respect are aptly +described in a memorandum dated February 20, 1935, from +Connolly, a du Pont patent attorney, to Kupperian, of du Pont: +“The Foundation has been merciless in beating out competition +throughout the United States whenever such competition threatened +to encroach upon the synthetic vitamin D field.”</p> + +<p><span class="pagenum" id="Page_87">[Pg 87]</span></p> + +<p>Some of the leading manufacturers in the country are licensees +of the Foundation. Many of these manufacturers have +been licensees for years, while in some cases licenses were obtained +by the acquisition of companies holding licenses. Both +du Pont and Standard Brands obtained their licenses by the +latter method.</p> + +<p>Acetol Products, <abbr title="Incorporated">Inc.</abbr>, had a license from the Foundation +dated November 15, 1929. Du Pont acquired the assets of +Acetol and on April 30, 1935, Acetol assigned its license to du +Pont. On November 15, 1935, a new agreement was executed +between the Foundation and du Pont which superseded the +Acetol agreement of November 15, 1929.</p> + +<p>Standard Brands succeeded to the rights of the Fleischmann +Company under an agreement dated August 8, 1928.</p> + +<p>The question naturally arises why these powerful manufacturers +paid the Foundation such large royalties on the basis of +the weak and limited Steenbock patents. The correspondence +indicates that the licensees were not only willing but anxious +to pay the royalties in return for the profit opportunities offered +under the Foundation’s schemes.</p> + +<p>The desire of the licensees to cooperate in the Foundation’s +promotional schemes is well expressed in a letter dated July 8, +1935, from Atkins of du Pont to Barney, the Foundation’s +business manager:</p> + +<p>“The writer feels certain that you understand our desire and +willingness to be considered as a part of the Foundation. You +know our desire to prevent the Vitamin D field from falling into +disrepute because of too many producers of various types of so-called +Vitamin D. We would much prefer centralized control +in the hands of the Foundation and you may count on us to support +you even though, at times, we may have differences of +opinion.”</p> + +<p><span class="pagenum" id="Page_88">[Pg 88]</span></p> + +<p>A memorandum dated January 25, 1937, from H. W. Elley, +associate chemical director of du Pont, to a number of the executives +of du Pont, explains the reason for centralizing “control +in the hands of the Foundation”:</p> + +<p>“He [<abbr>Mr.</abbr> Protto, assistant general manager of du Pont] +felt that it would be preferable to deal with the Wisconsin +Alumni Foundation since they could be of considerable value to +the industry in policing and regulating matters. If, for any +reason such arrangements become unnecessary, it would then be +possible to consider alternative procedures not involving the +use of the Foundation patents, that is, we might commercialize +the Milas process.”</p> + +<p>The Foundation is organized along the lines of an international +cartel insofar as its licensing program is concerned. It is +party to agreements with the omnipresent I. G. Farbenindustrie +of Germany and Joseph Nathan & <abbr title="Company">Co.</abbr>, of Britain. The agreements, +following the standard cartel pattern, create exclusive +noncompetitive territories. Nathan and I. G. are prohibited +from exporting to the United States and the domestic +licensees of the Foundation are prohibited from exporting to +Germany or Great Britain.</p> + +<p>The domestic licensing policy of the Foundation is characterized +by a most complex and minute division of fields into noncompetitive +areas. Generally speaking, these fields of activity +are made exclusive so that all competition between the different +licensees or groups of licensees is eliminated. Provisions of +the various agreements, which will be later described, prevent +any substantial overlapping of these fields. Often the provisions +merely prohibit the licensee from accurately describing his +product but the essential object, elimination of competition, is +attained.</p> + +<p>Fields are divided along three distinct lines: (a) the product +<span class="pagenum" id="Page_89">[Pg 89]</span>to be activated, (b) the method of activation, and (c) the use +of the activated product. In the first category there are 13 +principal divisions: (1) the pharmaceutical licensees are permitted +to activate ergosterol, (2) Standard Brands is licensed +to activate yeast and yeast products, (3) du Pont is allowed to +activate ergosterol cholesterol and other sterols except yeast and +yeast products, (4) S. S. Kovaks is allowed to activate sterols +derived from yeasts but not yeast, (5) a group of licensees are +permitted to activate evaporated milk, (6) a number of licensees +are permitted to activate fluid milk, (7) Quaker Oats is allowed +to activate cereals, (8) Borden is allowed to activate a milk +product known as Dryco, (9) The Wanter Company is allowed +to activate Ovaltine, (10) the Commander Larrabee Company +is allowed to activate flour, (11) R. B. Davis and Company is +allowed to activate Cocomalt, (12) Loose-Wiles Biscuit Company +is allowed to activate crackers, and (13) Ayerst, McKenna +and Harrison are allowed to activate a food product known as +Glucose-D.</p> + +<p>The extent to which the division of fields is carried is exemplified +in an agreement dated June 27, 1938, between the Foundation +and the Loose-Wiles Biscuit Company. This agreement +authorizes Loose-Wiles to activate “Graham Crackers” and +“Wafers slightly sweetened to such as English Style Arrowroot +Wafers,” but does not permit the activation of “cakes” and +“cookies.”</p> + +<p>According to the method of activation, fields are divided into +direct irradiation and activation by the introduction of an irradiated +substance. Some few licensees are permitted to use either +method of activation, but most are restricted to a single method. +One of the most curious licenses issued by the Foundation permits +the activation of milk by feeding cows irradiated material.</p> + +<p>The division of fields according to use is most detailed, but +<span class="pagenum" id="Page_90">[Pg 90]</span>can be broken into several general classes. Licenses are issued +for the human medicine field, for the human food field, for the +fluid milk field, for the evaporated milk field, for the animal +feed field, and for a field in which the product is not intended +for internal use.</p> + +<p>At the outset, it was pointed out that the stated objectives of +the Foundation are “to protect the public” and “to prevent unscrupulous +commercialization.” Over the years the Foundation’s +devotion to these objectives appears to have wavered. +The Foundation appears to be primarily interested in royalties, +with little or no regard for the public interest. Article <abbr title="7">VII</abbr> of +the agreement of November 1, 1938, with the milk companies +states that if “it should be found that the activation of unsweetened +evaporated milk <span id="TN2">by ultra violet rays</span> under this +license is substantially harmful to the user of such milk, or to +the milk itself, the licensee shall have the right to cancel this +license.”</p> + +<p>In a memorandum dated February 8, 1939, <abbr>Dr.</abbr> Russell described +a similar position of the Foundation in regard to high +dosages of Vitamin D: “Steenbock is of the opinion that in view +of the fact that Vitamin D is no longer a distinctive Steenbock +product but can be secured from a variety of sources that the +Foundation might as well favor the commercialization of high +dosages unless there is <em>very</em> serious objection on the part of the +<abbr class="spell">A.M.A.</abbr> officials toward a move of this sort.”</p> + +<p>It is to be noted that in neither of these cases is the Foundation +concerned with public benefit or medical approval, but only +with <em>substantial harm</em> and a <em>very serious medical objection</em>.</p> + +<p>Another instance of the Foundation’s regard for the public +interest was the Snider Packing Company matter. In 1931 the +Snider Packing Company obtained <span id="TN3">irradiated yeast from +Fleischmann</span> to add to Snider’s tomato juice. The results were +<span class="pagenum" id="Page_91">[Pg 91]</span>apparently not too satisfactory. After this 1931 failure, Snider +was persuaded to continue the license and the Foundation undertook +to supervise the activation of the tomato juice. Steenbock +and Scott recommended Acetol irradiated ergosterol and +this recommendation was followed.</p> + +<p>Despite the recommendations and supervision and guarantees +of the Foundation, the Vitamin D content of the Snider tomato +juice did not come up to expectations. This inadequacy was +known to Snider, Acetol, and the Foundation, and on February +27, 1933, Russell wrote to Acetol stating:</p> + +<p>“It would be most unfortunate if any publicity was to occur +as a result of the reduced potency of the Snider product and it +would not only ruin the Snider business in this product, but +would affect most disastrously you as well as ourselves. If the +Government were to discover this situation and publish the result, +it would do irreparable injury to the whole Vitamin D +situation in foods.”</p> + +<p>The correspondence does not show whether any of the Snider +products reached the market under false labels, but the Foundation’s +concern in the matter is clear. The Foundation feared +only publicity or discovery by the Government.</p> + +<p>In 1934 and 1935 some research workers, and especially +<abbr>Dr.</abbr> Reed of the University of Illinois, found that large doses +of Vitamin D were highly beneficial in severe cases of asthma, +hayfever and arthritis. These large doses required a highly +concentrated product which was most easily used in the form of +gelatin capsules. The Foundation and its licensees were greatly +interested in this project, but feared the effect this concentrate +might have on the pricing structure of viosterol. These +fears and a suggested solution are referred to in a report of a +conference between Russell and Ross of the Foundation and +<span class="pagenum" id="Page_92">[Pg 92]</span>Nielsen of Abbott, held early in February 1935. This report, +signed by Nielsen, states:</p> + +<p>“<abbr>Mr.</abbr> Nielsen stated that if the capsules were priced considerably +lower than the commercial product unit for unit, nothing +would prevent the hospitals from opening the capsules and +diluting the content with vegetable oil to obtain a ‘250D’ solution +far below the regular cost.</p> + +<p>“Dean Russell asked for suggestions to prevent this. <abbr>Mr.</abbr> +Nielsen stated that Abbott Laboratories would give further +thought to this problem. Tentatively, he suggested that the +concentrate might be denatured by the addition of a drug also +indicated in these cases—Ephedrine, for example—that the +product be considered as a drug, not a vitamin, and that it be +distributed for clinical trial under a special name—all provided +that the licensees agree. <em>Any untoward effects from it thus +would not reflect on the Viosterol products on the market.</em>”</p> + +<p>Despite its lofty objectives, the licensing program of the +Foundation appears to have resulted actually in a substantial +reduction of research and development. Its attitude toward +research is indicated in a letter from Russell to the licensees +dated August 24, 1936:</p> + +<p>“We are hardly interested in the prosecution of problems of +a purely scientific character that come to us from outside institutions. +Nevertheless, if this is a problem that has definite commercial +possibilities, we should not make a hasty adverse decision.”</p> + +<p>In a letter dated January 6, 1937, addressed to Elley of +duPont, Waddell of duPont referred to a meeting in Madison +with members of the Foundation and stated:</p> + +<p>“He [Steenbock] mentioned that most of the pharmaceutical +licensees had not been interested in obtaining rights to the manufacture +of crystalline Vitamin D (from ergosterol) and that +<span class="pagenum" id="Page_93">[Pg 93]</span>the present situation might find them in the same attitude. He +admitted, however, that if the patent situation and licensing +arrangements worked out so that the five pharmaceutical companies +were again in a position of having an exclusive hold on +the synthetic Vitamin D field that undoubtedly they would be +very much interested.”</p> + +<p>Thus, in spite of the acknowledged physiological superiority +of Vitamin D<sub>3</sub>, the Foundation was reluctant to do any research +whatever unless the willingness and cooperation of the +licensees showed a definite promise of substantial profits.</p> + +<p>The effect of the licensing policy on the research activities of +licensees is explained in a letter from Kupperian of Acetol to +Waddell, research director of Acetol. This letter states:</p> + +<p>“According to my reading of the contract with Wisconsin +Alumni Research Foundation, we are not at liberty to use yeast +in connection with irradiated ergosterol, this field being reserved +exclusively to Fleischmann. In view of this fact, I think we +ought not to waste time and money on experiments in connection +with yeast.”</p> + +<p>In at least one case where the Foundation sponsored and +financed research, the publication of the results of the research +were suppressed by the Foundation because they were at variance +with the Foundation’s commercial interests. In an attempt +to eliminate the non-infringing product of General Mills from +competition with the Viosterol of the pharmaceutical licensees, +the Foundation attempted to prove that Viosterol was clinically +superior to the General Mills product. To accomplish this, the +Foundation made a grant to <abbr title="Doctors">Drs.</abbr> Smith and Owens of Freedmen’s +Hospital in Washington, D. C., to run certain tests comparing +the effectiveness of the General Mills product and Viosterol, +and to prepare an article for the medical journals on the +results. On June 17, 1936, <abbr title="Doctors">Drs.</abbr> Smith and Owens submitted +<span class="pagenum" id="Page_94">[Pg 94]</span>to the Foundation their article, which contains the following +conclusion:</p> + +<p>“A comparative study of nine cases of varying degrees of +rickets receiving 800 <abbr class="spell">U.S.P.</abbr> units of Squibb’s Viosterol daily +with eleven comparable cases receiving 800 <abbr class="spell">U.S.P.</abbr> units of +American Pharmaceutical Company Viosterol [General Mills’ +product] shows no significant difference in rate or degree of +healing as determined (1) by X-ray of the wrists and (3) Ca +and P determination on the blood.”</p> + +<p>The attitude of the Foundation and its licensees to this article +is described in a letter from Lescohier of Parke-Davis to Anderson +of Squibb, dated July 6, 1936:</p> + +<p>“If this article is published the Steenbock group are certainly +in the position of being hung with their own rope. I should like +to see the publication suppressed but am pretty certain that +Meade Johnson will see that it is published since they are no +longer vitally interested in Viosterol. Certainly anything that +can be done to delay publication would be advisable.”</p> + +<p>In a letter dated August 17, 1936, Scott of the Foundation +expressed the Foundation’s attitude on this article as follows:</p> + +<p>“From the outset, of course, we have been opposed to publication +of this paper in any form. We have advised <abbr>Dr.</abbr> Smith +that it was necessary to get the opinions of the pharmaceutical +committee, and we intend to confer with them in the near future +advising them that publication of the work is not desirable.”</p> + +<p>The Foundation has also suppressed the use of competing +patents. Article <abbr title="2">II</abbr> of the Supplemental Agreement of June 3, +1937, between the Foundation and Meade Johnson, Squibb, +Parke-Davis, and Abbott provides for the licensing of additional +pharmaceutical manufacturers who had been using Sperti Patent +<abbr title="Number">No.</abbr> 1,676,579 on the irradiation of pharmaceutical products. +This section provides:</p> + +<p><span class="pagenum" id="Page_95">[Pg 95]</span></p> + +<p>“It is understood and agreed that such additional Licensees +shall be prohibited, by appropriate restrictions in any license +agreements that may be entered into between the Licensor and +such additional Licensees, from employing the process described +and claimed in United States Letters Patent <abbr title="Number">No.</abbr> 1,676,579 to +George Sperti and from advertising the use of said process in +connection with products sold under said license agreements....”</p> + +<p>Thus, the results of the Foundation’s licensing program have +been to stifle its own research activities and the research activities +of its licensees, to prevent the publication of information +which might jeopardize the Foundation’s financial interests, and +to suppress competing patents. Certainly, these are peculiar +results of a program instituted “to protect the public” and “to +prevent unscrupulous commercialism.”</p> + +<p>One of the most important fields in the Foundation’s scheme +of exploitation is the pharmaceutical field. All Vitamin D products +used in the treatment or prevention of human ills are embraced +within the pharmaceutical field, and restrictions in this +field thus have a direct and immediate effect on the health +and well-being of the general public. Also, at the time the +Foundation embarked on its licensing program, the pharmaceutical +field probably was one of the most promising, both from +a publicity and a profit standpoint.</p> + +<p>In or about March 1929, the Foundation made agreements +with five licensees, all manufacturers of pharmaceuticals: Meade +Johnson & <abbr title="Company">Co.</abbr>, Winthrop Chemical Company, Abbott Laboratories, +Parke-Davis & Company, and E. R. Squibb & Sons. +These agreements have been amended several times by letter +agreements and supplemental agreements. Two letters, dated +March 20, 1939 and April 27, 1939, offer the licensees certain +royalty reductions, and it is assumed that these reductions were +<span class="pagenum" id="Page_96">[Pg 96]</span>accepted. These letters do not, however, make any substantial +changes in the restrictive provisions of the agreement.</p> + +<p>This combination in restraint of trade between the Foundation +and its licensees is expressed in various ways throughout +the pharmaceutical licenses. For example, Article <abbr title="12">XII</abbr> of the +agreement of March 21, 1929, fixed minimum prices for the +sale of irradiated pharmaceutical products. This article contains +the following language: “Such prices so established shall remain +in effect indefinitely but may be changed by the Licensor not +less than ninety (90) days after consultation with all of the +Licensees of this group.”</p> + +<p>Article <abbr title="13">XIII</abbr> of the agreement of March 21, 1939, states +that the potencies of the pharmaceutical products shall remain +fixed “until and unless changed by the mutual understanding +of a majority of the licensees of this group.” Article <abbr title="17">XVII</abbr> +prevents the assignment of the licenses “without the written +consent of the Licensor, the Patentee and the Licensees under +similar licenses.” Each of the agreements with Abbott, Meade +Johnson, Squibb and Parke-Davis, executed June 3, 1937, also +contains long recitals regarding the provisions to be introduced +into a new contract with Winthrop Chemical <abbr title="Company">Co.</abbr>, <abbr title="Incorporated">Inc.</abbr></p> + +<p>Price stabilization was one of the main considerations offered +by the Foundation to its licensees in exchange for the royalties. +It might almost be said that this price stabilization was the bait +which made the licensing scheme of the Foundation so attractive +to the various manufacturers. Clough of Abbott wrote to +Russell of the Foundation on April 21, 1936, and referred to +the importance of price-fixing activities of the Foundation as +follows: “It was argued by your Trustees that under our arrangement +with the Foundation, we were given certain benefits +of price stabilization which was well worth the additional 5%.”</p> + +<p>That price-fixing was one of the most important points in the +<span class="pagenum" id="Page_97">[Pg 97]</span>pharmaceutical licensing plan and is described in a memorandum +of a conference between Anderson and Lewis of Squibb +and Ross and Barney of the Foundation on February 23, 1939:</p> + +<p>“We outlined the high potency D situation both with respect +to Merrell and Winthrop. Their reaction was first that Squibb +would have no objection to Merrell’s continuing to sell its concentrated +viosterol if we could line up Merrell on its regular +viosterol from the standpoint of container size and price. We +indicated that this latter could be accomplished.”</p> + +<p>Further, the papers indicate that this price-fixing was carried +over into the field of resale prices. This is brought out in a +letter from R. D. Keim of Squibb to Dean Russell of the +Foundation dated July 23, 1934:</p> + +<p>“We gave this matter our very serious consideration and +wrote to all the licensees, under date of July 19, 1934, as per +copy enclosed and we firmly believe that our suggested <em>Full +Retail Prices per package to the consumer and Minimum Retail +Prices per package to the consumer</em> for Viosterol in Oil and Cod +Liver Oil with Viosterol are more in line with present market +trends and the present economic market conditions than those +proposed by Parke-Davis & Company.</p> + +<p>“We are desirous of acting in harmony with all the other +licensees of the Wisconsin Alumni Research Foundation in regard +to the stabilization of the market for Viosterol in Oil and +Cod Liver Oil with Viosterol. However, we firmly believe that +it is necessary to establish a schedule of Minimum Retail Prices +to the consumer such as we have suggested in order to bring +about such stabilization.”</p> + +<p>Prices were not only fixed; they were fixed arbitrarily at levels +which can only be regarded as extortionate in view of the +economic status of the people whose need for Vitamin D was +the greatest. (Barney, the business manager of the Foundation, +<span class="pagenum" id="Page_98">[Pg 98]</span>once stated on examination in a lawsuit: “It is my understanding +that rickets is found to a great extent in the so-called +poorer class of people.”) Despite this full awareness of the +incidence of their high price policy, the Foundation and its +licensees remorselessly maintained prices on the Viosterol products +so high that their use was practically restricted to those +who had least need for them. This is recognized in a letter +dated March 30, 1934, from Russell to the pharmaceutical +licensees: “Very severe criticism from certain prominent pediatricians +has been lodged against the Foundation on account of +the alleged high retail prices of certain Vitamin D preparations.”</p> + +<p>The price-fixing activities of the Foundation also extended to +sales to Federal, State and local governments and government +agencies. On May 10, 1940, W. S. Merrell Company wrote +to the Foundation:</p> + +<p>“We have an inquiry from the Government for a substantial +quantity of Irradiated Ergosterol and are wondering if we shall +have to abide by the price schedule in our license agreement in +quoting. In other words, would our quotation have to be the +same as our minimum price to wholesalers, or could we figure +on a reasonable profit basis taking our cost on such a large quantity +for one shipment into consideration?”</p> + +<p>The letter also contained a postscript: “We know that the +price would have to be much lower than our price to the wholesalers +to secure the order.” In spite of the fact that Merrell +was merely asking to quote on a “reasonable profit basis” and +assured the Foundation that the price would have to be “much +lower ... to secure the order,” the business manager of Foundation +replied on May 13, 1940:</p> + +<p>“Under the present license agreement with your company +and the other pharmaceutical licensees of the Foundation under +<span class="pagenum" id="Page_99">[Pg 99]</span>the Steenbock patents, the minimum price to be quoted to government +institutions is the minimum wholesale price as outlined +in your contract, less two per cent discount for cash if paid by +the tenth of the following month.</p> + +<p>“All of the other pharmaceutical licenses of the Foundation +have operated under this arrangement for some time. We note, +however, your postscript which indicates that the quotation to +the government will have to be lower than the price to wholesalers +in order to secure the order. We dislike to see your +company or any of our other licensees lose business.”</p> + +<p>The pharmaceutical agreements fix both the potency and the +quantities in which Vitamin D concentrates may be sold by the +pharmaceutical licensees. The purpose and effect of these additional +controls were stated by an official of the Foundation. “We +feel that it is perfectly proper to control the price of Viosterol +and cod liver oil from a legal standpoint and, unless we control +the potency of the product and size of the container, price control +of the product, of course, would be rather useless.”</p> + +<p>The pharmaceutical agreements specified that potencies could +be changed only by “mutual agreement of Licensees of this +group,” while container sizes could be changed by “mutual understanding +of a majority of the Licensees of this group.” Operations +were in exact accord with these provisions, and only +unanimous approval by the licensees could authorize potency +changes. Notes of a phone conversation of March 30, 1932, between +Nielsen of Meade Johnson and Russell of the Foundation +state: “Russell said under no condition could such approval be +given. That Meade Johnson had no warrant in changing the +potency without the knowledge and approval and consent, not +only of the Foundation but also of the other four licensees.”</p> + +<p>Prior to December 24, 1936, the Foundation and its pharmaceutical +licensees maintained a very effective black list and +<span class="pagenum" id="Page_100">[Pg 100]</span>white list of dealers. While the approval of dealers was ostensibly +within the exclusive control of the Foundation, actually +it was again a matter for vote by the licensees. L. D. +Barney, business manager of the Foundation, described the program +to <abbr>Dr.</abbr> Russell, director of the Foundation, in a memorandum +dated November 6, 1935:</p> + +<p>“As you know, the usual procedure in handling requests of +wholesale drug concerns with respect to their addition to the +approved wholesale list for the sale of Viosterol products is for +the Foundation to send the name and address of this company +to the five licensees. They, in turn, investigate the company and +report back to whether or not they favor the addition of the +said company to the list. The general procedure set up several +years ago was that a majority of the licensees (three) would +constitute sufficient authority on the part of the Foundation to +add the name of the company to the approved list.</p> + +<p>“By reason of the manner in which these are handled, it is +impossible for us to tell the licensee when we refuse their request +anything other than the fact that the Committee, which +handles the request, did not approve their application, or, stated +in another way, the Committee voted in the negative. Obviously, +we cannot say that our licensees did not favor the addition +of this company to the group.”</p> + +<p>W. N. Larson of Meade Johnson recognized that this black +list and white list might be illegal, and referred to it in a letter +dated December 22, 1936, to Ward Ross, Counsel for the +Foundation. He sent copies to each of the other pharmaceutical +licensees. Larson’s letter states:</p> + +<p>“We would have no objection to the Foundation acting as a +clearing house for information relative to those to whom wholesale +terms on Viosterol and Cod Liver Oil with Viosterol are +extended, except we wonder if such action might not be construed +<span class="pagenum" id="Page_101">[Pg 101]</span>as a violation of law. Anyone investigating this activity +might well inquire as to why this was done, if some action +which could be construed as collusion or restraint of trade were +not contemplated.”</p> + +<p>One of the principal functions of the black listing and white +listing of wholesalers and retailers was the maintenance of resale +prices. This is explained in a letter dated June 29, 1931, from +W. N. Larson of Meade Johnson to N. A. Buttle of Winthrop, +with copies to the other licensees and to the Foundation. This +letter states:</p> + +<p>“To our knowledge there have been very few departures +from the suggested minimum price, and these departures have +been confined to a very few relatively unimportant wholesale +druggists whose objectives unlike ours, are not to stabilize conditions +in the drug trade. It is the legal right of any manufacturer +to refuse to sell to a wholesaler or any other customer in +fact, who will not carry out his wishes. I hope that it will not be +necessary, but it is entirely possible that it may become desirable +for the Foundation to make the list of preferred jobbers a +trifle more exclusive than it is at the present time. We would +work with the Foundation in any reasonable steps in that direction. +Better proof of our desire to have this matter straightened +out could hardly be given, we believe.”</p> + +<p>At least as early as 1933, the Foundation and the pharmaceutical +licensees realized that this black list was illegal. On +May 11, 1933, Larson of Meade Johnson wrote to Gunn, attorney +for the Foundation, regarding this black list:</p> + +<p>“Licensees cannot make agreements among themselves in +these matters and must, of course, take the position that they +are acting under instructions from the Wisconsin Alumni Research +Foundation. The revelation that that is not the case +might prove to be very embarrassing, as you probably realize. +<span class="pagenum" id="Page_102">[Pg 102]</span>My suggestion is that, in cases of this kind, you simply inform +the inquiring party that your action was guided by a committee, +operating under the Wisconsin Alumni Research Foundation, +and that this committee does not reveal its reasons for taking +any action of this kind.”</p> + +<p>Probably in part on account of this growing disquietude concerning +the lawfulness of their undercover boycott, in part also, +perhaps, because of the vast amount of detail work involved in +maintaining the list, the Foundation ceased rendering this service +for its licensees some time late in 1936. On December 24, +1936, the business manager of the Foundation referred a prospective +wholesaler to the pharmaceutical licensees for direct +action.</p> + +<p>The pharmaceutical agreements were thus far more than +mere restrictive patent licenses. Prices, potencies, dosages and +container sizes were fixed by the licensees jointly and black lists +of price-cutting dealers were established and maintained. The +Foundation offered little more than a facade of respectability to +conceal these activities, and it was for this concealment that the +licensees were willing to pay so handsomely.</p> + +<p>The remaining agreements of the Foundation prohibit the +other licensees from invading the pharmaceutical field. Several +of the agreements prohibit, in express terms, sales of activated +products for pharmaceutical uses, others so limit the potency of +the licensed product as to make it worthless for medicinal purposes, +while still others merely limit the right of the licensee +to claim curative properties for his product in his advertising.</p> + +<p>All the agreements of the Foundation clearly show the intention +to protect the exclusive market of the pharmaceutical +licensees in the human medicine field. Actually this practice is +carried to a ridiculous extent. The following statement appears +in a memo note of November 14, 1935, written by Ward Ross, +<span class="pagenum" id="Page_103">[Pg 103]</span>General Counsel for the Foundation, regarding a conference +with <abbr>Dr.</abbr> Hooper of Winthrop:</p> + +<p>“With regard to the comparison between Viosterol and Drisdol, +I asked Hooper how he would like it if our milk licensees +said that one quart of irradiated milk was equal to 10 drops of +Viosterol. Hooper claimed that this would be an invasion of +the pharmaceutical field by our milk licensees and that they +would be selling milk as medicine.”</p> + +<p>Apparently, the licensees are prevented from telling the +truthful merits of their products if the truth would cause an +overlapping of the artificial division of fields.</p> + +<p>Another industry capable of using large quantities of Vitamin +D was the bread industry. Under an agreement dated November +15, 1939, this field is allocated exclusively to duPont. DuPont’s +chief concern in the bread field was price “stabilization” +which to duPont meant the maintenance of high price levels. +DuPont was even willing to share the field with Standard +Brands to accomplish this end. A memorandum, dated September +19, 1935, from <abbr>Mr.</abbr> Kenneth T. King of duPont to +<abbr>Mr.</abbr> Ralph Horton and <abbr>Mr.</abbr> W. S. Kies, a Trustee of the +Foundation, states: “We would be willing for the Foundation +to grant non-exclusive license for the sale of Vitamin D from +Ergosterol in the bread field to the Fleischmann Company, providing +the price of Vitamin D in the bread field shall be stabilized.” +The agreement between duPont and the Foundation +expressly stipulates the limits of licensees’ discretion in price +policy. Article 2 (C) provides: “DuPont shall not sell said +irradiated or activated Ergosterol or its derivatives at a higher +price than one dollar and a half ($1.50) or a lower price than +ninety-five cents ($.95) per million <abbr class="spell">U.S.P.A.</abbr> (revised 1934) +Vitamin D Units.”</p> + +<p>The Foundation’s support of duPont’s policy of high prices +<span class="pagenum" id="Page_104">[Pg 104]</span>is indicated in a letter dated July 18, 1935, from Barney to Atkins +of duPont which states: “<abbr>Dr.</abbr> Waddell stated that it was +his opinion that if General Baking came back into the picture a +higher price for ergosterol should be charged. We discussed +the possibility of a price of $1.25 to $1.50 per million Steenbock +units.”</p> + +<p>So long as the Foundation could be “merciless in beating out +competition” price-fixing at these levels was quite attractive. +But by 1940 the weakness of the Steenbock patents was so apparent +that the fixed prices became a competitive hazard. On +March 5, 1940, King of duPont wrote to the business manager +of the Foundation:</p> + +<p>“In reply to your letter of February <abbr>24th</abbr> we are very much +interested in modifying our contract with respect to the maximum +and minimum provisions in the baking field. In fact, we +believe the simplest way to handle this question is to delete +from our present contract the clause specifying maximum and +minimum provisions. This, of course, was explained to you over +the telephone in our recent conversation concerning General +Baking. I believe unless some change is made in the maximum +and minimum provisions all business in this field will be lost +by the licensees of the Foundation.”</p> + +<p>The Foundation recognized the need for abandoning these +artificially high price levels and on March 14, 1940, Barney of +the Foundation wrote to King of duPont referring to “a quotation +from General Mills at a price of 60¢ per million” and +stated: “This will acknowledge receipt of your letter of March +<abbr>5th</abbr> regarding the maximum and minimum price provisions with +respect to the baking field. Shortly, Ward [Ross of the Foundation] +will send Art [Connolly of duPont] either a letter +agreement or supplemental contract deleting this provision +from the contract.” On July 19, 1940, Connolly wrote Ross +<span class="pagenum" id="Page_105">[Pg 105]</span>again asking elimination of the price-fixing provision and finally +on July 30, 1940, Ross of the Foundation wrote to duPont deleting +the price-fixing paragraph from Article 2 (C) of the +agreement.</p> + +<p>DuPont’s aim in all of its Vitamin D operations was to obtain +high, non-competitive prices for its products. This thought +is expressed time and time again. A memorandum dated July +26, 1932, from Bradshaw to Atkins, both of Acetol, states: +“This morning I reported to <abbr>Mr.</abbr> Protto and <abbr>Mr.</abbr> Robinson regarding +conversation with Dean Russell and also the known +facts concerning Lever <abbr title="Brothers">Bros.</abbr> business. It was <abbr>Mr.</abbr> Protto’s feeling +that we should raise our prices as much as possible and not +sell the material cheap.” The next day Atkins replied:</p> + +<p>“It seems obvious to me that we should always try to get +the maximum price for any of our goods, keeping in mind the +possible potential volume and competitive conditions.</p> + +<p>“According to authentic price information which we have +secured, Fleischmann have been selling and offering Vitamin D +at slightly less than $1.00 per 1,000,000 Steenbock Rat Units. +This is what influenced my suggested price of $1.00 to Lever +Brothers and I was very much surprised when you informed me +that Fleischmann was not in a position to furnish irradiated ergosterol. +If this were true, I apparently had gone too low on +our initial price in view of the fact that we were the exclusive +source of supply.”</p> + +<p>The profit levels resulting from the Foundation’s activities +were enormous. In a letter dated March 9, 1938, addressed to +Ward Ross of the Foundation, King of duPont stated: “With +respect to the Chesney matter, all I know is that 35¢ per million +units was quoted to General Baking Company.”</p> + +<p>Vitamin D is of the greatest importance to expectant and nursing +mothers, infants, and children and, consequently, milk is +<span class="pagenum" id="Page_106">[Pg 106]</span>one of the most natural and most important vehicles for this +vitamin. The Council on Foods of the American Medical Association +stated in the <cite>Journal of the American Medical Association</cite> +for January 16, 1937, “Of all the common foods available, +milk is most suitable as a carrier of added Vitamin D. Vitamin +D is concerned with the utilization of calcium and phosphorous +of which milk is an excellent source.” Next to the pharmaceutical +industry, milk was probably the most promising outlet for +Vitamin D from a profit standpoint. The Foundation therefore +became active in promoting the use of Vitamin D in the milk +industry.</p> + +<p>On November 1, 1938, the Foundation granted licenses to +five producers of evaporated milk, The Borden Company, Carnation +Company, Indiana Condensed Milk Company, Nestle’s +Milk Products, <abbr title="Incorporated">Inc.</abbr>, and Pet Milk Company, to activate evaporated +milk. The agreements allocate the evaporated milk +field exclusively to these five producers. Like the Foundation’s +other agreements, these evaporated milk agreements provide +for the maintenance of the division of fields. Article <abbr title="20">XX</abbr>, in +protecting the evaporated milk field, states: “The Licensor +agrees that in all licenses for the activation of fluid milk by the +use of irradiated ergosterol or by direct application of ultra +violet rays, it will incorporate a provision preventing the use or +sale of such activated milk by such licensees for the manufacture +of activated unsweetened evaporated milk.”</p> + +<p>The rights of the evaporated milk producers were similarly +restricted to prevent encroachment on other exclusive fields. +Article <abbr title="12">XII</abbr> specifically protects the pharmaceutical field by +providing that “said evaporated milk shall not be intended or +sold as a cure for rickets.” The other fields of use of Vitamin D +are protected from invasion by activated evaporated milk by +Article <abbr title="9">IX</abbr> which provides: “The Licensee agrees that it will +<span class="pagenum" id="Page_107">[Pg 107]</span>not knowingly directly or indirectly sell its unsweetened evaporated +milk activated under this license to others ... as a source +of Vitamin D for any other product when such product is intended +to be sold or resold on a commercial basis.”</p> + +<p>There are several methods by which fluid milk may be activated +and the Foundation has issued licenses for each of these +methods. In one method, irradiated yeast is fed to cows to increase +the Vitamin D content of the milk; in the second method, +the milk is irradiated directly; and in the third method, an +activated concentrate is introduced into the milk.</p> + +<p>The Bill of Particulars in the Vitamin Technologists suit lists +138 dairies licensed to activate milk by feeding irradiated yeast +to cows. In its agreement with West Haven Creamery, <abbr title="Incorporated">Inc.</abbr>, +which is typical of all of the licensees of this class, the Foundation +licensed and empowered the licensee to purchase from +Standard Brands, Incorporated, dried yeast “antirachitically activated” +upon the following terms and conditions:</p> + +<p>“First: The Licensee shall buy and use such yeast for no +other purpose than that of feeding cows to impart antirachitic +qualities to milk.</p> + +<hr class="tb"> + +<p>“Fourth: The Licensee shall not sell any of its antirachitically +activated milk to others for use or incorporation in any other +marketed product when Vitamin D or antirachitic claims are +made or intended to be made for such other marketed product.</p> + +<p>“Fifth: The activated yeast purchased by Licensee pursuant +to this License shall not be resold or otherwise used except for +feeding the same to the Licensee’s animals, pursuant to the conditions +of this license.”</p> + +<p>The Steenbock patents do not even purport to cover anything +more than a process of irradiating or an irradiated product. +Under no circumstances could the milk from an irradiated-yeast-fed +<span class="pagenum" id="Page_108">[Pg 108]</span>cow be an infringement of the Steenbock patents. +Article Fourth is a bare-faced attempt to carry out the artificial +division of fields. Milk from an irradiated-yeast-fed cow could, +for example, be used in the commercial making of bread, but +such use would be an invasion of the exclusive bread and breadstuffs +field. It was, therefore, necessary for the Foundation to +insert this limitation in the West Haven Creamery’s license +even though the limitation was entirely outside the Steenbock +patents.</p> + +<p>The prohibition of resale in Article Fifth likewise lacks any +taint of legal justification. A patentee’s right under a patent is +completely exhausted by the first sale of the patented product. +Here again the Foundation is seeking to prevent any use of the +irradiated yeast which may in any way conflict with the division +of fields.</p> + +<p>As the demand for activated milk increased, the addition of +concentrates was accepted by the medical profession. This business +was so attractive that the Foundation decided to engage in +the sale of these concentrates for addition to milk. The Foundation +did not, however, wish to enter a market in which any +competition existed and since Standard Brands had rights in +this field, it was essential that the Standard Brands competition +be eliminated. In the agreement of February 1, 1939, the +Foundation agreed to pay Standard Brands 40% of the profits +derived by the Foundation from the sale of concentrates in +return for Standard Brands’ withdrawal and agreement not to +compete.</p> + +<p>Vitamin D is of the utmost importance in the poultry industry +since it is essential for the prevention and cure of rickets and +for bone development, egg production and hatchability. Prior +to the war some Vitamin D could be obtained from cod and +other fish liver oils, but at the present time, the requirements +<span class="pagenum" id="Page_109">[Pg 109]</span>must be obtained almost exclusively from synthetic Vitamin D. +Even apart from war time shortages, synthetic Vitamin D presents +certain advantages over fish liver oils. The synthetic product +may be used for forced feeding without adversely affecting +the flavor of the poultry, while too generous use of fish liver +oils results in a somewhat fishy flavor.</p> + +<p>The size of the poultry market in the United States involves +almost astronomical figures. The crop report of September 1, +1943 of the United States Department of Agriculture on poultry +and egg production states that there were over 316,000,000 +laying hens; over 318,000,000 pullets and over 224,000,000 +chicks. The egg production for August 1943 was 3,863,000,000. +This crop report also states that the average cost of feed +for farm poultry ration on August 15, 1943 was $2.13 per +hundred pounds. <abbr>Dr.</abbr> Harry Titus of the Poultry Nutrition +Section of the Bureau of Animal Industries of the Department +of Agriculture estimates that 25,000,000 <span id="TN4">tons of commercial +mixed feed</span> are used annually in the poultry industry and that +75% of this feed is fortified with Vitamin D.</p> + +<p>The wartime demands on meat make the poultry market unusually +important and any artificial restraints or artificial price +levels affecting the poultry market are of the most serious national +importance.</p> + +<p>The discovery upon which Steenbock’s patent <abbr title="Number">No.</abbr> 1680818 +is based is that certain substances, known as pro-vitamins take +on antirachitic properties when irradiated with ultra violet light. +These pro-vitamins are sterols which may be obtained from +either vegetable or animal sources and the effectiveness of the +irradiated product is dependent upon the nature of the pro-vitamin.</p> + +<p>In the early days, vegetable pro-vitamins were used almost +exclusively but it was subsequently found that the animal pro-vitamins +<span class="pagenum" id="Page_110">[Pg 110]</span>were superior. Vegetable pro-vitamins were unsuitable +for poultry feeding and the exploitation of this market +awaited the development of the animal pro-vitamins, cholesterol +and 7-dehydrocholesterol.</p> + +<p>The animal and poultry feed field had been exclusively allocated +to duPont and its predecessor, Acetol. This exclusive arrangement +highlights the artificial nature of the Foundation’s +division of fields. In the case of cows Vitamin D in the feed will +result in a Vitamin D content in the milk. Vitamin D may also +have some antirachitic effect on the cow itself. In interpreting +this provision of its agreement with the Foundation, duPont +was obliged to consider the question whether the effect of the +Vitamin D feed is in the cow or in the milk. Finally, however, +duPont resolved the doubt in its own favor. A letter dated +February 20, 1935, addressed to Kupperian of duPont, from +Connolly, a duPont attorney, states: “Irradiated cholesterol +may therefore be used in feed for cows regardless of whether +its purpose is to enhance the Vitamin D content of the milk +or prevent rickets in the cow itself.”</p> + +<p>Prior to 1936, duPont recognized the importance of the +animal sterols, cholesterol and 7-dehydrocholesterol, in the +poultry feed field. DuPont immediately set out to secure a +monopoly over these pro-vitamins and through them to control +the entire poultry feed field. The first step in this direction is +described in a letter dated January 21, 1936 from King of +duPont to Nielsen of Abbott which states:</p> + +<p>“We were, of course, largely interested in the poultry field, +and to protect our position had made tentative arrangements to +secure all of the available cholesterol in the country, or perhaps +we might say, in the world.”</p> + +<p>Apart from attempting to corner the sources of animal sterols, +duPont also sought exclusive rights in the field of animal sterols +<span class="pagenum" id="Page_111">[Pg 111]</span>within the licensing scheme of the Foundation. The agreement +of November 15, 1935 between the Foundation and duPont +grants duPont an exclusive license to irradiate sterols from animal +sources. When the Foundation wished to grant new licenses +and submitted the proposed licenses to duPont for approval, +duPont insisted upon retaining exclusive rights in the animal +pro-vitamin field. In a report to the Executive Committee of +duPont recommending approval of the Foundation’s license to +Merrell, E. G. Robinson states:</p> + +<p>“The Foundation now wishes to grant a license to the William +S. Merrell Company of Cincinnati, Ohio, limited to Vitamin +D from non-animal sources for sale only as medicinals or +pharmaceuticals for human use, which this department is willing +to approve. It is limited to non-animal sources in the pharmaceutical +field and, therefore, we do not think it will materially +interfere with our own developments. Also, the Foundation +is able to grant a license with respect to yeast ergosterol without +our permission, since that product is not in our license field; +and if the license to Merrell is limited to yeast we will not have +the opportunity of selling Merrell our own ergosterol.”</p> + +<p>Thus, while duPont desired to protect its animal sterol field +it did not wish the Merrell license so limited as to deprive +duPont of a potential market for non-yeast ergosterol. In both +instances the Foundation was most willing to cooperate.</p> + + +<hr class="chap x-ebookmaker-drop"> +<div class="chapter"> + +<p><span class="pagenum" id="Page_112">[Pg 112]</span></p> + + + <h2 class="nobreak" id="8"> + 8 + <br> + <i>Quebracho Extract</i> + </h2> +</div> + + +<p>Quebracho extract is of great use to the nation in the war +effort. It is a material which has been found most desirable +for tanning the leather which goes into the shoes, harness, +straps and other leather articles of the armed forces. It is of +some interest to every man, woman and child whose ration +stamps are used to buy a pair of shoes.</p> + +<p>Practically all heavy leather tanned in this country has been +tanned by use of a blend in which this material is an important +ingredient. It comes from the southern part of South America, +and there have been times when it was difficult, and others when +it appeared it might be impossible, to ship the material to this +country. The production and sale of the material is controlled +by a monopoly pool or cartel, and this country is at the mercy +of the pool in procuring the material in adequate quantities +and at a reasonable price. The pool has exercised its power to +curtail the quantity shipped to this country, to prevent any adequate +stock pile in this country, and to raise prices out of proportion +to any increase in costs.</p> + +<p>In the Spring of 1942 the Department of Justice submitted +the facts of this monopoly pool to a Federal Grand Jury in +<span class="pagenum" id="Page_113">[Pg 113]</span>New York, and it promptly returned an indictment against five +American corporations, one Canadian and one British corporation, +and five individuals, officials of four of the American corporations. +Pleas of <i lang="la">nolo contendere</i> were subsequently entered +by three of the American corporations and four of their officials. +Fines were levied against and paid by these defendants, totalling +$59,002. A <i lang="la">nolle prosequi</i> was entered as to the two +remaining American corporations, the two British corporations, +and one official. The reason for the <i lang="la">nolle prosequi</i> in the case +of the two foreign corporations was that they were outside the +jurisdiction of the court.</p> + +<p>The national interest in such a situation plainly warranted a +diligent effort long ago to find an adequate substitute which +would relieve us from entire dependence upon the ability and +willingness of a foreign cartel to supply us with a vital material.</p> + +<p>The extract is obtained from the quebracho tree. For commercial +purposes the growth of these trees is limited to Argentina +and Paraguay. Although there are quebracho forests in +southern Brazil, the extract manufactured from these trees is +inferior to Argentine and Paraguayan extract, and cannot compete +favorably with it in the market. Ninety-eight per cent of +the world production of quebracho wood and extract comes +from Argentina and Paraguay. In 1942 the total production +amounted to approximately 300,000 metric tons of extract and +was valued at $25,000,000.</p> + +<p>This war has naturally affected the market for quebracho in +Europe. Several years before the war the German Government +took steps to render that country less dependent upon the continuance +of quebracho imports. Clauses were inserted in all +Army and Navy contracts for the purchase of leather goods that +at least 12 per cent of such goods should be tanned by German-manufactured +<span class="pagenum" id="Page_114">[Pg 114]</span>tanning agents. This resulted in the development +of a new industry based upon the production of tanning material +from German trees. Tannic acid was extracted from the oak +trees of South Germany and was permitted to find a place in +the tanning industry by reason of the Government policy. Thus +the German leather industry gradually became independent of +quebracho importation from South America.</p> + +<p>The loss of the continental European market due to the war +was not felt to any great extent by the quebracho exporters because +of the great increase of exports to the United States. During +the war the imports of quebracho almost doubled due to the +tremendous production of leather goods for the armed forces.</p> + +<p>The quebracho industry consists of twenty-two producers in +Argentina and Paraguay. Five of these are owned or controlled +by the British corporation, The Forestal Land, Timber and +Railways, <abbr title="Limited">Ltd.</abbr>, through its Argentine subsidiary, La Forestal +Argentina S. A. de Tierras, Maderas y Explotaciones Commerciales +e Industriales. These five companies have a productive +capacity which constitutes approximately 57 per cent of the +total capacity.</p> + +<p>All producers, except four having a capacity of about eleven +per cent of the entire industry, are members of a Quebracho +Pool which regulates the production and sale of the product. +Quebracho is sold by official agents of the Pool, and it recognizes +two official agents in the United States: The Tannin Corporation +and the International Products Corporation, both of +New York.</p> + +<p>Forestal of England controls La Forestal of Argentina +through the ownership of a majority of its stock and a substantial +portion of its bonds. One John B. Sullivan, Chairman of +the Board of Forestal of England, is also the manager of Forestal +of Argentina. Sullivan is an Argentine citizen who was +<span class="pagenum" id="Page_115">[Pg 115]</span>formerly a citizen of the United States and a graduate of Harvard +College.</p> + +<p>By reason of La Forestal’s ownership of 57 per cent of the +total productive capacity of quebracho in South America, which +is approximately eight times the capacity of its next largest competitor, +Forestal has completely dominated the quebracho industry. +Its policy has been to restrict production and maintain +high prices. Forestal’s economic dominance in Argentina has +enabled it to exert a great influence upon the government of +Argentina. For example, in 1942 the efforts of John B. Sullivan +alone were primarily responsible for the imposition by the +Argentine Minister of Agriculture of highly restrictive export +quotas upon each producer. These restrictions were imposed +upon the industry at a time when it appeared that the efforts of +Forestal to continue similar restrictions upon the South American +producers might fail.</p> + +<p>Forestal’s domination extends not only over the production +of quebracho, but over its distribution as well, including importation +into this country. Through <abbr title="Saint">St.</abbr> Helen’s <abbr title="Limited">Ltd.</abbr>, a Canadian +corporation, Forestal of England owns substantially all +of the stock of Tannin Products Corporation, a Delaware corporation, +which in turn owns all the capital stock of The Tannin +Corporation, a New York corporation.</p> + +<p><span id="TN25">The Tannin Corporation imports approximately</span> 70 per +cent of all quebracho extract consumed in the United States. +The Tannin Corporation has been controlled by Forestal of +England since 1913 and during the past thirty years its controlling +officials have been completely subservient to the policies +of Forestal of England. Thus Forestal controls this material +from the tree to the United States consumer.</p> + +<p>The questionable character of the functioning of these American +subsidiaries is indicated by portions of a letter written December<span class="pagenum" id="Page_116">[Pg 116]</span> +23, 1941, by Carl B. Ely, President of the Tannin +Corporation, to J. B. Sullivan of Forestal, whom he addressed +as “My dear Jack”:</p> + +<p>“You will recall the formation for good and practical reasons +of the Tannin Products Corporation in 1925, at which time a +very large dividend was paid, which procedure continued in a +more or less degree during the following years, particularly in +1929 and 1934. The company, as you will see, earned $3,284,427.28 +and paid out dividends of $4,200,000.00. In other +words, we declared practically $1,000,000 more during the +sixteen-year period than we earned.</p> + +<p>“Under the circumstances I have no fault to find with this, +provided our principal stockholders, the Forestal Company, are +aware of it and are prepared to take care of our money situation +as the same arises....</p> + +<p>“To come right down to the last analysis, we have been living +on Government funds, which under proper business procedure +should be reserved for income tax payments, but, as these +payments are not due until next year, it has been possible to use +this money. We owe the Government today $500,000. This +money, together with your most helpful postponement of payments, +has made it possible for us to have cash to pay the dividend +we did. I believe that with the extra terms on future +purchases of extract we will make our position stronger during +the next six months, and we are trying diligently not to borrow +from the banks, as in this particular case it would appear that +such borrowing was done to pay dividends. This I believe would +have a very bad effect on our good will and financial standing—and +we enjoy today the good will and respect of the tanning industry +as we never have before.”</p> + +<p>I have already pointed out that Forestal controls five of the +South American producers. One of the other seventeen is the +<span class="pagenum" id="Page_117">[Pg 117]</span>International Products Corporation of New York. Another +producer, Samuhi S. A., is controlled through ownership of a +majority of its stock by two American corporations, Proctor Ellison +and Howes <abbr title="Brothers">Bros.</abbr> of Massachusetts. International Products +Corporation and Samuhi together have a capacity of about +eight per cent of the entire industry. Both of these producers +have been ineffective in preventing La Forestal from carrying +out its policy of restricted output and high prices, and International +Products has in the past frequently <span id="TN5">cooperated closely +with La Forestal</span> to further such a policy.</p> + +<p>Since 1934 International Products Corporation has consulted +with Tannin about the prices to be charged to quebracho extract +consumers in the United States, so that the prices of both +companies have been fixed, uniform and high. From May, +1934 to July, 1939, Tannin owned a substantial amount of the +stock of International Products Corporation, and from May, +1934 until May, 1936, the president of Tannin, Carl B. Ely, +was a member of the Board of Directors of International Products +Corporation. On February 26, 1935, Ely wrote to Sullivan:</p> + +<p>“I am giving the <abbr class="spell">I.P.C.</abbr> problems a lot of my time, and, as +previously told you, have found that there is a lot to be +done to straighten out that problem. I am working slowly so as +not to upset the apple cart any more than is necessary....</p> + +<p>“I am getting their sales policies straightened out and believe +now there will be no more monkey business.”</p> + +<p>From 1934 to 1939 International Products Corporation was +a member of the Quebracho Pool, and by reason of its designation +as an official pool agent for the United States gave up its +business of selling extract in England and in Asia.</p> + +<p>American purchasers of quebracho might well wonder whether +this American company was more concerned with giving them +<span class="pagenum" id="Page_118">[Pg 118]</span>a good deal or with favoring certain foreign concerns, from the +concluding paragraph of a letter from one of its officials to its +President dated November 16, 1939:</p> + +<p>“You undoubtedly know that <abbr>Mr.</abbr> Seldes was successful in +substituting Casado extract to fill the order we had for Forestal +for 535 tons of Supremo for delivery in Buenos Aires for shipment +to Japan. We paid for the Casado extract with a dollar +draft and have since received from Forestal the sterling representing +the sale. The net result of the whole transaction represents +a loss of a little more than a $1.00 per ton, which, as explained +in a previous letter, is really not a loss at all, as we will +use this extract to fill orders for North America which will net +us a nice profit.”</p> + +<p>The production of Samuhi was so small, being about one per +cent of the entire industry, that it could hardly contain any +competitive threat to La Forestal. Nevertheless, our records +show that for many years Forestal harassed this company by +every means and sought to buy up its assets and its stock.</p> + +<p>It is interesting to observe in what manner the quebracho extract +pool operated to carry out Forestal’s policy of restricted +output and high prices. Before the formation of the Pool the +price per pound of quebracho extract was <abbr title="2 and a half">2½</abbr> cents. By the +terms of the pool agreement a directive committee, dominated +by Forestal, was empowered to fix the prices of all its members. +The directive committee between November, 1934 and January, +1941, decreed six price rises, raising the basic price of quebracho +extract for the whole world market from <abbr title="2 and a half">2½</abbr> cents up to <abbr title="4 and seven-eighths">4⅞</abbr> +cents, an increase of nearly 100 per cent. Sullivan admitted in +July, 1942, that at the then existing price, which prevails at +present, Forestal was making a net profit of 33 per cent on +every ton of quebracho it sold.</p> + +<p>The exorbitant profits of the quebracho manufacturers were +<span class="pagenum" id="Page_119">[Pg 119]</span>severely criticized by the famous leading Argentine newspaper, +<cite lang="es">La Prensa</cite>. The following excerpt was taken from a letter of +May 20, 1936, written by the manager of the Buenos Aires office +of the International Products Corporation to its president:</p> + +<p>“Another matter, which has caused a lot of excitement +amongst the manufacturers has been the inopportune declaration, +made by the Chairman of the Forestal during the annual +meeting of the shareholders, <abbr title="videlicet" lang="la">viz.</abbr> that the understanding of the +manufacturers was performed under the auspices of the Argentine +Government, in other words, that the Argentine Government +was really responsible for the agreement and that it +was protecting the same. This news was reproduced all over the +world and the <cite lang="es">La Prensa</cite>, the most important paper on the +Southern Hemisphere, has seized the opportunity to denounce +the huge profits made by the quebracho manufacturers, profits +which in their opinion mean a loss for the Argentine Republic +on account of the decrease in the export of both, Quebracho Extract +and Logs. I am enclosing herewith the article, as appeared +in the <cite lang="es">La Prensa</cite> of Monday the <abbr>18th.</abbr> <abbr>inst.</abbr>, and we +would add this paper has on more than one occasion criticized +the so-called ‘gentlemen agreement.’ <abbr>Mr.</abbr> Marti told +me that he is at a loss to understand how the Baron made these +declarations as <abbr>Mr.</abbr> Sullivan has always stressed the necessity +of not mentioning the Argentine Government in connection +with the manufacturers’ agreement, a fact which can be noted in +the balance sheets of the other companies, who, referring to the +higher prices, explain that they are due to a better understanding +in the sales policy abroad. Anyway, I hope that his faux pas +will have no serious consequences.”</p> + +<p>To maintain high prices it was necessary to limit the production +and the sale of quebracho in the world market. The method +used to limit production under the pool agreement was to +<span class="pagenum" id="Page_120">[Pg 120]</span>allocate a quota to each producer in accordance with his respective +productive capacity. These quotas limited the amount of +quebracho extract which any manufacturer could sell during a +given period. Each member of the pool was compelled to make +substantial contributions at regular periods to a so-called “battle +fund” of the pool. These contributions were retained by +the pool unless the producers adhered to the pool’s regulations +relating to prices and quotas, in which case a portion of each +producer’s contribution was refunded. So restrictive were these +quota limitations that producers who desired to sell above their +quotas often paid enormous prices to acquire the quota rights of +other producers.</p> + +<p>This rigid control of the market so severely limited the production +of many companies that in 1941 several deserted the +pool. These companies were LaChaquena S. A. and Cotan S. A. +These two companies, together with International Products +Corporation, Samuhi, and Weisburd & <abbr>Cia.</abbr> <abbr>Ltda.</abbr>, a new concern, +have been the only producers outside of the pool since +1941. Although the total productive capacity of these five companies +did not exceed 12 per cent of the total industry, their +threat of full production and decreased prices jeopardized its +whole structure. To meet this threat, Forestal succeeded in +persuading the Ministry of Agriculture in February, 1942, to +impose export restrictions upon each producer which prevented +exportation of more than approximately one-third of their total +capacity. In addition, Forestal attempted to prevent companies +outside the pool from shipping their extract to the United +States.</p> + +<p>One instance is the experience of Hammond and Carpenter +Corporation, an independent importer which has sought to +compete with The Tannin Corporation and International Products +Corporation in the importation of quebracho. In February +<span class="pagenum" id="Page_121">[Pg 121]</span>or March, 1942, J. A. Barkey, its Vice-President, attempted to +import some extracts produced by Weisburd, an Argentine extract +manufacturer, who entered the industry in 1941. He +called at the offices of the Sprague Steamship Company and +spoke to <abbr>Mr.</abbr> Bodemann of that company. <abbr>Mr.</abbr> Barkey later +described the conference as follows:</p> + +<p>“<abbr>Mr.</abbr> Bodemann retorted that it was very unlikely that our +firm would be given any space for the reason that we were newcomers +in the import of quebracho extract and for the further +reason that the ‘Pool’ had supported his line during the lean +years before the war and by reason of such support his line +would be obliged to support the ‘Pool’ during the present emergency.”</p> + +<p>Similar sentiments were voiced by <abbr>Mr.</abbr> Horgan of the Stockard +Steamship Corporation. The aid of the Buenos Aires Agency +of Moore-McCormack was also previously enlisted. In October, +1941, the Moore-McCormack line stated that “at the +request of the Forestal Company they had promised their cooperation +for the purpose of keeping out any of the new brands.... +The understanding was that whenever they were offered +outside extract and they had space they were to reject it and +advise the other manufacturers, who would try to offer replacement.”</p> + +<p>Forestal’s tactics are well illustrated by the case of <abbr>Mr.</abbr> T. +Valentine, exporter and concessionnaire of a projected new company. +International Products Corporation was informed in September, +1941:</p> + +<p>“[It] has proved impossible so far to reach a satisfactory +agreement with the new factory at Santiago del Estero. For this +reason, the Forestal Company, in an endeavor to impede the +exportation of the extract, has seen all the steamship companies +<span class="pagenum" id="Page_122">[Pg 122]</span>requesting them not to give space to any outsiders, but to advise +the Forestal who would immediately offer replacement cargo. +The steamship companies promised to act accordingly.”</p> + +<p>The Basal Agency had obtained shipping space for Valentine +in the past. “The Basal Agency,” an official of International +Products wrote to Feeney a week later, “has informed us that +Valentine wants to book a further 200 tons on the next steamer +but that they would refuse to take it if we or the Forestal would +offer them replacement cargo.”</p> + +<p>The effect of the restrictive government decrees and other +measures taken by Forestal has been to force one independent, +Cotan, S.A., back into the Pool, while another, Samuhi, S.A., is +contemplating rejoining the Pool. It appears inevitable that +within a short period of time the remaining independents will +be forced into full cooperation with the Pool and that the industry’s +policy of restrictive production and high prices will +continue unless some completely satisfactory substitute may be +found for quebracho extract. Apparently the tanners in this +country find that wattle extract is the only tanning product interchangeable +with quebracho extract, and it is therefore significant +to observe that the wattle extract industry, which is located +in South and East Africa, is also controlled by Forestal +of England, and that the principal importers of wattle in the +United States are the Tannin Corporation and International +Products Corporation.</p> + +<p>The chief official of one of the companies which stood up +against the bulldozing tactics of the Pool wrote a letter to American +Tanners <abbr title="Limited">Ltd.</abbr>, on February 7, 1935. After discussing in a +critical manner the actions of the Pool and referring to a conversation +with an individual whom he said could be “interpreted +as a stool pigeon for Forestal,” he wrote:</p> + +<p><span class="pagenum" id="Page_123">[Pg 123]</span></p> + +<p>“We also pointed out the fact that if the arbitrary methods +of the gentlemen [the Pool] were pursued, that they were +throwing away their markets, they were encouraging the fields +of research and that they would wake up one day and find that +the volume of consumption of Quebracho Extract had been +greatly reduced due to the introduction of other materials +which supplanted Quebracho and I cited the instance of what +the tanners went through with substituted leather and how the +volume of the market had never been regained and that the +same thing would happen to Quebracho.”</p> + + +<hr class="chap x-ebookmaker-drop"> +<div class="chapter"> + +<p><span class="pagenum" id="Page_124">[Pg 124]</span></p> + + + <h2 class="nobreak" id="9"> + 9 + <br> + <i>Titanium</i> + </h2> +</div> + + +<p>The titanium industry is controlled by a typical cartel. That +it is a cartel there can be no question. The president of one of +the American companies which dominate it was thoughtful or +thoughtless enough to define it. He wrote to one of the European +officials as follows:</p> + +<p>“May I call the proposed combination, for simplicity, a cartel? +The whole purpose of the cartel is to obtain a monopoly of +patents, so that no one can manufacture it [titanium] excepting +the members of the cartel, and so can raise the prices by reason +of such monopoly to a point that would give us much more +profit on our present tonnage, but also prevent a growth in +tonnage that would interfere with their greater profits in lithopone +[a competing but inferior product].”</p> + +<p>It is typical because it has utilized the devices and followed +the practices which are found in greater or lesser degree in all +cartel arrangements. The members of this cartel include I. G. +Farbenindustrie, the German chemical trust and many other +foreign companies. The American scene is dominated by three +American corporations, the National Lead Company, E. I. +duPont de Nemours and <abbr title="Company">Co.</abbr>, and Titan <abbr title="Company">Co.</abbr>, <abbr title="Incorporated">Inc.</abbr> (These three +<span class="pagenum" id="Page_125">[Pg 125]</span>companies and four of their leading officials were indicted by a +grand jury in the Southern District of New York on June 28, +1943.)</p> + +<p>The story of the titanium cartel is significant for these reasons:</p> + +<p>1. Titanium, the most valuable and useful of all white pigments +for paints, rubber products, glass, paper, enamel and +other materials has been priced exorbitantly and its use restricted +because of the monopolistic control exercised over it by a worldwide +cartel.</p> + +<p>2. American members of the cartel are placed in a position +where they have felt obliged to help the Japanese evade the +British embargo.</p> + +<p>3. American members have seen fit to aid I. G. Farben in +attempting to prevent seizure of German owned patents by the +American Alien Property Custodian by the execution of specious +patent assignments.</p> + +<p>4. To attain such monopolistic control, the cartel has resorted +to flagrant misuse of patents and has gone so far as to actually +pay large sums to potential competitors to keep them out of the +titanium business.</p> + +<p>5. I. G. Farben, the German chemical trust, as one of the +leading parties to the cartel, has dictated the terms upon which +American members might do business.</p> + +<p>6. The fact that duPont, Imperial Chemical Industries and +I. G. Farben are also members of other cartels, such as that involving +dyestuffs, makes their control of a fine pigment such as +titanium the more objectionable.</p> + +<p>It is difficult to think of any material which is more universally +used by private citizens and by governments alike than is +paint. In time of peace, the United States government buys and +uses enormous quantities of paint. In this time of war its purchases +<span class="pagenum" id="Page_126">[Pg 126]</span>account for by far the greater portion of all the paint +manufactured in the entire country.</p> + +<p>It is a fact which is not widely known that the finest of all +white pigments, useful in colored paints as well as white, is +titanium dioxide. It is also not generally known that titanium is +the ninth most abundant element in the earth. Crude titanium +is found in combination with iron in an ore called ilmenite in +many places in this and other countries. It is found in purer +form in the sands of Travancore Beach in India and in lesser +concentration in many places.</p> + +<p>While the element itself is abundant, no commercially practical +processes for reducing it to pigment form were known until +about the time of the first World War. In the relatively +short period which has passed since then, technology has been +developed which makes possible the manufacture of the finest +pigment from titanium. It has already displaced white lead, +lithopone and other pigments in a large share of the market. +In hiding power (covering qualities), opacity and chemical +inertness—all essential qualities for paints—titanium compounds, +chiefly titanium dioxide, excel all other kinds of pigments.</p> + +<p>Shortly after the Civil War it was discovered that titanium +ore could be reduced to a powder which when mixed with oil +resulted in a paint. It was not until about the beginning of +World War <abbr title="1">I</abbr> that a feasible method of separating titanium oxide +from the ore was worked out. This was accomplished by +two chemists, <abbr>Dr.</abbr> A. J. Rossi and L. E. Barton, whose research +was done for the Titanium Alloy Manufacturing Company organized +by <abbr>Dr.</abbr> Rossi and others in 1906. As a result of their +discovery, a new corporation called the Titanium Pigment Company +was formed in 1916. At that time, as well as subsequently, +the leading manufacturer of white pigment was the National +<span class="pagenum" id="Page_127">[Pg 127]</span>Lead Company. Recognizing the implications of titanium’s excellence +in this field, National Lead purchased a substantial interest +in the Titanium Pigment Company in 1920. The two +companies continued to operate more or less separately until +1932 when National Lead acquired the entire stock of Titanium +Pigment. In 1936, the latter was dissolved as a corporation and +its business and properties were taken over and operated as a +division of National Lead.</p> + +<p>During substantially the same period in which this development +was taking place in this country, a different process for the +manufacture of titanium compounds was being developed in +Norway by Gustav Jebsen. His process was patented and was +exploited by a Norwegian corporation called Titan <abbr title="Company">Co.</abbr> <abbr class="spell">A/S</abbr>. +At about the same time a Russian chemist named Joseph Blumenfeld +was perfecting, in France, another method of manufacture, +which was likewise patented. Thus prior to 1920 three +groups working independently of one another had developed +processes for utilizing titanium ore for production of pigments. +These groups are:</p> + +<p>1. Titanium Pigment Company, subsequently absorbed in +National Lead Company.</p> + +<p>2. Titan <abbr title="Company">Co.</abbr> <abbr class="spell">A/S</abbr>, originally organized in Norway by Jebsen +for the exploitation of his developments. Eighty-seven percent +of its stock was purchased by National Lead in 1927, the remaining +13% being retained by Jebsen. This company was +originally intended to exploit the foreign interests of National +Lead, but in 1929 <span id="TN6">National Lead and Jebsen organized</span> in Delaware +a holding company called Titan <abbr title="Company">Co.</abbr>, <abbr title="Incorporated">Inc.</abbr>, the sole function +of which was to hold all foreign interests of the parties. +Titan <abbr title="Company">Co.</abbr> <abbr class="spell">A/S</abbr> remained in existence in Norway solely as the +sales agent for Titan <abbr title="Company">Co.</abbr>, <abbr title="Incorporated">Inc.</abbr></p> + +<p>3. The Blumenfeld Interests. Whereas National Lead and +<span class="pagenum" id="Page_128">[Pg 128]</span>Jebsen chose to exploit their patents by means of operating +companies, Blumenfeld followed a general policy of licensing +other interests.</p> + +<p>Titanium Pigment and Titan <abbr title="Company">Co.</abbr> <abbr class="spell">A/S</abbr> entered into a contract +dated July 30, 1920, which is the foundation upon which the +parties and their successor companies have been able to build a +cartel with monopoly ramifications extending throughout the +world. This contract was to extend to 1936 and was to be +automatically renewed for 10-year periods unless terminated +by 5-year notice. By the terms of this agreement, National +Lead (as Titanium Pigment and its successor in interest will be +called) was assigned the markets of North America as its exclusive +territory. Titan <abbr title="Company">Co.</abbr> <abbr class="spell">A/S</abbr> was given the rest of the world +with the exception of South America which was to be common +territory. The two companies granted each other exclusive +licenses under their patents for their respective territories, excluding +even the licensor from the licensee’s territory. Each +agreed not to ship into the other’s territory and to prevent its +licensees from shipping their finished products into the other’s +territory if it would interfere with the other party’s sales. Any +sublicensee was required to be governed by the same restrictions +as the parties imposed upon themselves. The parties agreed to +exchange know-how and also to permit visits of representatives +to their respective plants. Each party undertook to secure from +its employees assignment of any and all inventions developed +by them. In acquiring rights to inventions from third parties, +each agreed to secure rights for all countries within the territory +of the other party.</p> + +<p>Following the execution of the 1920 agreement, the parties +operated under it until 1927.</p> + +<p>Jebsen, having Europe as part of his territory, set up a selling +company in France. This was originally intended to become a +<span class="pagenum" id="Page_129">[Pg 129]</span>manufacturing company also, but this idea was never carried +out. National Lead acquired a majority interest in this company +in 1927. At the same time it acquired 87% interest in +Titan <abbr title="Company">Co.</abbr> <abbr class="spell">A/S</abbr>, the Norwegian company, Jebsen retaining the +remaining 13%.</p> + +<p>Also in 1927 National Lead and Jebsen formed a new company +in Germany in conjunction with I. G. Farben. This company, +Titangesellschaft, <abbr class="spell">G.m.b.H.</abbr>, was organized as part of a +series of transactions including the execution of nine separate +contracts. Titangesellschaft was given as its exclusive territory +for manufacture and sale of titanium compounds the following +countries: Germany, Russia, Austria, Hungary, Czechoslovakia, +Switzerland, Rumania, Serbia, Jugoslavia, Bulgaria, Greece, +Turkey, Japan, China and Spain. In 1933 Titangesellschaft +eliminated potential competition on the part of the Sachtleben +Company in Germany by the simple expedient of paying it a +large sum of money for its agreement to stay out of the titanium +business.</p> + +<p>In 1929, National Lead and Jebsen organized in Delaware a +company called Titan <abbr title="Company">Co.</abbr>, <abbr title="Incorporated">Inc.</abbr>, for the purpose of holding their +foreign interests. Titan <abbr title="Company">Co.</abbr>, <abbr title="Incorporated">Inc.</abbr>, succeeded to the position of +Titan <abbr title="Company">Co.</abbr> <abbr class="spell">A/S</abbr> (the Norwegian firm) under the basic agreement +of 1920. Thus we have National Lead as successor to Titanium +Pigment as one party to the basic agreement and Titan <abbr title="Company">Co.</abbr>, <abbr title="Incorporated">Inc.</abbr>, +owned 87% by National Lead, as the other party. However, +the 1920 agreement continues in existence inasmuch as its territorial +and license exchange restrictions form the basis and pattern +for all the subsequent agreements. Thus, Titan <abbr title="Company">Co.</abbr>, <abbr title="Incorporated">Inc.</abbr>, +became entitled to all territory outside North America except +as yielded up by the German agreements and others subsequent +to them.</p> + +<p>Blumenfeld transferred all his patent rights to a French +<span class="pagenum" id="Page_130">[Pg 130]</span>company known as Societe de Products Chemiques des Terres +Rares. This concern then licensed or sold them to different companies +operating in various European countries, the British Empire +and United States.</p> + +<p>In the United States, the patents were first owned by the +Commercial Pigments Corporation which sold them in 1931 +to the Krebs Pigment and Color Corporation. At that time, +duPont owned 70% of the stock of Krebs. It subsequently acquired +100% and now operates it as the Krebs Division of +duPont. National Lead entered upon negotiations with duPont +looking toward an agreement which would allow the two companies +to maintain a monopoly of the titanium business in this +country and eliminate competition between them. I. G. Farben +insisted that in any such agreement duPont must obligate itself +not to compete or allow its sublicensees to compete in I. G. +Farben’s territory, <abbr>i.e.</abbr>, the world outside the Western Hemisphere. +When a proposed form of agreement was submitted to +I. G. Farben for approval, it objected because the license given +by duPont for foreign territory was a “non-exclusive license.” +A National Lead official reassured I. G. Farben on this score in +the following language, quoted from a letter written in 1933:</p> + +<p>“In regard to the phrase ‘non-exclusive license’ to which you +call our attention ... we have to refer to the United States +Anti-Trust Laws which absolutely forbid the granting of exclusive +licenses between two manufacturers in the United States +as such a practice would tend to create a monopoly. Therefore, +the use of this phrase ‘non-exclusive license’ is simply to comply +with the United States Laws and in practice the licenses under +each other’s patents will undoubtedly prove to be, to all intents +and purposes, exclusive.”</p> + +<p>I. G. Farben’s objections having been met and other difficulties +overcome, Titanium Pigments <abbr title="Company">Co.</abbr>, <abbr title="Incorporated">Inc.</abbr>, and Krebs Pigment +<span class="pagenum" id="Page_131">[Pg 131]</span>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.</p> + +<p>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.</p> + +<p>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 <abbr title="2 and a half percent">2½%</abbr> based on the average published carload price +and National was to pay Krebs (duPont) 1% on a similar basis. +<span class="pagenum" id="Page_132">[Pg 132]</span>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.</p> + +<p>Following the execution of the duPont-National Lead +Agreement in 1933, duPont <span id="TN7">entered into a series</span> of four contracts +with Titan Company, <abbr title="Incorporated">Inc.</abbr> By these agreements, duPont +agreed to turn over all its foreign patents to the various foreign +associates of Titan Company, <abbr title="Incorporated">Inc.</abbr> 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.</p> + +<p>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.</p> + +<p>As early as 1930 the British Chemical Trust, Imperial Chemical +Industries, <abbr title="Limited">Ltd.</abbr>, 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 +<span class="pagenum" id="Page_133">[Pg 133]</span>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 <abbr title="Company">Co.</abbr>, <abbr title="Limited">Ltd.</abbr> 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 <abbr title="Limited">Ltd.</abbr>, was formed. The stock was owned 49% by +Titan <abbr title="Company">Co.</abbr>, <abbr title="Incorporated">Inc.</abbr>, and 51% by I. C. I., Imperial Smelting and +Goodlass Wall Lead Industries, <abbr title="Limited">Ltd.</abbr>, 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 <abbr title="Company">Co.</abbr>, <abbr title="Incorporated">Inc.</abbr>, 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 +<abbr title="Company">Co.</abbr> 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 +<span class="pagenum" id="Page_134">[Pg 134]</span>could use these developments to advantage in dealing with +Laporte in postwar negotiations.</p> + +<p>The most important chemical company in Canada is Canadian +Industries, <abbr title="Limited">Ltd.</abbr> (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.</p> + +<p>In 1937 National Lead and C. I. L. organized Canadian Titanium +Pigments, <abbr title="Limited">Ltd.</abbr> (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, <abbr>etc.</abbr> 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.</p> + +<p>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 +<span class="pagenum" id="Page_135">[Pg 135]</span>Titan <abbr title="Company">Co.</abbr>, <abbr title="Incorporated">Inc.</abbr>, 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.</p> + +<p>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 +<abbr title="Company">Co.</abbr>, <abbr title="Incorporated">Inc.</abbr> (representing National Lead’s interests) received +<abbr title="17 and a half percent">17½%</abbr>; I. G. Farben, <abbr title="17 and a half percent">17½%</abbr> 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 <abbr title="Company">Co.</abbr>, <abbr title="Incorporated">Inc.</abbr>, subscribed +for I. G. Farben’s share and gave the latter an option +to purchase these shares at any subsequent time.</p> + +<p>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 +<span class="pagenum" id="Page_136">[Pg 136]</span>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, <abbr title="Limited">Ltd.</abbr> 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:</p> + +<p>“Even at the time we made shipment to you of 700 tons on +March <abbr>9th</abbr>, 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.”</p> + +<p>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.</p> + +<p>“Confirming our recent conversations, regarding exchange +of title to patents, I beg to review the situation for you.</p> + +<p>“On September <abbr>7th</abbr> I wrote <abbr>Dr.</abbr> 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 <abbr>Dr.</abbr> Jebsen that it might be desirable +<span class="pagenum" id="Page_137">[Pg 137]</span>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. <em>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.</em> On December +<abbr>7th</abbr> I received the following cable from <abbr>Dr.</abbr> Jebsen:</p> + +<blockquote> +<p class="small">“‘YOUR LETTER SEPTEMBER 7 STOP SUBJECT LEADCOS AND TITANINCS +APPROVAL <em>HAVE AGREED ASSIGNMENT</em> 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’</p> +</blockquote> + +<p>“The suggestion here is that Titangesellschaft will assign +their United States patents and applications to National Lead +<abbr title="Company">Co.</abbr> and National Lead <abbr title="Company">Co.</abbr> and Titan <abbr title="Company">Co.</abbr>, <abbr title="Incorporated">Inc.</abbr>, 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 <abbr title="Company">Co.</abbr>, <abbr title="Incorporated">Inc.</abbr>, the obligation to pay all maintenance +charges and hence, under the Agreement of 1920, Titan <abbr title="Company">Co.</abbr>, +<abbr title="Incorporated">Inc.</abbr>, could have requested formal assignment of these patents. +They have not done so in order to save the expense of preparing +<span class="pagenum" id="Page_138">[Pg 138]</span>the assignments and recording them in the various countries. +The question is, therefore, whether Titan <abbr title="Company">Co.</abbr>, <abbr title="Incorporated">Inc.</abbr>, +should assign its patents and applications to Titangesellschaft.</p> + +<p>“In discussing this matter with you on December <abbr>8th</abbr>, <em>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 <abbr title="Company">Co.</abbr>, <abbr title="Incorporated">Inc.</abbr>, and if, as a result of the war they were forced +by their government</em>, or through other circumstances, <em>to abrogate +the main agreement, they would be free to export their +products and, in general, take themselves outside of the titanium +family cooperation</em>. I cabled this thought to <abbr>Dr.</abbr> Jebsen, soliciting +his views. A reply has just been received which reads as +follows:</p> + +<blockquote> +<p class="small">“‘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 <em>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</em>.’</p> +</blockquote> + +<p>“You will see that <abbr>Dr.</abbr> 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.</p> + +<p>“It should be noted in this connection that even if Titan <abbr title="Company">Co.</abbr>, +<abbr title="Incorporated">Inc.</abbr>, 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 +<span class="pagenum" id="Page_139">[Pg 139]</span>means to negate Titan <abbr title="Company">Co.</abbr>, <abbr title="Incorporated">Inc.</abbr>’s patent rights also. <em>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 <abbr>Dr.</abbr> Jebsen, +that competition can be controlled by patents owned by the other +members of the family in their particular territories.</em> Therefore, +I believe we should approve <abbr>Dr.</abbr> Jebsen’s proposal.”</p> + +<p>That this plan was put into effect is shown by a resolution +adopted by the Board of Directors of Titan <abbr title="Company">Co.</abbr>, <abbr title="Incorporated">Inc.</abbr>, on December +19, 1939:</p> + +<p>“Resolved, in furtherance of that certain License Agreement +between Titan <abbr title="Company">Co.</abbr> <abbr class="spell">A/S</abbr> (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 <abbr>Dr.</abbr> 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.”</p> + +<p><span class="pagenum" id="Page_140">[Pg 140]</span></p> + +<p>Among the patents so assigned to avoid seizure by the Alien +Property Custodian is one covering the new rutile pigment previously +mentioned.</p> + +<p>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.</p> + +<p>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.</p> + +<p>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 +<span class="pagenum" id="Page_141">[Pg 141]</span>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.</p> + +<p>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.</p> + +<p>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.</p> + + +<hr class="chap x-ebookmaker-drop"> +<div class="chapter"> + +<p><span class="pagenum" id="Page_142">[Pg 142]</span></p> + + + <h2 class="nobreak" id="10"> + 10 + <br> + <i>Optical Instruments</i> + </h2> +</div> + + +<p>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.</p> + +<p>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.</p> + +<p><span class="pagenum" id="Page_143">[Pg 143]</span></p> + +<p>In March, 1940, Bausch and Lomb and Carl Zeiss were indicted +for violation of the antitrust laws. Pleas of <i lang="la">nolo contendere</i> +were made, fines paid and thus trial of the indictment was +avoided. A <span id="TN8">civil complaint and consent decree</span> were filed in +July 1940. The investigations in connection with this case revealed +the following:</p> + +<p>(1) Action was taken in 1921 to nullify the provisions of the +Versailles Treaty which prohibited Germany from large scale +manufacturing of military equipment.</p> + +<p>(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.</p> + +<p>(3) Secret United States military information was given by +Bausch and Lomb to Germans not only before but after Hitler +came into power.</p> + +<p>(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.</p> + +<p>(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.</p> + +<p>(6) Threats of patent infringement were used to frighten +competing firms bidding upon military equipment for the +United States Army.</p> + +<p>(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.</p> + +<p>No one factor is of greater importance in the waging of modern +mechanized warfare than the precision instruments which +<span class="pagenum" id="Page_144">[Pg 144]</span>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 <span lang="de">Stiftung</span>. The latter is a foundation created +by bequests from Carl Zeiss and <abbr>Dr.</abbr> 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.</p> + +<p>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 +<span class="pagenum" id="Page_145">[Pg 145]</span>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 <abbr title="Company">Co.</abbr>, and the Pittsburgh +Plate Glass <abbr title="Company">Co.</abbr>, 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.</p> + +<p>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 +<span class="pagenum" id="Page_146">[Pg 146]</span>two companies divided up the world insofar as the sale of military +optical goods was concerned:</p> + +<p>“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.”</p> + +<p>In the fourth paragraph, Zeiss was given the power to pass +upon who should become the heads of the Bausch and Lomb +“Military Department.”</p> + +<p>“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.”</p> + +<p>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.”</p> + +<p>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 +<span class="pagenum" id="Page_147">[Pg 147]</span>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.”</p> + +<p>In contending that the contract was not secret, Bausch and +Lomb states: “The original contract was shown to the <abbr title="United States">U. S.</abbr> +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):</p> + +<p>“I hope you <abbr title="received">rec’d</abbr> our cable via Frankfurt in regard to the +signing of the agreement Apr <abbr>29th</abbr> and also my letter of even +date in which I entered into the subject more fully. In that letter +<span class="pagenum" id="Page_148">[Pg 148]</span>I stated that <abbr title="Captain">Capt.</abbr> Bechler, Naval representative of the <abbr>Am.</abbr> +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, <abbr title="Lieutenant">Lieut.</abbr> Culbert, <abbr title="United States Navy">U. +S. N.</abbr>, who was also accompanied by the Military <abbr title="representative">represt.</abbr> of the +<abbr>Am.</abbr> Commission. What the Navy wants at once are: [enumerating +range-finders, periscopes, sights and other similar +instruments].</p> + +<p>“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 +<abbr title="Commander">Comdr.</abbr> 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.</p> + +<p>“<em>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 <abbr title="Lieutenant">Lieut.</abbr> 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 <abbr>Dr.</abbr> 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 <abbr title="account">acc’t</abbr> of Zeiss; this they +understand.</em>”</p> + +<p>The reason it was necessary to keep the agreement secret is +quite obvious but it need not be left to inference. On <abbr title="December">Dec.</abbr> 27, +1930, Bausch and Lomb wrote to Interflash Signal Corporation +<span class="pagenum" id="Page_149">[Pg 149]</span>of New York in reply to an inquiry concerning a range finder +for the Grecian Navy Department. The letter contains this language:</p> + +<p>“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 <abbr title="Misters">Messrs.</abbr> Carl Zeiss of Jena, Germany, <em>the latter not +being permitted under the terms of the Peace Treaty to continue +the manufacture of these products</em>....”</p> + +<p>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:</p> + +<p>“We have, on previous occasions, explained to <abbr>Mr.</abbr> 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. <em>The real reason, as you are aware, is our +agreement with Zeiss, which, of course, we cannot explain to +<abbr>Mr.</abbr> Scheick, as we are not only required to keep the nature of +<span class="pagenum" id="Page_150">[Pg 150]</span>the agreement confidential, but the very existence of such an +agreement.</em> 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.”</p> + +<p>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.</p> + +<p>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.</p> + +<p>The following paragraphs from a letter from Bausch and +Lomb to Zeiss dated February 10, 1939, substantiates this statement:</p> + +<p>“We are uncertain whether your reference to the more distant +<span class="pagenum" id="Page_151">[Pg 151]</span>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.</p> + +<p>“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.</p> + +<p>“If, on the other hand, you are referring to the later period, +<em>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.</em>”</p> + +<p>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:</p> + +<p>“<i>In reference to 2.</i> 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 +<span class="pagenum" id="Page_152">[Pg 152]</span>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. <em>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.</em> 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.”</p> + +<p>The sentence which I have italicized is a positive statement +by Zeiss of its utter disregard of the conditions imposed by the +Peace Treaty.</p> + +<p>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.</p> + +<p>Subsequently on October 28, 1925, a further supplemental +<span class="pagenum" id="Page_153">[Pg 153]</span>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:</p> + +<p>“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.”</p> + +<p>The second supplemental agreement also contained the following +provision:</p> + +<p>“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.”</p> + +<p>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.</p> + +<p>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 +<span class="pagenum" id="Page_154">[Pg 154]</span>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.”</p> + +<p>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 <abbr title="United States">U. S.</abbr> The agreement is that if such inquiries +come to us we are to refer them to Zeiss.”</p> + +<p>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 <span id="TN9">violation of the antitrust laws</span> by +the decree entered by the court on July 9, 1940.</p> + +<p>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.</p> + +<p><span class="pagenum" id="Page_155">[Pg 155]</span></p> + +<p>In a memorandum of April 19, 1938 Carl L. Bausch, Vice +President of Bausch and Lomb, quoted paragraph <abbr title="7">VII</abbr> 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 <abbr>Mr.</abbr> Bausch stated:</p> + +<p>“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.”</p> + +<p>In a letter from Carl Zeiss to Bausch and Lomb dated January +3, 1939 referring to the period of the past five years, <abbr>i.e.</abbr>, +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.”</p> + +<p>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 +<abbr class="spell">G.m.b.H.</abbr> Frankfurt-on-the-Main acted as the conduit for the +information. On July 9, 1929 Bausch and Lomb wrote to August +Lomb as follows:</p> + +<p>“We are appending our report which will bring the Military +transactions up to date.</p> + +<p><span class="pagenum" id="Page_156">[Pg 156]</span></p> + +<p>“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, <abbr>etc.</abbr>, and the amount of equipment purchased, +<abbr>etc.</abbr>, are also considered secret. <em>Obviously, our agreement +with <abbr title="Misters">Messrs.</abbr> 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.</em>”</p> + +<p>The accompanying report is headed “Statement of Military +Department to <abbr>Mr.</abbr> August Lomb, For the Months of April, +May and June 1929.” It gave the number of antiaircraft range +finders, <abbr title="26 and a half">26½</abbr> <abbr title="foot">ft.</abbr> 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:</p> + +<p>“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.”</p> + +<p>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:</p> + +<p><span class="pagenum" id="Page_157">[Pg 157]</span></p> + +<p>“We confirm having written you the letter stated in the +above reference. The pamphlet referred to in it has been sent +to <abbr>Mr.</abbr> August Lomb, via registered mail.</p> + +<p>“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, <em>please do not admit +to any one that this has been prepared analogous to our copy</em>.</p> + +<p>“<em>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 <abbr>Mr.</abbr> August Lomb.</em>”</p> + +<p>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:</p> + +<p>“Your last monthly report has given cause to the consideration +that we surely would be better in a position to assist you +<em>if you would report to us what kinds of instruments are under +trial and in use by your military service</em>. There must be a great +many questions regarding instruments for <em>airplanes, tanks, and +ships</em> which demand special optical instruments.</p> + +<p>“We would ask that you intensively <em>find out at the proper +places and that you communicate to us the different problems</em>, +so that we are placed in a position to name you the necessary +instruments which we also make new to <span id="TN10">satisfy the actual demands</span>.</p> + +<p>“We believe that thereby the business could be enlivened +and also work could be created for you as well as us.”</p> + +<p><span class="pagenum" id="Page_158">[Pg 158]</span></p> + +<p>A month later on May 11, 1933 Nedinsco again wrote to +Bausch and Lomb as follows:</p> + +<p>“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.</p> + +<p>“<em>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.</em></p> + +<p>“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.</p> + +<p>“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, <abbr>etc.</abbr>, and for which you might be considered as +subcontractors. <em>Such business would according to Paragraph 3 +of the agreement need a special understanding between us but +is not excluded.</em> 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.</p> + +<p>“<em>We would also be thankful for a comprehensive economic +report which would enable us to judge conditions.</em>”</p> + +<p>It can hardly be mere coincidence that these repeated requests +<span class="pagenum" id="Page_159">[Pg 159]</span>for military information came so soon after Hitler’s accession +to power.</p> + +<p>On December 14, 1933 Bausch and Lomb wrote to August +Lomb as follows:</p> + +<p>“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.</p> + +<p>“<em>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.</em></p> + +<p>“We would ask that you be governed accordingly and that +you bring these facts to the attention of <abbr title="Misters">Messrs.</abbr> Carl Zeiss.”</p> + +<p>August Lomb answered this letter on December 29, 1933. +The first three paragraphs of his reply were as follows:</p> + +<p>“Since writing you December <abbr>5th</abbr>, your letter <abbr title="Number">Nr.</abbr> 8909 of +December <abbr>14th</abbr> was received. It just arrived before the writer +went to Jena and could therefore be discussed there.</p> + +<p>“<i>Monthly report.</i> That enclosed in your letter <abbr title="Number">Nr.</abbr> 8909 was +therefore transmitted personally, impressing again the <em>necessity +of considering this information strictly confidential and secret</em>. +This is fully understood by the management as well as their +<abbr>Mil.</abbr> Department and we <em>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</em>.</p> + +<p>“The contents of this report were very pleasing so far as the +<span class="pagenum" id="Page_160">[Pg 160]</span>important orders are concerned which you were able to secure. +It is to be regretted that the thirty-four 11 <abbr title="foot">ft.</abbr> <abbr class="spell">R.F.</abbr> were lost, +but evidently other firms also have to expect part of the business.”</p> + +<p>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.</p> + +<p>On October 16, 1934 Bausch and Lomb wrote to August +Lomb as follows:</p> + +<p>“We are very sorry to find that we neglected to send you +our report for a considerable length of time. <em>As you know, +we are not free to give you these reports.</em> This is about the best +excuse that we can offer; <em>the less reports we make the less the +chance of any going astray</em>.</p> + +<p>“<em>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.</em>”</p> + +<p>The report of October 16, 1934 entitled “Statement of Military +Department to <abbr>Mr.</abbr> 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 <abbr title="13 and a half">13½</abbr> <abbr title="foot">ft.</abbr> height +finders awarded to Keuffel and Esser (another American firm). +This report contains the following remarkable statement in +connection with designs for submarine periscopes:</p> + +<p>“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. <em>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.</em> +<span class="pagenum" id="Page_161">[Pg 161]</span>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.”</p> + +<p>On October 20, 1936 Bausch and Lomb wrote the following +letter to Carl Zeiss:</p> + +<p>“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. +<abbr title="Number">No.</abbr> 2 for the altiperiscopes of 34 foot optical length.</p> + +<p>“<em>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 <abbr>Mil.</abbr> 458 sent herewith.</em> 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 <abbr>Mil.</abbr> 458.</p> + +<p>“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.”</p> + +<p>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:</p> + +<p><span class="pagenum" id="Page_162">[Pg 162]</span></p> + +<p>“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. <em>Since 1935 such a statement was +not received, probably because you did not want to furnish any +such data in accordance with your letter <abbr title="Number">Nr.</abbr> 9383 of October +<abbr>16th</abbr>, 1934. Zeiss, however, would be satisfied with very brief +and condensed information, for instance Range Finders abbreviated +to <abbr class="spell">R.F.</abbr> <abbr>etc.</abbr>, if possible.</em></p> + +<p>“Of course you will have to consider this with the Executive +Office and may let us know occasionally whether feasible or +not.”</p> + +<p>In a letter of March 24, 1939—the week after Hitler invaded +Czechoslovakia—Carl Zeiss made this demand upon +Bausch and Lomb:</p> + +<p>“For this purpose it is <em>absolutely necessary</em>, and that is why +we ask you for it, <em>that you supply us</em>, before we arrive at our +final decision, with a <em>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</em>.</p> + +<p>“We take it for granted that your Administrative Division +can make up such a statement without trouble and loss of time +so that we <em>may expect it within a month at the latest</em>.”</p> + +<p>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 +<span class="pagenum" id="Page_163">[Pg 163]</span>instruments covered by Zeiss patents totaling approximately +$1,000,000 and giving the patent numbers.</p> + +<p>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.</p> + +<p>The supplemental agreement of June 27, 1925 contained +the following provision:</p> + +<p>“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 <em>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%.</em> Both parties are obligated to treat such inquiries as +promptly as possible. <em>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.</em> 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.”</p> + +<p>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 +<span class="pagenum" id="Page_164">[Pg 164]</span>from a letter from Bausch and Lomb to Carl Zeiss dated February +24, 1932:</p> + +<p>“From the copy of the above contract which we have sent +you with our other letter of today, <abbr>Mil.</abbr> <abbr title="Department">Dept.</abbr> 8077, you will +take notice that the contract provides that customs entry will +be taken care of by the Government. <em>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, <abbr>etc.</abbr>, accordingly should state the following +prices</em>, <abbr class="spell">f.o.b.</abbr> Venlo:</p> + +<table class="autotable p2"> + +<tr> +<th class="tdl" colspan="2"><i>Item</i></th> +<th><i>Unit</i></th> +<th><i>Total</i></th> +</tr> + +<tr> +<td class="tdl tdt">1</td> +<td class="tdl tdt"> +The unit price to be declared by +you will be +</td> +<td class="tdr tdb">$7,400</td> +<td class="tdr tdb">$14,800.00</td> +</tr> + +<tr> +<td class="tdl tdt">1a</td> +<td class="tdl tdt"> +The unit price to be declared by +you will be +</td> +<td class="tdr tdb">470</td> +<td class="tdr tdb">470.00</td> +</tr> + +<tr> +<td class="tdl tdt">2</td> +<td class="tdl tdt"> +The unit price to be declared by +you will be +</td> +<td class="tdr tdb">6,780</td> +<td class="tdr tdb">20,340.00</td> +</tr> + +<tr> +<td></td> +<td> +(Note: The repeater motor is +here included) +</td> +<td></td> +<td></td> +</tr> + +<tr> +<td class="tdl tdt">2a</td> +<td class="tdl tdt"> +The unit price to be declared by +you will be +</td> +<td class="tdr tdb">470</td> +<td class="tdr tdb">940.00</td> +</tr> + +</table> + +<p class="p2">“The difference between the above prices and those stipulated +in the official contract are satisfactorily explained by shipping +expenses, <abbr>etc.</abbr></p> + +<p>“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.”</p> + +<p>The provisions of the 1921 and 1925 agreements prevented +<span class="pagenum" id="Page_165">[Pg 165]</span>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:</p> + +<p style="float:left"> + “From: <abbr>Mr.</abbr> M. H. Eisenhart +</p> +<p style="float:right"> + Date: <abbr title="January">Jan.</abbr> 11, 1927. +</p> + +<p style="clear:both">“To: <abbr>Mr.</abbr> <abbr title="Edward">Edw.</abbr> Bausch.</p> + +<p>“I have read the following paragraph in August Lomb’s letter +of December 20, 1926:</p> + +<p>“‘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 <abbr>28th</abbr>, 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.’</p> + +<p>“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.”</p> + +<hr class="tb"> + +<p style="float:left"> + “From: <abbr>Mr.</abbr> E. Bausch +</p> +<p style="float:left;margin-left:1.3em"> +Reply +</p> +<p style="float:right"> + Date: <abbr title="January">Jan.</abbr> 27, 1927. +</p> + +<p style="clear:both">“To: <abbr>Mr.</abbr> M. H. Eisenhart</p> + +<p>“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 <abbr title="United States">U. S.</abbr> 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 +<span class="pagenum" id="Page_166">[Pg 166]</span>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.”</p> + +<p>The Edward Bausch who wrote the latter memorandum is +the same gentleman who was quoted in the <cite>Literary Digest</cite> of +December 12, 1936 in the following item:</p> + +<p>“Millions of dollars of foreign Government orders for military +optical instruments have been rejected by the Bausch & +Lomb <abbr title="Company">Co.</abbr>, of Rochester, New York, because they might conceivably +be used against the United States or its interests in +another War.</p> + +<p>“Proudly last week, vigorous, eighty-two-year-old <abbr>Dr.</abbr> 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.’...</p> + +<p>“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.</p> + +<p>“<i>War-Time Seller</i>—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 +<span class="pagenum" id="Page_167">[Pg 167]</span>there,’ a company officer gravely explained last week, ‘and if +we refuse to help them prepare, it puts it off just that much.’”</p> + +<p>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:</p> + +<p>“In reply to your letter of March 24, 1938 we wish to inform +you that the instruments that we manufacture for the +<abbr title="United States">U. S.</abbr> War Department are 4 meter Stereo Height Finders.</p> + +<p>“Unfortunately we have to inform you that we are not in +a position to take British Government orders at the present +time.”</p> + +<p>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, <abbr title="Limited">Ltd.</abbr>, 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:</p> + +<p>“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.</p> + +<p>“<em>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.</em> +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 +<span class="pagenum" id="Page_168">[Pg 168]</span>such is not the case. Because of this situation, there is no need +for us to delay you any further in your plan.</p> + +<p>“I enjoyed very much your visit here and perhaps at some +future occasion I may have the opportunity of meeting you +again.”</p> + +<p>In the October 1940 number of <cite>Fortune Magazine</cite> which +contained an article about Bausch and Lomb there was a +two-page spread devoted to “The Critical Geography of Industries +Essential to <abbr title="United States">U. S.</abbr> 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.”</p> + +<p>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:</p> + +<p>“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 <em>wait until a few days before the opening of +the bids</em> and then call the attention of the Keuffel & Esser +Company to the fact that we are controlling patent <abbr title="Number">No.</abbr> 1638190 +which prohibits their furnishing the Height Finder in question. +<em>In this manner we hope to be able to make them afraid of +touching this business.</em> You will understand, therefore, how +anxious we are to receive your opinion that the arrangement of +<span class="pagenum" id="Page_169">[Pg 169]</span>four compensator wedges on one side of the Range [sic] Finder +infringes your patent.”</p> + +<p>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.</p> + +<p>“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:</p> + +<p>[<abbr>Par.</abbr> 1 and 2 deals with termination of the contract]</p> + +<p>“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 +<span class="pagenum" id="Page_170">[Pg 170]</span>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. <em>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.</em>”</p> + +<p>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:</p> + +<p>“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 +<span class="pagenum" id="Page_171">[Pg 171]</span>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.</p> + +<p>“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.”</p> + +<p>On February 6, 1934, Zeiss wrote Edward Bausch as follows:</p> + +<p>“I received your letter of January 25, and at the same time, +a report from our <abbr>Dr.</abbr> 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 <abbr>Mr.</abbr> 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.</p> + +<p>“The essential consequence is that quality binoculars—and +only those of more than <abbr title="5 times">5×</abbr> 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.</p> + +<p>“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 <abbr title="times">×</abbr> 30 prism binoculars at $26 each, which we +made in 1931 to the Navy. I believe that I do not have to +<span class="pagenum" id="Page_172">[Pg 172]</span>add anything to the explanations which our <abbr>Dr.</abbr> 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 <abbr>Dr.</abbr> +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.</p> + +<p>“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 +<abbr>Dr.</abbr> Bauer are always ready for a price agreement, which protects +your just interests.”</p> + +<p>On February 28, 1935, Bausch and Lomb wrote to <abbr>Dr.</abbr> +Bauer of Carl Zeiss, <abbr title="Incorporated">Inc.</abbr>, New York. The first paragraph of +his letter is as follows:</p> + +<p>“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 +<span class="pagenum" id="Page_173">[Pg 173]</span>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.”</p> + +<p>On March 8, 1935, K. A. Bauer of Carl Zeiss, <abbr title="Incorporated">Inc.</abbr>, wrote +Bausch and Lomb. The first three paragraphs of his letter are +as follows:</p> + +<p>“I thank you for your letter of February 28, referring to +our conversation of February <abbr>23rd</abbr>. 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.</p> + +<p>“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 +<span class="pagenum" id="Page_174">[Pg 174]</span>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.</p> + +<p>“You say that we quoted on 600 binoculars 6 <abbr title="times">×</abbr> 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 <abbr title="United States">U. S.</abbr> 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 <abbr title="times">×</abbr> 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 <abbr title="times">×</abbr> 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.”</p> + +<p><span class="pagenum" id="Page_175">[Pg 175]</span></p> + +<p>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.</p> + +<p>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.</p> + + +<hr class="chap x-ebookmaker-drop"> +<div class="chapter"> + +<p><span class="pagenum" id="Page_176">[Pg 176]</span></p> + + + <h2 class="nobreak" id="11"> + 11 + <br> + <i>Miscellaneous Products</i> + </h2> +</div> + + +<p>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.</p> + +<p>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.</p> + +<p>On October 28, 1943, the Department of Justice filed a complaint +charging Merck & <abbr title="Company">Co.</abbr>, <abbr title="Incorporated">Inc.</abbr>, of Rahway, <abbr title="New Jersey">N. J.</abbr>, 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.</p> + +<p><span class="pagenum" id="Page_177">[Pg 177]</span></p> + +<p>Named as defendants in the suit were Merck & <abbr title="Company">Co.</abbr>; George +W. Merck, President of the firm; and Powers-Weightman-Rosengarten +<abbr title="Corporation">Corp.</abbr>, a Merck subsidiary. The complaint charged +that:</p> + +<p>(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.</p> + +<p>(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.</p> + +<p>(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.</p> + +<p>(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.</p> + +<p>(5) Merck of Rahway not only intends to abandon all its +export business in Darmstadt’s territory after the war but to +<span class="pagenum" id="Page_178">[Pg 178]</span>continue the territorial division provided in the 1932 “Treaty” +until 1982.</p> + +<p>(6) The agreement covers approximately 400 pharmaceuticals +and chemicals, including quinines, sulfa drugs, vitamines, +narcotics and mercurials.</p> + +<p>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.</p> + +<p>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.</p> + +<p>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 +<span class="pagenum" id="Page_179">[Pg 179]</span>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.</p> + +<hr class="tb"> + +<p>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.</p> + +<p>Named as defendants in the suit were: E. I. du Pont de +Nemours and Company, <abbr title="Incorporated">Inc.</abbr>, Wilmington, Delaware, including +Lammot du Pont, Chairman of the Board, Walter Samuel +Carpenter, <abbr title="Junior">Jr.</abbr>, President; Remington Arms Company, <abbr title="Incorporated">Inc.</abbr>, +Bridgeport, Connecticut, including Charles Krum Davis, President +and General Manager; Imperial Chemical Industries, +<abbr title="Limited">Ltd.</abbr>, London, England, including Harry Duncan McGowan, +Chairman of the Board, and Henry Mond, Deputy Chairman; +and Imperial Chemical Industries (New York), <abbr title="Limited">Ltd.</abbr>, New +York City, American agent of <abbr class="spell">ICI</abbr>.</p> + +<p>The government charged that beginning sometime prior to +1920 du Pont, <abbr class="spell">ICI</abbr> 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.</p> + +<p>The alleged conspiracy consisted of an agreement, the terms +of which were:</p> + +<p>(1) That du Pont and <abbr class="spell">ICI</abbr> not compete with each other.</p> + +<p>(2) That du Pont, Remington and <abbr class="spell">ICI</abbr> cooperate to eliminate +competition between Remington and <abbr class="spell">ICI</abbr>.</p> + +<p><span class="pagenum" id="Page_180">[Pg 180]</span></p> + +<p>(3) That du Pont and <abbr class="spell">ICI</abbr> each be assigned certain marketing +areas as exclusive territory.</p> + +<p>(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.</p> + +<p>(5) That du Pont and <abbr class="spell">ICI</abbr> 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.</p> + +<p>(6) That du Pont and <abbr class="spell">ICI</abbr> 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.</p> + +<p>(7) That du Pont and <abbr class="spell">ICI</abbr> cooperate to eliminate the competition +of other companies throughout the world.</p> + +<p>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.</p> + +<p>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 <abbr class="spell">ICI</abbr>’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 +<span class="pagenum" id="Page_181">[Pg 181]</span>and du Pont, to safeguard such monopoly position. This +policy was explained by <abbr class="spell">ICI</abbr> to du Pont as follows:</p> + +<p>“Sir Harry explained that the formation of <abbr class="spell">I.C.I.</abbr> 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.”</p> + +<p>Imperial Chemical Industries (New York) conducts no independent +business operations of its own but acts solely as agent +for <abbr class="spell">ICI</abbr> for the transaction of business in the United States. The +complaint stated that in 1935 the then president of <abbr class="spell">ICI</abbr> (New +York) described the corporation as the “private commercial +legation” of <abbr class="spell">ICI</abbr>.</p> + +<p>Sometime prior to 1920 du Pont and <abbr class="spell">ICI</abbr> 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 <abbr class="spell">ICI</abbr> 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.</p> + +<p>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, <abbr title="Limited">Ltd.</abbr>, jointly owned +by both, would be utilized to eliminate competition between +<span class="pagenum" id="Page_182">[Pg 182]</span>them. Moreover, it was agreed that du Pont and <abbr class="spell">ICI</abbr> 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.</p> + +<p>By 1925, however, Dynamit Aktiengesellschaft (known as +<abbr class="spell">DAG</abbr>), a German corporation, had begun to offer serious competition +to du Pont and <abbr class="spell">ICI</abbr> in all important world markets, +and in that year the two companies reached an agreement with +<abbr class="spell">DAG</abbr> to eliminate competition in commercial explosives. By +this understanding, <abbr class="spell">DAG</abbr> agreed to abstain from doing business +in certain markets and to adhere to quota arrangements in other +markets including South America. For this agreement, <abbr class="spell">DAG</abbr> +was awarded as its exclusive market in commercial explosives +Germany, Holland, Poland, Austria, Denmark and Bulgaria. +Du Pont and <abbr class="spell">ICI</abbr> also subsequently acquired a stock interest in +<abbr class="spell">DAG</abbr>.</p> + +<p>In order to carry out the understanding, it was charged, du +Pont, <abbr class="spell">ICI</abbr> and <abbr class="spell">DAG</abbr> about 1925, organized Explosives Industries, +<abbr title="Limited">Ltd.</abbr>, incorporated under the laws of the United Kingdom. +Du Pont and <abbr class="spell">ICI</abbr> were each allocated <abbr title="37 and a half">37½</abbr> per cent of its shares, +and <abbr class="spell">DAG</abbr> 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 <abbr class="spell">ICI</abbr> had earlier organized a jointly-owned +company, <span id="TN11">Compania Sud-Americana de Explosivos</span>, to import +and manufacture explosives in Bolivia and Chile.</p> + +<p>At the time du Pont and <abbr class="spell">ICI</abbr> 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 +<span class="pagenum" id="Page_183">[Pg 183]</span>each company made new products, they were brought into the +conspiracy.</p> + +<p>The complaint cited as an example of the functioning of the +conspiracy that during the period 1920–29, du Pont tried to +protect <abbr class="spell">ICI</abbr> 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 <abbr class="spell">ICI</abbr>’s markets by cutting prices.</p> + +<p>By 1929 the conspiracy had incorporated substantially all of +the products then made by du Pont and <abbr class="spell">ICI</abbr>, 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 <abbr class="spell">ICI</abbr> 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.</p> + +<p>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 <abbr class="spell">ICI</abbr> and Remington in the +manufacture and sale of ammunition and sporting arms.</p> + +<p>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:</p> + +<p>“I have warned my people that no fiscal alterations in the +<span class="pagenum" id="Page_184">[Pg 184]</span><abbr title="United States of America">U. S. A.</abbr> 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 <abbr class="spell">ICI</abbr>.”</p> + +<p>To this letter, <abbr>Mr.</abbr> du Pont replied in part: “I feel the same; +... If any legislation or international agreements are brought +about which affect these <abbr class="spell">ICI</abbr>-du Pont relations, I am sure we +will be able to adjust ourselves so as to get the continued benefit +of our Agreement.”</p> + +<p>The agreement of 1929 was to expire in June, 1939, and at +that time <abbr class="spell">ICI</abbr> 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.</p> + +<p>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.”</p> + +<p>The purpose of the Government’s suit was to bring about the +<span class="pagenum" id="Page_185">[Pg 185]</span>abrogation of the illegal contracts, to secure a perpetual injunction +against <abbr class="spell">ICI</abbr> from violating the American Antitrust Acts, +and to require du Pont and <abbr class="spell">ICI</abbr> to take further steps to prevent +future use of joint companies.</p> + +<hr class="tb"> + +<p>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.</p> + +<p>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, <abbr title="Saint">St.</abbr> Louis, Missouri; Ohio +Match Company, New York City; Lion Match Company, <abbr title="Incorporated">Inc.</abbr>, +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 <abbr title="Company">Co.</abbr>, <abbr title="Incorporated">Inc.</abbr>, New York City, American agents of Swedish +Match Company (including Paul Bertil Lind, President).</p> + +<p>The Government’s complaint made the following charges:</p> + +<p>(1) A cartel comprising American, Swedish, British, and Canadian +match producers eliminated competition throughout the +<span class="pagenum" id="Page_186">[Pg 186]</span>world in the manufacture and distribution of matches. This +cartel has been in existence since 1901.</p> + +<p>(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.</p> + +<p>(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.</p> + +<p>(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.</p> + +<p>(5) The defendants acquired competing match producers and +distributors wherever and whenever competition threatened.</p> + +<p>(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.</p> + +<p>(7) As part of the conspiracy, match factories in the United +States have been withdrawn from production and scrapped.</p> + +<p>(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.</p> + +<p>(9) Post-war plans have already been made by the defendants +<span class="pagenum" id="Page_187">[Pg 187]</span>to resume the conspiracy in full as soon as the difficulties +created by the war disappear.</p> + +<p>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.</p> + +<p>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, <abbr title="Incorporated">Inc.</abbr>; 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.</p> + +<p>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.</p> + +<p>After the first World War, Kreuger threatened vigorous +competition with Diamond in the United States. Faced with +<span class="pagenum" id="Page_188">[Pg 188]</span>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.</p> + +<p>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:</p> + +<p>“We help you now. You stay out of the United States market +after the war.”</p> + +<p>By 1927 Kreuger became dissatisfied with the share of Swedish +<span class="pagenum" id="Page_189">[Pg 189]</span>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.</p> + +<p>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.</p> + +<p>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.</p> + +<p><span class="pagenum" id="Page_190">[Pg 190]</span></p> + +<p>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.</p> + +<p>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.</p> + +<p>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.</p> + +<p>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 +<span class="pagenum" id="Page_191">[Pg 191]</span>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. <span id="TN12">It is to be hoped that</span> 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.”</p> + +<p>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.</p> + + +<hr class="chap x-ebookmaker-drop"> +<div class="chapter"> + +<p><span class="pagenum" id="Page_192">[Pg 192]</span></p> + + + <h2 class="nobreak" id="12"> + 12 + <br> + <i>The Webb Act</i> + </h2> +</div> + + +<p>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.</p> + +<p>However, anyone who has been under the impression that +the Webb Act provides an easy backdoor entrance for American +firms to join forces with cartels seeking domination and control +of world markets is in for sad disillusionment. The Webb Act +was intended to strengthen American competition against foreign +cartels. It was enacted by Congress in the belief that it +would provide a means of assistance to American business in +combatting the power of foreign cartels dominating world markets. +The Act was not passed to permit American firms to take +part in cartel restrictions on American trade—such restrictions +are directly contrary to Congressional purpose.</p> + +<p><span class="pagenum" id="Page_193">[Pg 193]</span></p> + +<p>It should be emphasized that associations organized under +the Webb Act cannot legally enter into international agreements +which restrict production and distribution, divide territories and +fields of operation, fix prices or other wise regiment industry +throughout the world. Neither can they legally enter into +agreements which restrain trade within the United States, restrain +the export trade of any domestic competitor or association, +or which enhance or depress prices or substantially lessen +competition within the United States.</p> + +<p>We have instituted a suit against the United States Alkali +Export Association, the California Alkali Export Association +and others, charging them with maintaining international cartel +agreements to restrain trade in the manufacture and distribution +of alkalis in violation of the Sherman Act. In this case we have +charged that activities by the defendants were not authorized by +the Webb Act. I shall refer later to this case in more detail. +It is sufficient to say at this point that other associations are under +investigation for similar activity, and that new antitrust +suits will be instituted whenever evidence discloses illegal activity +by export associations or others.</p> + +<p>The alkali suit may very well have prompted the resolution +of the <span id="TN13">Board of Directors of the Commerce and Industry +Association</span> of New York to declare that Congress should restudy +the Webb Act and by proper amendments bring it up to +date so that there can be achieved under it all of the objectives +that President Wilson sought to attain when he procured the +enactment of this Act in 1918. The resolution recited that the +Department of Justice program for enforcement of the Sherman +Act seemed to be seeking to impose the competitive system and +the antitrust philosophy, as interpreted by the United States +Supreme Court, on other countries, and implied that antitrust +enforcement was frustrating the purposes of the Webb Act. +<span class="pagenum" id="Page_194">[Pg 194]</span>And in other quarters it has been suggested that perhaps the +Webb Act provides a vehicle for attaining cartel objectives +without incurring the penalties of the Sherman Act.</p> + +<p>These suggestions that the enforcement of the Sherman Act +in the field of foreign trade somehow constitutes a betrayal of +the Congressional policy embodied in the Webb Act, and that +the Webb Act legalizes restrictive cartel practices, are based +upon a misconception of the meaning and purpose of the Act. +The Webb Act was enacted to help American business compete +with foreign cartels. It was not passed to provide a conduit for +joining them. It was designed to stimulate the position of +American concerns as competitors for world trade and to stimulate +the growth of our export trade. The Act created only a +very limited exemption from the Sherman Act which I shall +presently discuss.</p> + +<p>But, before taking up the Act itself, let us look at the conditions +which brought about its enactment. The background of +the Act is set forth extensively in a report by the Federal Trade +Commission, dated June 30, 1916, on cooperation in American +export trade. This report set forth that other nations had certain +advantages in foreign trade because of superior facilities and +more effective organizations; it pointed out that doubt and fear +as to legal restrictions prevented Americans from developing +effective organizations for engaging in international trade, and +that as a result the smaller concerns suffered because of their +lack of organization and facilities. It emphasized that in seeking +business abroad, American manufacturers and producers had +to meet aggressive competition from powerful foreign combinations +often international in character. It recited that in some +industries the smaller manufacturers had to compete abroad +with great American companies having much more efficient +worldwide selling organizations. In order to assist these smaller +<span class="pagenum" id="Page_195">[Pg 195]</span>businesses to acquire proper facilities for doing an international +business, and to enable them to meet the competition in prices +and services of major American concerns and all foreign competitors, +the report recommended that small American producers +and manufacturers should be permitted to unite their +efforts for purposes of conducting foreign trade. By combining +their efforts it was thought that these small firms would be +better able to advertise, maintain an adequate selling force, and +create markets abroad.</p> + +<p>But, while recognizing the desirability of a certain degree of +cooperation in seeking international markets, the Federal Trade +Commission in its 1916 report was fully cognizant of the possibility +of misuse of export associations and of the necessity to +prevent their misuse by legislative safeguards and antitrust +enforcement. Thus the Commission said:</p> + +<p>“Two chief dangers from cooperation export organizations +of American manufacturers and producers are apparent. They +may be used to exploit the home market and they may be used +unfairly against individual American exporters in foreign trade. +The dangers in cooperative action must be faced frankly and +provided against fully.</p> + +<p>“The Commission is confident that this can be done without +sacrificing the essential advantages of joint action and without +altering the policy of the antitrust laws or interfering with their +enforcement.”</p> + +<p>And the Commission further declared that “This recommendation +is made subject to the condition that the legislation shall +be carefully safeguarded and shall make absolutely clear that +the combinations for export business are subject to all of the +rigors of the Sherman law if they are used to restrain trade in +the United States.”</p> + +<p>Bills were then introduced in Congress by Senator Pomerene +<span class="pagenum" id="Page_196">[Pg 196]</span>and Congressman Webb, and were considered by Congressional +committees and debated from 1916 to 1918, when the law was +enacted. The Webb Act as finally passed provides that nothing +in the Sherman Act shall be construed as declaring to be illegal +an export association or any agreement made or act done in the +course of export trade by such association, provided that such +association, agreement or act does not: (a) restrain trade within +the United States; or (b) restrain the export trade of any domestic +competitor or association; or (c) enhance or depress +prices within the United States, substantially lessen competition +within the United States, or otherwise restrain trade therein.</p> + +<p>Since the Webb Act is a statute creating an exception to the +Sherman Act’s general application, the principle of interpretation +governing all statutes which create such exceptions must be +applied here; that is, the Webb Act must be strictly construed. +It must not be taken to cover any more ground than appears to +have been intended by the language of the Act itself read in the +light of the legislative history.</p> + +<p>The legislative history leaves no doubt whatever as to what +Congress intended. In its report of May 11, 1917, the House +Judiciary Committee stated:</p> + +<p>“The bill is drawn so as to leave in full force our antitrust +laws as applied to our own markets and as affecting different +American exporters in their dealings with each other.... The +bill does not authorize any violation of the present antitrust +laws.... The bill prohibits the slightest violation of our antitrust +laws within the United States.”</p> + +<p>The Senate Committee report contained a similar declaration.</p> + +<p>The House and Senate debates abound with declarations by +the sponsors of the bill that it did not in any way interfere with +the application of the Sherman Act to the domestic commerce +of the United States and to agreements to restrain the export +<span class="pagenum" id="Page_197">[Pg 197]</span>trade of competitors of the associations. In referring to antitrust +jurisdiction over proposed export associations, Representative +Webb stated: “If the combination for export trade affects +unduly or artificially the prices in the United States then they +come within the Sherman Antitrust Law.”</p> + +<p>Senator Pomerene made the following significant arguments +during debate on the bill:</p> + +<p>“The position was taken in substance that this bill was a repeal +of the Sherman Antitrust Law, and if it became the law of +the land and these associations were authorized they would at +once seek to control the foreign market and probably enter into +a combination with foreign companies and cartels engaged in the +same line of business and thus reenforced and worldwide in their +control of products they would reduce the prices of food animals, +of grain, and of other products and raise the prices to the +consumer when it suited their purposes.”</p> + +<p>“If the Senator when making this argument had recited facts +instead of fancies, there might have been some force in his utterances +but he was giving free reign to his imagination. The +Senator overlooked the fact that this bill does not repeal the +Sherman Law. He had in mind one paragraph only and lost +sight of all the restrictions and qualifications it contains. I submit +that when this bill is construed judicially it will be analyzed +as a whole and not one part separate from the other.</p> + +<p>“The Senator forgets that neither the associations, nor their +agreements, nor their actions can be in restraint of trade within +the United States, nor in restraint of the foreign trade of any +domestic competitor and they cannot by any agreement, conspiracy, +or act artificially or intentionally and unduly either +enhance prices or reduce prices domestically, and if they do they +violate the law of the land.”</p> + +<p>During the debates some members of Congress, foreseeing +<span class="pagenum" id="Page_198">[Pg 198]</span>the possibility that export associations might join in a combination +with foreign companies, questioned the sponsors of the bill +as to the effect of the bill upon such practices. In the House +debates, <abbr>Mr.</abbr> Moore of Pennsylvania asked: “Suppose a combination +in which Americans join with foreigners had been +formed?” To this query Congressman Webb replied: “Then +you violate the antitrust law and it has been so held by the +court.” Later, in the Senate debates, Senator Pomerene stated: +“There is nothing in this bill authorizing the division of territory +abroad.”</p> + +<p>Attempts to amend the Act between 1921 and 1928 failed. +Amendments proposed in 1928 would have extended the Act +to include combinations for importation of crude rubber, potash, +sisal and other raw materials not made, produced, or grown in +substantial quantities within the United States. The bill proposed +that year was stated by the House Judiciary Committee +to be designed “to meet an acute situation affecting the import +trade of the country” by reason of the fact that certain foreign +governments controlled and operated monopolies dealing in +rubber, potash and sisal for which this country depended materially +upon importations. Because of the operation of these foreign +monopolies the price to American importers had been +greatly increased. The Committee thought that the best way +of meeting “these alien government combinations” was to allow +American buyers of the monopolized products to combine for +the purpose of importing them. During debates on the bill it +was attacked, among other things, on the ground that if it were +passed, import associations would be permitted to join with +foreign producers in worldwide agreements arranging world +markets and fixing world prices. The bill failed to pass, Congress +thus indicating its unwillingness to extend further the application +of the Webb Act.</p> + +<p><span class="pagenum" id="Page_199">[Pg 199]</span></p> + +<p>Thus it is clear that from the very beginning of the agitation +for the Act it was understood that the activities of export associations +would have to be strictly limited to the promotion of +foreign export trade, and that any agreements or activities +which restrain domestic competitors either in domestic or foreign +commerce would still be illegal under the Sherman Act. +This, it seems to me, is what has been overlooked by those who +now question the application of the Sherman Act to activities of +export associations which restrain domestic competition and the +export trade of competitors.</p> + +<p>The Department of Justice is not seeking any novel interpretation +of the Sherman Act or of the Webb Act. We have thus +far instituted one suit involving associations formed under the +Webb Act and it requires no novel interpretation of the Act to +sustain the allegations involved.</p> + +<p>In that suit, filed on March 16, 1944, we charged two American +export associations, 13 American manufacturers, and a British +corporation and its American agent, with maintaining international +cartel agreements to restrain trade in the manufacture +and marketing of <i>alkalis</i>, in violation of the Sherman Antitrust +Act. Our complaint asserted that the 17 defendants and four +co-conspirators—two American corporations, one German, and +one Belgian—had conspired to allocate and maintain exclusive +marketing areas and export quotas throughout the world, eliminating +competition and restraining exports in alkalis by means +of illegal contracts, agreements and understandings still in effect!</p> + +<p>The following were named as defendants in the complaint: +United States Alkali Export Association, <abbr title="Incorporated">Inc.</abbr> (“Alkasso”), a +Delaware corporation with principal offices in New York City; +California Alkali Export Association (“Calkex”), a California +corporation with principal offices in Los Angeles; Imperial +<span class="pagenum" id="Page_200">[Pg 200]</span>Chemical Industries <abbr title="Limited">Ltd.</abbr> (“<abbr class="spell">ICI</abbr>”), a British corporation with +principal offices in London, England; Imperial Chemical Industries +(New York) <abbr title="Limited">Ltd.</abbr>, a New York corporation wholly owned +and controlled by <abbr class="spell">ICI</abbr>, London; Pittsburgh Plate Glass Company, +<abbr title="Incorporated">Inc.</abbr>, a Pennsylvania corporation with principal offices in +New York City; Church & Dwight Company, <abbr title="Incorporated">Inc.</abbr>, a Delaware +corporation with principal offices in New York City; Diamond +Alkali Company, <abbr title="Incorporated">Inc.</abbr>, a Delaware corporation with principal +offices in Pittsburgh, <abbr title="Pennsylvania">Pa.</abbr>; Dow Chemical Company, <abbr title="Incorporated">Inc.</abbr>, +a Michigan corporation with principal offices in Midland, +<abbr title="Michigan">Mich.</abbr>; Hooker Electrochemical Company, <abbr title="Incorporated">Inc.</abbr>, a New York +corporation with principal offices in Niagara Falls, <abbr title="New York">N. Y.</abbr>; The +Mathieson Alkali Works, <abbr title="Incorporated">Inc.</abbr>, a Virginia corporation with principal +offices in New York City; Niagara Alkali Company, a +New York corporation with principal offices in New York City; +Pennsylvania Salt Manufacturing Company, a Pennsylvania +corporation with principal offices in Philadelphia; Southern Alkali +Corporation, a Delaware corporation with principal offices +in New York City; Westvaco Chlorine Products Corporation, +a Delaware corporation with principal offices in New York City; +Wyandotte Chemicals Corporation, a Michigan corporation +with principal offices in Detroit; West End Chemical Company, +<abbr title="Incorporated">Inc.</abbr>, a California corporation with principal offices in +Oakland; and Pacific Alkali Company, <abbr title="Incorporated">Inc.</abbr>, a limited partnership +organized and registered in California with principal offices +in Los Angeles. Named as co-conspirators were: American Potash +& Chemical Corporation, a Delaware corporation with principal +offices in New York City, substantially all of whose capital +stock beneficially owned by the German potash trust, was seized +by the Alien Property Custodian in 1942; Solvay Process Company, +a New York corporation with principal offices in New +York City; Solvay et Cie. (“Belgian Solvay”), a Belgian corporation +<span class="pagenum" id="Page_201">[Pg 201]</span>with principal offices formerly in Brussels but now in +London, England; and I. G. Farbenindustrie Aktiengesellschaft, +a German corporation with headquarters in Frankfort-am-Main, +Germany.</p> + +<p>This suit is of major importance in the drive to eliminate the +effect of cartels on American commerce. It is the first suit +which the Antitrust Division has filed involving the activities +of associations organized under the Webb Export Trade Act. +It should serve as a warning of our determination to prevent +cartel groups from carrying out their illegal plans by use of the +Webb Act.</p> + +<p>“Alkalis,” it should be explained, include soda ash (sodium +carbonate), caustic soda (sodium hydroxide) and bicarbonate +of soda. Soda ash is used in the manufacture of glass, textiles +and chemicals. Caustic soda is used in the manufacture of soap, +textiles, rayon and paper and in the refining of petroleum products. +Sodium bicarbonate is used for many industrial, chemical +and drug purposes and, purified, as baking soda. In 1939, there +were produced in the United States approximately 2,900,000 +tons of soda ash, worth more than $50,000,000; approximately +1,000,000 tons of caustic soda, worth more than $40,000,000; +and approximately 140,000 tons of refined bicarbonate of soda, +worth more than $5,000,000.</p> + +<p>All the domestic defendants in the suit, with the exception of +Alkasso, Calkex and <abbr class="spell">ICI</abbr> (<abbr title="New York">N. Y.</abbr>), were engaged in the manufacture +and sale of alkalis in the United States and conduct substantially +all of their export trade in alkalis through Alkasso +and Calkex. Alkasso was organized in 1919 and filed a verified +statement with the Federal Trade Commission to obtain benefits +and immunities provided by the Webb Export Trade Act. +Alkasso’s members, who control and manage all its activities, +include defendants Pennsylvania Salt, Pittsburgh Plate Glass, +<span class="pagenum" id="Page_202">[Pg 202]</span>Hooker Electrochemical, Diamond, Mathieson, Westvaco, +Church & Dwight, Dow, Niagara and Southern. Alkasso obtains +alkalis from its members, transporting from warehouses +maintained at Hoboken, <abbr title="New Jersey">N. J.</abbr>, and New Orleans, <abbr title="Louisiana">La.</abbr>, to markets +throughout the world. Calkex was organized similarly in +1936 by American Potash & Chemical, West End Chemical and +Pacific Alkali, who control and manage its activities. It obtains +alkalis from member companies and ships from Pacific Coast +ports to various world markets. Prior to 1940, Alkasso and +Calkex together exported 95% of the alkalis exported from the +United States. Since then, because of war conditions and the +resignation of Solvay from Alkasso in 1941, the alkalis exported +by the two associations have amounted to 75% of the total alkali +exports from the <abbr title="United States">U. S.</abbr></p> + +<p>It is charged that beginning in 1924 and continuing to the +present day the defendants have engaged in an unlawful combination +and conspiracy in restraint of trade and commerce in +alkalis and that they have been and are parties to contracts, +agreements and understandings in violation of the Sherman +Act. This continuing agreement, it is alleged, provides:</p> + +<p>(1) That Alkasso, Calkex, their respective members, <abbr class="spell">ICI</abbr>, +I. G. Farben, and Belgian Solvay not compete with each other +in the sale of alkalis in any market of the world outside of the +United States, and that <abbr class="spell">ICI</abbr>, I. G. Farben and Belgian Solvay +refrain from importing alkalis into the United States;</p> + +<p>(2) That Alkasso, Calkex and their respective members be +assigned certain marketing areas as their exclusive territory (including +the <abbr title="United States">U. S.</abbr>) and that <abbr class="spell">ICI</abbr>, I. G. Farben and Belgian Solvay +refrain from exporting alkalis to such territory and prevent +other European manufacturers from doing so;</p> + +<p>(3) That exclusive market areas be assigned to <abbr class="spell">ICI</abbr> (the +<span class="pagenum" id="Page_203">[Pg 203]</span>British Empire exclusive of Canada), I. G. Farben (Scandinavia), +and Belgian Solvay (Continental Europe exclusive of +the Scandinavian countries), and that Alkasso and Calkex and +their respective members refrain from exporting alkalis to such +territories and prevent other American manufacturers from +doing so.</p> + +<p>(4) That the rest of the world markets be shared jointly by +Alkasso, Calkex, their respective members, and <abbr class="spell">ICI</abbr>, with competition +therein eliminated by allocating quotas to British and +American companies and limiting their exports to certain fixed +percentages of the total sold in such areas and by agreeing +among themselves on the prices at which alkalis are sold in such +markets;</p> + +<p>(5) That Alkasso, Calkex and their respective members prevent +other American manufacturers and dealers from exporting +to joint territory except in compliance with quota and price +agreements fixed for such markets.</p> + +<p>(6) That Alkasso, Calkex, and their respective members +conduct their export trade and utilize the aforesaid arrangements +and their practices thereunder in such manner as to enhance, +stabilize and maintain at uniform and non-competitive +levels the prices at which caustic soda is sold in the United +States.</p> + +<p>It is alleged that the results of this conspiracy have been:</p> + +<p>(1) To eliminate competition by Alkasso, Calkex and their +members with <abbr class="spell">ICI</abbr> and European producers of alkalis in the +manufacture and marketing of alkalis throughout the world;</p> + +<p>(2) To eliminate exports of alkalis by <abbr class="spell">ICI</abbr>, Belgian Solvay +and I. G. Farben to the United States;</p> + +<p>(3) To eliminate exports of alkalis by Alkasso, Calkex and +other American manufacturers to many markets of the world; +<span class="pagenum" id="Page_204">[Pg 204]</span>and to restrict and curtail by quota arrangements the export of +alkalis from the United States to many world markets;</p> + +<p>(4) To eliminate competition by Alkasso and its members +with Calkex and its members in exports of alkalis from the +United States;</p> + +<p>(5) To curtail and limit the production of alkalis within the +United States;</p> + +<p>(6) To prevent competition between manufacturers of alkalis +in the United States (who are not members of Alkasso and Calkex) +and Alkasso, Calkex, <abbr class="spell">ICI</abbr>, Belgian Solvay and I. G. Farben +in world markets;</p> + +<p>(7) To prevent independent exporters of alkalis in the +United States from engaging in the export of such commodities; +and</p> + +<p>(8) To enhance, stabilize and maintain at arbitrary price +levels the prices at which caustic soda is sold in the United +States.</p> + +<p>The Department of Justice sought the abrogation of the illegal +contracts and agreements and a permanent injunction against +the defendants restraining them from violating the Sherman +Act. The Government also asked that the defendants be enjoined +from entering into any future contract, agreement or +understanding with any foreign company in any manner restricting +their exports of alkalis from the United States by division +of export markets, allocation of territories, fixing of prices +in export sales, or fixing or observing any export quotas. The +Government further asked that the domestic defendants be enjoined +from selling alkalis exported from the United States in +any foreign markets through <abbr class="spell">ICI</abbr> (<abbr title="New York">N. Y.</abbr>) or through any agent +or dealer selling alkalis for or on behalf of <abbr class="spell">ICI</abbr> or <abbr class="spell">ICI</abbr> (<abbr title="New York">N. Y.</abbr>).</p> + +<p>Thus, in this case, we allege a conspiracy to restrain the exports +of American competitors; to restrict imports to the United +<span class="pagenum" id="Page_205">[Pg 205]</span>States and thereby restrain trade within the United States; to +curtail and limit production in the United States, and to enhance, +stabilize and maintain price levels within the United +States. These allegations clearly charge a violation of the Sherman +Act. The Webb Act, I am confident, does not protect activities +of this type.</p> + +<p>The allegations in this single instance against a Webb Export +Association raise serious questions of law violation which +cannot be ignored. The suggestion that we are stretching the +Sherman Act by novel interpretation simply does not stand up. +Associations organized under the Webb Act should take warning +that the Alkali case represents the view of the Department +of Justice as to the application of the Sherman Act to the activities +of such associations. The position of the Department is in +accord with the purpose, history and language of the Webb Act.</p> + +<p>It is the policy of the Department of Justice to enforce the +Sherman Act as vigorously as possible whenever evidence establishes +probable violation. The Sherman Act represents a +Congressional policy of more than fifty years’ standing. The +Department of Justice did not create the Act although it has the +responsibility of making it effective. The Department of Justice +does not interpret the Act. That is the task of the courts. +It is true, however, that the attitude of the Department of Justice +toward antitrust law enforcement is predicated, frankly, not +on a passive interest in the matter—a grudging willingness to +perform an unwelcome duty—but on a deep conviction that +Congress is right, and that the public economic policy <span id="TN14">embodied +in the Sherman Act</span> is basically sound.</p> + +<p>So long as the conditions which gave rise to the Webb Act +still exist, the Act, if properly employed, may be useful in promoting +trade within the special and limited domain to which the +Act applies. To meet centralized buying by centralized selling, +<span class="pagenum" id="Page_206">[Pg 206]</span>and to stand up against the exclusionary tactics and monopolistic +practices of well-established foreign cartels is sometimes necessary. +Joint action by American exporters may serve to secure an +equal footing in foreign trade in markets where combination is +permitted or even encouraged. No doubt such retaliatory measures +are wasteful as ways of organizing world trade, and no +doubt we and other nations would be better advised to join +hands in getting rid of international trade restraints, theirs and +our alike. Meanwhile, however, the Webb Act has a use in defending +American interests in markets which are too often cartelized.</p> + +<p>If export associations are to be economically useful in the +postwar world, approved by public policy and serving the purpose +for which they were created, they must be the spearhead of +American industry as it enters into competition with foreign industry +for a fair share of world markets, rather than the tool of +international monopolists to draw American industries into restrictive +cartel agreements which contain provisions in conflict +with the Sherman Act.</p> + +<p>I have given some thought to the question whether the +Webb Act should be tightened—whether additional legislation +should be enacted to assure that possible abuses shall be eradicated. +Some of those who have suggested such legislation apparently +feel that export associations, operating under the cloak +of the Webb Act, may be used to carry American industries into +private international cartels which operate contrary to our public +policy, and that serious consideration should be given now to +legislation that <span id="TN15">would make such abuses impossible</span>.</p> + +<p>But at present, I am not ready to believe that additional legislation +is necessary. Vigilant enforcement of the Sherman Act +against those who misuse the Webb Act together with the understanding +and cooperation of industry will make additional +<span class="pagenum" id="Page_207">[Pg 207]</span>legislation unnecessary and prove adequate to prevent export +associations from becoming screens for illegal cartel activity. +The appreciation by industry itself of the advantage of avoiding +restrictive agreements is an important factor in our future policy. +But if antitrust enforcement should prove ineffectual, and +if the postwar period should be characterized by widespread +misuse of export associations operating under the cloak of the +Webb Act, then, of course, serious consideration will have to be +given to legislation which will end the abuses.</p> + + +<hr class="chap x-ebookmaker-drop"> +<div class="chapter"> + +<p><span class="pagenum" id="Page_208">[Pg 208]</span></p> + + + <h2 class="nobreak" id="13"> + 13 + <br> + <i>Private Governments</i> + </h2> +</div> + + +<p>One of the foremost problems facing our government today +is the formulation of an economic policy for the future. The +development of this policy is the concern of every American and +will affect vitally (1) the domestic prosperity of this country, +(2) our role in world affairs, (3) our national security. I should +like to point out in this connection certain important considerations +which must be taken into account if errors of the past are +to be avoided and progress in the future guaranteed.</p> + +<p>No economic policy adopted by the government can be effective +if the industrial policies of the country in the international +field are determined, controlled, and executed by private agreements +of which the government has no knowledge. The formulation +and conduct of the foreign policy of the United States is +provided for in the Constitution: “[The President] shall have +Power, by and with the Advice and Consent of the Senate, to +make Treaties, provided two thirds of the Senators present +concur.”</p> + +<p>Past history demonstrates clearly that our economic foreign +policy has in many instances been rendered ineffectual by the +operation of secret agreements conceived and ratified by cartels. +<span class="pagenum" id="Page_209">[Pg 209]</span>These agreements admit of no sovereignty other than their own, +and serve no interests other than the shortsighted aims of monopoly. +This has only too often resulted in situations which +have endangered our national security, injured our position in +the world economy, and denied us opportunity for the fullest +use of our resources and labor. Domestically, businessmen have +had to yield to the dictates of large aggregates of power vested +in international cartels. What and how much they might produce, +and to whom and at what price they might sell, have been +decided for them. If they did not yield, they risked elimination.</p> + +<p>Internationally, our foreign policy has in many respects been +frustrated. The Good Neighbor policy governing our relations +with Latin America, the reciprocal trade treaties, our alien property +policy, and other basic principles of America’s conduct of +foreign affairs have in many instances been seriously weakened +by the interference of cartel activities. Indeed, it is difficult to +see how our future policies—for example the Atlantic Charter—can +be executed successfully, if the dispositions made by cartels +continue into the postwar world.</p> + +<p>Cartels will find it difficult to operate if the agreements +upon which they are based are open to public scrutiny and examination. +Any law requiring the filing of international agreements +should operate like the Foreign Agents’ Registration Act. +It should not give immunity to cartels, but should let the government +and the public know of their existence, their identity, +and their scope.</p> + +<p>The cost of secrecy is illustrated by the following examples. +Two very basic raw materials necessary to any industrial community +are petroleum and rubber. The crucial nature of these +materials to our industrial economy and military operations is +clearly apparent. Without them, practically all industrial activity +<span class="pagenum" id="Page_210">[Pg 210]</span>would cease. Yet our oil and rubber supplies have been +dependent upon policies arrived at secretly, operated clandestinely, +and run in a manner contrary to the fundamental foreign +policy of our country. The public had no voice in making +these private policies, yet today it bears the burden of their +effects.</p> + +<p>The very nature of modern warfare and industrial life is such +that both petroleum and rubber have political and military, as +well as economic, aspects. Not all countries have petroleum +within their borders and, prior to the present war, only Britain, +for practical purposes, had rubber. Access to these raw materials +is a prime military requisite to any nation desirous of maintaining +a strong international position. Without them, no nation +could hope to wage a war, maintain a healthy industrial economy, +or impose a treaty of Munich.</p> + +<p>Among Germany’s raw material deficiencies, oil and rubber +have been the two greatest. Within her own borders there is +little, if any, oil, and no rubber. This fact has certainly been a +consideration in the basis of our own as well as the French and +British foreign policy. Hence, the discovery in 1926 that petroleum +could be made from Germany’s plentiful coal was a political +event of the first magnitude. That synthetic rubber became +a reality in Germany shortly afterward served to magnify the +shock.</p> + +<p>The petroleum industry, dominated in this country by Standard +Oil <abbr title="Company">Co.</abbr> (New Jersey), was shaken at its very foundation. +A Standard Oil official, Frank Howard, wrote at the time from +Mannheim, Germany, on March 28, 1926, to Walter Teagle, +president of Standard Oil, the following:</p> + +<p>“Based upon my observations and discussion today, I think +that this matter is the most important <span id="TN16">which has ever faced +the company</span> since the dissolution.</p> + +<p><span class="pagenum" id="Page_211">[Pg 211]</span></p> + +<p>“The Badische can make high grade motor fuel from lignite +and other low quality coals in amounts up to half the weight +of the coal. This means absolutely the independence of Europe +on the matter of gasoline supply. Straight price competition is +all that is left....</p> + +<p>“They can make up to 100% by weight from any liquid +hydrocarbon, tar, fuel oil, or crude oil. This means that refining +of oil will have as a competitive industry in America and elsewhere, +catalytic conversion of the crude into motor fuel.</p> + +<hr class="tb"> + +<p>“I shall not attempt to cover any details, but I think this +will be evidence of my state of mind.”</p> + +<p>Standard Oil was worried about its monopoly position. The +discovery threatened competition and Standard Oil met the +threat.</p> + +<p>The process of making oil from coal was controlled by I. G. +Farbenindustrie, the German chemical trust. In 1926 a meeting +between Standard Oil and I. G. Farben was arranged. The +result was a series of treaties. The agreements preserved the +position of the parties in the fields which they respectively dominated. +As stated by a Standard Oil official: “The I. G. are +going to stay out of the oil business proposition and we are going +to stay out of the chemical business insofar as that has no bearing +on the oil business.”</p> + +<p>Competition between I. G. Farben and Standard Oil was +eliminated, and the technology of chemistry and <span id="TN17">petroleum was +made part of</span> their feudal preserve. The economic effect +was the maintenance of monopoly.</p> + +<p>Stated in a more detailed way, Standard Oil was given the +world right on the oil process and I. G. Farben was given the +chemical business of the world. But there was one exception. +<span class="pagenum" id="Page_212">[Pg 212]</span>While I. G. was given the right to engage in the oil business in +Germany, Standard Oil was permitted to engage in the chemical +business in the United States only as a junior partner to I. G. +The staggering implications of this are clear. Germany could +not afford, considering her aims, to permit any outsider to control +within her own borders as important a development to her +national life as the production of oil from coal.</p> + +<p>But when Standard Oil gave up its rights in the chemical +field, including those in the United States, the repercussions +were to seriously affect our wartime efforts.</p> + +<p>Included in the chemical field was the synthetic rubber, buna. +Under the agreements, therefore, it was a German-controlled +monopoly. When the war broke out in September 1939, the +Germans had not permitted buna to be manufactured in the +United States. We had no experience, information, or know-how, +and we had not obtained permission from Germany to +produce synthetic rubber. Of equal importance is the fact that +the United States Government had no knowledge of these facts. +The terms of the Standard Oil-I. G. Farben treaty were secret.</p> + +<p>When corporations outside the I. G.-Standard Oil orbit attempted +to manufacture buna rubber, they were confronted with +the combined strength, wealth and power of the private coalition. +Goodrich and Goodyear attempted such production, but +the former was sued for patent infringement and the latter formally +threatened with suit by the Standard Oil Company under +the I. G. patents. This took place in October 1941, a few weeks +before Pearl Harbor. Thus, not only did Standard Oil agree +with I. G. Farben that the latter should control the exploitation +of synthetic rubber, but cooperated in preventing anyone +else from producing. In fact, on April 20, 1938, a Standard Oil +official wrote as follows:</p> + +<p>“Until we have this permission, however, there is absolutely +<span class="pagenum" id="Page_213">[Pg 213]</span>nothing we can do and we must be especially careful not to +make any move whatever even on a purely informal, personal +or friendly basis, without the consent of our friends. We know +some of the difficulties they have, both from business complications +and interrelations with the rubber and chemical trades in +the United States, and from a national standpoint in Germany, +but we do not know the whole situation—and since under the +agreement they have full control over the exploitation of this +process, the only thing we can do is to continue to press for authority +to act, but in the meantime loyally preserve the restrictions +they have put on us.”</p> + +<p>On its own, Standard Oil received little, if any, information +on synthetic rubber from I. G. The following quotations from +Standard Oil letters and documents are clear:</p> + +<p>“Our people have never made buna ... the I. G. has not +furnished anyone technical information.”</p> + +<p>“The only information our people have is derived from published +patents.”</p> + +<p>“Information ... about the technical aspects of this development +has not been forthcoming as a result of the German Government’s +refusal because of military expediency to permit I. G. +to reveal such information to anyone outside Germany.”</p> + +<p>The ambiguous position in which Standard found itself arises +from the fact that Standard never considered that it was making +foreign policy, or took into account the political implications of +its acts. We neither expect nor require this of our businessmen. +After all, they are not supposed to have such responsibility. +Nevertheless, neither Standard Oil nor the country could escape +the consequences of these agreements. It would seem, in the +light of this experience, that the least the Government can do is +to provide a mechanism for acquainting itself with the existence +and terms of such agreements. The Government, on the other +<span class="pagenum" id="Page_214">[Pg 214]</span>hand, is unable to make proper judgments if it does not have +complete information.</p> + +<p>The Monroe Doctrine and the Good Neighbor policy are +both pillars of our foreign relations. Nevertheless, many cartel +agreements ran directly counter to these policies. The causes +of conflict are not difficult to understand. In a large number of +cartel agreements, world territory is divided into exclusive, non-competitive +domains. In the drug, magnesium, optical glass, +dyestuffs, plastics and a host of fields, the United States was the +exclusive territory of American cartel members. The rest of the +world was allocated to Germany. This included Latin America. +As a result, the Germans were able to set up economic colonies +in Latin America and elsewhere free from American competition. +The large members of Nazis in South America were a +partial consequence of the character of these agreements.</p> + +<p>When the Nazis came to power in Germany, they immediately +utilized the cartel system as a device for political, as well +as economic, infiltration in countries outside of Germany, particularly +in the Western Hemisphere. A bold assertion of this +policy is set forth in a communication, written in 1933, from a +director of Robert Bosch, A. G., of Germany, to the president +of the United American Bosch Corporation, which states:</p> + +<p>“With regard to the political situation ... only one thing is +very evident, namely, that all forces of administrative and economic +endeavour such as the different cartels, <abbr>etc.</abbr>, are to be +brought into one definite line of endeavour coinciding, of course, +with the policy of the ruling [Nazi] party and that individual +opinions and utterances will be submitted to a similar rule.”</p> + +<p>When the present war broke out, Germany, because of the sea +blockade, was unable to supply goods to Latin America. Cartels +made full provision for the contingency of war. The South +American market was preserved for the German firms by cartel +<span class="pagenum" id="Page_215">[Pg 215]</span>members of other countries, notably the United States. Not +only did American cartel members supply products to the German +agents in South America, in many cases they used German +labels. What is most important, they agreed to withdraw at the +end of the war and once again give Germany a free hand in +Latin America. In some cases, realizing that the blacklist +might make this kind of arrangement difficult, dummy firms +in South America stood ready to replace those blacklisted. +Many instances of efforts by cartels to maintain their usual relations, +and to preserve the restrictions by which German dominance +in South American markets was achieved, are available. +A characteristic attitude is indicated in the statement made by +the head of the Chemical Marketing <abbr title="Company">Co.</abbr>, an American firm, +which had relations with the Deutsche Gold-und-Silber Scheideanstalt +of Germany. In the early period of the war, this +officer of the American company wrote:</p> + +<p>“We insure thereby that the German trade up to the present +with our South and Central American friends can be held firmly +in our hands and, should export from Germany become impossible—as +you yourself can well visualize—the loss would be +much less if for the duration of the war American chemicals +can be delivered, rather than complete loss of business for many, +many years, if we place our clients in such a position that they +can continue to serve their customers.”</p> + +<p>The dyestuffs industry ranks among the most strategic +branches of production. During the first World War, the United +States and the Allies experienced severe and crippling shortages +of dyestuffs, medicines and related products which were +controlled by the German dyestuffs cartel. In the years between +the Armistice in 1919 and the outbreak of the present +war in 1939, the United States endeavored to build up a strong +dyestuffs industry because of its peacetime as well as its wartime +<span class="pagenum" id="Page_216">[Pg 216]</span>importance. The German dye trust, however, succeeded +in re-establishing a substantial and significant degree of control +in this industry through a series of cartel agreements. In addition, +I. G. Farben, through its American subsidiary, General +Aniline & Film, was able to exert direct influence on the dyestuffs +market in the United States. In the many agreements +made between American, British and German dyestuffs producers, +the American companies were generally restricted to the +domestic markets.</p> + +<p>Upon the outbreak of war, when the British blockade threatened +to cut off the exports of I. G., it nevertheless attempted to +insure the maintenance of its control over various markets. The +boldness of I. G.’s tactics is indicated in a cable addressed to +General Aniline & Film on September 19, 1939, which released +that firm from export restrictions for the purpose of supplying +I. G.’s customers and agents in the British Empire. This communication +stated:</p> + +<p>“In addition to Canada we release you from export restriction +in regard to the following countries: Great Britain, British India, +Australia, New Zealand but only for duration of present +state of war and as far as supplies to following firms are concerned.” +[A list of distributing agents within the British Empire +is included.]</p> + +<p>This cable was modified on September 21, 1939, when I. G. +communicated further with General Aniline & Film, stating: +“Replace in first telegram ‘for duration of present state of war’ +by ‘until further notice’ and act accordingly.” Similar arrangements +were made regarding I. G.’s distributing agencies in +South America. This effort on I. G.’s part to circumvent the +British blockade is further illustration of the implications which +inhere in such cartel arrangements.</p> + +<p>The same type of practice was no less significant in other +<span class="pagenum" id="Page_217">[Pg 217]</span>parts of the world. In the winter of 1941, while Congress was +debating the Lend-Lease Act, cartel agreements had already decreed +that certain critical types of products could not be sold to +Great Britain. For example, when Great Britain attempted to +place an order for tetrazene-primed ammunition, a cartel agreement +between du Pont and I. G. Farben forbade their sale, and +it was not made.</p> + +<p>In this case the patent attorney for the Remington Arms +Company, a subsidiary of du Pont, wrote a memorandum dated +January 23, 1941, stating:</p> + +<p>“The further sale of Tetrazene Primed Ammunition to the +British Purchasing Commission or to the Government of the +Union of South Africa or to the Government of Canada is most +undesirable by reason of our Tetrazene contract with R. W. S. +[Rheinische Westfalische Sprengstoff, a wholly-owned subsidiary +of I. G. Farben].</p> + +<p>“Article <abbr title="3">III</abbr>, Paragraph D of the original contract of November +14, 1929, reads as follows: ‘Remington shall not sell +military ammunition containing any Tetrazene in Germany and +in any or all of the countries in the British Empire.’</p> + +<hr class="tb"> + +<p>“There can be little if any question that pistol and revolver +ammunition sold at this time to his Majesty’s Government in +the United Kingdom is military ammunition ... or that such +sale is a sale in a country of the British Empire within the intent +of Article <abbr title="3">III</abbr> D of the contract.</p> + +<p>“We understand that the Process Division have recommended +the use of Tetrazene priming in certain ammunition to be +sold to the British Purchasing Commission. It appears obvious +that this should not be done.”</p> + +<p>Similar situations existed in aviation precision equipment, +<span class="pagenum" id="Page_218">[Pg 218]</span>drugs, and chemicals. Thus, I. G. Farben sought to obtain assurances +from du Pont that information on certain industrial +processes would not be transmitted to the British. On October +4, 1939, I. G. wrote to du Pont, stating:</p> + +<p>“You advise us that for the duration of the war, you will not +pass the experiences and applications which you receive from +one licensee on to another. We thank you for having quickly +taken the necessary steps for meeting the altered conditions.”</p> + +<p>A significant and clear-cut example of the way in which cartel +agreements enabled the German Government to influence the +policies of American cartel partners of German industry is provided +in the case of aviation instruments. In this instance Siemens-Halske, +the great German electrical equipment producer, +wrote to Bendix Aviation Company on October 25, 1939, as +follows:</p> + +<p>“Under our agreement your geographical contract territory +includes the United States, its territories and Canada. A state +of war exists at the present time between Canada and ourselves.</p> + +<p>“Notwithstanding the war we are of course willing to live up +to the agreement as far as possible. However, we would appreciate +receiving your assurance that the records which you will +receive from us within the scope of our agreement will not be +given to Canada for the duration of the war and that you will +supply no instruments, built under a license, if you know that +they are destined for our enemies.”</p> + +<p>An official of Bendix answered:</p> + +<p>“As regards the drawings sent over you may rest assured. +As regards fabrication ... we will arrange to the best of our +ability to keep within the orbit of domestic use.”</p> + +<p>One of the most necessary economic measures of war is the +seizure of enemy property. Although we have a policy concerning +enemy property, the Antitrust Division of the Department +<span class="pagenum" id="Page_219">[Pg 219]</span>of Justice has come across frequent attempts to nullify this +policy by private agreement.</p> + +<p>In one case, I. G. Farben transferred over 2,000 patents to +the Standard Oil Company. While there may be some dispute +as to the purpose of the assignment, the fact is clear. The Alien +Property Custodian, even though he has vested this property, +found himself in litigation as to whether the patents were in fact +transferred in a bona fide manner. Taken together with the provision +in the Standard Oil-I. G. Farben contract, this instance +presents the result of a carefully-conceived and well-developed +policy of not only considering the war as an unfortunate interlude, +but as a method of defeating public policy. The clause +in question provides that even if the agreement should be interfered +with by the government of the United States or if, in +effect, war should take place between the countries of the respective +parties, then at the conclusion of such interruption the +parties shall come to a new agreement “in the spirit of the old.”</p> + +<p>Another phase of the relationships between Standard Oil and +I. G. Farben with respect to the eventuality of war between +the United States and Germany is indicated in a letter written +by the Assistant Comptroller of Standard Oil to one of the +directors of the company, on September 8, 1939. The body of +this letter deals with the Standard-I. G. Corporation, a joint +subsidiary in which Standard Oil owned 80% and I. G. 20%, +which had been formed to carry out the purposes of the Standard +Oil-I. G. agreements. Standard Oil was considering the +purchase of I. G.’s holdings in this subsidiary company. One +paragraph in the letter indicates clearly the objective which +Standard Oil sought. This paragraph states:</p> + +<p>“Of course what we have in mind is protecting this minority +interest in the event of war between ourselves and Germany as +it would certainly be very undesirable to have this 20% interest +<span class="pagenum" id="Page_220">[Pg 220]</span>in Standard-I. G. passed to an Alien Property Custodian who +might sell to an unfriendly interest.”</p> + +<p>Another case shows how devious and complex cartel schemes +can be. Briefly, the Siemens-Halske Company of Germany and +the Beryllium Corporation of America entered into an agreement +concerning the production and distribution of beryllium +alloys which had all the usual characteristics of a cartel, such +as the division of world territory, <abbr>etc.</abbr></p> + +<p>Before this highly interesting agreement was entered into, +however, Siemens-Halske attempted to protect its position by +assigning its patents in this field to the Metal & Thermit Company +of New York. Actually these patents were held by Metal +& Thermit in escrow for the Siemens-Halske Company. For +this service, the Metal & Thermit Company received $10,000.</p> + +<p>Without such a bill as is now contemplated, no Alien +Property Custodian could have known that the above patents +were really property of an enemy national. They would have +remained concealed in this instance if it had not been for the +fortuitous action of an investigation by the Department of Justice.</p> + +<p>The titanium and optical goods cases previously related are +other examples of this practice.</p> + +<p>The development of the magnesium industry in the United +States provides further illustration of the political effects of +cartels in addition to the corrosive effects of monopoly upon +industrial expansion. From an international standpoint the cartelization +of the magnesium industry prior to the outbreak of +the present war had equally serious effects. As a consequence of +both monopoly and international cartel arrangements in the industry, +Germany obtained an initial lead in the production of +magnesium while at the same time Germany’s potential opponents +were restricting magnesium output. According to estimates +<span class="pagenum" id="Page_221">[Pg 221]</span>made by the <abbr title="United States">U. S.</abbr> Bureau of Mines, Germany produced +61% of the world’s total output of magnesium in 1937. The +United States produced 10%. In 1940 Germany was still producing +one-half of the world’s output while the United States +was producing about 14%.</p> + +<p>The importance of magnesium is indicated by the uses for +which it is employed. In general, its principal consumer is the +aircraft industry. Magnesium is used in the construction of +aircraft engines, the frames of airplanes, various interior parts, +wheels, and other similar portions of aircraft. Magnesium is +also employed in the manufacture of incendiary bombs, tracer +bullets, and flares.</p> + +<p>The two principal producers in this country during the years +1919 to 1927 were the Dow Chemical Company and the American +Magnesium Company, a subsidiary of the Aluminum Company +of America. In 1927, the American Magnesium Company +ceased production, and the Dow Chemical Company thereafter +enjoyed a monopoly in the production of magnesium in the +United States. The American Magnesium Company by agreement +purchased all of its requirements from Dow and constituted +Dow’s largest customer. In tracing the relationship between +Dow, the sole producer of magnesium, and Alcoa, the +sole producer of aluminum, during the period in question, it is +essential to bear in mind that magnesium is the principal technological +rival to aluminum. Nearly all of the functions for +which aluminum is employed can also be fulfilled by magnesium +with greater efficiency, in many instances, because magnesium is +not only one-third lighter than aluminum, but is more readily +machined and, when properly alloyed, has greater tensile +strength.</p> + +<p>In the year 1931, I. G. Farbenindustrie, the principal producer +of magnesium in Germany, entered into an agreement +<span class="pagenum" id="Page_222">[Pg 222]</span>with the Aluminum Company of America known as the Alig +Agreement. According to the terms of this contract, a joint +corporation, the Magnesium Development Company, was +formed in which Alcoa and I. G. each held 50% control. The +Magnesium Development Company was primarily a patent-holding +corporation to which I. G. transferred some patents +for the fabrication of magnesium and to which Alcoa contributed +process patents. In addition to participating in the Magnesium +Development Company, I. G. also obtained a 50% interest in +Alcoa’s own subsidiary, the American Magnesium Company.</p> + +<p>The significance of the arrangements between Alcoa and I. G. +was twofold: Alcoa was interested in obtaining a secure foothold +in the magnesium industry in order to protect its primary interest +in aluminum; I. G. was endeavoring by its usual tactics +to extend the sphere of its influence. It is especially significant +to note that in the Alig Agreement it was stipulated that any +licenses issued by the jointly-owned Magnesium Development +Company were to be restricted to the United States. It was +also provided that:</p> + +<p>“As long as magnesium is produced by any ... producing +company under a license or licenses granted ... the holders +of the I. G. shares in Alig ... shall have the right to limit +the increases in production capacity of every such producing +company after the initial contemplated production capacity shall +have been reached. The initial contemplated production capacity +shall in no case be more than 4,000 tons per annum.”</p> + +<p>Dow Chemical Company was not a party to the 1931 agreement +between Alcoa and I. G. During the period immediately +following the Alig Agreement, every effort was made to bring +Dow into the cartel picture, with the consequence that, on January +1, 1934, Dow entered into a patent-holding agreement with +Magnesium Development Company. In 1933 also Dow and +<span class="pagenum" id="Page_223">[Pg 223]</span>American Magnesium Company had entered into a five-year +purchase contract by which the American Magnesium Company +was guaranteed a position as a preferred customer of Dow. In +return, Dow’s position as the sole producer of magnesium was +protected.</p> + +<p>In 1934 also Dow entered into a sales contract with I. G. +Farben. This contract stated:</p> + +<p>“Dow agrees to confine its sales in Europe solely to the I. G., +with the exception that it reserves the right to sell the British +Maxium or its successors not more than 300,000 pounds (150 +tons) per annum at a price not lower than the price quoted to +I. G. for the same quantities, plus an extra charge of not less +than 4¢ per pound for I. G.’s larger consumption. Dow further +promises to use its best endeavor to keep British Maxium or its +successors from reselling magnesium in ingot form and will try +to limit its purchases to its own use in fabricating.”</p> + +<p>During 1934 and 1935 Dow delivered to I. G. (which was, +of course, the principal producer of magnesium in the world) +more than 3,800,000 pounds of magnesium out of Dow’s total +production of little more than 4,000,000 pounds. This magnesium +was sold to I. G. at a price approximately 30% below +the price to Dow’s other customers, with the exception of American +Magnesium Corporation, which also enjoyed a preferential +position. It is interesting to note that, during this same period, +the sales manager of Dow Chemical travelled to England and +wrote to his home office as follows:</p> + +<p>“They [British Maxium] are very much in need of additional +magnesium for the balance of 1935, but they understand +our position perfectly well and do not blame us at all because +we are not in a position to furnish them the metal they want. +They were at fault in not getting in touch with us sooner regarding +their increased demands. They advised me that they +<span class="pagenum" id="Page_224">[Pg 224]</span>had exported 20 tons of ingot to Europe but I later obtained +definite proof from <abbr>Mr.</abbr> Ziegler of the I. G. that they had exported +60 tons in Europe. If they had kept this metal in England +they would have had sufficient supplies for this year.”</p> + +<p>It may be remarked that, in consequence of these arrangements +between Dow and I. G., I. G.’s position in the European +magnesium market was enormously strengthened. One particularly +significant result of I. G.’s dominance was that Great +Britain was rendered primarily dependent upon Germany for +its magnesium imports. As late as 1938, 87.9% of the magnesium +imported into Great Britain was obtained from Germany. +When war broke out, Great Britain was at once cut off +from a large part of its magnesium supply.</p> + +<p>From the standpoint of the development of the industry in +the United States, it is clear that the total effect of the arrangements +among Alcoa, I. G., and Dow was to restrict magnesium +production. The extent of the disparity in the magnesium output +of Germany and the United States is clearly evident in the +production figures for the years 1937 to 1940. In 1940, the +year in which France fell, the United States produced 5,680 +tons, while Germany produced more than 19,000 tons. Strenuous +efforts on the part of the government and industry have +been necessary to expand magnesium production sufficiently to +meet our minimum wartime needs. The large plant construction +undertaken by the government in cooperation with various +magnesium producers has achieved initial success. It is clearly +evident, however, that the magnesium program had to be inaugurated +and carried out under the tremendous handicap of +the monopoly situation which existed in the industry prior to +the war.</p> + +<p>It is equally clear that, from a political standpoint, the government +began its operations completely in the dark. It is +<span class="pagenum" id="Page_225">[Pg 225]</span>scarcely credible that, had the arrangements between Alcoa and +I. G. and between Dow and I. G. been known to the government +at the time at which they were made, the risks inherent +in the private treating making of this type would have been permitted +to stand.</p> + +<p>It is characteristic of many cartel agreements which are +arrived at secretly and maintained in silence that concealment of +their provisions is motivated by the desire to avoid scrutiny of +their operations by public authority. In some instances, the +illegal nature of the terms of cartel agreements explains the +cloak of secrecy which is cast over their provisions. Moreover, +it is often stipulated in cartel agreements that, in any eventuality +of action taken by government, the parties to the agreements +shall cooperate in order to maintain their relationships despite +anything that government may do.</p> + +<p>There are numerous examples among the many agreements +which have been investigated by the Department of Justice +which clearly reveal the intent as well as the necessity for secrecy +from the point of view of the cartels. Thus, in a letter from +Canadian Industries, Limited, to the du Pont Company, the +writer states:</p> + +<p>“In the course of recent meetings in connection with the new +Patents and Processes Agreement, I understand a suggestion +has been made by the du Pont legal representatives which will +involve the new agreement making specific reference to the +respective territorial rights of du Pont and <abbr class="spell">ICI</abbr>. I cannot help +feeling that on broad grounds this is undesirable both from the +viewpoint of <abbr class="spell">C-I-L</abbr> and of the major stockholders. For instance, +should any investigation take place in Canada which will require +the production of this agreement, the clause in question would +automatically necessitate the production in its term of the <abbr class="spell">ICI</abbr> +and du Pont agreements: at least that is the way we would read +<span class="pagenum" id="Page_226">[Pg 226]</span>it, and this would be bound to lead to publicity of a very undesirable +nature in regard to the division of world territories. +My practical suggestion is that, as the detailed prior commitments +are now to be dealt with in the form of a letter separate +from the agreement (this at the suggestion of the du Pont legal +representatives) it might be possible to include the point in +question in that separate letter also.”</p> + +<p>The attitude of cartels toward the relation between their own +policies and the policies of government are epitomized in the +exchange of correspondence between Sir Harry McGowan, +Chairman of the Board of Imperial Chemical Industries, and +Lammot du Pont in May 1933. Sir Harry wrote:</p> + +<p>“With a large organization such as we have I find it is a +good thing to issue such warnings from time to time—one went +out at the time of the Ottawa Conference—so that everything +possible is done to ensure that no prospective political or legislative +action on the part of governments is permitted to influence +relations between du Pont and <abbr class="spell">I.C.I.</abbr>”</p> + +<p>On June 17, 1933, Lammot du Pont replied as follows:</p> + +<p>“I am much interested in what you say and have heartily +approved your attitude toward our Patents and Processes Agreement +and the relations between the two companies. I feel the +same; namely that our relations have been so happy and have +produced such satisfactory results that we should let nothing in +the way of international agreements interfere in any way with +the progress we have made or may make in the future. If any +legislation or international agreements are brought about which +affect these <abbr class="spell">I.C.I.</abbr>-du Pont relations I am sure we will be able +to adjust ourselves so as to get the continued benefit of our +agreement.”</p> + +<p>A striking and instructive illustration of the role of secrecy +in cartel agreements is provided in the terms of an arrangement +<span class="pagenum" id="Page_227">[Pg 227]</span>concerning the pharmaceutical industry, between the Schering +Corporation of Bloomfield, New Jersey, and the Schering, A. +G., of Germany. One clause in this agreement, which was made +in 1938, stated that “the existence, the content, and the details +of operation of this agreement have to be kept secret by both +parties notwithstanding the possible obligation of disclosing it +to public officials.”</p> + +<p>In connection with an agreement concerning the plastics industry, +the consideration taken into account by the Rohm & +Haas Company and du Pont are indicated in a memorandum +written by the latter company in 1936, in which it is stated:</p> + +<p>“We discussed the whole situation again. They repeated over +and over again that there is not the slightest possibility of the +<abbr class="spell">I.C.I.</abbr>’s coming into the American market, but du Ponts are +afraid to write a letter to this effect because in the case of an +investigation of their firm by politicians, the politicians might +make capital of such a statement, <abbr>i.e.</abbr>, they might attempt to +point out that the world was divided up between <abbr class="spell">I.C.I.</abbr> and +du Ponts.</p> + +<p>“I told <abbr>Mr.</abbr> Wardenburg that I had implicit faith in all the +assurances which they had made to me, but that for my own +protection I had to have a letter from du Ponts, in which they +can assure us, in one way or another, that the <abbr class="spell">I.C.I.</abbr> will not +take the opportunity to come into this market. After a lengthy +discussion of the different ways to accomplish this purpose, it +was agreed that <abbr>Mr.</abbr> Wardenburg will write a letter saying that +while it is true that the <abbr class="spell">I.C.I.</abbr> under their contract have a right +to come into the American market, they [du Ponts] happen to +know that the <abbr class="spell">I.C.I.</abbr>’s development in the methacrylic ester +field has taken a direction which is quite different from the one +that is being taken by du Ponts and ourselves, so that it will be +highly improbable that the <abbr class="spell">I.C.I.</abbr> will attempt to come into the +<span class="pagenum" id="Page_228">[Pg 228]</span><abbr title="United States">U. S.</abbr> market. I told him that such a letter will be satisfactory.”</p> + +<p>It is clear that cartel interests fear that the revelation of the +provisions of their agreements might impede the functioning of +the agreements or perhaps draw down upon them action by +public authority. Very often cartel agreements endeavor to +discount this possibility in advance. In the case of the agreements +between Standard Oil and I. G. Farbenindustrie it is +provided that:</p> + +<p>“It is our understanding ... that each party proposes to hold +itself willing to take care of any future eventualities in a spirit +of mutual helpfulness particularly along the following lines: +In the event the performance of these agreements ... by either +party should be hereafter restrained or prevented by operation +of any existing or future law, or the beneficial interests of either +party be alienated to substantial degree by operation of law or +governmental authority, both parties should enter into new +negotiations in the spirit of the present agreements and endeavor +to adapt their relations to the changed conditions which +have arisen.”</p> + +<p>Because most cartel agreements provide for their resumption +at the end of the present war, efforts to rehabilitate world trade +may be insuperably handicapped unless prompt and effective +action is taken by the government with full knowledge of the +existence and character of such cartel agreements. Regardless +of the particular form or direction of this nation’s trade policies +after the war they could not become effective if secret agreements +among the large industrial groups of the world contain +arrangements which clash with the government’s program.</p> + +<p>It is well to recall that the provisions of the Versailles Treaty +at the end of the first World War which prohibited the manufacture +of certain strategic products in Germany were rendered +ineffective in many instances. Through foreign subsidiaries and +<span class="pagenum" id="Page_229">[Pg 229]</span>under the cloak of cartel agreements with concerns in the United +States and other countries, German producers of military equipment +were able to nullify the application of the conditions imposed +by the Treaty.</p> + +<p><span id="TN18">Public authority must not be left</span> in the position of having +to work in ignorance. Only by compelling the official acknowledgement +and registration of the existence and provisions of +agreements which affect our foreign and domestic commerce can +government acquaint itself with the arrangements which have +been made and which affect so vitally <span id="TN19">national security and national +welfare</span>.</p> + +<p>During the present war one of the most serious problems +with which the fighting services have had to contend on the +battle fronts is the frequency of malaria, one of the most widespread +diseases in the world. There are two standard remedies +for malaria: one is quinine, a natural product obtained from the +cinchona trees of Java; the other is atabrine, a synthetic coal-tar +product. Because the production and distribution of quinine +were controlled by one of the most closely-knit cartels in existence, +a shortage developed almost immediately when the +Japanese seized Java. The dwindling stockpile of quinine in +the United States compelled the government to call upon druggists +and housewives alike to turn over whatever small quantities +were on hand in order to keep the fighting front supplied.</p> + +<p>In the case of atabrine, only one company in the United States +had a license to manufacture the drug under the I. G. Farben +patents. It required the concerted effort of manufacturers and +government to institute expanded production in order to +make up for the deficiencies of quinine. Fortunately, these efforts +have met with some success. With regard to the future, +however, it must be borne in mind that cartels which are able +to control and restrict the output of medical products, in particular +<span class="pagenum" id="Page_230">[Pg 230]</span>those which are so widely needed, as quinine and atabrine, +exert a direct influence on the military position of the United +States and other countries, as well as upon the general health +of the population. The opportunities for abuse which are present +in monopolistic control of medical products are obvious. It +is equally obvious that this government cannot afford to tolerate +them. It would seem a minimum precaution to require that +where cartels control the supply, the price, and the distribution +of medical products, they should be compelled to record the +terms on which control is based, in order that government might +in its turn develop adequate safeguards for the general welfare.</p> + +<p>I believe it has been clearly demonstrated that certain fundamental +decisions affecting our relations with the rest of the +world have been formulated and put into effect by private +groups without the sanction or knowledge of government. These +decisions concerning our strategic materials, industries and trade, +our Good Neighbor and our European policies, our disposition +of enemy property, considerations of espionage, secrecy and the +evasion of our laws, have all been accomplished without the +knowledge of our government or its acquiescence.</p> + +<p>If cartels are permitted to continue to enter into their secret +agreements, then it will be impossible for the peoples of the +world to develop mutual understanding or to share industrial +experience and progress. Cartels have been a focus of conspiracy +and distrust among nations in the past. It is not too much to +say that they will form a nucleus of future distrust and intrigue. +A world partitioned by cartels breeds economic friction and disunity. +We must face the fact that a cartelized postwar world +would inevitably be a world of suspicion and of clandestine international +intrigue. Full reciprocity in respect of trade and +technology can only be founded on mutual confidence and good +faith.</p> + +<p><span class="pagenum" id="Page_231">[Pg 231]</span></p> + +<p>There is current a school of thought which believes we must +differentiate between good cartels and bad cartels. Do these +people still propose to leave the conduct of our foreign economic +policy in the hands of private monopolists, with the one +caveat that these people be good monopolists and not bad monopolists? +With all the best intentions in the world, it is neither +the role nor the responsibility of businessmen to determine political +questions which can only be resolved by constituted government. +This is a responsibility which I believe businessmen +should not undertake, and one which I believe that they do not +wish to undertake. Even those businessmen who have <span id="TN20">engaged +in these practices</span> would be shocked to realize the implications +of their acts. At the time they were operating in this manner +they never thought in political terms, but rather in terms of +the local market. Once operating in the international market, +however, these businessmen found themselves in ambiguous +positions where they were forced to make choices which they +never contemplated. What would they do when confronted +with the problem of choosing between national policy as it +should be and their own private interests? It would seem, from +the standpoint of public interest, that when questions of national +concern arise they should be handled by properly constituted +government authority.</p> + +<p>American businessmen have not realized the significance of +the relationship between their foreign cartel partners and the +foreign governments involved. I doubt that they knew, for +example, that the following statement was made by <abbr>Mr.</abbr> Meinhardt +of Osram, a member of the international lamp cartel: “An +international cartel has no right of existence and a German businessman +has no right to become a member of such a cartel if +this cartel is acting against the common interests of Germany.”</p> + +<p>The attitude of American businessmen is typified in the following +<span class="pagenum" id="Page_232">[Pg 232]</span>statement by an executive of the General Motors Company: +“an international business operating throughout the +world, should conduct its operations in strictly business terms, +without regard to the political beliefs of its management, or +the political beliefs of the country in which it is operating.”</p> + +<p>All American businessmen and the Congress particularly +should weigh with care the type of thinking which results from +a cartelized economy such as Germany’s. Carl Duisberg, formerly +chairman of the board of I. G. Farbenindustrie, expressed +succinctly the philosophy of Germany’s cartel system when he +said, in 1932: “The narrowness of the national economic territory +must be overcome by trans-national economic territories.... +For a final settlement of the problem of Europe ... a +close economic combine must be formed from Bordeaux to +Odessa as the backbone of Europe.” The ultimate consequences +of such cartel aims have been reckoned across the council tables +of Munich and the battlefields of Europe and Asia.</p> + + +<hr class="chap x-ebookmaker-drop"> +<div class="chapter"> + +<p><span class="pagenum" id="Page_233">[Pg 233]</span></p> + + + <h2 class="nobreak" id="14"> + 14 + <br> + <i>Freedom or Control?</i> + </h2> +</div> + + +<p>All of us want our country to be strong and prosperous after +this war is won. In attaining strength and prosperity, foreign +trade will play an important part. Manufactured goods will +leave the shores of this country and will find their way through +the miracle of new forms of transportation, as well as on the +tramp steamer, to the four corners of the world. Raw materials, +and finished products as well, will come from these same four +corners into the hands of the American consumer. The foreign +trade of this country will be measured in billions of dollars. +And our nation will take its place and play its part in what +we believe can be a healthy world economy.</p> + +<p>I do not think that there is any basic difference of opinion in +this country as to the importance of our foreign trade. There +appears to be some difference of views, however, as to how our +foreign trade shall be conducted in the post-war world. It is +argued that since Europe has a cartel system, if we wish to +carry on trade on commerce with Europe or in the world, we +must permit our foreign businesses to become cartelized. We +are told, in short, that we must join hands with the cartels if +we are to engage in foreign trade. Most of the people who +<span class="pagenum" id="Page_234">[Pg 234]</span>make this argument do so regretfully. They know that the +Sherman Antitrust Act, which prohibits restraints on both domestic +and foreign trade or commerce, has reflected the free +enterprise spirit of this country for more than fifty years. They +know that the people of this country are unalterably opposed to +a cartel system under which either the government or one’s +competitors can determine what may be manufactured, how +much can be made, and what price may be charged. They know +that you cannot have a democratic system if enterprise is to be +subjected either to government bureaucracy or to the rule of +private trade councils. Nevertheless, these people, seeing a cartelized +world around us, believe that much as we may dislike +it, we cannot conduct foreign trade unless we join hands with +the cartels.</p> + +<p>There is a small minority in this country, of course, which +has always opposed our own free enterprise system. If these +people could manage it, they would have the economy of this +country run by enlightened and benevolent monopolists. These +people make the argument, not at all regretfully, that we must +join hands with foreign cartels. They know that once we have +joined hands with foreign cartels, we will have opened the door +to monopoly at home, and that is what they want.</p> + +<p>Let me venture a prediction. This country will engage in +foreign trade and commerce on a scale never before imagined, +and we are not going to join hands with any foreign cartels. +There will be a drive to get us into the foreign cartels; that +drive in fact is now going on. It will fail. It will fail for two +good reasons. The first of these is that our foreign trade would +not be helped in the least if we joined with the cartels. The second +and even more important reason is that this country is in +no mood to give up an American way of life because Europe +believes in cartels.</p> + +<p><span class="pagenum" id="Page_235">[Pg 235]</span></p> + +<p>We have been willing to subject ourselves to all kinds of +governmental controls over American business in order to win +this war. When the war is over, these controls must go, and as +soon as possible. We are not going to keep these controls either +in the hands of the government or in the hands of a few private +individuals. We are not going to imitate the very foreign economic +system which we have defeated.</p> + +<p>The monopolist tells us that European industry is cartelized +and that it will remain so after this war is over. What kind of +wishful thinking makes the monopolist so sure of that? I do +not believe that the French or the Belgians will wish to embrace +an economic system after this war is over which took their basic +industries and put them into the hands of an international set +of cartelists dominated by the Germans. I do not believe that +the British will wish to encourage a system which in March +1939 gave birth to the announcement between the Federation +of British Industries and the German Reichsgruppe Industrie +that the two groups would eliminate competition between British +and German industries, would fix prices, and would seek +the aid of their governments against the industry of any third +country, clearly meaning the United States, which did not join +in this limitation of production plan. Great Britain needed its +own full production in those days, and American production +as well. I do not believe, for that matter, that the British will +wish to have an economic system which has made the British +consumer pay high prices and has restricted production in both +Great Britain and the Dominions.</p> + +<p>It is clear, of course, that in each country of the world, there +are a few monopolists who will benefit from the cartel system. +We have them in our country also. But we are not going to +let these few determine our own economic life, and we should +not let them control our attitude or actions in Europe. Certainly +<span class="pagenum" id="Page_236">[Pg 236]</span>it is too early to predict that Europe will remain cartelized after +this war. I think it is not unlikely that the consumers of Europe +will decide they have had enough of that system and will demand +a change.</p> + +<p>But no matter what Europe does, our foreign trade will not +be helped in the least by our joining foreign cartels. The very +reverse is true. The way to kill American foreign trade is to +have American producers enter into international cartels. One +reason for the current drive to get American firms into foreign +cartels is precisely that. There are a few monopolists who do +not look with favor upon sales by American firms in the rest of +the world. They are terrified that our mass production methods +may benefit consumers in the rest of the world. They will not +be able to maintain their own prices if this should occur. Their +invitation for us to join them in cartel agreements is not an +invitation to engage in trade or commerce; it is an invitation +to discover upon what terms and conditions we will keep our +trade at home.</p> + +<p>The record is very clear. A small number of powerful +American firms entered into illegal cartel agreements before +the war, particularly in the halcyon days of the twenties. These +were agreements to restrict American exports. Typically, the +American firms agreed not only not to export themselves but +wherever possible to keep other American firms from exporting. +These agreements occurred in synthetic nitrogen, aluminum, +magnesium, optical glass, electric lamps, pharmaceuticals, +plastics, chemicals and a host of other items. It is quixotic to +think of these agreements as having promoted foreign trade; +their whole purpose was to prevent it. Where was our foreign +trade when these firms agreed to turn over the Latin American +market in pharmaceuticals to the Germans? What foreign trade +was being promoted when we agreed not to export to Great +<span class="pagenum" id="Page_237">[Pg 237]</span>Britain more than a limited quantity of magnesium? The underlying +philosophy of these agreements was that if the foreign +firms would stay out of the American market, we would stay +out of the foreign market.</p> + +<p>There is no mystery about this. The monopolists know it +very well as do the other American companies, large and small, +who were not permitted to export because if they did so, they +would interfere with the arrangements to keep trade and commerce +from flowing in either direction across the borders of this +country. The reasoning is clearly set forth by an official of an +American company in explaining why his company cannot +export:</p> + +<p>“... you spoke of a possible license from the <abbr class="spell">G.E.</abbr> to export +lamps to certain countries. I don’t know whether I explained +the situation to you, but the fact is that in the world at large, +the more important electrical interests, such as the <abbr class="spell">G.E.</abbr>, Siemens +of Germany, Phillips of Holland, <abbr>etc.</abbr>, are closely bound +together in a cartel with the result that they have entered into +binding agreements, apportioning world markets between the +respective companies. Accordingly you can see that if the <abbr class="spell">G.E.</abbr> +broke their agreement and allowed us to export into a foreign +country which was assigned under the cartel agreement to a +European manufacturer, that European manufacturer would +have a claim to enter the American market in competition with +us and probably could not be restrained from doing so. This +is something which would probably not be to our advantage.”</p> + +<p>One might as well urge that a railway wreck promotes transportation +as to urge that a cartel agreement promotes trade.</p> + +<p>The cartelist lives in a land of make-believe. I do not suppose +that we can object to anyone having his own private fairy +tale, but this kind of fairy tale can be dangerous to the future +peace and security of this country. It is a self-perpetuating fairy +<span class="pagenum" id="Page_238">[Pg 238]</span>tale. It is founded on economic maladjustments and it tends +to prolong these maladjustments by collecting a hidden tax +from consumers and by donating the proceeds to monopolists +who have no incentive to change their ways. The consequences +can be disastrous in both the military and the political sphere. +As for our own economic life, international cartels breed domestic +monopolies. Their final result is complete government +control and management of business.</p> + +<p>The cartelist appears to believe that the way to engage in +foreign trade is to have a conference—a kind of Alice in Wonderland +mad tea party. At this conference the world is divided +up; markets are allocated; and, if he is fortunate, an American +enterpriser will be given some business. At the end of the +conference he can telephone his office and say “Men, we have +been given the Shangri-La market; it’s all ours.” Sometimes +the cartelist sounds as though he were too lazy to attend the +conference himself. He wants his Government to go for him. +He wants the Government to tell him what to do, what markets +he can have, and what he can sell. One gets the impression that +foreign trade is conducted in an armchair, that it is better if +you can get the Government to do it for you, and that it does +not make much difference what you have to sell.</p> + +<p>This kind of thinking is dangerous. It is a denial of the principle +of private property with the profit reward for private +initiative and risk taking. Foreign trade presents special problems, +but it is none the less true in foreign as well as in domestic +trade that if you want to sell you have to make a product the +consumer wants to buy. In the development of the foreign +market there is no panacea, no easy substitute for ingenuity and +efficiency. We cannot expect the foreign consumer to adjust his +desires to whatever it is we want to sell. We have to make the +kind of a product he wants to buy. The truth of the matter is +<span class="pagenum" id="Page_239">[Pg 239]</span>that many of the large concerns that have made cartel agreements +have not been particularly anxious to sell in the foreign +market. They have been more anxious to keep independent +enterprise in this country from gaining access to foreign markets +than they were to sell themselves. As a consequence we must +frankly admit that in many industries, American enterprise has +not shown the competitive alertness it has at home. If it does +not show competitive alertness, it does not deserve the business. +And you cannot find a substitute for competitive alertness in an +armchair cartel conference or even in an intergovernmental +cartel conference.</p> + +<p>The cartel conference is a kind of legislature, imposing hidden +taxes on consumers and bestowing bounties on others, without +the necessity for disclosure or responsibility to any electorate. +It is truly a method of imposing taxation without representation. +This is true in every cartel case. Some time ago it +was fashionable to scoff at international relief or development +projects as being international <abbr class="spell">WPA</abbr>s. Americans were asked +rhetorically whether they wished to take care of inhabitants on +some other portion of the globe. But no relief scheme has ever +been imagined, and no one would dare to present it, which could +begin to compare with the international relief societies maintained +for themselves by the international cartels. Gigantic sums +are drained from the American consumer each year and given +outright to domestic monopolists and to foreign companies operating +in protected markets. When it is urged that American +companies should be allowed to join with foreign cartels in +order to promote foreign trade, it should be remembered that +what is there called foreign trade is in reality a gigantic relief +enterprise supported by the American consumer. I can illustrate +this with an example taken from one of our earliest cartel cases.</p> + +<p>The story begins prior to the First World War with the +<span class="pagenum" id="Page_240">[Pg 240]</span>discovery and development in Germany of a way of making +synthetic nitrate of soda by taking nitrogen out of the air. Prior +to that discovery, the world was dependent upon Chile for its +nitrate of soda for use in both fertilizer and the making of +munitions. The discovery of this new way of making nitrate of +soda changed the history of the world for it made it possible for +the Germans to wage war without depending upon a raw material +to be found only in the Western Hemisphere. It is probable +that if synthetic nitrogen had not been discovered, the +Germans could not have been able to go to war.</p> + +<p>The Allies at that time were dependent upon Chilean nitrate +of soda, and as a military matter, this dependence made the +Allied position in the first years of the war exceedingly precarious. +The Germans knew that Great Britain could not stay +in the war for any considerable length of time if it were cut +off from its only source of nitrogen, and accordingly in 1917, +the Germans set up a blockade outside of Valparaiso. The first +attempt of the British to break this blockade was unsuccessful, +but the blockade was finally removed as a result of the battle +of the Falkland Islands when Admiral Von Spee was defeated. +As an economic matter, this dependence of the Allies upon +Chilean nitrate of soda was, of course, good for Chile. The +United States in 1917 and 1918 purchased almost four million +tons of nitrate from Chile; we paid on the average of about +$82.50 per ton. At one time, the price rose to $150.00 per ton. +In those days, Chile had a unique product, a natural monopoly, +and we had to pay for it. The First World War gave to Chile +the chance to receive large revenues on a valuable asset, but the +First World War also created a situation where in the days to +come that asset would depreciate enormously.</p> + +<p>The asset of Chilean nitrate of soda was depreciated enormously +because all of the important countries of the world, +<span class="pagenum" id="Page_241">[Pg 241]</span>including our own, began to produce synthetic nitrate of soda. +Chile no longer had a natural monopoly safe from effective +competition. The producers of synthetic nitrate of soda began +to compete with each other and with the Chileans. In order +to remove this competition they formed a cartel.</p> + +<p>The cartel was formed in 1926 and by 1938 it had reached its +full growth. The cartel was dominated in Europe by the so-called +<abbr class="spell">DEN</abbr> group, composed of Imperial Chemical Industries, +<abbr title="Limited">Ltd.</abbr> for the British, Stickstoff-Syndikat, controlled by I. G. +Farbenindustrie for the Germans, and Norsk Hydro for the +Norwegians. The European end of the cartel formed an international +company in Switzerland to handle the cartel affairs, +and thus to represent the thirty-five principal European producers. +By special agreements the cartel was extended to cover +the Chilean producers of natural nitrate, and I am sorry to say, +the important American producers as well. The cartel was an +international combination to restrict production, maintain prices +and to allocate territories. The world was divided up into special +zones of influence; quotas were assigned, and sales in forbidden +areas or above the allowed quota resulted in the assessment +of penalties. Mexico, for instance, was allocated to the +German producers. The American producers were required to +refrain from exporting to certain areas. The Barrett Company +could not sell substantial quantities of nitrate of soda into foreign +markets reserved for the Chilean producers. Du Pont +was kept from selling a nitrogenous product in the Philippine +Islands. This was not an international trade agreement; as is +true with all cartel agreements, this was an agreement to +restrict trade.</p> + +<p>The cartel agreements covered the American market. Imports +by a foreign company to this country had to be included +in determining whether that company had exceeded its quota +<span class="pagenum" id="Page_242">[Pg 242]</span>of the world market. American companies were restricted in +their exports and to some extent in their production. And sales +in the American market, whether for Chilean, European or +American producers were at agreed upon prices. An elaborate +system of distribution was worked out and adhered to so that +these agreed upon prices could be maintained down through +the wholesalers and retailers. The cartel thus reached down and +touched the American farmer buying in the country store.</p> + +<p>Now nitrate of soda is important to the American farmer as +are the other fertilizer nitrogen products which were covered +by this cartel. In 1937, approximately 700,000 tons of nitrate +of soda were imported from Chile for distribution to the American +farmer. If there is a cartel in fertilizer nitrogen, it is the +American farmer who pays. And he has paid in millions of dollars—a +hidden tax to the foreign and domestic producers.</p> + +<p>Production was restricted and prices were fixed by this cartel. +Some of the higher prices went to Chile; some of them went +to our own producers and abroad. The consumer, who in this +country happened to be the American farmer, paid a tax in the +form of higher prices to keep this cartel going. He did not +know he was paying this tax. He did not have the opportunity +to elect a representative who might have been for or against +this tax. And yet, out of every dollar the farmer paid, a part +of it was an involuntary offering to the cartel.</p> + +<p>And what was the good from all of this? A hidden tax was +collected; purchasing power was destroyed. And all of this +was done so that productive capacity could go unused. Out of +the hidden tax paid by the American farmer, only a part of it +went to the Chilean companies; a good deal of it went to American +and European producers.</p> + +<p>Whenever the argument is made that a cartel supports a distress +industry, the complete answer is that it would be cheaper +<span class="pagenum" id="Page_243">[Pg 243]</span>and better to make an outright gift, raised, if necessary, by lawful +general taxation through the Congress. It would be cheaper +because consumers would not be required to pay an additional +amount to those who are not distressed as they have to do when +the cartel keeps the general price up. It would be better because +if it were a gift, it would not be raised from only one +group of consumers, as in this case, the farmers. It would be +better because the contributors to the gift fund would have some +chance to know what they were doing and to decide whether +they wanted to do it. Nor would the gift be as likely to disappear +under the burden of an inefficient method of production +as is the case with the hidden tax which is collected every year +and which imposes no incentive upon the monopolist to change +his ways. You cannot expect the monopolist to change his ways +when he can collect a hidden tax every year. No doubt after +this war, it will be argued that synthetic nitrogen capacity should +go unused by agreement between the large companies. We +should remember that if this is done, as with all cartel agreements, +there is a <span id="TN21">hidden and unlawful tax</span>; in this case it would +be the American farmers who would pay.</p> + +<p>I do not revive this synthetic nitrogen story in order to make +charges, but merely as a specific illustration of the way cartels +operate. The actual cases are the best answers to the argument +that cartels promote trade. The synthetic nitrogen cartel was +typical in many ways. The particular occasion for the birth of +this cartel was the development of a synthetic process which +threatened to destroy the capital value of a natural product. +After this war, there will be many new processes whose existence +will destroy old capital values and which can be looked +upon either as keys to open the doors of new opportunities or as +occasions for restrictive agreements. The synthetic nitrogen +cartel brought together producers fearful of each other’s productive +<span class="pagenum" id="Page_244">[Pg 244]</span>capacity. As is true in almost every important cartel, +the restrictive agreements might have had important military +consequences, even though many of the private producers were +only thinking in terms of a peace-time market. And finally, this +foreign cartel, as is so frequently the case, bred a domestic cartel.</p> + +<p>The effect is far-reaching both politically and economically. +You can never deal with just one cartel separate from the others +because the cartel world is an intricate and interrelated maze. +Thus the foreign participants in the nitrogen cartel include the +German I. G. Farbenindustrie and the British Imperial Chemical +Industries—each a member of a variety of world dividing +cartels. The American producers, whether they knew it or not, +were entering into an international game to divide markets in +which every market and every type of product was involved if +the full scope of the cartel agreements of their partners were +revealed. They were dealing in secret international diplomacy.</p> + +<p>In many cases they were in reality dealing with foreign governments, +despite the fact that it has not been the policy of this +country to have the conduct of our foreign affairs in private +hands. Since 1799 an Act of Congress has prohibited every citizen +of the United States, without the permission of the Government, +from carrying on any written or verbal correspondence +or intercourse with any foreign government with an intent to +influence the measures or conduct of any foreign government +in relation to any disputes or controversies with the United +States. Quite apart from whether this criminal statute is applicable, +its spirit would deny to any citizen the right to barter +away the trade of the United States by agreement with a foreign +government.</p> + +<p>One need only think of the possible disastrous effects of permitting +Germany to build up a monopoly position in Latin +<span class="pagenum" id="Page_245">[Pg 245]</span>America. The economic effects grow like a snow-ball. Thus in +the instance of the synthetic nitrogen cartel, the American consumer +lost purchasing power; that meant that American producers +could sell less and could therefore buy less. The Chileans +received only a portion of the amount of money taken out +of purchasing power, but the related cartels operate in Chile, +such as the chemical cartel of which both Imperial Chemical +Industries and du Pont’s are members. And these cartels do +the same thing to Chile that the synthetic nitrogen cartel did +to us. Economic life is so related today that you cannot restrict +one part and not have almost endless repercussions. For instance, +if American movies should be kept out of foreign areas, the +effect is immediate on all kinds of American products which +are advertised continually through the medium of the motion +picture. If the motion picture producers enter into a cartel +agreement, they are restricting a good deal of American trade +in addition to their own.</p> + +<p>What then is the solution? There is no solution if the problem +is how can you have American firms enter into foreign +cartel agreements but not restrict American trade and commerce. +It is surely no solution to say that in the future we +will have the governments enter into cartel agreements for us. +As an economic matter, it makes no difference whether an agreement +to restrict trade is private or governmental. As a political +matter, I would agree that if we are going to have such agreements, +with their widespread economic diseases, they had better +be the responsibility of the government, if only because, the +government which makes such agreements can be changed by +the voters. But I would suggest that effective governmental +control over such agreements would require such a degree of +interferences and surveillance over private industry as to place +in great jeopardy our own free enterprise-private property system. +<span class="pagenum" id="Page_246">[Pg 246]</span>The history of attempts to control cartels by legalizing +and controlling them is not particularly inspiring. Germany is +one example.</p> + +<p>There is not any one solution because there is not just one +problem. There are many things which must and can be done +if this country is to encourage foreign trade.</p> + +<p><i>First</i>, we must encourage domestic research. Any country +which wishes to engage in trade and commerce in the future +industrial era must develop its own laboratories and encourage +its own domestic research. It has sometimes been suggested that +the reason why some of our larger American companies entered +into agreements to <span id="TN22">stay out of important markets</span> such as Latin +America was because such was the price they had to pay to +get the benefits of European research. It has sometimes even +been suggested that we have been dependent upon European +research acquired in this manner for many of the important +developments which have helped us in this war.</p> + +<p>There will probably always be a certain amount of obscurity +about this claim that we are dependent upon European research. +The files of some of the Antitrust Division cases, however, indicate +that even though German firms may have been bound +under their agreements to make their research available to their +American friends, in many important instances they did not +do so. In any event, I think we would agree that it is of the +utmost importance that American firms be able to stand on their +own feet, and that they should not be dependent upon research +from abroad. It has been quite natural, of course, for European +research to be in advance of our own in some fields. But failure +to develop our own laboratories and our own scientists would +be criminal negligence.</p> + +<p>I suggest that we ought to have an impartial and searching +survey begun as soon as possible as to American research facilities +<span class="pagenum" id="Page_247">[Pg 247]</span>and the state of American research. This is not a matter +which concerns only our foreign trade. It goes to the very heart +of our future domestic well-being.</p> + +<p>Of course, I do not mean to suggest that we should cut ourselves +off from European research. There is every reason to +believe that research in the future will be truly international +in the sense that a partial discovery in England will be supplemented +by work done in France or in this country. Possibly +some inter-governmental agency can be developed which will +act as a kind of international clearing house in order to speed +the development of common research carried on in separate +areas. It is likely that private institutions in this country and +the government itself, as suggested by Senator Kilgore, could +aid in the performing of this function. If a study were made +of our own domestic research facilities, I would expect that out +of that study a recommendation might well come to set up some +kind of an international clearing house for research.</p> + +<p>There is a further step we can take. The research which has +been developed in Germany during the last ten years under +the Nazi regime is research which in right belongs to the people +of the United Nations. It was Nazi government sponsored research +used for the purpose of making war upon us. It is research +which should now be put to use for the general good of +mankind. It should not be considered as belonging to private +hands either in Germany or elsewhere. The United Nations +should make sure that steps are taken to make available this +research so that it can be used generally.</p> + +<p><i>Second</i>, we must remove, through inter-governmental action, +the waste and misuse of resources which occur when industries +cannot compete and are artificially maintained. It will be much +cheaper for this country to offer transitional credit to be used +to develop new industries than to continue paying hidden taxes +<span class="pagenum" id="Page_248">[Pg 248]</span>which don’t accomplish anything. We should set up an international +mechanism whereby substantial credit can be made +available to other countries upon such terms as will encourage +the readjustment of the use of their resources so that these resources +can be employed, without the crutch of a trade barrier, +in the free trade of the world. Consistent with this aim, we can +urge also the adoption of minimum wage and health standards +so that labor exploitation does not become the means of providing +a hidden subsidy for industry in countries having substandard +labor conditions.</p> + +<p><i>Third</i>, it is, of course, imperative that this country make +known its determination to encourage foreign trade and to +make it possible for American firms, large and small, to bring +their goods to the consumers who will buy. Through vigorous +antitrust action, we can break up the activities of a great number +of foreign cartels. And American firms are perfectly capable +of engaging in vigorous competition with the old monopolistic +companies of Europe. Where American industry is competitive +at home, such as the automobile industry, there is no way a +foreign company effectively can keep out American goods, and +foreign consumers would be the first to object if that were +tried. It is the industries which are monopolistically dominated +at home which seem to have the greatest difficulty. I suspect, +however, that in those industries there are smaller firms who +will be glad to have the opportunity of selling abroad.</p> + +<p><i>Fourth</i>, we should stand ready to help create an international +forum to which countries denied access to raw materials or +allowed to purchase them only on the basis of monopolistic +prices can go to present their case. This does not mean that +we should take part in any international control of business, but +it does mean that for those few areas where monopolies continue +to persist, we must create a world where there is a remedy within +<span class="pagenum" id="Page_249">[Pg 249]</span>the structure of the peace. Many of these raw materials no +longer have their former importance. Poetic justice may come +to rubber, quinine and eventually to diamonds. Persistence in +monopoly prices usually stimulates the development of a substitute. +The international forum which I urge will probably not +have to hear too many cases. The power of competition has +grown more powerful during the war because of the development +of myriads of substitutes for the key raw materials.</p> + +<p>The opportunities are tremendous. The tools needed for the +job are the productive facilities and materials which we will +have in abundance. We can play our part with energy and +initiative; we would not have it otherwise. We believe in competition, +and we are ready to compete. We are ready to engage +wholeheartedly in rebuilding a world of peace in which every +man and every country can have a stake. We know that we +cannot maintain, let alone advance our standard of living save +upon the basis of an active and expanding international trade. +Our expanding trade will enlarge the area of the interests which +we have in common with other peoples, and for us, as well +as for them, will narrow the intensity of our differences. And +we will have played our part in foreign trade in such a way as +to preserve the symbol of our political and economic democracy.</p> + + +<hr class="chap x-ebookmaker-drop"> +<div class="chapter"> + +<p><span class="pagenum" id="Page_250">[Pg 250]</span></p> + + + <h2 class="nobreak" id="APPENDIX_I"> + <span class="xsmall">APPENDIX <abbr title="1">I</abbr></span> + <br> + <i>Recent Cases</i> + </h2> +</div> + + +<p>The most effective weapon presently available for combatting +the influence of monopoly and cartel-minded international +groups is vigorous enforcement of the antitrust laws. Congress +has recognized that the natural effect of competition is to increase +commerce—to extinguish or prevent the free play of +competition is to hinder commerce. As was stated by <abbr>Mr.</abbr> Chief +Justice Stone in the <i>Trenton Potteries</i> case:</p> + +<p>“Whatever difference of opinion there may be among economists +as to the social and economic desirability of an unrestrained +competitive system, it cannot be doubted that the Sherman +Law and the judicial decisions interpreting it are based +upon the assumption that the public interest is best protected +from the evils of monopoly and price control by the maintenance +of competition.”</p> + +<p>By passage of the antitrust laws, Congress has expressed the +American policy of free competition not only in interstate trade +and commerce but also in our foreign trade and commerce. The +provisions of Section 73 of the Wilson Tariff Act further exemplify +this doctrine with specific reference to imports to this +country. Section 11 of the Panama Canal Act prohibits passage +<span class="pagenum" id="Page_251">[Pg 251]</span>through the Panama Canal of ships owned or operated by +persons doing business in violation of the antitrust laws. Thus, +the practices of foreign cartels, involving elimination of competition +and collectivization of industry, are inconsonant with +the basic concepts of our antitrust laws and national economic +policy. The type of arrangements which are the cornerstone of +European cartelization, such as agreements dividing markets, +allocating customers, controlling production and prices, and +apportioning business have all been long declared to be in violation +of our antitrust statutes by the courts.</p> + +<p>By and large, the antitrust laws can be effectively applied to +combat restraints upon the domestic and foreign commerce of +the United States whether the practices, agreements or conspiracies +complained of have their inception in this country or +elsewhere.</p> + +<p>It has become an accepted principle of law that acts done or +agreements entered into in a foreign jurisdiction, even though +lawful there, may be prosecuted or enjoined in this country +where the effect or result of such acts or agreements is a violation +of our laws. This principle has been applied in antitrust +cases, and agreements which restrain our trade with foreign +nations have been uniformly declared illegal. Our courts +may control foreign citizens or corporations operating wholly +in foreign territory, where their operations extend into the +domestic and foreign commerce of this country, just as we may +undoubtedly control the activities of our own citizens and our +own corporations which impinge upon our domestic and foreign +trade and commerce.</p> + +<p>The mere fact that a combination is formed in a foreign +country does not prevent the application of our laws where +it affects the foreign commerce of this country and is put into +operation here. Conversely, combinations or agreements entered +<span class="pagenum" id="Page_252">[Pg 252]</span>into in the United States and adversely affecting the foreign +trade of this country are subject to the antitrust laws even +though the acts done to effectuate the restraints are performed +outside this country. It is recognized that some cartel arrangements +are instigated by or under cover of foreign governmental +authority, but unless the cartel arrangements complained of are +solely participated in by the foreign government, the situation +is not altered.</p> + +<p>While a foreign sovereign may have immunity from suit, +such immunity does not apply to private individuals or organizations +even though they may be acting pursuant to the laws +of their own country, or as agents for their government or +though a foreign government may have a substantial financial +interest in the challenged organization and activities.</p> + +<p>The practical difficulty of acquiring personal jurisdiction over +some of the foreign individual or corporate participants in a +cartel which affects our foreign or domestic commerce is often +confused with the question of whether or not a violation of +our antitrust laws is involved. This, however, is a technical +problem depending upon an aggregation of facts rather than +a question of substantive law involved in restraints upon commerce.</p> + +<p>The following is a list of antitrust cartel cases instituted by +the Department of Justice since 1937:</p> + +<p><i>Aircraft Accessories</i>: Bendix Aviation Corporation, <span lang="la">et <abbr title="alia">al.</abbr></span>; +complaint filed November 19, 1942; postponement of trial +requested by War and Navy Departments.</p> + +<p><i>Alkali</i>: United States Alkali Export <abbr title="Association">Assn.</abbr>, <abbr title="Incorporated">Inc.</abbr>, <span lang="la">et <abbr title="alia">al.</abbr></span>; complaint +filed March 16, 1944; argument had May 10, 1944 on +motions to dismiss.</p> + +<p><i>Aluminum</i>: Aluminum Company of America, <span lang="la">et <abbr title="alia">al.</abbr></span>; petition +<span class="pagenum" id="Page_253">[Pg 253]</span>filed April 23, 1937; judgment denying Government relief +filed July 23, 1942; on appeal.</p> + +<p><i>Chemicals</i>: Imperial Chemical Industries, <abbr title="Limited">Ltd.</abbr>, <span lang="la">et <abbr title="alia">al.</abbr></span>; complaint +filed January 6, 1944.</p> + +<p><i>Chemicals and Petroleum (Including Synthetic Rubber)</i>: +Standard Oil Company (<abbr title="New Jersey">N. J.</abbr>), <span lang="la">et <abbr title="alia">al.</abbr></span>; complaint filed March +25, 1942; consent decree entered March 25, 1942; supplemental +judgment filed April 7, 1943. Information filed and pleas +of <span lang="la">nolo contendere</span> on March 25, 1942; fines levied totaled +$50,000.</p> + +<p><i>Dyestuffs</i>: Allied Chemical & Dye <abbr title="Corporation">Corp.</abbr>, <span lang="la">et <abbr title="alia">al.</abbr></span>; indictment +returned May 14, 1942; Attorney General acquiesced to postponement +of trial until it will not interfere with defendant’s +war production. General Dyestuff <abbr title="Corporation">Corp.</abbr>, <span lang="la">et <abbr title="alia">al.</abbr></span>; indictment returned +December 19, 1941; pending on preliminary motions.</p> + +<p><i>Fertilizer</i>: American Potash & Chemical <abbr title="Corporation">Corp.</abbr>, <span lang="la">et <abbr title="alia">al.</abbr></span>; complaint +filed May 15, 1940; consent decree entered May 21, +1940. Chilean Nitrate Sales <abbr title="Corporation">Corp.</abbr>, <span lang="la">et <abbr title="alia">al.</abbr></span>; indictment returned +September 1, 1939; dismissed as to 18 defendants June 3, +1941 to August 28, 1942; pleas of <span lang="la">nolo contendere</span> by 6 defendants +August 28, 1942; fines levied totalling $35,000. Allied +Chemical & Dye <abbr title="Corporation">Corp.</abbr>, <span lang="la">et <abbr title="alia">al.</abbr></span>; complaint and consent decree +entered May 29, 1941. Imperial Chemical Industries +(<abbr title="New York">N. Y.</abbr>), <abbr title="Limited">Ltd.</abbr>, <span lang="la">et <abbr title="alia">al.</abbr></span>; complaint and consent decree February +17 and 18, 1942. Mutual Chemical Company of America, <span lang="la">et +<abbr title="alia">al.</abbr></span>; indictment returned June 26, 1942; Attorney General +acquiesced to requests by War and Navy Departments for postponement +of trial. Synthetic Nitrogen Products <abbr title="Corporation">Corp.</abbr>, <span lang="la">et <abbr title="alia">al.</abbr></span>; +complaint and consent decree, September 5, 1941.</p> + +<p><i>Fluorescent Lamps</i>: General Electric Company, <span lang="la">et <abbr title="alia">al.</abbr></span>; complaint +filed December 9, 1942; Attorney General acquiesced to +postponement of trial requested by War and Navy Departments.</p> + +<p><span class="pagenum" id="Page_254">[Pg 254]</span></p> + +<p><i>Fuel Injection Equipment</i>: American Bosch <abbr title="Corporation">Corp.</abbr> and Donald +P. Hess; complaint and consent decree, December 29, 1942.</p> + +<p><i>Glass Bulbs</i>: Corning Glass Works, <span lang="la">et <abbr title="alia">al.</abbr></span>; indictment returned +August 28, 1940; pleas of <span lang="la">nolo contendere</span> and fines totalling +$47,000 September 9, 1941.</p> + +<p><i>Gyroscopic Instruments</i>: The Sperry Corporation, <span lang="la">et <abbr title="alia">al.</abbr></span>; +complaint and consent decree entered September 1, 1942.</p> + +<p><i>Hormones</i>: Ciba Pharmaceutical Products, <abbr title="Incorporated">Inc.</abbr>, <span lang="la">et <abbr title="alia">al.</abbr></span>; information +filed and pleas of <span lang="la">nolo contendere</span>, December 17, 1941; +fines of $18,000. Roche-Organon, <abbr title="Incorporated">Inc.</abbr>, and Elmer H. Bobst; +information filed and pleas of <span lang="la">nolo contendere</span>, December 17, +1941; fines of $6,000. Schering Corporation, <span lang="la">et <abbr title="alia">al.</abbr></span>; information +filed and pleas of <span lang="la">nolo contendere</span>, December 17, 1941; +fines of $24,000; complaint and consent decree entered same +day. Swiss Bank Corporation; complaint and consent decree, +December 17, 1941. Julius Weltzien and Schering Corporation; +information filed and pleas of <span lang="la">nolo contendere</span>, December +17, 1941; fines of $6,000.</p> + +<p><i>Incandescent Lamps</i>: General Electric Company, <span lang="la">et <abbr title="alia">al.</abbr></span>; complaint +filed January 27, 1941; Attorney General acquiesced to +postponement of trial requested by War and Navy Departments.</p> + +<p><i>Magnesite Brick</i>: Harbison-Walker Refractories Company, +<span lang="la">et <abbr title="alia">al.</abbr></span>; indictment returned January 20, 1941; pleas of <span lang="la">nolo +contendere</span> and fines of $76,500, July 22, 1941; pending as +to Veitscher Magnesitwerke Aktiengesellschaft and Magnesit +<abbr title="Company">Co.</abbr>, <abbr title="Limited">Ltd.</abbr>, whose motion to vacate services of summons has been +referred to a special master, also as to Magnesit Industrie +Aktiengesellschaft.</p> + +<p><i>Magnesium</i>: Aluminum Company of America, <span lang="la">et <abbr title="alia">al.</abbr></span>; complaint +filed; consent decree entered April 15, 1942; indictment +returned January 30, 1941; pleas of <span lang="la">nolo contendere</span>, +<span class="pagenum" id="Page_255">[Pg 255]</span>April 15, 1942, and fines of $104,993. To be set for trial as +to I. G. Farben and Dietrich Schmitz. American Magnesium +Corporation, <span lang="la">et <abbr title="alia">al.</abbr></span>; indictment returned January 30, 1941; +pleas of <span lang="la">nolo contendere</span> and fines of $15,003, April 15, 1942; +case to be set for trial as to I. G. Farben and Gustav Pistor. +Dow Chemical Company, <span lang="la">et <abbr title="alia">al.</abbr></span>; indictment returned January +30, 1941; pleas of <span lang="la">nolo contendere</span> and fines of $20,004, April +15, 1942; to be set for trial as to I. G. Farben.</p> + +<p><i>Matches</i>: Diamond Match Company, <span lang="la">et <abbr title="alia">al.</abbr></span>; complaint filed +May 1, 1944.</p> + +<p><i>Military Optical Instruments</i>: Bausch & Lomb Optical Company, +<span lang="la">et <abbr title="alia">al.</abbr></span>; indictment returned March 26, 1940; pleas of +<span lang="la">nolo contendere</span> and fines of $41,000, May 27, 1940 and March +5, 1941; pending as to Carl Zeiss (a German firm). Complaint +filed July 9, 1940, and consent decree entered same day as to +all defendants except Carl Zeiss.</p> + +<p><i>Molybdenum</i>: Climax Molybdenum Company, <span lang="la">et <abbr title="alia">al.</abbr></span>; complaint +filed August 19, 1942 and consent decree entered August +21, 1942.</p> + +<p><i>News Reporting</i>: The Associated Press, <span lang="la">et <abbr title="alia">al.</abbr></span>; complaint filed +August 28, 1942; Decree for Government January 13, 1944; +appeal of defendants docketed in Supreme Court, April 13, +1944.</p> + +<p><i>Newsprint Paper</i>: Crown Zellerbach Corporation, <span lang="la">et <abbr title="alia">al.</abbr></span>; indictment +returned July 12, 1939; 6 defendants pleaded <span lang="la">nolo +contendere</span> and were fined $30,000, May 2, 1941; remaining +defendants dismissed.</p> + +<p><i>Pharmaceutical Products</i>: Alba Pharmaceutical Company, +<abbr title="Incorporated">Inc.</abbr>, <span lang="la">et <abbr title="alia">al.</abbr></span>; information filed, pleas of <span lang="la">nolo contendere</span>, and +fines of $26,000, September 5, 1941; complaint filed and consent +decree entered same day. The Bayer Company, <abbr title="Incorporated">Inc.</abbr>, <span lang="la">et +<abbr title="alia">al.</abbr></span>; complaint filed and consent decree entered, September 5, +<span class="pagenum" id="Page_256">[Pg 256]</span>1941. Merck & Company, <abbr title="Incorporated">Inc.</abbr>, <span lang="la">et <abbr title="alia">al.</abbr></span>; complaint filed October +28, 1943; Government moved to join the Alien Property +Custodian as party plaintiff, May 8, 1944.</p> + +<p><i>Photographic Materials</i>: General Aniline & Film Corporation, +<span lang="la">et <abbr title="alia">al.</abbr></span>; indictment returned December 19, 1941; pending +on preliminary motions. Dietrich A. Schmitz, <span lang="la">et <abbr title="alia">al.</abbr></span>; indictment +returned December 19, 1941; pending on preliminary +motions.</p> + +<p><i>Plastics</i>: E. I. du Pont de Nemours & Company, <span lang="la">et <abbr title="alia">al.</abbr></span>; indictment +returned August 10, 1942; Attorney General acquiesced +to postponement of trial requested by War and Navy +Departments.</p> + +<p><i>Quebracho</i>: The Forestal Land, Timber and Railways, <abbr title="Limited">Ltd.</abbr>, +<span lang="la">et <abbr title="alia">al.</abbr></span>; complaint filed December 20, 1943; pending on preliminary +motions. The Tannin Corporation, <span lang="la">et <abbr title="alia">al.</abbr></span>; indictment +returned November 24, 1942; pleas of <span lang="la">nolo contendere</span> <span id="TN23">and +fines of $59,003</span>, January 12, 1943 and April 19, 1943; dismissed +as to the remaining defendants, August 24, 1943.</p> + +<p><i>Titanium Compounds</i>: National Lead Company, <span lang="la">et <abbr title="alia">al.</abbr></span>; indictment +returned June 28, 1943; case set for trial on October +3, 1944; complaint filed July 1, 1944.</p> + +<p><i>Tungsten Carbide</i>: General Electric Company, <span lang="la">et <abbr title="alia">al.</abbr></span>; indictment +returned August 30, 1940; superceding indictment returned +October 21, 1941; Attorney General acquiesced to postponement +of trial requested by War and Navy Departments.</p> + + +<hr class="chap x-ebookmaker-drop"> +<div class="chapter"> + +<p><span class="pagenum" id="Page_257">[Pg 257]</span></p> + + + <h2 class="nobreak" id="APPENDIX_II"> + <span class="xsmall">APPENDIX <abbr title="2">II</abbr></span> + <br> + <i>Bibliography</i> + </h2> +</div> + + +<p>Arnold, Thurman W., <cite>The Bottlenecks of Business</cite>, New +York, 1940.</p> + +<p>Ballande, Laurence, <cite lang="fr">Essai d’etude Monographique et Statistique +sur les Ententes Economiques Internationales</cite>, Paris, 1936.</p> + +<p>Boehm, Franz, <cite lang="de">Wettbewerb und Monopolkampf</cite>, Berlin, +1933.</p> + +<p>Borkin, Joseph and Welsh, Charles A., <cite>Germany’s Master +Plan</cite>, New York, 1943.</p> + +<p>Burns, Arthur R., <cite>The Decline of Competition</cite>, New York, +1936.</p> + +<p>Clark, John B., <cite>Control of Trusts</cite>, New York, 1912.</p> + +<p>Conte, Roger, <cite>Report on International Industrial Ententes</cite>, +Paris, 1927. (International Chamber of Commerce Brochure +<abbr title="Number">No.</abbr> 46).</p> + +<p>Domeratzky, Louis, <cite>The International Cartel Movement</cite>, +Washington, 1928. (<abbr title="United States">U. S.</abbr> Department of Commerce, Bureau +of Foreign and Domestic Commerce, Trade Information Bulletin +<abbr title="Number">No.</abbr> 556).</p> + +<p>Edwards, Corwin, <cite>Economic and Political Aspects of International +Cartels</cite>, Washington, 1944.</p> + +<p><span class="pagenum" id="Page_258">[Pg 258]</span></p> + +<p>Elliott, William Y., and May, Elizabeth S., and Rowe, +I. W. F., and others, <cite>International Control in the Nonferrous +Metals</cite>, New York, 1937.</p> + +<p>Ely, Richard T., <cite>Monopoly and Trusts</cite>, New York, 1912.</p> + +<p>Ertel, Erich, <cite lang="de">Internationale Kartelle und Konzerne der Industrie</cite>, +Stuttgart, 1930.</p> + +<p>Fetter, Frank A., <cite>The Masquerade of Monopoly</cite>, New York, +1931.</p> + +<p>Friedlaender, Heinrich, <cite lang="de">Die Rechtslage der Konzerne und +Kartelle in Europa</cite>, Zurich, 1938.</p> + +<p>Greaves, H. R. G., <cite>Raw Materials and International Control</cite>, +London, 1936.</p> + +<p>Hamilton, Walton H., <cite>The Pattern of Competition</cite>, New +York, 1940.</p> + +<p>Hantos, Elemer, <cite lang="de">Mitteleuropaeische Kartelle im Dienste des +Industriellen Zusammenschlusses</cite>, Berlin, 1931.</p> + +<p>Hexner, Ervin, <cite>The International Steel Cartel</cite>, Chapel Hill, +1943.</p> + +<p>Hodson, H. V., <cite>Slump and Recovery</cite>, 1929–37, London, +New York, Toronto, 1938.</p> + +<p>Holland, W. L., Editor, <cite>Commodity Control in the Pacific +Area</cite>, Stanford, 1935.</p> + +<p>International Labor Office, <cite>Intergovernmental Commodity +Control Agreements</cite>, Montreal, 1943.</p> + +<p>Jenks, Jeremiah W., <cite>The Trust Problem</cite>, New York, 1929.</p> + +<p>Johnson, Eric, <cite>America Unlimited</cite>, New York, 1944.</p> + +<p>Kyrpriotis, M., <cite lang="fr">Les Cartels Internationaux</cite>, Paris, 1936.</p> + +<p>Laidler, Harry W., <cite>Concentration of Control in American +Industry</cite>, New York, 1931.</p> + +<p>League of Nations Council, Report of the Committee for the +Study of Raw Materials, <cite>Official Journal</cite>, December, 1937.</p> + +<p><span class="pagenum" id="Page_259">[Pg 259]</span></p> + +<p>League of Nations, <cite>Economic Aspects of Several International +Industrial Agreements</cite>, Geneva, 1930.</p> + +<p>Levi, Edward H., “Cartels and the War” in <cite>War and the +Law</cite>, edited by B. W. Puttkammer, Chicago, 1944.</p> + +<p>Liefmann, Robert, <cite>Cartels, Concerns and Trusts</cite>, London, +1932.</p> + +<p>MacGregor, David H., <cite>Industrial Combinations</cite>, London, +1938.</p> + +<p>MacGregor, David H., <cite>International Cartels</cite>, Geneva, 1927.</p> + +<p>Marquand, Hilary A., <cite>Dynamics of Industrial Combinations</cite>, +New York, 1931.</p> + +<p>Meyers, Ernest S., & Lewis, Seymour D., “The Patent +‘Franchise’ and the Antitrust Laws,” <cite>Georgetown Law Journal</cite>, +December 1941 and January 1942.</p> + +<p>Michels, Rudolf, <cite>Cartels, Combines and Trusts in Postwar +Germany</cite>, London, 1928.</p> + +<p>Notz, William F., <cite>Representative International Cartels, +Combines, and Trusts</cite>, Washington, 1929. (<abbr title="United States">U. S.</abbr> Department +of Commerce, Bureau of Foreign and Domestic Commerce, +Trade Promotion Series <abbr title="Number">No.</abbr> 81).</p> + +<p>Oualid, William, <cite>International Raw Materials Cartels</cite>, Paris, +1938. (League of Nations, International Studies Conference.)</p> + +<p>Piotrowski, Roman, <cite>Cartels and Trusts</cite>, London, 1933.</p> + +<p>Plummer, Alfred, <cite>International Combines in Modern Industry</cite>, +London, 1938.</p> + +<p>Pribram, Karl, <cite>Cartel Problems</cite>, Washington, 1935.</p> + +<p>Rappeport, Samuel, <cite lang="fr">Les Cartels en Pologne</cite>, Nancy, 1935.</p> + +<p>Razous, Paul, <cite lang="fr">Cartels, Trusts, et Divers Ententes de Producteurs</cite>, +Paris, 1935.</p> + +<p>Reimann, Guenter, <cite>Patents for Hitler</cite>, New York, 1943.</p> + +<p><span class="pagenum" id="Page_260">[Pg 260]</span></p> + +<p>Robbins, Lionel, <cite>Economic Planning and International Order</cite>, +London, 1937.</p> + +<p>Rowe, I. W. F., <cite>Markets and Men</cite>, New York, Cambridge, +1936.</p> + +<p>Staley, Eugene, <cite>Raw Materials in Peace and War</cite>, New +York, 1937.</p> + +<p>Tschernoff, J., <cite lang="fr">Ententes Economiques et Financieres</cite>, Paris, +1933.</p> + +<p>United States Congress, <cite>Hearings Before the Temporary +National Economic Committee, <abbr>76th</abbr> Congress, <abbr>3rd</abbr> Session on +Public Resolution <abbr title="Number">No.</abbr> 113, Investigation of Concentration of +Economic Power</cite>, Testimony of Theodore J. Kreps, Part 25, +Washington, 1940.</p> + +<p>United States Congress, <cite>Hearings Before the Senate Committee +on Patents, <abbr>77th</abbr> Congress, <abbr>2nd</abbr> Session on S-2303, Patents</cite>. +Washington, 1942.</p> + +<p>Veblen, Thorstein, <cite>Imperial Germany and the Industrial +Revolution</cite>, New York, 1942.</p> + +<p>Voorhis, Jerry, <cite>Beyond Victory</cite>, New York, 1944.</p> + +<p>Wallace, Benjamin Bruce and Edminster, Lynn Ramsey, <cite>International +Control of Raw Materials</cite>, Washington, 1930.</p> + +<p>Warriner, Dorun, <cite>Combines and Rationalization in Germany</cite>, +London, 1931.</p> + +<p>Watkins, Myron W., <cite>Industrial Combinations and Public +Policy</cite>, Boston, 1927.</p> + +<p>Wheeler, Leslie, “Agricultural Surpluses in the Postwar +World,” <cite>Foreign Affairs</cite>, <abbr title="volume">v.</abbr> 20, 1941.</p> + +<p>Wiedenfeld, Kurt, <cite>Cartels and Combines</cite>, Geneva, 1927. +(League of Nations publication.)</p> + + +<hr class="chap x-ebookmaker-drop"> +<div class="chapter"> + +<p><span class="pagenum" id="Page_261">[Pg 261]</span></p> + + + <h2 class="nobreak" id="Index"> + <i>Index</i> + </h2> +</div> + + +<ul class="index"> + <li class="ifrst">Abbe, <abbr>Dr.</abbr> Ernst, <a href="#Page_144">144</a></li> + + <li class="indx">Abbott Laboratories, <a href="#Page_92">92</a>, <a href="#Page_95">95</a>, <a href="#Page_96">96</a>, <a href="#Page_110">110</a></li> + + <li class="indx">Acetol Products, <abbr title="Incorporated">Inc.</abbr>, <a href="#Page_87">87</a>, <a href="#Page_91">91</a>, <a href="#Page_93">93</a>, <a href="#Page_105">105</a>, <a href="#Page_110">110</a></li> + + <li class="indx">Addison’s disease, <a href="#Page_61">61</a>, <a href="#Page_73">73</a></li> + + <li class="indx">Agriculture, <abbr title="Department">Dept.</abbr> of, <a href="#Page_109">109</a></li> + + <li class="indx">Aircraft accessories, <a href="#Page_252">252</a></li> + + <li class="indx">Airplanes, <a href="#Page_157">157</a></li> + + <li class="indx">Alba Pharmaceutical <abbr title="Company">Co.</abbr>, <a href="#Page_256">256</a></li> + + <li class="indx">Alien Property Custodian, <a href="#Page_34">34</a>, <a href="#Page_59">59</a>, <a href="#Page_64">64</a>, <a href="#Page_76">76</a>, <a href="#Page_81">81</a>, + <a href="#Page_125">125</a>, <a href="#Page_140">140</a>, <a href="#Page_143">143</a>, <a href="#Page_178">178</a>, <a href="#Page_200">200</a>, <a href="#Page_219">219</a>, + <a href="#Page_220">220</a>, <a href="#Page_256">256</a></li> + + <li class="indx">Alig Agreement, <a href="#Page_222">222</a></li> + + <li class="indx">Alkasso (See <a href="#idx_United_States_Alkali_Export_Assn">United States Alkali Export <abbr title="Association">Ass’n.</abbr></a>), <a href="#Page_193">193</a>, <a href="#Page_199">199–204</a>, <a href="#Page_252">252</a></li> + + <li class="indx">Allied Chemical and Dye, <a href="#Page_181">181</a>, <a href="#Page_253">253</a></li> + + <li class="indx">Allies, <a href="#Page_215">215</a>, <a href="#Page_240">240</a></li> + + <li class="indx">Aluminum, <a href="#Page_11">11</a>, <a href="#Page_33">33</a>, <a href="#Page_221">221</a>, <a href="#Page_222">222</a>, <a href="#Page_236">236</a>, + <a href="#Page_253">253</a></li> + + <li class="indx">Aluminum <abbr title="Company">Co.</abbr> of America, <a href="#Page_221">221–225</a>, <a href="#Page_253">253</a>, <a href="#Page_255">255</a></li> + + <li class="indx">Aluminum production, French, <a href="#Page_6">6</a></li> + + <li class="indx">American Bosch <abbr title="Corporation">Corp.</abbr>, <a href="#Page_254">254</a></li> + + <li class="indx">American Magnesium <abbr title="Corporation">Corp.</abbr>, <a href="#Page_221">221–223</a>, <a href="#Page_255">255</a></li> + + <li class="indx">American Medical <abbr title="Association">Ass’n.</abbr>, <a href="#Page_90">90</a>, <a href="#Page_106">106</a></li> + + <li class="indx">American Potash and Chemical <abbr title="Corporation">Corp.</abbr>, <a href="#Page_200">200</a>, <a href="#Page_202">202</a>, <a href="#Page_253">253</a></li> + + <li class="indx">American Tanners, <abbr title="Limited">Ltd.</abbr>, <a href="#Page_122">122</a></li> + + <li class="indx">American Telephone and Telegraph <abbr title="Company">Co.</abbr>, <a href="#Page_21">21</a></li> + + <li class="indx">Animal Industries Bureau, <a href="#Page_109">109</a></li> + + <li class="indx">Antitrust Division of <abbr title="Department">Dept.</abbr> of Justice, <a href="#Page_35">35</a>, <a href="#Page_83">83</a></li> + + <li class="indx">Antitrust laws, <a href="#Page_38">38</a>, <a href="#Page_48">48</a>, <a href="#Page_58">58</a>, <a href="#Page_77">77</a>, <a href="#Page_130">130</a>, <a href="#Page_154">154</a>, + <a href="#Page_176">176</a>, <a href="#Page_198">198</a>, <a href="#Page_205">205</a>, <a href="#Page_250">250</a>, <a href="#Page_251">251</a></li> + + <li class="indx">Argentina, <a href="#Page_71">71</a>, <a href="#Page_113">113–115</a>, <a href="#Page_119">119</a>, <a href="#Page_165">165</a>, <a href="#Page_176">176</a>, + <a href="#Page_183">183</a>, <a href="#Page_184">184</a></li> + + <li class="indx">Armistice, <a href="#Page_215">215</a></li> + + <li class="indx">Army Air Corps, <a href="#Page_22">22</a>, <a href="#Page_23">23</a>, <a href="#Page_25">25</a></li> + + <li class="indx">Arthritis, <a href="#Page_57">57</a>, <a href="#Page_91">91</a></li> + + <li class="indx">Associated Press, <a href="#Page_256">256</a></li> + + <li class="indx">Asthma, <a href="#Page_91">91</a></li> + + <li class="indx">Atabrine, <a href="#Page_229">229</a>, <a href="#Page_230">230</a></li> + + <li class="indx">Atlantic Charter, <a href="#Page_10">10</a>, <a href="#Page_209">209</a></li> + + <li class="indx">Atlantis S. A. Panama, <a href="#Page_69">69</a>, <a href="#Page_70">70</a>, <a href="#Page_71">71</a></li> + + <li class="indx">Ayerst, McKenna and <abbr title="Company">Co.</abbr>, <a href="#Page_89">89</a></li> + + + <li class="ifrst">Badische Anilin und Sodafabrik A.G., <a href="#Page_211">211</a></li> + + <li class="indx">Barkey, J. A., <a href="#Page_121">121</a></li> + + <li class="indx">Barney, L. D., <a href="#Page_85">85</a>, <a href="#Page_87">87</a>, <a href="#Page_97">97</a>, <a href="#Page_100">100</a>, <a href="#Page_104">104</a></li> + + <li class="indx">Barrett <abbr title="Company">Co.</abbr>, <a href="#Page_241">241</a></li> + + <li class="indx">Bartholomew, Sir Clarence, <a href="#Page_185">185</a></li> + + <li class="indx">Barton, L. E., <a href="#Page_126">126</a></li> + + <li class="indx">Basal Agency, <a href="#Page_122">122</a></li> + + <li class="indx">Bauer, K. A., <a href="#Page_173">173</a></li> + + <li class="indx">Bausch and Lomb <abbr class="spell">G.m.b.H.</abbr> Frankfort-on-the Main, <a href="#Page_155">155</a></li> + + <li class="indx">Bausch and Lomb Optical <abbr title="Company">Co.</abbr> (Rochester), <a href="#Page_24">24</a>, <a href="#Page_142">142–175</a>, <a href="#Page_255">255</a></li> + + <li class="indx">Bausch, Carl L., <a href="#Page_155">155</a></li> + + <li class="indx">Bausch, <abbr>Dr.</abbr> Edward, <a href="#Page_154">154</a>, <a href="#Page_165">165</a>, <a href="#Page_166">166</a>, <a href="#Page_170">170</a>, <a href="#Page_171">171</a></li> + + <li class="indx"><span id="idx_Bayer">Bayer</span>, <a href="#Page_205">205</a> (See <a href="#idx_Germanin">Germanin</a>), <a href="#Page_55">55</a></li> + + <li class="indx">Bayer <abbr title="Company">Co.</abbr>, <abbr title="Incorporated">Inc.</abbr>, <a href="#Page_256">256</a></li> + + <li class="indx">Bayliss, <a href="#Page_60">60</a></li> + + <li class="indx">Belgian Congo, <a href="#Page_1">1</a></li> + + <li class="indx">Belgian Solvay (See <a href="#idx_Solvay_et_Cie">Solvay et Cie</a>), <a href="#Page_202">202–204</a></li> + + <li class="indx">Bell Laboratories, <a href="#Page_21">21</a></li> + + <li class="indx">Bell System, <a href="#Page_22">22</a></li> + + <li class="indx">Bendix Aviation <abbr title="Corporation">Corp.</abbr>, <a href="#Page_218">218</a>, <a href="#Page_252">252</a></li> + + <li class="indx">Berst-Forster-Dixfield <abbr title="Company">Co.</abbr>, <a href="#Page_185">185–189</a>, <a href="#Page_191">191</a></li> + + <li class="indx">Beryllium, <a href="#Page_34">34</a>, <a href="#Page_47">47</a>, <a href="#Page_220">220</a></li> + + <li class="indx">Beryllium <abbr title="Corporation">Corp.</abbr> of America, <a href="#Page_220">220</a></li> + + <li class="indx">Binoculars, <a href="#Page_143">143</a>, <a href="#Page_166">166</a>, <a href="#Page_170">170–174</a></li> + + <li class="indx">Blacklisting, <a href="#Page_101">101</a></li> + + <li class="indx">Blumenfeld, Joseph, <a href="#Page_127">127</a>, <a href="#Page_129">129</a></li> + + <li class="indx">Bobst, Elmer H., <a href="#Page_254">254</a></li> + + <li class="indx">Boehringer and Sons, C. F. (Mannheim), <a href="#Page_61">61</a>, <a href="#Page_74">74–76</a></li> + + <li class="indx">Bombsights, <a href="#Page_144">144</a>, <a href="#Page_156">156</a></li> + + <li class="indx">Borden <abbr title="Company">Co.</abbr>, <a href="#Page_89">89</a>, <a href="#Page_106">106</a></li> + + <li class="indx">Bosch, Robert, A. G., <a href="#Page_214">214</a></li> + + <li class="indx">Brazil, <a href="#Page_113">113</a>, <a href="#Page_114">114</a>, <a href="#Page_176">176</a>, <a href="#Page_183">183</a></li> + + <li class="indx">British Cabinet, <a href="#Page_5">5</a>, <a href="#Page_8">8</a></li> + + <li class="indx">British Laporte <abbr title="Company">Co.</abbr>, <a href="#Page_133">133</a></li> + + <li class="indx">British Match <abbr title="Corporation">Corp.</abbr>, <abbr title="Limited">Ltd.</abbr>, <a href="#Page_185">185</a></li> + + <li class="indx">British Maxium, <a href="#Page_223">223</a></li> + + <li class="indx">British Purchasing Commission, <a href="#Page_217">217</a></li> + + <li class="indx">British Titan Products, <abbr title="Limited">Ltd.</abbr>, <a href="#Page_133">133</a>, <a href="#Page_134">134</a></li> + + <li class="indx"><span class="pagenum" id="Page_262">[Pg 262]</span>Brodbeck, James, <a href="#Page_72">72</a></li> + + <li class="indx">Bryant and May, <abbr title="Limited">Ltd.</abbr>, <a href="#Page_185">185</a>, <a href="#Page_189">189</a>, <a href="#Page_190">190</a></li> + + <li class="indx">Bulbs, glass, <a href="#Page_254">254</a></li> + + <li class="indx">Buna, <a href="#Page_212">212</a></li> + + <li class="indx">Buttle, N. A., <a href="#Page_101">101</a></li> + + + <li class="ifrst">California Alkali Export <abbr title="Association">Ass’n.</abbr>, <a href="#Page_193">193</a>, <a href="#Page_199">199–204</a></li> + + <li class="indx">Canada, <a href="#Page_16">16</a>, <a href="#Page_79">79</a>, <a href="#Page_132">132</a>, <a href="#Page_176">176–178</a>, <a href="#Page_181">181</a>, <a href="#Page_186">186</a>, + <a href="#Page_187">187</a>, <a href="#Page_190">190</a>, <a href="#Page_203">203</a>, <a href="#Page_217">217</a>, <a href="#Page_218">218</a>, <a href="#Page_225">225</a></li> + + <li class="indx">Canadian Industries <abbr title="Limited">Ltd.</abbr>, <a href="#Page_134">134</a>, <a href="#Page_181">181</a>, <a href="#Page_184">184</a>, <a href="#Page_225">225</a></li> + + <li class="indx">Canadian Titanium Pigments, <abbr title="Limited">Ltd.</abbr>, <a href="#Page_134">134</a></li> + + <li class="indx">Carnation <abbr title="Company">Co.</abbr>, <a href="#Page_106">106</a></li> + + <li class="indx">Carpenter, Walter Samuel, <abbr title="Junior">Jr.</abbr>, <a href="#Page_179">179</a></li> + + <li class="indx">Casado extract, <a href="#Page_118">118</a></li> + + <li class="indx">Chamberlain, Joseph, <a href="#Page_5">5</a></li> + + <li class="indx">Chemical and Pharmaceutical Enterprises, <abbr title="Limited">Ltd.</abbr>, <a href="#Page_64">64</a>, <a href="#Page_68">68–70</a></li> + + <li class="indx">Chemical Marketing <abbr title="Company">Co.</abbr>, <a href="#Page_215">215</a></li> + + <li class="indx">Chemical pharmaceutical industry, <a href="#Page_54">54</a></li> + + <li class="indx">Chemicals, <a href="#Page_253">253</a></li> + + <li class="indx">Chepha, <a href="#Page_64">64</a>, <a href="#Page_68">68–70</a></li> + + <li class="indx">Chilean Nitrate Sales <abbr title="Corporation">Corp.</abbr>, <a href="#Page_253">253</a></li> + + <li class="indx"><span id="idx_Chimio">Chimio</span> (See <a href="#idx_Les_Laboratories_Francais_de_Chimiotherapie">Les Laboratoires Francais de Chimiotherapie</a>), <a href="#Page_61">61</a>, <a href="#Page_76">76</a></li> + + <li class="indx">Chlorate of potash, <a href="#Page_186">186</a>, <a href="#Page_190">190</a></li> + + <li class="indx">Cholesterol, <a href="#Page_89">89</a>, <a href="#Page_110">110</a></li> + + <li class="indx">Church and Dwight, <abbr title="Incorporated">Inc.</abbr>, <a href="#Page_200">200</a>, <a href="#Page_202">202</a></li> + + <li class="indx">Ciba (Basle) (See <a href="#idx_Society_of_Chemical_Industry_Basle">Society of Chemical Industry (Basle)</a>), <a href="#Page_61">61</a>, <a href="#Page_72">72–81</a></li> + + <li class="indx">Ciba Pharmaceutical Products, <abbr title="Incorporated">Inc.</abbr>, <a href="#Page_72">72</a>, <a href="#Page_254">254</a></li> + + <li class="indx">Climax Molybdenum <abbr title="Company">Co.</abbr>, <a href="#Page_255">255</a></li> + + <li class="indx">Cocomalt, <a href="#Page_89">89</a></li> + + <li class="indx">Cod Liver Oil with Viosterol, <a href="#Page_97">97</a>, <a href="#Page_100">100</a></li> + + <li class="indx">Commander Larrabee <abbr title="Company">Co.</abbr>, <a href="#Page_89">89</a></li> + + <li class="indx">Commerce and Industry <abbr title="Association">Ass’n.</abbr>, of <abbr title="New York">N. Y.</abbr>, <a href="#Page_193">193</a></li> + + <li class="indx">Commercial Pigments <abbr title="Corporation">Corp.</abbr>, <a href="#Page_130">130</a></li> + + <li class="indx">Compania Sud-Americana de Explosivos, <a href="#Page_182">182</a></li> + + <li class="indx">Congress, <a href="#Page_16">16</a>, <a href="#Page_36">36</a>, <a href="#Page_37">37</a>, <a href="#Page_192">192</a>, <a href="#Page_193">193</a>, <a href="#Page_197">197</a>, + <a href="#Page_198">198</a>, <a href="#Page_217">217</a>, <a href="#Page_232">232</a>, <a href="#Page_243">243</a>, <a href="#Page_244">244</a>, <a href="#Page_250">250</a></li> + + <li class="indx">Corning Glass Works, <a href="#Page_254">254</a></li> + + <li class="indx">Cortate, <a href="#Page_73">73</a></li> + + <li class="indx">Cotan, S. A., <a href="#Page_120">120</a>, <a href="#Page_122">122</a></li> + + <li class="indx">Crown Zellerbach <abbr title="Corporation">Corp.</abbr>, <a href="#Page_256">256</a></li> + + <li class="indx">Czechoslovakia, <a href="#Page_14">14</a>, <a href="#Page_129">129</a>, <a href="#Page_162">162</a></li> + + + <li class="ifrst">Davis, Charles Krum, <a href="#Page_179">179</a></li> + + <li class="indx">Davis and <abbr title="Company">Co.</abbr>, R. B., <a href="#Page_89">89</a></li> + + <li class="indx">Delta Pharmaceutical <abbr title="Corporation">Corp.</abbr>, <a href="#Page_69">69–71</a></li> + + <li class="indx"><abbr class="spell">D.E.N.</abbr>, <a href="#Page_241">241</a></li> + + <li class="indx"><span id="TN24">Deutsche Gold-und-Silber Scheideanstalt</span>, <a href="#Page_215">215</a></li> + + <li class="indx">Diabetes, <a href="#Page_52">52</a>, <a href="#Page_53">53</a>, <a href="#Page_57">57</a></li> + + <li class="indx">Diamond Alkali <abbr title="Company">Co.</abbr>, <abbr title="Incorporated">Inc.</abbr>, <a href="#Page_200">200</a>, <a href="#Page_202">202</a></li> + + <li class="indx">Diamond Match <abbr title="Company">Co.</abbr>, <a href="#Page_185">185–191</a>, <a href="#Page_255">255</a></li> + + <li class="indx">Dodds, E. C., <a href="#Page_80">80</a></li> + + <li class="indx">Doitsu Senryo Gomei Kaisha, <a href="#Page_135">135</a></li> + + <li class="indx">Dow Chemical <abbr title="Company">Co.</abbr>, <abbr title="Incorporated">Inc.</abbr>, <a href="#Page_200">200</a>, <a href="#Page_202">202</a>, <a href="#Page_221">221–225</a>, <a href="#Page_255">255</a></li> + + <li class="indx">Drisdol, <a href="#Page_103">103</a></li> + + <li class="indx">Duisberg, Carl, <a href="#Page_232">232</a></li> + + <li class="indx">du Pont de Nemours and <abbr title="Company">Co.</abbr>, E. I., <a href="#Page_24">24</a>, <a href="#Page_124">124</a>, <a href="#Page_125">125</a>, <a href="#Page_130">130–134</a>, <a href="#Page_140">140</a>, + <a href="#Page_141">141</a>, <a href="#Page_179">179–185</a>, <a href="#Page_218">218</a>, <a href="#Page_225">225–227</a>, <a href="#Page_241">241</a>, <a href="#Page_244">244</a>, + <a href="#Page_245">245</a>, <a href="#Page_256">256</a></li> + + <li class="indx">du Pont, Lammot, <a href="#Page_179">179</a>, <a href="#Page_183">183</a>, <a href="#Page_226">226</a></li> + + <li class="indx">Dusseldorf, peace of, <a href="#Page_14">14</a>, <a href="#Page_16">16</a></li> + + <li class="indx">Dyestuffs, <a href="#Page_6">6</a>, <a href="#Page_30">30</a>, <a href="#Page_43">43</a>, <a href="#Page_184">184</a>, <a href="#Page_214">214</a>, <a href="#Page_215">215</a>, + <a href="#Page_253">253</a></li> + + <li class="indx">Dynamit Aktiengesellschaft, <a href="#Page_182">182</a></li> + + + <li class="ifrst">Economy, American, <a href="#Page_36">36–39</a>, <a href="#Page_51">51</a></li> + + <li class="indx">Eddy Match <abbr title="Company">Co.</abbr>, <abbr title="Limited">Ltd.</abbr>, <a href="#Page_185">185</a>, <a href="#Page_190">190</a></li> + + <li class="indx">Edison, Thomas, <a href="#Page_44">44</a>, <a href="#Page_46">46</a></li> + + <li class="indx">Egeler, <abbr>Mr.</abbr>, <a href="#Page_28">28</a></li> + + <li class="indx">Ehrlich’s “Magic Bullet” (See <a href="#idx_Salvarsan">Salvarsan</a>), <a href="#Page_47">47</a></li> + + <li class="indx">Eisenhart, M. H., <a href="#Page_165">165</a></li> + + <li class="indx">Elley, H. W., <a href="#Page_88">88</a>, <a href="#Page_92">92</a></li> + + <li class="indx">Ely, Carl B., <a href="#Page_116">116</a>, <a href="#Page_117">117</a></li> + + <li class="indx">Engi, <abbr>Dr.</abbr> Joseph, <a href="#Page_78">78</a></li> + + <li class="indx">Ephedrine, <a href="#Page_92">92</a></li> + + <li class="indx">Ergosterol, <a href="#Page_89">89–93</a>, <a href="#Page_103">103</a>, <a href="#Page_104">104</a>, <a href="#Page_111">111</a></li> + + <li class="indx">Ergosterol, Irradiated, <a href="#Page_98">98</a></li> + + <li class="indx">Espionage, Nazi, <a href="#Page_12">12</a></li> + + <li class="indx">Ethyl Gasoline <abbr title="Corporation">Corp.</abbr>, <a href="#Page_24">24</a>, <a href="#Page_25">25</a>, <a href="#Page_26">26</a>, <a href="#Page_27">27</a></li> + + <li class="indx">Explosives Industries, <abbr title="Limited">Ltd.</abbr>, <a href="#Page_182">182</a></li> + + + <li class="ifrst">Fairburn, William A., <a href="#Page_185">185–189</a></li> + + <li class="indx">Falkland Islands, <a href="#Page_240">240</a></li> + + <li class="indx">Fauth Instrument <abbr title="Company">Co.</abbr>, <a href="#Page_144">144</a></li> + + <li class="indx">Federal Trade Commission, <a href="#Page_194">194</a>, <a href="#Page_195">195</a>, <a href="#Page_201">201</a></li> + + <li class="indx">Federation of British Industries, <a href="#Page_13">13</a>, <a href="#Page_235">235</a></li> + + <li class="indx">Fertilizer, <a href="#Page_253">253</a></li> + + <li class="indx">Fleischmann <abbr title="Company">Co.</abbr>, <a href="#Page_87">87</a>, <a href="#Page_90">90</a>, <a href="#Page_93">93</a>, <a href="#Page_103">103</a>, <a href="#Page_105">105</a></li> + + <li class="indx">Fluorescent lighting, <a href="#Page_44">44</a>, <a href="#Page_254">254</a></li> + + <li class="indx">Foreign Agents’ Registration Act, <a href="#Page_209">209</a></li> + + <li class="indx">Forestal Land, Timber and Railways, <abbr title="Limited">Ltd.</abbr>, <a href="#Page_114">114</a>, <a href="#Page_116">116</a>, <a href="#Page_118">118</a>, <a href="#Page_121">121</a>, + <a href="#Page_122">122</a>, <a href="#Page_256">256</a></li> + + <li class="indx">Forinvent, <a href="#Page_68">68</a>, <a href="#Page_70">70</a></li> + + <li class="indx">Fortune Magazine, <a href="#Page_168">168</a></li> + + <li class="indx">Freedmen’s Hospital, <a href="#Page_93">93</a></li> + + <li class="indx">Fritzsching, E. T., <a href="#Page_74">74</a>, <a href="#Page_75">75</a></li> + + + <li class="ifrst">General Aniline and Film <abbr title="Corporation">Corp.</abbr>, <a href="#Page_256">256</a></li> + + <li class="indx">General Aniline Works, <a href="#Page_31">31</a>, <a href="#Page_216">216</a></li> + + <li class="indx">General Baking <abbr title="Company">Co.</abbr>, <a href="#Page_104">104</a>, <a href="#Page_105">105</a></li> + + <li class="indx"><span class="pagenum" id="Page_263">[Pg 263]</span>General Dyestuff <abbr title="Corporation">Corp.</abbr>, <a href="#Page_253">253</a></li> + + <li class="indx">General Electric <abbr title="Company">Co.</abbr>, <a href="#Page_42">42–45</a>, <a href="#Page_237">237</a>, <a href="#Page_254">254</a>, <a href="#Page_257">257</a></li> + + <li class="indx">General Mills, <a href="#Page_93">93</a>, <a href="#Page_104">104</a></li> + + <li class="indx">General Motors <abbr title="Corporation">Corp.</abbr>, <a href="#Page_26">26</a>, <a href="#Page_180">180</a>, <a href="#Page_232">232</a></li> + + <li class="indx">Geophysical Laboratory, <a href="#Page_145">145</a></li> + + <li class="indx">George, Lloyd, <a href="#Page_5">5</a>, <a href="#Page_6">6</a></li> + + <li class="indx"><span id="idx_Germanin">Germanin</span> (See <a href="#idx_Bayer">Bayer</a> 205), <a href="#Page_55">55</a></li> + + <li class="indx">Germany, <a href="#Page_5">5</a>, <a href="#Page_14">14</a>, <a href="#Page_15">15</a>, <a href="#Page_22">22–27</a>, <a href="#Page_33">33</a>, <a href="#Page_62">62</a>, + <a href="#Page_64">64</a>, <a href="#Page_129">129</a>, <a href="#Page_135">135</a>, <a href="#Page_138">138</a>, <a href="#Page_142">142–147</a>, <a href="#Page_151">151</a>, + <a href="#Page_161">161</a>, <a href="#Page_166">166</a>, <a href="#Page_175">175</a>, <a href="#Page_176">176</a>, <a href="#Page_182">182</a>, <a href="#Page_210">210–215</a>, + <a href="#Page_219">219–221</a>, <a href="#Page_224">224</a>, <a href="#Page_227">227</a>, <a href="#Page_228">228</a>, <a href="#Page_231">231</a>, <a href="#Page_232">232</a>, + <a href="#Page_235">235</a>, <a href="#Page_240">240</a>, <a href="#Page_246">246</a>, <a href="#Page_247">247</a></li> + + <li class="indx">Glass container industry, <a href="#Page_41">41</a>, <a href="#Page_42">42</a></li> + + <li class="indx">Glucose-D, <a href="#Page_89">89</a></li> + + <li class="indx">Goodlass Wall Lead Industries, <abbr title="Limited">Ltd.</abbr>, <a href="#Page_133">133</a></li> + + <li class="indx">Good Neighbor policy, <a href="#Page_10">10</a>, <a href="#Page_12">12</a>, <a href="#Page_209">209</a>, <a href="#Page_214">214</a>, <a href="#Page_230">230</a></li> + + <li class="indx">Goodrich, <a href="#Page_212">212</a></li> + + <li class="indx">Goodyear, <a href="#Page_212">212</a></li> + + <li class="indx">Gordon <abbr title="Corporation">Corp.</abbr>, William, <a href="#Page_185">185</a>, <a href="#Page_187">187</a>, <a href="#Page_191">191</a></li> + + <li class="indx">Graham crackers, <a href="#Page_89">89</a></li> + + <li class="indx">Great Britain, <a href="#Page_14">14–17</a>, <a href="#Page_80">80</a>, <a href="#Page_132">132</a>, <a href="#Page_166">166</a>, <a href="#Page_216">216</a>, + <a href="#Page_217">217</a>, <a href="#Page_224">224</a>, <a href="#Page_235">235</a>, <a href="#Page_237">237</a>, <a href="#Page_240">240</a></li> + + <li class="indx">Grecian Navy <abbr title="Department">Dept.</abbr>, <a href="#Page_149">149</a></li> + + + <li class="ifrst">Hague, The, <a href="#Page_150">150</a></li> + + <li class="indx">Haight, George I., <a href="#Page_84">84</a>, <a href="#Page_85">85</a></li> + + <li class="indx">Hammond and Carpenter <abbr title="Corporation">Corp.</abbr>, <a href="#Page_120">120</a></li> + + <li class="indx">Harbison-Walker Refractories <abbr title="Company">Co.</abbr>, <a href="#Page_255">255</a></li> + + <li class="indx">Hayfever, <a href="#Page_91">91</a></li> + + <li class="indx">Hess, Donald P., <a href="#Page_254">254</a></li> + + <li class="indx">Hitler, Adolf, <a href="#Page_142">142</a>, <a href="#Page_143">143</a>, <a href="#Page_146">146</a>, <a href="#Page_150">150</a>, <a href="#Page_154">154–159</a>, + <a href="#Page_162">162</a></li> + + <li class="indx">Hoffman-La Roche, <abbr title="Incorporated">Inc.</abbr>, <a href="#Page_73">73</a>, <a href="#Page_74">74</a></li> + + <li class="indx">Holland, <a href="#Page_27">27</a></li> + + <li class="indx">Holman, Howard F., <a href="#Page_185">185</a></li> + + <li class="indx">Hooker Electrochemical <abbr title="Company">Co.</abbr>, <abbr title="Incorporated">Inc.</abbr>, <a href="#Page_200">200</a>, <a href="#Page_202">202</a></li> + + <li class="indx">Hormones, <a href="#Page_58">58</a>, <a href="#Page_59">59</a>, <a href="#Page_60">60</a>, <a href="#Page_61">61</a>, <a href="#Page_67">67</a>, <a href="#Page_69">69</a>, + <a href="#Page_72">72</a>, <a href="#Page_74">74</a>, <a href="#Page_76">76</a>, <a href="#Page_254">254</a></li> + + <li class="indx">Horton, Ralph, <a href="#Page_103">103</a></li> + + <li class="indx">House Judiciary Committee, <a href="#Page_196">196</a>, <a href="#Page_198">198</a></li> + + <li class="indx">Howard, Frank, <a href="#Page_210">210</a></li> + + <li class="indx">Howes <abbr title="Brothers">Bros.</abbr>, <a href="#Page_117">117</a></li> + + <li class="indx">Hydrogenation, <a href="#Page_22">22</a></li> + + <li class="indx">Hydrogenation plants, <a href="#Page_23">23</a></li> + + + <li class="ifrst">I. G. Farbenindustrie, <a href="#Page_24">24</a>, <a href="#Page_25">25–27</a>, <a href="#Page_54">54</a>, <a href="#Page_84">84</a>, <a href="#Page_88">88</a>, + <a href="#Page_124">124</a>, <a href="#Page_125">125</a>, <a href="#Page_129">129–132</a>, <a href="#Page_135">135</a>, <a href="#Page_137">137</a>, <a href="#Page_141">141</a>, + <a href="#Page_180">180</a>, <a href="#Page_181">181</a>, <a href="#Page_184">184</a>, <a href="#Page_186">186</a>, <a href="#Page_190">190</a>, <a href="#Page_201">201–204</a>, + <a href="#Page_211">211–213</a>, <a href="#Page_216">216–225</a>, <a href="#Page_228">228</a>, <a href="#Page_229">229</a>, <a href="#Page_232">232</a>, <a href="#Page_241">241</a>, + <a href="#Page_255">255</a></li> + + <li class="indx">Illinois, University of, <a href="#Page_91">91</a></li> + + <li class="indx">Imperial Chemical Industries, <a href="#Page_125">125</a>, <a href="#Page_132">132</a>, <a href="#Page_133">133</a>, <a href="#Page_179">179–185</a>, <a href="#Page_199">199</a>, + <a href="#Page_203">203</a>, <a href="#Page_204">204</a>, <a href="#Page_225">225–227</a>, <a href="#Page_241">241</a>, <a href="#Page_245">245</a>, <a href="#Page_253">253</a></li> + + <li class="indx">Imperial Chemical Industries (<abbr title="New York">N. Y.</abbr>), <abbr title="Limited">Ltd.</abbr>, <a href="#Page_200">200</a>, <a href="#Page_201">201</a>, <a href="#Page_204">204</a></li> + + <li class="indx">Imperial Smelting, <a href="#Page_133">133</a></li> + + <li class="indx">Indiana Condensed Milk <abbr title="Company">Co.</abbr>, <a href="#Page_106">106</a></li> + + <li class="indx">Industrias Chimicas Brazeileiras “Duperial,” S.A., <a href="#Page_183">183</a></li> + + <li class="indx">Industrias Quimicas Argentinas “Duperial,” S.A., <a href="#Page_183">183</a></li> + + <li class="indx">Instruments, gyroscopic, <a href="#Page_254">254</a></li> + + <li class="indx">Instruments, military optical, <a href="#Page_255">255</a></li> + + <li class="indx">Insulin, <a href="#Page_52">52</a>, <a href="#Page_53">53</a>, <a href="#Page_60">60</a>, <a href="#Page_66">66</a></li> + + <li class="indx">Interflash Signal <abbr title="Corporation">Corp.</abbr>, <a href="#Page_148">148</a></li> + + <li class="indx">International Match, <a href="#Page_189">189</a></li> + + <li class="indx">International Products <abbr title="Corporation">Corp.</abbr>, <a href="#Page_114">114</a>, <a href="#Page_117">117</a>, <a href="#Page_119">119–122</a></li> + + <li class="indx">International Standard Electric <abbr title="Corporation">Corp.</abbr>, <a href="#Page_167">167</a></li> + + + <li class="ifrst">Jackson Laboratory (du Pont’s), <a href="#Page_31">31</a></li> + + <li class="indx">Japan, <a href="#Page_118">118</a>, <a href="#Page_129">129</a>, <a href="#Page_132">132–136</a>, <a href="#Page_186">186</a>, <a href="#Page_190">190</a></li> + + <li class="indx">Japanese Titanium <abbr title="Company">Co.</abbr>, <a href="#Page_135">135</a></li> + + <li class="indx">Jebsen, Gustav, <a href="#Page_127">127</a>, <a href="#Page_128">128</a>, <a href="#Page_129">129</a>, <a href="#Page_133">133</a>, <a href="#Page_136">136</a>, + <a href="#Page_137">137</a>, <a href="#Page_139">139</a></li> + + <li class="indx">Jewett, <abbr>Dr.</abbr> F. B., <a href="#Page_21">21</a></li> + + <li class="indx">Justice, <abbr title="Department">Dept.</abbr> of, <a href="#Page_3">3</a>, <a href="#Page_35">35</a>, <a href="#Page_39">39</a>, <a href="#Page_46">46</a>, <a href="#Page_58">58</a>, <a href="#Page_112">112</a>, + <a href="#Page_176">176</a>, <a href="#Page_179">179</a>, <a href="#Page_185">185</a>, <a href="#Page_193">193</a>, <a href="#Page_195">195</a>, <a href="#Page_199">199</a>, + <a href="#Page_204">204</a>, <a href="#Page_220">220</a>, <a href="#Page_225">225</a>, <a href="#Page_252">252</a></li> + + + <li class="ifrst">Kaiserism, <a href="#Page_3">3</a>, <a href="#Page_5">5</a></li> + + <li class="indx">Kamp, H., <a href="#Page_72">72</a>, <a href="#Page_73">73</a>, <a href="#Page_76">76</a>, <a href="#Page_80">80</a></li> + + <li class="indx">Keim, R. D., <a href="#Page_97">97</a></li> + + <li class="indx">Keuffel and Esser, <a href="#Page_160">160</a>, <a href="#Page_168">168</a></li> + + <li class="indx">Kewley, Joseph E., <a href="#Page_254">254</a></li> + + <li class="indx">Kies, W. S., <a href="#Page_103">103</a></li> + + <li class="indx">Kilgore, Senator Harley, <a href="#Page_247">247</a></li> + + <li class="indx">King, Kenneth T., <a href="#Page_103">103</a></li> + + <li class="indx">Kokusan Kogyo Kabushiki Kaisha, <a href="#Page_135">135</a></li> + + <li class="indx">Kovaks, S. S., <a href="#Page_89">89</a></li> + + <li class="indx">Krebs Pigment and Color <abbr title="Corporation">Corp.</abbr>, <a href="#Page_130">130</a></li> + + <li class="indx">Kreuger, Ivar, <a href="#Page_187">187</a>, <a href="#Page_188">188</a>, <a href="#Page_189">189</a>, <a href="#Page_190">190</a></li> + + <li class="indx">Krupp Works (Germany), <a href="#Page_42">42</a></li> + + + <li class="ifrst">La Chaquena, S. A., <a href="#Page_120">120</a></li> + + <li class="indx">La Forestal Argentina, S.A., <a href="#Page_114">114</a>, <a href="#Page_117">117</a>, <a href="#Page_118">118</a></li> + + <li class="indx">Lamps, electric, <a href="#Page_43">43</a>, <a href="#Page_236">236</a></li> + + <li class="indx">Lamps, flashlight, <a href="#Page_28">28</a></li> + + <li class="indx">Lamps, incandescent, <a href="#Page_254">254</a></li> + + <li class="indx">La Prensa, <a href="#Page_119">119</a></li> + + <li class="indx">Larson, W. N., <a href="#Page_100">100</a></li> + + <li class="indx">Lasdon, W. S., <a href="#Page_75">75</a></li> + + <li class="indx">Latin America, <a href="#Page_12">12</a>, <a href="#Page_13">13</a>, <a href="#Page_68">68–71</a>, <a href="#Page_176">176</a>, <a href="#Page_214">214</a></li> + + <li class="indx"><span id="idx_Les_Laboratories_Francais_de_Chimiotherapie">Les Laboratories Francais de Chimiotherapie</span> (See <a href="#idx_Chimio">Chimio</a> (France)), <a href="#Page_61">61</a>, <a href="#Page_76">76</a></li> + + <li class="indx">Lever <abbr title="Brothers">Bros.</abbr>, <a href="#Page_105">105</a></li> + + <li class="indx">Light metals, <a href="#Page_33">33</a></li> + + <li class="indx">Lignite, <a href="#Page_211">211</a></li> + + <li class="indx">Lind, Paul Bertil, <a href="#Page_185">185</a></li> + + <li class="indx"><span class="pagenum" id="Page_264">[Pg 264]</span>Lion Match <abbr title="Company">Co.</abbr>, <abbr title="Incorporated">Inc.</abbr>, <a href="#Page_185">185</a>, <a href="#Page_187">187</a>, <a href="#Page_189">189</a></li> + + <li class="indx">Literary Digest, <a href="#Page_166">166</a></li> + + <li class="indx">Lithopone, <a href="#Page_126">126</a>, <a href="#Page_140">140</a>, <a href="#Page_141">141</a></li> + + <li class="indx">Lomb, August, <a href="#Page_155">155–161</a>, <a href="#Page_170">170</a></li> + + <li class="indx">Lomb, Carl, <a href="#Page_154">154</a>, <a href="#Page_165">165</a></li> + + <li class="indx">London, University of, <a href="#Page_86">86</a></li> + + <li class="indx">Loose-Wiles Biscuit <abbr title="Company">Co.</abbr>, <a href="#Page_89">89</a></li> + + + <li class="ifrst">Magnesit <abbr title="Company">Co.</abbr>, <abbr title="Limited">Ltd.</abbr>, <a href="#Page_255">255</a></li> + + <li class="indx">Magnesite Brick, <a href="#Page_255">255</a></li> + + <li class="indx">Magnesit Industrie Aktiengesellschaft, <a href="#Page_255">255</a></li> + + <li class="indx">Magnesium, <a href="#Page_11">11</a>, <a href="#Page_34">34</a>, <a href="#Page_214">214</a>, <a href="#Page_220">220–224</a>, <a href="#Page_236">236</a>, <a href="#Page_237">237</a>, + <a href="#Page_255">255</a></li> + + <li class="indx">Magnesium Development <abbr title="Company">Co.</abbr>, <a href="#Page_222">222</a></li> + + <li class="indx">Malaria, <a href="#Page_57">57</a>, <a href="#Page_229">229</a></li> + + <li class="indx">Matches, <a href="#Page_186">186</a>, <a href="#Page_255">255</a></li> + + <li class="indx">Mathieson Alkali Works, <abbr title="Incorporated">Inc.</abbr>, <a href="#Page_200">200</a>, <a href="#Page_202">202</a></li> + + <li class="indx">McGowan, Harry Duncan, <a href="#Page_179">179</a>, <a href="#Page_181">181</a>, <a href="#Page_183">183</a>, <a href="#Page_226">226</a></li> + + <li class="indx">Meade-Johnson and <abbr title="Company">Co.</abbr>, <a href="#Page_94">94</a>, <a href="#Page_95">95</a>, <a href="#Page_96">96</a>, <a href="#Page_99">99–101</a></li> + + <li class="indx">Medical Research Council, <a href="#Page_80">80</a></li> + + <li class="indx">Meinhardt, <a href="#Page_231">231</a></li> + + <li class="indx">Merck and <abbr title="Company">Co.</abbr>, <abbr title="Incorporated">Inc.</abbr> (<abbr title="New Jersey">N. J.</abbr>), <a href="#Page_76">76</a>, <a href="#Page_176">176–178</a>, <a href="#Page_256">256</a></li> + + <li class="indx">Merck, E. (Darmstadt, Germany), <a href="#Page_76">76</a>, <a href="#Page_176">176</a>, <a href="#Page_177">177</a>, <a href="#Page_178">178</a></li> + + <li class="indx">Merck, George W., <a href="#Page_177">177</a></li> + + <li class="indx">Mercurials, <a href="#Page_178">178</a></li> + + <li class="indx">Merrell <abbr title="Company">Co.</abbr>, W. S., <a href="#Page_98">98</a>, <a href="#Page_111">111</a></li> + + <li class="indx">Metal and Thermit <abbr title="Company">Co.</abbr> of <abbr title="New York">N. Y.</abbr>, <a href="#Page_220">220</a></li> + + <li class="indx">Metals, Alkali, <a href="#Page_184">184</a></li> + + <li class="indx">Methyl Methacrylate, <a href="#Page_28">28</a>, <a href="#Page_29">29</a></li> + + <li class="indx">Milas process, <a href="#Page_88">88</a></li> + + <li class="indx">Milk of Magnesia, <a href="#Page_66">66</a></li> + + <li class="indx">Mines, <abbr title="United States">U. S.</abbr> Bureau of, <a href="#Page_221">221</a></li> + + <li class="indx">Molybdenum, <a href="#Page_255">255</a></li> + + <li class="indx">Mond, Henry, <a href="#Page_179">179</a></li> + + <li class="indx">Monroe Doctrine, <a href="#Page_214">214</a></li> + + <li class="indx">Moore-McCormack Steamship <abbr title="Company">Co.</abbr>, <a href="#Page_121">121</a></li> + + <li class="indx">Munich, peace of, <a href="#Page_14">14</a></li> + + <li class="indx">Mutual Chemical <abbr title="Company">Co.</abbr>, of America, <a href="#Page_254">254</a></li> + + + <li class="ifrst">Narcotics, <a href="#Page_55">55</a>, <a href="#Page_178">178</a></li> + + <li class="indx">Nathan and <abbr title="Company">Co.</abbr>, Joseph (Great Britain), <a href="#Page_84">84</a>, <a href="#Page_88">88</a></li> + + <li class="indx">National Lead <abbr title="Company">Co.</abbr>, <a href="#Page_124">124–137</a>, <a href="#Page_140">140</a>, <a href="#Page_257">257</a></li> + + <li class="indx">National Titanium Pigments <abbr title="Company">Co.</abbr>, <abbr title="Limited">Ltd.</abbr>, <a href="#Page_133">133</a></li> + + <li class="indx">Navy, <abbr title="United States">U. S.</abbr>, <a href="#Page_143">143</a>, <a href="#Page_147">147</a>, <a href="#Page_148">148</a>, <a href="#Page_158">158</a>, <a href="#Page_163">163</a>, + <a href="#Page_164">164</a>, <a href="#Page_166">166</a>, <a href="#Page_170">170–174</a></li> + + <li class="indx">Nederlandsche Instrumenten Compagnie (Nedinsco), <a href="#Page_149">149–153</a>, <a href="#Page_157">157–158</a>, <a href="#Page_167">167</a></li> + + <li class="indx">Neoprene, <a href="#Page_184">184</a></li> + + <li class="indx">Nestle’s Milk Products, <abbr title="Incorporated">Inc.</abbr>, <a href="#Page_106">106</a></li> + + <li class="indx">News reporting, <a href="#Page_256">256</a></li> + + <li class="indx">New York Match <abbr title="Company">Co.</abbr>, <abbr title="Incorporated">Inc.</abbr>, <a href="#Page_185">185</a></li> + + <li class="indx">Niagara Alkali Company, <a href="#Page_200">200</a>, <a href="#Page_202">202</a></li> + + <li class="indx">Nieuwe Nederlandsche Maatschappij Tot Vervaardigen Van Spiegelglas N.V., <a href="#Page_254">254</a></li> + + <li class="indx">Nitrate of soda, <a href="#Page_240">240</a>, <a href="#Page_241">241</a>, <a href="#Page_242">242</a></li> + + <li class="indx"><span lang="la">Nolo contendere</span>, <a href="#Page_113">113</a>, <a href="#Page_142">142</a>, <a href="#Page_254">254–256</a></li> + + <li class="indx">Norsk Hydro, <a href="#Page_241">241</a></li> + + <li class="indx"><abbr class="spell">N.R.A.</abbr>, <a href="#Page_159">159</a></li> + + <li class="indx">Nylon, <a href="#Page_184">184</a></li> + + + <li class="ifrst">Office of Facts and Figures, <a href="#Page_8">8</a></li> + + <li class="indx">Ohio Match <abbr title="Company">Co.</abbr>, <a href="#Page_185">185</a>, <a href="#Page_187">187</a>, <a href="#Page_189">189</a></li> + + <li class="indx">Optical glass, military, <a href="#Page_24">24</a>, <a href="#Page_214">214</a>, <a href="#Page_236">236</a></li> + + <li class="indx">Optical Triple Alliance, <a href="#Page_144">144</a></li> + + <li class="indx">Ordnance, Bureau, <a href="#Page_147">147</a></li> + + <li class="indx">Organon, N. J., <a href="#Page_61">61</a></li> + + <li class="indx">Organon, N. V. (Oss, Holland), <a href="#Page_73">73</a>, <a href="#Page_76">76</a>, <a href="#Page_77">77</a>, <a href="#Page_79">79</a></li> + + <li class="indx">Ottawa Conference, <a href="#Page_226">226</a></li> + + <li class="indx">Ottawa Journal, <a href="#Page_17">17</a></li> + + <li class="indx">Otterberg, Fritz, <a href="#Page_185">185</a></li> + + <li class="indx">Ovaltine, <a href="#Page_89">89</a></li> + + <li class="indx">Oxford University, <a href="#Page_80">80</a></li> + + + <li class="ifrst">Pacific Alkali <abbr title="Company">Co.</abbr>, <abbr title="Incorporated">Inc.</abbr>, <a href="#Page_200">200</a>, <a href="#Page_202">202</a></li> + + <li class="indx">Palladium, A. G., <a href="#Page_68">68</a></li> + + <li class="indx">Panama Canal Act, <a href="#Page_250">250</a></li> + + <li class="indx">Paper, newsprint, <a href="#Page_256">256</a></li> + + <li class="indx">Paraguay, <a href="#Page_113">113</a></li> + + <li class="indx">Parke-Davis and <abbr title="Company">Co.</abbr>, <a href="#Page_94">94–97</a></li> + + <li class="indx">Patent Office, <abbr title="United States">U. S.</abbr>, <a href="#Page_77">77</a>, <a href="#Page_170">170</a></li> + + <li class="indx">Patent system, <a href="#Page_3">3</a>, <a href="#Page_6">6</a>, <a href="#Page_36">36</a>, <a href="#Page_37">37</a>, <a href="#Page_38">38</a>, <a href="#Page_47">47</a>, + <a href="#Page_48">48</a>, <a href="#Page_51">51</a></li> + + <li class="indx">Patents and processes agreement, <a href="#Page_184">184</a>, <a href="#Page_225">225</a>, <a href="#Page_226">226</a></li> + + <li class="indx">Patents, <a href="#Page_5">5</a>, <a href="#Page_36">36–47</a>, <a href="#Page_53">53</a>, <a href="#Page_56">56</a>, <a href="#Page_59">59</a>, <a href="#Page_64">64–66</a>, + <a href="#Page_77">77</a>, <a href="#Page_83">83</a>, <a href="#Page_85">85</a>, <a href="#Page_86">86</a>, <a href="#Page_92">92</a>, <a href="#Page_128">128</a>, <a href="#Page_130">130</a>, + <a href="#Page_133">133</a>, <a href="#Page_136">136</a>, <a href="#Page_139">139</a>, <a href="#Page_140">140</a>, <a href="#Page_162">162</a>, <a href="#Page_184">184</a>, + <a href="#Page_190">190</a>, <a href="#Page_191">191</a>, <a href="#Page_220">220</a></li> + + <li class="indx">Pearl Harbor, <a href="#Page_34">34</a>, <a href="#Page_36">36</a>, <a href="#Page_70">70</a>, <a href="#Page_175">175</a>, <a href="#Page_212">212</a></li> + + <li class="indx">Pellagra, <a href="#Page_57">57</a></li> + + <li class="indx"><abbr title="Pennsylvania">Penn.</abbr> Salt Manufacturing <abbr title="Company">Co.</abbr>, <a href="#Page_200">200</a>, <a href="#Page_201">201</a></li> + + <li class="indx">Periscopes, <a href="#Page_144">144</a>, <a href="#Page_148">148</a>, <a href="#Page_156">156</a>, <a href="#Page_166">166</a></li> + + <li class="indx">Pet Milk <abbr title="Company">Co.</abbr>, <a href="#Page_106">106</a></li> + + <li class="indx">Petroleum, <a href="#Page_253">253</a></li> + + <li class="indx">Pharmex, <abbr title="Incorporated">Inc.</abbr>, <a href="#Page_69">69</a>, <a href="#Page_70">70</a></li> + + <li class="indx">Phillips of Holland, <a href="#Page_237">237</a></li> + + <li class="indx">Pistor, Gustav, <a href="#Page_255">255</a></li> + + <li class="indx">Pittsburgh Plate Glass <abbr title="Company">Co.</abbr>, <a href="#Page_145">145</a>, <a href="#Page_200">200</a>, <a href="#Page_201">201</a></li> + + <li class="indx">Plastics, <a href="#Page_24">24</a>, <a href="#Page_28">28</a>, <a href="#Page_34">34</a>, <a href="#Page_43">43</a>, <a href="#Page_184">184</a>, <a href="#Page_214">214</a>, + <a href="#Page_227">227</a>, <a href="#Page_236">236</a>, <a href="#Page_256">256</a></li> + + <li class="indx">Plexiglass, <a href="#Page_24">24</a></li> + + <li class="indx">Pomerene, Senator, <a href="#Page_195">195</a>, <a href="#Page_198">198</a></li> + + <li class="indx">Powers-Weightman-Rosengarten <abbr title="Corporation">Corp.</abbr>, <a href="#Page_177">177</a></li> + + <li class="indx">Price fixing, <a href="#Page_83">83</a>, <a href="#Page_84">84</a>, <a href="#Page_97">97</a>, <a href="#Page_104">104</a></li> + + <li class="indx">Proctor, Ellison, <a href="#Page_117">117</a></li> + + <li class="indx">Pure Food and Drug Act, <a href="#Page_29">29</a>, <a href="#Page_30">30</a></li> + + <li class="indx">Pyridium <abbr title="Corporation">Corp.</abbr>, <a href="#Page_75">75</a></li> + + + <li class="ifrst"><span class="pagenum" id="Page_265">[Pg 265]</span>Quaker Oats, <a href="#Page_89">89</a></li> + + <li class="indx">Quebracho, <a href="#Page_112">112–123</a>, <a href="#Page_256">256</a></li> + + <li class="indx">Quinine derivatives, <a href="#Page_55">55</a>, <a href="#Page_229">229</a>, <a href="#Page_230">230</a>, <a href="#Page_249">249</a></li> + + + <li class="ifrst">Range-finders, <a href="#Page_144">144</a>, <a href="#Page_148">148</a>, <a href="#Page_155">155</a>, <a href="#Page_156">156</a>, <a href="#Page_166">166</a>, + <a href="#Page_168">168</a></li> + + <li class="indx">Rare Chemicals, <abbr title="Incorporated">Inc.</abbr>, <a href="#Page_74">74</a>, <a href="#Page_75">75</a>, <a href="#Page_77">77</a></li> + + <li class="indx">Reciprocal trade pacts, <a href="#Page_10">10</a></li> + + <li class="indx">Reichsgruppe Industrie of Germany, <a href="#Page_14">14</a>, <a href="#Page_235">235</a></li> + + <li class="indx">Remington Arms <abbr title="Company">Co.</abbr>, <a href="#Page_179">179</a>, <a href="#Page_183">183</a>, <a href="#Page_217">217</a></li> + + <li class="indx">Resins, synthetic, <a href="#Page_184">184</a></li> + + <li class="indx">Rheinische Westfalische Sprengstoff, <a href="#Page_217">217</a></li> + + <li class="indx">Rickets, <a href="#Page_57">57</a>, <a href="#Page_82">82</a>, <a href="#Page_98">98</a></li> + + <li class="indx">Robinson, E. G., <a href="#Page_111">111</a></li> + + <li class="indx">Roche-Organon, <abbr title="Incorporated">Inc.</abbr>, <a href="#Page_74">74</a>, <a href="#Page_78">78–81</a>, <a href="#Page_254">254</a></li> + + <li class="indx">Rohm and Haas (Darmstadt, Germany), <a href="#Page_24">24</a></li> + + <li class="indx">Rohm and Haas <abbr title="Company">Co.</abbr> (Philadelphia), <a href="#Page_24">24</a>, <a href="#Page_29">29</a>, <a href="#Page_30">30</a>, <a href="#Page_227">227</a></li> + + <li class="indx">Ross, Ward, <a href="#Page_85">85</a>, <a href="#Page_91">91</a>, <a href="#Page_97">97</a>, <a href="#Page_100">100</a>, <a href="#Page_102">102</a>, <a href="#Page_104">104</a>, + <a href="#Page_105">105</a></li> + + <li class="indx">Rossi, <abbr>Dr.</abbr> A. J., <a href="#Page_126">126</a></li> + + <li class="indx">Russell, <abbr>Dr.</abbr> Henry L., <a href="#Page_85">85</a>, <a href="#Page_90">90</a>, <a href="#Page_91">91</a>, <a href="#Page_92">92</a>, <a href="#Page_96">96–100</a>, + <a href="#Page_105">105</a></li> + + <li class="indx">Russia, <a href="#Page_186">186</a>, <a href="#Page_190">190</a></li> + + + <li class="ifrst">Sachtleben <abbr title="Company">Co.</abbr>, <a href="#Page_129">129</a></li> + + <li class="indx">Saegmuller, George, <a href="#Page_144">144</a>, <a href="#Page_147">147</a></li> + + <li class="indx"><span id="idx_Salvarsan">Salvarsan</span>, <a href="#Page_46">46</a>, <a href="#Page_54">54</a></li> + + <li class="indx">Samuhi, S. A., <a href="#Page_117">117</a>, <a href="#Page_118">118</a>, <a href="#Page_120">120</a>, <a href="#Page_122">122</a></li> + + <li class="indx">Saraka, <a href="#Page_66">66</a>, <a href="#Page_69">69</a></li> + + <li class="indx">Schering A. G. (Berlin), <a href="#Page_61">61–71</a>, <a href="#Page_74">74</a>, <a href="#Page_77">77</a>, <a href="#Page_79">79</a>, <a href="#Page_80">80</a>, + <a href="#Page_227">227</a></li> + + <li class="indx">Schering <abbr title="Corporation">Corp.</abbr> (Bloomfield, <abbr title="New Jersey">N. J.</abbr>), <a href="#Page_64">64–69</a>, <a href="#Page_73">73</a>, <a href="#Page_76">76</a>, <a href="#Page_77">77</a>, <a href="#Page_79">79</a>, + <a href="#Page_80">80</a>, <a href="#Page_227">227</a>, <a href="#Page_245">245</a></li> + + <li class="indx">Schering, <abbr title="Limited">Ltd.</abbr>, (London), <a href="#Page_68">68</a></li> + + <li class="indx">Schmitz, Dietrich, <a href="#Page_255">255</a></li> + + <li class="indx">Schweitzer, <abbr>Dr.</abbr> Samuel, <a href="#Page_68">68</a>, <a href="#Page_70">70</a></li> + + <li class="indx">Shangri-La, <a href="#Page_238">238</a></li> + + <li class="indx">Sherka Chemical <abbr title="Company">Co.</abbr>, <a href="#Page_69">69</a></li> + + <li class="indx">Sherman Act, <a href="#Page_1">1</a>, <a href="#Page_13">13</a>, <a href="#Page_16">16</a>, <a href="#Page_37">37</a>, <a href="#Page_179">179</a>, <a href="#Page_185">185</a>, + <a href="#Page_191">191</a>, <a href="#Page_193">193–199</a>, <a href="#Page_202">202</a>, <a href="#Page_205">205</a>, <a href="#Page_206">206</a>, <a href="#Page_234">234</a>, + <a href="#Page_250">250</a></li> + + <li class="indx">Siemens-Halske <abbr title="Company">Co.</abbr>, <a href="#Page_218">218</a>, <a href="#Page_220">220</a>, <a href="#Page_237">237</a></li> + + <li class="indx">Sights, gun, <a href="#Page_144">144</a>, <a href="#Page_148">148</a>, <a href="#Page_166">166</a></li> + + <li class="indx">Smith, Adam, <a href="#Page_19">19</a></li> + + <li class="indx">Snider Packing <abbr title="Company">Co.</abbr>, <a href="#Page_90">90</a>, <a href="#Page_91">91</a></li> + + <li class="indx">Societe de Products Chemiques des Terres Rares, <a href="#Page_130">130</a></li> + + <li class="indx"><span id="idx_Society_of_Chemical_Industry_Basle">Society of Chemical Industry (Basle)</span>, <a href="#Page_61">61</a>, <a href="#Page_72">72</a></li> + + <li class="indx">Soda ash, <a href="#Page_201">201</a></li> + + <li class="indx">Soda, caustic, <a href="#Page_201">201</a></li> + + <li class="indx"><span id="idx_Solvay_et_Cie">Solvay et Cie</span>, <a href="#Page_200">200</a>, <a href="#Page_203">203</a>, <a href="#Page_204">204</a></li> + + <li class="indx">Solvay Process <abbr title="Company">Co.</abbr>, <a href="#Page_200">200</a></li> + + <li class="indx">South America, <a href="#Page_12">12</a>, <a href="#Page_55">55</a>, <a href="#Page_56">56</a>, <a href="#Page_71">71</a>, <a href="#Page_112">112</a>, <a href="#Page_115">115</a>, + <a href="#Page_128">128</a>, <a href="#Page_131">131</a>, <a href="#Page_177">177</a>, <a href="#Page_181">181</a>, <a href="#Page_182">182</a>, <a href="#Page_215">215</a>, + <a href="#Page_216">216</a></li> + + <li class="indx">Southern Alkali <abbr title="Corporation">Corp.</abbr>, <a href="#Page_200">200</a>, <a href="#Page_202">202</a></li> + + <li class="indx">Soviet match monopoly, <a href="#Page_190">190</a></li> + + <li class="indx">Spain, <a href="#Page_71">71</a>, <a href="#Page_129">129</a></li> + + <li class="indx">Spencer Lens <abbr title="Company">Co.</abbr>, <a href="#Page_145">145</a></li> + + <li class="indx">Sperry <abbr title="Corporation">Corp.</abbr>, <a href="#Page_254">254</a></li> + + <li class="indx">Sperti, George, <a href="#Page_95">95</a></li> + + <li class="indx">Sprague Steamship <abbr title="Company">Co.</abbr>, <a href="#Page_121">121</a></li> + + <li class="indx">Squibb and Sons, E. R., <a href="#Page_95">95–97</a></li> + + <li class="indx">Squibb’s Viosterol, <a href="#Page_94">94</a></li> + + <li class="indx"><abbr title="Saint">St.</abbr> Helen’s, <abbr title="Limited">Ltd.</abbr>, <a href="#Page_115">115</a></li> + + <li class="indx">Standard Brands, <abbr title="Incorporated">Inc.</abbr>, <a href="#Page_87">87</a>, <a href="#Page_89">89</a>, <a href="#Page_103">103</a>, <a href="#Page_107">107</a>, <a href="#Page_108">108</a></li> + + <li class="indx">Standard-I. G. <abbr title="Corporation">Corp.</abbr>, <a href="#Page_219">219</a>, <a href="#Page_220">220</a></li> + + <li class="indx">Standard Oil <abbr title="Company">Co.</abbr> (New Jersey), <a href="#Page_22">22</a>, <a href="#Page_24">24</a>, <a href="#Page_26">26</a>, <a href="#Page_210">210–213</a>, <a href="#Page_219">219</a>, + <a href="#Page_228">228</a>, <a href="#Page_253">253</a></li> + + <li class="indx">Standards, Bureau of, <a href="#Page_145">145</a></li> + + <li class="indx">Standard Telephone and Cables, <abbr title="Limited">Ltd.</abbr>, <a href="#Page_167">167</a></li> + + <li class="indx">Starling, <a href="#Page_60">60</a></li> + + <li class="indx">Steenbock patents, <a href="#Page_84">84–87</a>, <a href="#Page_90">90</a>, <a href="#Page_92">92</a>, <a href="#Page_99">99</a>, <a href="#Page_107">107</a>, + <a href="#Page_108">108</a></li> + + <li class="indx">Sterols, <a href="#Page_89">89</a>, <a href="#Page_109">109</a>, <a href="#Page_111">111</a></li> + + <li class="indx">Stickstoff-Syndikat, <a href="#Page_241">241</a></li> + + <li class="indx">Stilbestrol, <a href="#Page_79">79</a>, <a href="#Page_80">80</a>, <a href="#Page_81">81</a></li> + + <li class="indx">Stockard Steamship <abbr title="Corporation">Corp.</abbr>, <a href="#Page_121">121</a></li> + + <li class="indx">Stragnell, Gregory, <a href="#Page_69">69</a>, <a href="#Page_70">70</a></li> + + <li class="indx">Sulfa drugs, <a href="#Page_55">55</a>, <a href="#Page_178">178</a></li> + + <li class="indx">Sullivan, John B., <a href="#Page_114">114</a>, <a href="#Page_116">116</a>, <a href="#Page_119">119</a></li> + + <li class="indx"><span id="idx_Svenska_Tandsticks_Aktiebolaget">Svenska Tandsticks Aktiebolaget</span> (See <a href="#idx_Swedish_Match_Co">Swedish Match <abbr title="Company">Co.</abbr></a>), <a href="#Page_185">185–190</a></li> + + <li class="indx"><span id="idx_Swedish_Match_Co">Swedish Match <abbr title="Company">Co.</abbr></span> (See <a href="#idx_Svenska_Tandsticks_Aktiebolaget">Svenska Tandsticks Aktiebolaget</a>), <a href="#Page_185">185–190</a></li> + + <li class="indx">Swiss Bank <abbr title="Corporation">Corp.</abbr> (Basle), <a href="#Page_68">68</a>, <a href="#Page_70">70</a>, <a href="#Page_254">254</a></li> + + <li class="indx">Synthetic nitrogen, <a href="#Page_236">236</a>, <a href="#Page_243">243</a>, <a href="#Page_245">245</a></li> + + <li class="indx">Synthetic Nitrogen Products <abbr title="Corporation">Corp.</abbr>, <a href="#Page_254">254</a></li> + + <li class="indx">Synthetic rubber, <a href="#Page_24">24</a>, <a href="#Page_47">47</a>, <a href="#Page_67">67</a>, <a href="#Page_184">184</a>, <a href="#Page_210">210</a>, + <a href="#Page_212">212</a></li> + + <li class="indx">Synthetic rubber manufacture, <a href="#Page_7">7</a>, <a href="#Page_8">8</a></li> + + <li class="indx">System Nedinsco-Zeiss, <a href="#Page_152">152</a></li> + + + <li class="ifrst">Tanks, <a href="#Page_157">157</a></li> + + <li class="indx">Tannic, acid, <a href="#Page_114">114</a></li> + + <li class="indx">Tannin <abbr title="Corporation">Corp.</abbr> (<abbr title="New York">N. Y.</abbr>), <a href="#Page_114">114–116</a>, <a href="#Page_120">120</a>, <a href="#Page_122">122</a>, <a href="#Page_256">256</a></li> + + <li class="indx">Tannin Products <abbr title="Corporation">Corp.</abbr> (<abbr title="Delaware">Dela.</abbr>), <a href="#Page_115">115–116</a></li> + + <li class="indx">Teagle, Walter, <a href="#Page_210">210</a></li> + + <li class="indx">Tetra-ethyl lead, <a href="#Page_25">25</a></li> + + <li class="indx">Tetrazene primed ammunition, <a href="#Page_217">217</a></li> + + <li class="indx">Thyroid, <a href="#Page_66">66</a></li> + + <li class="indx">Titan <abbr title="Company">Co.</abbr> <abbr class="spell">A/S</abbr>, <a href="#Page_127">127–129</a>, <a href="#Page_139">139</a></li> + + <li class="indx">Titan <abbr title="Company">Co.</abbr>, <abbr title="Incorporated">Inc.</abbr>, <a href="#Page_124">124</a>, <a href="#Page_127">127</a>, <a href="#Page_132">132–139</a></li> + + <li class="indx">Titangesellschaft, <abbr class="spell">G.m.b.H.</abbr>, <a href="#Page_129">129</a>, <a href="#Page_132">132–139</a></li> + + <li class="indx">Titanium Alloy Manufacturing <abbr title="Company">Co.</abbr>, <a href="#Page_126">126</a></li> + + <li class="indx">Titanium Pigment <abbr title="Company">Co.</abbr>, <a href="#Page_126">126–130</a></li> + + <li class="indx">Titan Kogyo Kaisha, <abbr title="Limited">Ltd.</abbr>, <a href="#Page_135">135</a>, <a href="#Page_136">136</a></li> + + <li class="indx">Titus, <abbr>Dr.</abbr> Harry, <a href="#Page_109">109</a></li> + + <li class="indx"><abbr class="spell">T.N.E.C.</abbr>, <a href="#Page_46">46</a></li> + + <li class="indx"><span class="pagenum" id="Page_266">[Pg 266]</span>Transamerican Match <abbr title="Corporation">Corp.</abbr>, <a href="#Page_185">185</a></li> + + <li class="indx">Truman Committee, <a href="#Page_63">63</a></li> + + <li class="indx">Tschopski, <abbr title="Professor">Prof.</abbr>, <a href="#Page_144">144</a></li> + + <li class="indx">Tungsten carbide, <a href="#Page_42">42</a>, <a href="#Page_257">257</a></li> + + + <li class="ifrst">Uniform Chemical Products, <a href="#Page_190">190</a></li> + + <li class="indx">United American Bosch <abbr title="Corporation">Corp.</abbr>, <a href="#Page_214">214</a></li> + + <li class="indx">United Nations, <a href="#Page_16">16</a>, <a href="#Page_20">20</a>, <a href="#Page_33">33</a>, <a href="#Page_175">175</a>, <a href="#Page_247">247</a></li> + + <li class="indx"><span id="idx_United_States_Alkali_Export_Assn">United States Alkali Export <abbr title="Association">Ass’n</abbr></span>, <a href="#Page_193">193</a>, <a href="#Page_199">199</a>, <a href="#Page_201">201–204</a>, <a href="#Page_252">252</a></li> + + <li class="indx">United States Army, <a href="#Page_143">143</a>, <a href="#Page_147">147</a>, <a href="#Page_158">158</a>, <a href="#Page_160">160</a>, <a href="#Page_166">166</a></li> + + <li class="indx">Universal Match <abbr title="Company">Co.</abbr>, <a href="#Page_185">185</a>, <a href="#Page_187">187</a>, <a href="#Page_189">189</a></li> + + + <li class="ifrst">Valentine, T., <a href="#Page_121">121</a>, <a href="#Page_122">122</a></li> + + <li class="indx">Veitscher Magnesitwerke Aktiengesellschaft, <a href="#Page_255">255</a></li> + + <li class="indx">Vernon-Benshoff <abbr title="Company">Co.</abbr> (Pittsburgh), <a href="#Page_29">29</a>, <a href="#Page_30">30</a></li> + + <li class="indx">Versailles Treaty, <a href="#Page_142">142–153</a></li> + + <li class="indx">Viosterol, <a href="#Page_91">91–94</a>, <a href="#Page_97">97</a>, <a href="#Page_98">98</a>, <a href="#Page_100">100</a>, <a href="#Page_103">103</a></li> + + <li class="indx">Vitamin D, <a href="#Page_82">82–87</a>, <a href="#Page_90">90–99</a>, <a href="#Page_103">103–111</a></li> + + <li class="indx">Vitamins, <a href="#Page_55">55</a>, <a href="#Page_60">60</a>, <a href="#Page_92">92</a>, <a href="#Page_178">178</a></li> + + <li class="indx">Vitamin Technologists, <abbr title="Incorporated">Inc.</abbr>, <a href="#Page_107">107</a></li> + + <li class="indx">Von Spee, Admiral, <a href="#Page_240">240</a></li> + + + <li class="ifrst">Waddell, <abbr>Dr.</abbr>, <a href="#Page_104">104</a></li> + + <li class="indx">Wanter <abbr title="Company">Co.</abbr>, <a href="#Page_89">89</a></li> + + <li class="indx">War Department, Mexico, <a href="#Page_149">149</a>, <a href="#Page_150">150</a>, <a href="#Page_160">160</a></li> + + <li class="indx">War Department, <abbr title="United States">U. S.</abbr>, <a href="#Page_167">167</a></li> + + <li class="indx">Wardenburg, <a href="#Page_227">227</a></li> + + <li class="indx">Webb Act, <a href="#Page_192">192–196</a>, <a href="#Page_199">199</a>, <a href="#Page_205">205–207</a></li> + + <li class="indx">Webb, Congressman, <a href="#Page_196">196</a>, <a href="#Page_197">197</a>, <a href="#Page_198">198</a></li> + + <li class="indx">Webb, E. W., <a href="#Page_24">24</a></li> + + <li class="indx">Weisburd and Cia, <abbr>Ltda.</abbr>, <a href="#Page_120">120</a>, <a href="#Page_121">121</a></li> + + <li class="indx">Weltzien, <abbr>Dr.</abbr> Julius, <a href="#Page_62">62</a>, <a href="#Page_70">70</a>, <a href="#Page_73">73</a>, <a href="#Page_81">81</a>, <a href="#Page_254">254</a></li> + + <li class="indx">West End Chemical <abbr title="Company">Co.</abbr>, <abbr title="Incorporated">Inc.</abbr>, <a href="#Page_200">200</a>, <a href="#Page_202">202</a></li> + + <li class="indx">West Haven Creamery <abbr title="Company">Co.</abbr>, <abbr title="Incorporated">Inc.</abbr>, <a href="#Page_107">107</a>, <a href="#Page_108">108</a></li> + + <li class="indx">Westvaco Chlorine Products <abbr title="Corporation">Corp.</abbr>, <a href="#Page_200">200</a>, <a href="#Page_202">202</a></li> + + <li class="indx">White lead, <a href="#Page_126">126</a></li> + + <li class="indx">Whitelisting, <a href="#Page_101">101</a></li> + + <li class="indx">Wilson, Tariff Act, <a href="#Page_250">250</a></li> + + <li class="indx">Wilson, Woodrow, <a href="#Page_7">7</a>, <a href="#Page_193">193</a></li> + + <li class="indx">Winnipeg Free Press, <a href="#Page_17">17</a></li> + + <li class="indx">Winthrop Chemical <abbr title="Company">Co.</abbr>, <a href="#Page_95">95–97</a>, <a href="#Page_101">101</a>, <a href="#Page_103">103</a></li> + + <li class="indx">Wisconsin Alumni Research Foundation, <a href="#Page_82">82–111</a></li> + + <li class="indx">Wisconsin, University of, <a href="#Page_82">82–85</a></li> + + <li class="indx">World War <abbr title="1">I</abbr>, <a href="#Page_39">39</a>, <a href="#Page_126">126</a>, <a href="#Page_144">144</a>, <a href="#Page_151">151</a>, <a href="#Page_186">186</a>, <a href="#Page_187">187</a>, + <a href="#Page_215">215</a>, <a href="#Page_228">228</a>, <a href="#Page_239">239</a>, <a href="#Page_240">240</a></li> + + <li class="indx"><abbr class="spell">WPA</abbr>, <a href="#Page_239">239</a></li> + + <li class="indx">Wyandotte Chemicals <abbr title="Corporation">Corp.</abbr>, <a href="#Page_200">200</a></li> + + + <li class="ifrst">Zeiss, Carl, <a href="#Page_24">24</a>, <a href="#Page_142">142–156</a>, <a href="#Page_159">159–164</a>, <a href="#Page_168">168–175</a>, <a href="#Page_255">255</a></li> +</ul> + +<div class="transnote"> +<h2 class="nobreak">Transcriber’s Note</h2> + +<p> +Some inconsistencies in spelling, hyphenation, and punctuation have been +retained. +</p> + +<ul> + +<li><abbr title="page">p.</abbr> 42: changed “th” to “the” (<a href="#TN1">complete control of the situation</a>)</li> + +<li><abbr title="page">p.</abbr> 90: changed “violent” to “violet” (<a href="#TN2">by ultra violet rays</a>)</li> + +<li><abbr title="page">p.</abbr> 90: changed “Fleischman” to “Fleischmann” (<a href="#TN3">irradiated yeast from Fleischmann</a>)</li> + +<li><abbr title="page">p.</abbr> 109: changed “moxed” to “mixed” (<a href="#TN4">tons of commercial mixed feed</a>)</li> + +<li><abbr title="page">p.</abbr> 115: changed “Tanning” to “Tannin” (<a href="#TN25">The Tannin Corporation imports approximately</a>)</li> + +<li><abbr title="page">p.</abbr> 117: changed “Lo” to “La” (<a href="#TN5">cooperated closely with La Forestal</a>)</li> + +<li><abbr title="page">p.</abbr> 127: changed “Jebson” to “Jebsen” (<a href="#TN6">National Lead and Jebsen organized</a>)</li> + +<li><abbr title="page">p.</abbr> 132: changed “entere dinto” to “entered into” (<a href="#TN7">entered into a series</a>)</li> + +<li><abbr title="page">p.</abbr> 143: changed “an dconsent” to “and consent” (<a href="#TN8">civil complaint and consent decree</a>)</li> + +<li><abbr title="page">p.</abbr> 154: changed “violatio nof” to “violation of” (<a href="#TN9">violation of the antitrust laws</a>)</li> + +<li><abbr title="page">p.</abbr> 157: changed “de-demands” to “demands” (<a href="#TN10">satisfy the actual demands</a>)</li> + +<li><abbr title="page">p.</abbr> 182: changed “Explosives” to “Explosivos” (<a href="#TN11">Compania Sud-Americana de Explosivos</a>)</li> + +<li><abbr title="page">p.</abbr> 191: changed “hope” to “hoped” (<a href="#TN12">It is to be hoped that</a>)</li> + +<li><abbr title="page">p.</abbr> 193: removed duplicated word “the” from “<a href="#TN13">Board of Directors of the the Commerce and Industry Association</a>”</li> + +<li><abbr title="page">p.</abbr> 205: changed “Sheriman” to “Sherman” (<a href="#TN14">embodied in the Sherman Act</a>)</li> + +<li><abbr title="page">p.</abbr> 206: changed “would would” to “would make” (<a href="#TN15">would make such abuses impossible</a>)</li> + +<li><abbr title="page">p.</abbr> 210: changed “every” to “ever” (<a href="#TN16">which has ever faced the company</a>)</li> + +<li><abbr title="page">p.</abbr> 211: removed duplicated word “was” from “<a href="#TN17">petroleum was was made part of</a>”</li> + +<li><abbr title="page">p.</abbr> 229: changed “authortiy” to “authority” (<a href="#TN18">Public authority must not be left</a>)</li> + +<li><abbr title="page">p.</abbr> 229: changed “securtiy” to “security” (<a href="#TN19">national security and national welfare</a>)</li> + +<li><abbr title="page">p.</abbr> 231: changed “thees” to “these” (<a href="#TN20">engaged in these practices</a>)</li> + +<li><abbr title="page">p.</abbr> 243: changed “an dunlawful” to “and unlawful” (<a href="#TN21">hidden and unlawful tax</a>)</li> + +<li><abbr title="page">p.</abbr> 246: changed “say” to “stay” (<a href="#TN22">stay out of important markets</a>)</li> + +<li><abbr title="page">p.</abbr> 256: changed “ofr” to “of” (<a href="#TN23">and fines of $59,003</a>)</li> + +<li><abbr title="page">p.</abbr> 262: changed “Scheidenstalt” to “Scheideanstalt” (<a href="#TN24">Deutsche Gold-und-Silber Scheideanstalt</a>)</li> +</ul> + +</div> + +<div style='text-align:center'>*** END OF THE PROJECT GUTENBERG EBOOK 78077 ***</div> +</body> +</html> diff 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