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....
* * * * *