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.