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: