Morkrum-Kleinschmidt Corporation
(later renamed “Teletype Corporation”)
During and after the first world war, both the Morkrum Company and the
Kleinschmidt Electric Company were progressively developing and
producing telegraph apparatus and bringing out new and improved
operating devices to a point where conflicting patents were at issue.
This meant infringement litigation which might destroy both companies.
Neither company could obtain orders in sufficient quantity to make the
manufacturing of apparatus profitable, and, with costly development work
at hand, more capital investment was a continuous requirement.
The following excerpts from the March 1932 issue of _Fortune_[9] tells
of the final joining of the two companies.
The Morkrum Co. had no profits to show for its efforts, and one can be
fairly safe in assuming that no other maker of telegraph printers made
profits. There were competitors, of course. Even the first telegraph
invented by Samuel Morse had a printer, but it printed in dots and
dashes instead of in letters of the English alphabet. That original
Morse printer was abandoned as far back as 1844 because a man who
could be trained to read dots and dashes could just as easily be
trained to listen to them. The problem of getting a printer to print
the alphabet was faced by inventors more than half a century ago, and
it was not really a difficult problem. The difficulty was to invent a
printer that was not too complicated and delicate to be reliable, that
was simple enough to be manufactured for a few hundred instead of a
few thousand dollars.
This difficulty occupied many minds other than the Morton-Krum
intelligences. The most noteworthy of Morkrum Co.’s rivals in
printer-making was Edward Kleinschmidt, an inventor who had all the
inventor’s legendary devotion to his task and to nothing else. His
creations included a vaccination shield, an automatic fishing reel,
and the perfection of the Wheatstone perforator. He had been tinkering
with a telegraph printer in one form and another since the beginning
of the century. In 1917 his project was revamped. It had the financial
backing of Charles B. Goodspeed, of the Buckeye Steel Casting Co.;
Paul M. Benedict, assistant to the president of the C. B. & Q.; Edward
Moore, son of Judge Moore of American Can fame; Eldon Bisbee, a New
York lawyer; and one of Mr. Bisbee’s legal clients, Albert Henry
Wiggin, then president of the Chase National Bank. It was Mr.
Goodspeed, a quiet, retiring gentleman, who supplied most of the
corporate (as distinct from inventive) energy of the Kleinschmidt
Electric Co....
In the years from 1917 to 1924 the Kleinschmidt and the Morkrum
companies became the leading makers of telegraph printers, but they
did not have an easy row to hoe. Their only possible customers were
the two great telegraph companies, the Telephone company, the
railroads, and an occasional outside business such as a press
association. The competition was disheartening, and it became keener
with the elevation of Sterling, son of Joy Morton, to the presidency
of the Morkrum Co., an elevation that was mainly a War-time accident,
for Sterling Morton had resigned from his father’s company to enlist
in the Army, had been rejected because of a small steel plate in his
anatomy, and had chosen the Morkrum Co. as an alternative. Engineering
progress was made, sometimes under ludicrous circumstances.
There was one occasion when Sterling Morton, about to sail for Europe,
heard that the Kleinschmidt Co. was about to bring out a simplex
printer. Up to that time both companies had been making printers for
use with multiplex machines. Mr. Morton was afraid that Mr.
Kleinschmidt was about to anticipate him in the simplex development
which was the forerunner of the present teletypewriter. This was a
contingency which Mr. Morton could not well permit. On the spur of the
moment, he called on Howard Krum, who happened to be in New York. They
bought a drawing board, hired a room at the Princeton Club, and worked
for twenty-four hours trying to design such a machine. Completely
baffled by one small detail, they gave up and took a bus for Coney
Island. On the way, Howard Krum doubled up in sudden ecstacy and
inspiration. They rushed from the bus at Coney Island, entered a soda
fountain, and on the spot designed the machine on the back of an
envelope. This simplex machine of the Morkrum Co. and the one
developed by Kleinschmidt at the same time are the machines which make
Teletype commercially important, the substance of the business today.
But engineering progress was not business progress. Both companies
from the standpoint of profits were failures. Their few customers
played them off against each other. In despair, they were both willing
to sell out. At one point Mr. Goodspeed offered the Kleinschmidt
company to Mr. Newcomb Carlton of Western Union for $412,000, the
amount invested in it. Mr. Morton sold his company in all but fact to
Mr. Charles G. du Bois, then president of Western Electric, but Mr. du
Bois went off to Europe, and his substitute refused to see any merit
in the deal. So it fell through. Unable to sell themselves to their
customers, they tried selling themselves to each other. In 1923
Messrs. Goodspeed and Morton came to terms. The Morkrum Co. signed the
agreement and, everything arranged, Mr. Goodspeed went off to bicycle
with his wife in South Africa—whereupon his company suddenly changed
its mind.
That was the situation of these two unfortunate companies in 1924 when
Mr. Morton started a suit for patent infringement against his rivals.
A counter suit was promptly filed. Mr. Goodspeed was quite right when
he said the suits would ruin both—there was every prospect that by the
time the courts had settled things, the patents would have been in
such a snarl that neither could do anything. The suit, in fact, was
Sterling Morton’s way of bringing matters to a head. So, figuratively
speaking, on the courthouse steps they merged.
The terms of the merger as embodied in the six-line agreement (it was
later made over into a twenty-five-page legal document which concluded
by saying that in case of dispute the six-line agreement should be the
final authority) were these: each of the old companies received a half
interest in the common stock (10,000 shares) of the new company;
15,000 shares (callable at 105) of the new company’s preferred stock
should be divided according to the assets of the old companies.
Actually, 13,979 shares of preferred were issued, the majority going
to the Morkrum group.
And so it was that the agreement to join both companies under the name
Morkrum-Kleinschmidt Corporation was consummated and chartered in the
State of Delaware on December 29, 1924, with Sterling Morton as
President, Howard L. Krum as Vice President in charge of manufacturing,
and Edward E. Kleinschmidt as Vice President in charge of development,
patents and foreign sales.
One of the first decisions to make was whether the Kleinschmidt plant in
Long Island City or the Morkrum plant in Chicago would be the
headquarters for the new company. The Kleinschmidt company was on a
27,000-foot leased floor in a building which R. H. Macy Company had just
purchased to use for a warehouse, and negotiations had been going on for
some time for the purchase of the Kleinschmidt lease—the sum of
$25,000.00 having been offered. When the union of the two companies was
decided upon, an agreement to vacate on the terms offered was signed,
and the Kleinschmidt firm moved to the Morkrum-owned plant in Chicago.
[Illustration: Fig. 10
Morkrum-Kleinschmidt Corporation No. 14 Start-Stop Typebar Tape Printer
_Picture through courtesy of Teletype Corporation_]
Bringing together the engineering talent and patents of the two
companies had an immediate effect toward further progress. The first
thing the new company set out to do, through consolidation of their past
efforts, was to perfect a satisfactory start-stop-operated tape printer
for the Western Union Telegraph Company to use for circuit extension to
customers who were extensively using the telegraph for immediate,
written communication. (This was to speed up telegraphic communication
and eliminate the need for messenger service which had been the custom.)
The Morkrum company had submitted their start-stop-operated Baudot tape
printer, and the Kleinschmidt company had proposed the Western Union No.
22 tape printer in a redesign to start-stop operation. Now, the new
company was able to combine both plans and as a result came up with
their first development, a typebar, start-stop-operated, tape printer,
the No. 14 (see figure 10). In the final design, Howard Krum and his
production engineers took a large part. After tests and evaluation,
Western Union’s first order was for 10,000 machines at $317.00 each.
This amounted to a total of $3,170,000.00. No such quantity had ever
been heard of before!
It is quite evident that while the two companies were separated, each
coming up with improved and new designs of telegraph apparatus, there
was a lack of decision by telegraph companies as to which type of
apparatus to adopt in expanding their operations, and therefore they did
not buy in quantity. The largest previous order to the Kleinschmidt
Electric Company was for 800 No. 22 typebar tape printers for the
Western Union Multiplex.
At Morkrum-Kleinschmidt more space was needed. The corner property on
Wrightwood Avenue adjoining the Morkrum plant was purchased, and a
four-story building was erected.
The design of a telegraph typewriter that would be more efficient and
require a minimum of maintenance service was the most important project,
and Morkrum-Kleinschmidt was working with Bell Laboratories engineers
endeavoring to meet all the requirements of the Bell Telephone system. A
typebar printer with a stationary printing platen and moving typebar
printing unit was specified. These requirements were finally met with
the design of the No. 15 page printer to operate at 60 words per minute,
and manufacture of this apparatus was started in 1927 (see figure 11).
The No. 15 page printer became the standard for nationwide
intercommunicating telegraph service for many years.
In 1926, soon after the No. 14 tape printer was put into service,
Morkrum-Kleinschmidt received a request from the police department of
Berlin, Germany, for detailed information, stating that they were
interested in the purchase of about sixty No. 14 printers. The letter
asked if Morkrum-Kleinschmidt was represented by an agent in Germany
whom they could contact. At an executive meeting, Mr. Morton and Mr.
Krum asked Mr. Kleinschmidt to take care of this matter since his
company, before joining them, had sold apparatus in some foreign
countries. After further correspondence with the Berlin police
officials, Kleinschmidt decided personally to take a No. 14 printer to
Germany and arrange for a representative there. After visiting and
conferring with several companies experienced in the telegraph and
associated apparatus field, a satisfactory arrangement was consummated
with the C. Lorenz Company, on October 25, 1926, for the manufacture and
sale of Morkrum-Kleinschmidt equipment in Germany, on a
royalty-licensing basis. At that time the Lorenz company manufactured
telegraph and telephone equipment and railway signaling apparatus. Their
engineering department was under the supervision of Dr. Gerhard Grimsen
who took the matter in hand for further exploitation toward an
intercommunicating printing telegraph system, using the No. 15 page
teletypewriter. Siemens & Halske, the principal manufacturers of
telegraph equipment in Germany, were also licensed by the
Morkrum-Kleinschmidt Corporation, on June 1, 1929, with the consent of
the Lorenz company.
[Illustration: Fig. 11
Morkrum-Kleinschmidt No. 15 Page Printer
_Picture through courtesy of Teletype Corporation_]
(As may be seen in the following chapter, it was these licensing
arrangements which led to the establishment of the TELEX
intercommunicating teleprinter system in Europe.)
In early 1927 the well-known newspaper publisher, Mr. Frank E. Gannett,
came to Morkrum-Kleinschmidt, bringing his company’s engineer, Mr.
Walter Morey, who had heard of various attempts to operate a typesetting
machine, such as Linotype or Intertype, directly from the telegraph. Mr.
Gannett said, “We have telegraph typewriters in our news rooms that
record the news as transmitted from the Associated Press and the United
Press, and that is fine. Now, why not go a step further and operate our
typesetting machines directly from the telegraph circuit? If you can
develop such a device, I will help finance the project.”
Indeed, after some study of the matter, the possibility of devising such
a system seemed entirely feasible and the development of suitable
apparatus was turned over to the research and development department. A
workable plan was soon put together and a separate company, the
Teletypesetter Company, was organized, with Mr. Gannett joining
financially. Edward Kleinschmidt was elected president. Development
proceeded and a complete set of apparatus was set up and publicly
demonstrated for the first time on December 6, 1928, at one of Mr.
Gannett’s newspapers, _The Times Union_ of Rochester, New York.
Teletypesetter equipment was subsequently manufactured for several
installations. After the Western Electric Company purchased the Teletype
Corporation in 1930, the Teletypesetter Company was sold to the
Fairchild Company. Teletypesetter equipment is now in universal use by
most newspapers and the larger printing companies.
During the period that the United States’ business cycle was on a
continuous upswing (during the late 1920s), securities sales on the New
York Stock Exchange were going to constantly higher volume, and the old
step-by-step stock ticker did not, by large margins, keep pace in
recording stock share transactions. There was a cry for a higher speed
stock ticker; in fact, the Stock Exchange officials told
Morkrum-Kleinschmidt that they would be happy to convert the entire
system if they could get higher speed.
An adaptation of the five-unit-code, start-stop system seemed the
solution and the Research and Development department set out to develop
suitable apparatus. Several ideas were studied and, because of the
frequent changes from letters to figures, requiring printing in separate
rows on the tape, a six-unit code was adapted instead in which
combinations for a figure included the sixth selecting pulse to operate
the figures print hammer and block the letters print hammer.
[Illustration: Fig. 12
Morkrum-Kleinschmidt Corporation Stock Ticker
_Picture through courtesy of Teletype Corporation_]
The Morkrum-Kleinschmidt company was soon able to show the Stock
Exchange people a stock ticker operating on a telegraph system that
worked at twice the speed of the step-by-step-operated tickers then in
use. A speed of 500 printing operations per minute could be obtained,
thus attaining a one-hundred-percent increase in the transmitting and
recording of stock quotations on the tape (see figure 12). The Stock
Exchange ticker service company ordered 15,000 of these high-speed
tickers and the Western Union Telegraph Company also ordered a quantity
for their national stock quotations distributing systems.
As business of the combined Morkrum and Kleinschmidt companies went
along, it was thought that the name “Morkrum-Kleinschmidt Corporation”
was a pretty big mouthful and that a simpler name more characteristic of
its products would be better. The name “Teletype” was suggested, and in
the year 1928 the name change to “Teletype Corporation” was made. The
exact origin of the word “teletype” is not known but it is no doubt one
of the abbreviated forms of the words “telegraph typewriter” which were
used over the years. In literature, in the early 1900s, we find that the
word “teletype,” in speaking of printing telegraph equipment, and other
shortened forms, such as “telewriter” and “teletyper,” were used
interchangeably.
Kleinschmidt’s son, Edward F., who studied electrical engineering at
Steven’s Institute and at Northwestern University, was employed as
development engineer by the Morkrum-Kleinschmidt company where he
assisted in the design of projects at hand, and, during 1929, produced a
system and apparatus for transmitting and recording printed characters
by the successive transmission of dots arranged in a pattern to form
letters. While this system required a higher signaling frequency, it was
thought to be superior to permutation-code transmission over radio
circuits where electrostatic interference is experienced, since, in the
dot pattern transmission, electrostatic interference up to a degree will
not change the readability of a transmitted letter.
The system was in test operation to prove its efficiency over radio
circuits where considerable static interference was experienced. Upon
hearing of this new telegraph for the radio, Mr. R. Stanley Dollar
became interested in the use of this communicating system for his
steamship line. There was considerable correspondence in this matter
during mid-1930, just prior to the sale of Teletype; however, neither
AT&T nor Western Electric was interested in further promoting this new
radio telegraph, so the matter was dropped.
Business activities of Teletype Corporation were now growing rapidly and
with good profit. The capital structure of 10,000 shares was wholly
inadequate, so by a 15-to-1 stock dividend the capital structure was
raised to 150,000 shares, and dividends on an annual basis of $12.00
were paid.
The successful development of apparatus for different applications
useful in the telegraph field was largely due to the close cooperation
between the research-development and the manufacturing departments of
the organization. Howard Krum had expert engineers and designers in his
department, Kleinschmidt brought his leading engineers and designers
from the Long Island City plant, and there was a definite spirit of
cooperation all around.
To quote again from the _Fortune_ magazine story:[10]
As the years up to 1925, when the Kleinschmidt-Morkrum merger took
place, were wanderings in a profitless desert, so the years from 1925
to 1930 found the teletype in a land of milk and honey. Mr. Morton,
however, was inclined to think that a company which had only two or
three major customers is not strongly placed. Furthermore (and by the
spring of 1930), at least one of those customers was actively in the
market as a Teletype purchaser. This buyer was Colonel Sosthenes Behn,
whose International Telephone & Telegraph Co. includes Postal
Telegraph at home in addition to many communication and manufacturing
companies abroad. With Colonel Behn wanting to buy and Mr. Morton
wanting to sell, negotiations rapidly proceeded to a point at which
Mr. Morton, at least, thought the deal was almost concluded. But while
Mr. Morton and the Colonel were discussing the prospective
acquisition, into the Colonel’s office walked a man who has no other
place in this story except that he happened to interrupt at this
moment. As this gentleman was introduced, he asked whether Mr. Morton
were related to Joy or Paul Morton. When Mr. Morton admitted that they
were his father and uncle, the man turned to Colonel Behn and said in
jest: “Better watch your step. That’s a smart family.” Only Colonel
Behn knows whether he gave that remark any weight, but the point is
that the negotiations suddenly collapsed, and that the visitor’s
remark about the smart family still lives vividly in Mr. Morton’s
memory.
This setback was not a setback at all to such a negotiator as Mr.
Morton. Two months later, in May, 1930, you find him walking into the
office of Clarence G. Stoll, vice president of Western Electric, A. T.
& T.’s manufacturing subsidiary. This time there had been no
preliminaries. Mr. Stoll rose from his desk and said: “Good morning.
What can I do for you?”
“Do you want to buy Teletype?”
“Is it for sale?”
“Yes, at a price.”
“All right. Let’s get down to business.”
They got down to business on the spot, and they remained at it for
three solid days in Mr. Stoll’s office. The agreement as reached
called for A. T. & T. to pay off the preferred stock of Teletype,
13,979 shares callable at 105, and to give one share of A. T. & T. in
exchange for each common share of Teletype. The A. T. & T. shares were
worth about $200, so the price came to upwards of $30,000,000—plus, of
course, the $1,467,795 for retiring the Teletype preferred.
It should be noted here that this deal to take over Teletype on a
share-for-share basis was exclusive of foreign patent rights but did
include patent rights in Canada and Mexico.
The sale to Western Electric was closed on September 30, 1930. Mr. Stoll
of that company was made president. Howard Krum continued on as vice
president and was a leader in developing a number of commendable
devices, including a system for transmitting messages in scrambled,
untranslatable code form and receiving such scrambled code in perfect
message form. Mr. Morton was retained as consultant. Edward Kleinschmidt
made an arrangement to do development work for the new organization in a
laboratory of his own, assigning all inventions to the Teletype
Corporation (see page 50).
After Kleinschmidt left Teletype, his assistant, Albert H. Reiber,
carried on as head of Research and Development for a short while before
his untimely death. In the meantime, Walter J. Zenner had advanced and,
in 1935, became Department Chief and later Vice President in Charge of
Research and Development. Under Zenner’s direction a number of new
devices in the teleprinter field were developed, including
ultra-high-speed tape-perforating and tape-controlled transmitting
devices, as well as a high-speed stock ticker operating at 900
characters per minute (introduced in 1964) to replace the earlier
Morkrum-Kleinschmidt ticker which operated at 500 characters per minute.
Some 94 patents were issued in his name, which have contributed greatly
to the growth of the Teletype Corporation.[11]
On May 15, 1940, Howard Krum and Edward E. Kleinschmidt were both
honored by The Franklin Institute and awarded the John Price Wetherill
Medal, each one “For his Part in the Development of a Successful
Electrically Operated Duplicate Typewriting Machine Now Known as the
Teletypewriter,” (Quoted from the medal certificate.)
[Illustration: Teletype Corporation’s new Model 33 Automatic
Send-Receive Set
_Picture through courtesy of Teletype Corporation_]
Howard Krum later also received an award as Modern Pioneer from the
National Manufacturers Association. Edward E. Kleinschmidt, on April 19,
1958, was awarded the honorary degree of Doctor of Engineering at the
Polytechnic Institute of Brooklyn.
To continue: After the sale of patent rights in Canada, Mexico, and the
United States to Western Electric, there remained the European and other
foreign patent rights still with the original Morkrum and Kleinschmidt
investors. The International Telephone and Telegraph Company wanted
these rights, and, after negotiations in New York, a price was set for
their purchase through the Creed Company in London, then owned by IT&T.
Edward Kleinschmidt was sent to London in 1930 to close the deal. Some
changes to the sales contract were requested by Creed which kept the
cables busy by Kleinschmidt in asking for approval from A. T. & T. and
Western Electric lawyers. Finally, upon all-around approval, the
contract was signed at the previously-agreed-to price of one and a
quarter million dollars.