Military instruments to countries outside of the United States of
America, and vice versa Carl Zeiss obligate themselves not to sell such
instruments, directly or indirectly to the United States unless the
parties have come to an agreement regarding the conditions of sale and
the respective territories of distribution.”
In the fourth paragraph, Zeiss was given the power to pass upon who
should become the heads of the Bausch and Lomb “Military Department.”
“In furtherance of the aims of this agreement B. & L. in Rochester will
create a new Department solely responsible to the Board of Directors,
which is charged with the independent development of all scientific
and technical tasks within the Military scope and the maintenance of
connections with Jena. The parties will come to an agreement as regards
the heads to be placed in charge of this department.”
In non-military fields the parties, while competing, were to give due
regard to each other’s interests. In the military field they agreed to
full exchange of know-how and to rights under inventions acquired by
them. The eighth paragraph anticipated the possibility of a conflict
between the obligations to each other under the agreement and those
owing to the nation: “The mutual obligation regarding the exchange of
Military designs shall be void whenever the highest home Government
of one party expressly demands that they be kept in confidence in the
interest of the nation.”
As will be shown, Zeiss subsequently demonstrated a very keen awareness
of the privilege thus accorded it to obey Hitler’s edicts and to keep
its know-how in Germany. Bausch and Lomb on the other hand on more
than one occasion weighed the demand for secrecy by our Army and Navy
against the obligation to keep Zeiss informed and decided in favor
of the latter. Both parties were fully aware of the fact that such
an agreement had to be kept secret. It was intended to give Zeiss a
new lease on life and actually made it possible for that concern to
continue its existence in spite of the disarming of Germany and its war
partners. The contract bluntly stated: “The contracting parties agree
to keep the foregoing agreement in strict confidence as regards a third
party and to guard silence concerning this agreement also with their
own employees as far as this may be practical under the circumstances.”
In contending that the contract was not secret, Bausch and Lomb states:
“The original contract was shown to the U. S. Naval Observer in Berlin
within a month of its execution, and through him the Bureau of Naval
Intelligence and the Bureau of Ordnance were informed.” As a matter of
fact it seems clear that what was shown to our Naval representative in
Berlin was not the “original contract” but only a portion of it with a
certain other part withheld. The explanation for withholding part was
that it related to matters which did not concern the Navy. The Navy
representative was told that the Bausch and Lomb connection with Zeiss
must be kept strictly confidential to protect Zeiss. The latter was not
permitted under the terms of the Versailles Peace Treaty to continue
the manufacture of military optical goods. In this connection a letter
from George N. Saegmuller to Bausch and Lomb, sent from Jena on May 6,
1921, is of interest (Saegmuller was the vice-president of the firm who
had gone to Germany to execute the agreement with Zeiss):
“I hope you rec’d our cable via Frankfurt in regard to the signing
of the agreement Apr 29th and also my letter of even date in which I
entered into the subject more fully. In that letter I stated that
Capt. Bechler, Naval representative of the Am. Commission, telephoned
for me to come to Berlin. This I intended to do but upon reflection
I thought it best for him to come here as the various instruments in
which they are interested are here. He assented to this and was to
come yesterday but was taken sick so in place sent his aid, Lieut.
Culbert, U. S. N., who was also accompanied by the Military represt.
of the Am. Commission. What the Navy wants at once are: [enumerating
range-finders, periscopes, sights and other similar instruments].
“For these instruments they are in a hurry and most probably we will
have to import the optics from here as it would be impossible for us
to produce them in time even with Zeiss opticians. I thought it best
to go with Fred to Berlin to see Comdr. Bechler & impress upon him
the importance of finding out how many of the various instruments are
wanted, so as to receive the optics in time.
“_The Navy Department wants to obtain a copy of the agreement as a kind
of a guarantee that if they order from us they will really receive
Zeiss instruments or rather Zeiss quality. I told Lieut. Culbert that
in my opinion there would be no difficulty in giving them a copy of
the agreement which relates to military instruments. An entire copy
we could not give as it relates to matters which does not concern the
Navy; I wrote out what I thought and gave it to Dr. Fischer who will
consult with the others; I don’t think there will be any trouble on
that score. I told both officers that our connection with Zeiss must
be kept strictly confidential, chiefly on acc’t of Zeiss; this they
understand._”
The reason it was necessary to keep the agreement secret is quite
obvious but it need not be left to inference. On Dec. 27, 1930,
Bausch and Lomb wrote to Interflash Signal Corporation of New York
in reply to an inquiry concerning a range finder for the Grecian Navy
Department. The letter contains this language:
“Our activities in the military line of instruments in general are
concentrated in supplying the requirements of our own Government. While
we have occasionally supplied foreign Governments with a few of these
instruments, this has only been by chance as far as our facilities
have permitted. We appreciate very much the offer of Admiral Dedes to
become our special representative, but under the circumstances above
stated we are unfortunately not in a position to accept this offer. We
would suggest that he communicate with our friends, the Nederlandsche
Instrumenten Compagnie, Den Haag, Holland, who manufacture the military
line of optical instruments formerly made by Messrs. Carl Zeiss of
Jena, Germany, _the latter not being permitted under the terms of the
Peace Treaty to continue the manufacture of these products_....”
On October 20, 1926, Bausch and Lomb wrote a letter to one of its
representatives in the New York City office. J. A. Scheick of that
office had quoted a price on two range finders to a New York firm which
intended to ship them to Laredo, Texas for the ultimate use of the War
Department of Mexico. The letter states:
“We have, on previous occasions, explained to Mr. Scheick that we
must know the customer for whom this Military equipment is ultimately
intended and we have also withdrawn our previous quotations stating
that by reason of the limited supply of instruments on hand, it would
be best to refer all such inquiries first to us, to find out whether
or not we can take care of such an order. _The real reason, as you are
aware, is our agreement with Zeiss, which, of course, we cannot explain
to Mr. Scheick, as we are not only required to keep the nature of the
agreement confidential, but the very existence of such an agreement._
As you are probably aware, this prevents us from making sales in the
Military line, directly or indirectly, outside of the United States,
unless by previous agreement with Zeiss on the price question; the
price agreed to by Zeiss will be higher than their direct quotation.
Obviously, we cannot accept the inclosed order intended for the War
Department of Mexico.”
The 1921 agreement was to run for 20 years with Bausch and Lomb
obligated to continue to pay royalties for 25 years on all its military
business whether based on Zeiss patents or not.
To carry out its agreement with Bausch and Lomb, Zeiss used the device
of a corporation organized in Holland called N. V. Nederlandsche
Instrumenten Compagnie--or Nedinsco, for short. It is a wholly owned
subsidiary of Zeiss with its principal office at The Hague and its
plant at Venlo, a town on the German border. Thus, in the years which
passed before Hitler came into power in the face of the disarmament
provisions of the Versailles Treaty, Carl Zeiss was enabled to continue
in the production of military optical equipment by merely moving its
plant across the border. It was assured of and received royalties from
all sales of such equipment in the United States by Bausch and Lomb,
and assured of and received for Nedinsco freedom from competition in
all the rest of the world so far as Bausch and Lomb was concerned. The
survival of Carl Zeiss and its ability to provide at Jena one of the
most important cogs in the Hitler war machine is clearly understandable
and is in large part the result of the secret agreement of 1921.
The following paragraphs from a letter from Bausch and Lomb to Zeiss
dated February 10, 1939, substantiates this statement:
“We are uncertain whether your reference to the more distant past is
intended to cover the period between 1907 and 1915, during which time
we freely admit that you were of assistance to us in the establishment
of our military department, or to the period following the resumption
of our cooperative endeavor after the World War.
“On the assumption that you are referring to the earlier period, we
believe that you were completely compensated by the dividends which you
received on the stock held in our company and by the appreciation in
the value of this stock which you realized at the time of its sale.
“If, on the other hand, you are referring to the later period, _we
believe that inasmuch as the arrangement made accomplished the primary
objective of keeping your scientific staff intact at a time when you
could not manufacture war materials, you were adequately compensated,
particularly in view of the fact that, as you then knew, our Government
was at that time very little interested in the development of, and made
but very small appropriations for, fire control apparatus. In other
words, we believe that the development work which you did during this
period was primarily for your own benefit and not of great value to us
here._”
Here we see quite clearly how an American company aided a German
company avoid both the spirit and the letter of the Versailles Treaty.
Although Germany was prohibited from manufacturing and exporting
military equipment, Bausch and Lomb “accomplished the primary objective
of keeping your scientific staff intact at a time when you [Zeiss]
could not manufacture war materials.” In response to the letter just
quoted, Zeiss replied on July 22, 1939:
“_In reference to 2._ In the reference to our letter of January 3,
1939, page 2, to a more remote time, that is, the time further back
than 5 years, we have had reference to the first decade of the
operation of the agreement as it now exists. Your assumption that
during that time the development work done for you was above all to our
advantage and had served the purpose of maintaining our design force
is absolutely misjudged. _We had at no time the intention to allow our
experience and knowledge of the military business to rest but have,
as you know, established the Nedinsco branch for the express purpose
so as to keep our place in the world market._ If the Nedinsco was a
successful competitor where high grade equipment of our sphere of
activities was in demand, this success is due to the work and efforts
of our scientific staff and technicians who building on experiences
before and during the war have explored all kinds of military spheres
for our designs. The fruits of this successful, constructive labor
has of course been reaped in general by Nedinsco. Surely we could not
have continued the development work of even a small part of these
activities from the small royalties received from you. From this
follows definitely that you were the one who profited, without merit of
your own, from the advantages of our complex and expensive development
work, and that you unfortunately, notwithstanding repeated urging on
our part, did not sufficiently make use of the given possibilities, a
fact with which we found fault repeatedly verbally and in writing.”
The sentence which I have italicized is a positive statement by Zeiss
of its utter disregard of the conditions imposed by the Peace Treaty.
On June 27, 1925 a supplemental agreement was made which slightly
changed the royalty provisions of the 1921 agreement. The division of
world territory remained as before, except that the parties undertook
to protect each other in bidding on government contracts by overbidding.
Subsequently on October 28, 1925, a further supplemental agreement
was signed by Zeiss at Jena and on December 11 by Bausch and Lomb at
Rochester. After repeating the provisions of the supplemental agreement
of June 27, 1925, it added:
“In case the inquiries referred to in paragraph 2 and 3 should not come
to Bausch & Lomb from a Government, but exceptionally from a commercial
house of a country outside of the United States, the firm of Bausch
& Lomb is to communicate immediately with the firm of Nedinsco, and,
depending on the situation at Nedinsco, either to make the protective
offer named to her by the latter firm, or to decline the inquiry under
pretense. The information in question will be given to the firm of
Bausch & Lomb by the firm of Nedinsco.”
The second supplemental agreement also contained the following
provision:
“If the firm of Bausch & Lomb is furnishing to American shipyards,
optical instruments as equipment for a ship of a country outside of
the United States, all instruments in which the ideas of construction
of the firm of Carl Zeiss have been used, shall, besides the trade
name of Bausch & Lomb, be engraved with the designation, “System
Nedinsco-Zeiss.” Instruments according to the construction of Bausch &
Lomb shall bear only their name. On instruments furnished by Nedinsco
the name of Nedinsco will appear next to the name of Bausch & Lomb.”
Thus, as early as 1925 there is evidence of the determination to place
the Zeiss name back in the consciousness of the world. One more step
was thereby taken to nullify the effect of the Versailles Treaty and to
reestablish Germany in her place in the sun.
In 1926 Bausch and Lomb caused the 1921 agreement and its supplements
to be modified because its counsel declared them to be wholly invalid
as violating the antitrust laws. In place of the division of territory
provision in the third paragraph, as quoted previously, the following
language was inserted: “The license hereby granted is exclusive, the
firm of Carl Zeiss agrees that it will grant no license to another
American manufacturer.”
This was a change in the language of the agreement to give an
appearance of legality. Actually, after 1926, as well as before, the
parties maintained a definite and illegal division of territory. The
following sentences from a memorandum of Edward Bausch, dated January
27, 1927, show that no change in the actual relationship took place
in the previous year: “It is my understanding, in accordance with
the opinion of Carl Lomb, that we are not to bid on any military
instruments for use anywhere outside of the U. S. The agreement is that
if such inquiries come to us we are to refer them to Zeiss.”
Paragraph 9 of the 1921 agreement, quoted above, providing for strict
secrecy as to the agreement was dropped out as being (in 1926) unwise
and unnecessary. In its place was inserted an innocuous provision that
neither party has any claims against the other arising from previous
agreements. This agreement of 1926, along with the early agreements
which it purported to supersede was declared in violation of the
antitrust laws by the decree entered by the court on July 9, 1940.
The 1921 agreement and also those which were subsequently executed
contemplated an exchange of information and experience between the
parties. This included the right of each party to send confidential
representatives to the workshops of the other. Bausch and Lomb was
more than anxious to have Zeiss employees visit its plant and its only
complaint in connection with the visit of one such employee was that he
had not been of great help to Bausch and Lomb while in this country.
When Hitler came into power the American company found the door to the
Zeiss designing rooms closed to it.
In a memorandum of April 19, 1938 Carl L. Bausch, Vice President of
Bausch and Lomb, quoted paragraph VII of the contract providing for
exchange of experience and access to the workshop and then stated: “In
1934, although they allowed me to go through their plant at Venlo, I
could see none of the work that was being done at Jena, although all
the design, part work and optical work was being done there at that
time.” In the same memorandum Mr. Bausch stated:
“My contention is that over the past five years we have paid out
$139,000 without receiving any benefit from it except for the fact
that our contract might have kept Zeiss out of this market. I doubt
very much whether our government would have purchased any Zeiss range
finders, even if Zeiss was allowed to solicit business.”
In a letter from Carl Zeiss to Bausch and Lomb dated January 3, 1939
referring to the period of the past five years, i.e., since Hitler came
into power, Zeiss said: “It certainly cannot be denied that we have
been restricted in many respects in the execution of the agreement out
of national interests particularly as far as visiting our plant is
concerned.”
In the matter of knowing what Zeiss was building for Hitler, of course,
there was no passing of information to Bausch and Lomb. On the other
hand, Zeiss was kept informed at least until well into the Hitler
regime as to what was being ordered by our military departments. This
was done not by sending the information directly to Zeiss but through
Bausch and Lomb’s German representative. August Lomb of Bausch and
Lomb G.m.b.H. Frankfurt-on-the-Main acted as the conduit for the
information. On July 9, 1929 Bausch and Lomb wrote to August Lomb as
follows:
“We are appending our report which will bring the Military transactions
up to date.
“We have nothing further to say at this time than what has already
been stated in our report as regards the confidential nature of this
information. Heretofore, the Government has merely been insistent
that none of the details as regards the design of these instruments
be made public, but lately it seems as if the quantities, prices,
etc., and the amount of equipment purchased, etc., are also considered
secret. _Obviously, our agreement with Messrs. Carl Zeiss cannot work
satisfactorily unless, at least the latter information, becomes common
knowledge to both parties, but some arrangement must be made whereby we
are assured this information will be kept in strictest confidence._”
The accompanying report is headed “Statement of Military Department
to Mr. August Lomb, For the Months of April, May and June 1929.” It
gave the number of antiaircraft range finders, 26½ ft. range finders,
periscopes, telescopes, and bombsights which it had delivered and
discussed the items for which other bidders had been successful. Near
the end of the report was this paragraph:
“It will be noted from the foregoing statements that not much
information can be further obtained regarding competitive prices.
While these bids are supposed to be public, it has lately become the
practice to withhold the information from the public. Every letter and
envelope from the Government is marked ‘Confidential’ and we are held
accountable that the information will not become public, and that it
will be treated in strictest confidence.”
On December 20, 1932, Bausch and Lomb sent August Lomb a letter marked
Military Department 8430 and enclosed a pamphlet dealing with submarine
periscopes which he was to give to Zeiss and make sure that it was
returned to him and by him to Bausch and Lomb. On the following day
Bausch and Lomb wrote Zeiss this letter:
“We confirm having written you the letter stated in the above
reference. The pamphlet referred to in it has been sent to Mr. August
Lomb, via registered mail.
“It occurs to us that we were not sufficiently specific regarding the
caution that must be exercised for our protection in keeping the loan
of this pamphlet a secret, and particularly as regards the inspector.
If any question should arise with regard to the pamphlet which you are
preparing, _please do not admit to any one that this has been prepared
analogous to our copy_.
“_By reason of the great importance which we attach to the secrecy
of this question, the copy has been sent via our Frankfurt office,
and please make sure that after it has served its purpose it is again
safely returned to our Mr. August Lomb._”
The year 1933--the year Hitler became Chancellor--brought a greatly
enlivened interest on the part of Zeiss in the military secrets of our
country. The following is a translation of a letter from Nedinsco to
Bausch and Lomb dated April 7, 1933:
“Your last monthly report has given cause to the consideration that
we surely would be better in a position to assist you _if you would
report to us what kinds of instruments are under trial and in use by
your military service_. There must be a great many questions regarding
instruments for _airplanes, tanks, and ships_ which demand special
optical instruments.
“We would ask that you intensively _find out at the proper places and
that you communicate to us the different problems_, so that we are
placed in a position to name you the necessary instruments which we
also make new to satisfy the actual demands.
“We believe that thereby the business could be enlivened and also work
could be created for you as well as us.”
A month later on May 11, 1933 Nedinsco again wrote to Bausch and Lomb
as follows:
“We find, much to our regret, that the agreement during the course of
the last few years has materialized exclusively in Rangefinders and
Periscopes for the Navy and that also in this respect it has lost more
and more in intensity, whereas all other instruments for Army and Navy
have completely ceased.
“_It may be assumed with great probability that the many other kinds of
military instruments would find interest in the United States and that
there would be a demand for these so that also for these there should
be certain business chances._
“Notwithstanding that we transmitted to you information regarding
many of our products, you have recently made a demand upon us for our
constructive help only to a very limited extent.
“Business possibilities for foreign countries have never been mentioned
which may result from American credits to foreign countries or from
building contracts of American shipyards, gun factories, etc., and for
which you might be considered as subcontractors. _Such business would
according to Paragraph 3 of the agreement need a special understanding
between us but is not excluded._ In view of the extremely serious
economic situation in the world it would seem most urgent in our mutual
interest that we endeavor to bring about a more intensive cooperation
between us in the frame of our agreement and we therefore ask that you
make known your position and make proposals as to how far and in what
manner these relations could be furthered and the possibilities of
business could be more rationally exploited.
“_We would also be thankful for a comprehensive economic report which
would enable us to judge conditions._”
It can hardly be mere coincidence that these repeated requests for
military information came so soon after Hitler’s accession to power.
On December 14, 1933 Bausch and Lomb wrote to August Lomb as follows:
“We are sending you herewith our report which unfortunately had to be
delayed by reason of the pressure of work which had to be taken care of
in this department, due to the sudden activity brought about by the N.
R. A.