and contract, these reports, as harmless as they are considering that
they have a commercial purpose only, are contrary to these clauses. We
cannot very well eliminate them under the existing agreement with Carl
Zeiss; however the regulations are so stringent that particular care
must be exercised to keep these reports in strictest confidence and
they should be kept in a separate file under lock and key._
“We would ask that you be governed accordingly and that you bring these
facts to the attention of Messrs. Carl Zeiss.”
August Lomb answered this letter on December 29, 1933. The first three
paragraphs of his reply were as follows:
“Since writing you December 5th, your letter Nr. 8909 of December 14th
was received. It just arrived before the writer went to Jena and could
therefore be discussed there.
“_Monthly report._ That enclosed in your letter Nr. 8909 was therefore
transmitted personally, impressing again the _necessity of considering
this information strictly confidential and secret_. This is fully
understood by the management as well as their Mil. Department and
we _were again assured that these reports are locked up and only
accessible to a few people who are fully responsible so that you can
depend on your instructions being carried out_.
“The contents of this report were very pleasing so far as the
important orders are concerned which you were able to secure. It is to
be regretted that the thirty-four 11 ft. R.F. were lost, but evidently
other firms also have to expect part of the business.”
It would no doubt have been very reassuring to our War and Navy
Departments to know that these reports were “only accessible to a few
people” in Hitler’s Germany.
On October 16, 1934 Bausch and Lomb wrote to August Lomb as follows:
“We are very sorry to find that we neglected to send you our report for
a considerable length of time. _As you know, we are not free to give
you these reports._ This is about the best excuse that we can offer;
_the less reports we make the less the chance of any going astray_.
“_We shall try to keep you informed more regularly having your
assurance that these matters will be treated by you and Carl Zeiss in
strictest confidence._”
The report of October 16, 1934 entitled “Statement of Military
Department to Mr. August H. Lomb” lists the number and kinds of range
finders delivered each month and also the total number of various types
of instruments, orders for which Bausch and Lomb has booked since their
last report. There is also the remark that they lost an order for four
13½ ft. height finders awarded to Keuffel and Esser (another American
firm). This report contains the following remarkable statement in
connection with designs for submarine periscopes:
“Our design force now consists of thirteen men all occupied on present
contracts so that it cannot be assumed that we want to throw the burden
of the design work on Carl Zeiss. _As a matter of fact we could not do
this under the secrecy clauses of the ‘Recovery Act,’ but surely we
ought to be able to rely on Carl Zeiss for support when and where it
is most important._ We are hopeful that the promise made in letter of
October 5 to give us this design by next spring can be considerably
improved, in fact that every effort will be made to bring the solution
of this problem to a point which will enable us to enter into
competition in the next bid.”
On October 20, 1936 Bausch and Lomb wrote the following letter to Carl
Zeiss:
“With your letter in reference we received from you a new optical
layout in the form of your drawing A 33 08 65/Opt. L. No. 2 for the
altiperiscopes of 34 foot optical length.
“_We recently learned that our Government is now contemplating the use
of 40 foot submarine periscopes and that bids for these will soon be
submitted for consideration. These periscopes will be built according
to the identical specifications as those you have in your possession
with the exception that, as already stated, the optical length has been
increased from 34 feet to 40 feet and the reduced section has been
increased in length as shown on our drawing Mil. 458 sent herewith._
Moreover, the inner diameter of the main body tube now measures 6,500
inches diameter for a distance of 11 feet from the eye-piece and while
its remaining length has an inner diameter of 6.375 inches as shown on
our drawing Mil. 458.
“We would ask that you kindly prepare for us immediately a new
optical layout conforming to these changes and that you give us this
information at the earliest possible date. As stated this question will
soon need our consideration and unless we have the data available by
that time we shall have to forego bidding on this new proposition.”
August Lomb realized the situation in which Bausch and Lomb was placed
in sending written reports of secret military information to Germany.
In a letter of July 9, 1937 to Bausch and Lomb he made this very
helpful suggestion:
“Prior to the years 1935 and 1936 Zeiss have always received a list of
numbers, kinds and prices of the instruments furnished during one year
when the commission statement for the respective year was rendered.
_Since 1935 such a statement was not received, probably because you
did not want to furnish any such data in accordance with your letter
Nr. 9383 of October 16th, 1934. Zeiss, however, would be satisfied
with very brief and condensed information, for instance Range Finders
abbreviated to R.F. etc., if possible._
“Of course you will have to consider this with the Executive Office and
may let us know occasionally whether feasible or not.”
In a letter of March 24, 1939--the week after Hitler invaded
Czechoslovakia--Carl Zeiss made this demand upon Bausch and Lomb:
“For this purpose it is _absolutely necessary_, and that is why we
ask you for it, _that you supply us_, before we arrive at our final
decision, with a _precise statement of those patents of ours which
you use in your manufacturing processes, designating at the same time
those instruments in whose manufacture these patents are used, also
indicating the turnover you have had in these instruments during the
last two business years, and the volume of orders which you have at
present on hand for such instruments_.
“We take it for granted that your Administrative Division can make
up such a statement without trouble and loss of time so that we _may
expect it within a month at the latest_.”
Instead of the detailed reports which had formerly been sent, Bausch
and Lomb complied with this demand by giving a statement of the
aggregate amount of sales of instruments covered by Zeiss patents in
1937 and in 1938, designating the patents. They stated they had orders
for future delivery of instruments covered by Zeiss patents totaling
approximately $1,000,000 and giving the patent numbers.
From the foregoing quotations it seems rather clear that Bausch and
Lomb put their own interpretation--and a strange one--upon their
obligation to keep military information secret and confidential.
The supplemental agreement of June 27, 1925 contained the following
provision:
“In the case of inquiries, received by Bausch & Lomb from authorities
outside of the United States of America, by Carl Zeiss from the
authorities of the United States, one party informs the other of the
inquiry and is _obligated to make the protective offer named by the
other party. The increase of the protective offer over the normal price
for the corresponding quantity of instruments in question shall not be
higher than 20%._ Both parties are obligated to treat such inquiries as
promptly as possible. _If the party, that has made the protective offer
should, nevertheless, receive the order, it is obligated to cede in
full to the other firm the excess price representing the protection._
The firm of Bausch & Lomb besides, has to pay to the firm of Zeiss the
royalty on the normal price according to paragraph 2, in case Bausch &
Lomb is awarded the order.”
This arrangement served the purpose of making a governmental
authority--United States or some other--believe that bona fide bids
were being made in response to requests. Such collusive bidding is a
fraud upon the government and while a similar provision was included
in the supplemental agreement of October 28, 1925, it was omitted from
the agreement of 1926. And yet in 1932 there is evidence of willingness
on the part of Bausch and Lomb to be less than forthright in dealing
with the Navy Department. The following excerpt is from a letter from
Bausch and Lomb to Carl Zeiss dated February 24, 1932:
“From the copy of the above contract which we have sent you with our
other letter of today, Mil. Dept. 8077, you will take notice that the
contract provides that customs entry will be taken care of by the
Government. _In view of this, and in order not to divulge to the Navy
Department that we earn a commission of 10% on this transaction, it
will be necessary that the consular invoices and export declarations
which you will have to make out be higher in this particular case than
your net invoice prices to us. Your shipping papers, consular invoices,
and export declarations, etc., accordingly should state the following
prices_, f.o.b. Venlo:
_Item_ _Unit_ _Total_
1 --The unit price to be declared by
you will be $7,400 $14,800.00
1a--The unit price to be declared by
you will be 470 470.00
2 --The unit price to be declared by
you will be 6,780 20,340.00
(Note: The repeater motor is
here included)
2a--The unit price to be declared by
you will be 470 940.00
“The difference between the above prices and those stipulated in the
official contract are satisfactorily explained by shipping expenses,
etc.
“It goes without saying that you will bill us for these periscopes in
accordance with your letter of December 29, 1931 (N XIII/6661), less
10% commission.”
The provisions of the 1921 and 1925 agreements prevented Bausch and
Lomb from selling to any purchaser outside the United States unless
such sale was approved by Zeiss. That the omission of this provision
from the agreement of 1926 did not mean a change in policy is clearly
shown by the following memoranda exchanged by two Bausch and Lomb
officials:
“From: Mr. M. H. Eisenhart Date: Jan. 11, 1927.
“To: Mr. Edw. Bausch.
“I have read the following paragraph in August Lomb’s letter of
December 20, 1926:
“‘We note that you have decided to give up all military work
in connection with foreign countries, thus doing away with the
supplementary agreement of October 28th, 1925. Its second paragraph on
page 2 treats of instruments which you might be called to supply for
foreign vessels built or equipped on American ship yards, as was the
case for Argentine. We understand that, as this entire agreement is now
canceled, you will renounce to bidding for such instruments hereafter.’
“Is it your understanding from this that in the future we will not bid
on any military instruments for use anywhere outside of the United
States? As this is a change over our present procedure, I think we want
to be sure of the definite understanding.”
* * * * *
“From: Mr. E. Bausch Reply Date: Jan. 27, 1927.
“To: Mr. M. H. Eisenhart
“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. If, on the other hand, any inquiries
come to them which belong to this territory, they are to be referred by
them to us. A condition may arise, as has been the case before, where
a foreign government might want to place an order with us, this to
be under supervision of Army and Navy officers and the inspection as
well. The procedure then would be--I should think--that we defer giving
any definite answer until we had submitted the matter, according to
agreement, to Zeiss, and await their disposition of it.”
The Edward Bausch who wrote the latter memorandum is the same gentleman
who was quoted in the _Literary Digest_ of December 12, 1936 in the
following item:
“Millions of dollars of foreign Government orders for military optical
instruments have been rejected by the Bausch & Lomb Co., of Rochester,
New York, because they might conceivably be used against the United
States or its interests in another War.
“Proudly last week, vigorous, eighty-two-year-old Dr. Edward Bausch,
founder and chairman, declared that to be his company’s settled policy,
developed ‘through a close understanding with the Departments of the
Army and the Navy of our Government.’...
“Chiefly, Bausch & Lomb’s rejected orders have been offered by England
and France, have been for range-finders, periscopes, gun-sights,
binoculars, artillery fire-control instruments. Business from those
two Governments would have exceeded $1,500,000. Various smaller
nations have also sought to make contracts and have been refused.
Self-sufficient Germany, however, has shown no needs.
“_War-Time Seller_--During the World War, encouraged by Washington,
Bausch & Lomb made large sales to the Allies, built up an extensive
business with Great Britain. Promptly with the reappearance of European
war-scares several years ago, however, the policy of no supplies to
potential combatants abroad was adopted. ‘They are not prepared for war
over there,’ a company officer gravely explained last week, ‘and if we
refuse to help them prepare, it puts it off just that much.’”
In the documents taken from Bausch and Lomb’s files there are dozens
of letters in which inquiries from foreign buyers of military optical
instruments were answered by Bausch and Lomb with an expression of
disinterest and a reference to Nedinsco. On March 30, 1938 Bausch and
Lomb wrote the British Military Attache in Washington as follows:
“In reply to your letter of March 24, 1938 we wish to inform you that
the instruments that we manufacture for the U. S. War Department are 4
meter Stereo Height Finders.
“Unfortunately we have to inform you that we are not in a position to
take British Government orders at the present time.”
On June 20, 1938 the International Standard Electric Corporation of
New York wrote Bausch and Lomb with regard to procuring manufacturing
equipment for its English associate, Standard Telephone and Cables,
Ltd., to manufacture certain lenses and optical systems from British
optical glass. After some conferences and consideration, Bausch and
Lomb wrote to International Standard Electric Corporation on July 1,
1938 as follows:
“One of the first steps I took in giving consideration to your
proposition which we discussed yesterday was to look into the
contractual arrangements to which we are already obligated which I
spoke to you about in my conversation.
“_Our attorneys tell us that we are absolutely tied up in a way that
will prevent our giving you the type of assistance you need to get
into the manufacture of optical fire control instruments._ My thought
was that events over the last few years had changed our foreign
relationship in a way that might allow us to work with you, but I am
definitely satisfied now that such is not the case. Because of this
situation, there is no need for us to delay you any further in your
plan.
“I enjoyed very much your visit here and perhaps at some future
occasion I may have the opportunity of meeting you again.”
In the October 1940 number of _Fortune Magazine_ which contained an
article about Bausch and Lomb there was a two-page spread devoted to
“The Critical Geography of Industries Essential to U. S. Rearmament.”
With reference to optical goods, this statement appeared: “After
aircraft engines, armor plate, and machine tools this little industry
(range finders, aircraft height finders) stands fourth among defense
bottlenecks.”
There are undoubtedly many factors which contributed to defense
bottlenecks. It seems quite certain that the Zeiss-Bausch and Lomb
restrictive arrangement has had a substantial part in bringing about
this condition. There is no way of ascertaining how many times
competitors were intimidated by threats from the combination of the two
companies which were the largest in the world. The following quotation
is taken from a letter from Bausch and Lomb to Carl Zeiss dated June
12, 1932 and referring to a new order for Height Finders for which the
Frankford Arsenal was contemplating asking bids:
“Bids for this new prospective order have not yet been received by us.
It is at present our intention after the bids have been received to
_wait until a few days before the opening of the bids_ and then call
the attention of the Keuffel & Esser Company to the fact that we are
controlling patent No. 1638190 which prohibits their furnishing the
Height Finder in question. _In this manner we hope to be able to make
them afraid of touching this business._ You will understand, therefore,
how anxious we are to receive your opinion that the arrangement
of four compensator wedges on one side of the Range [sic] Finder
infringes your patent.”
The foregoing quotation indicates one of the reasons for the
arrangement by which all Zeiss inventions were to be patented in the
United States by Bausch and Lomb. There can be little doubt that
American patentees of competing military optical instruments would have
much more to fear in infringement litigation initiated by the American
firm of Bausch and Lomb than would be the case if the real owner of the
patents, the German firm of Carl Zeiss, were the patentee. The other
reason for this arrangement was the fear that Zeiss-owned patents would
again be confiscated by the United States Government as had been done
in the first World War. For the two reasons and possibly others it was
clearly understood that all Zeiss inventions patented in the United
States should result in patents issuing to Bausch and Lomb. What was
just as clearly understood was that at the expiration of their contract
all these patents were to be reassigned to Zeiss. This was stated in
many documents one of which, a letter from Bausch and Lomb to Zeiss,
dated January 17, 1936, should suffice to substantiate the point.
“We have given consideration to the suggestions which you have made for
further clarification of the interpretations of the existing contract
which was the subject of our letter of October 14, 1935. We are,
therefore, restating the points covered in that letter, as follows:
[Par. 1 and 2 deals with termination of the contract]
“3. You are to assign to us all unexpired United States patents and all
pending applications for United States patents in the military field
now standing in your name or the name of any company controlled by you
through stock ownership or otherwise, or in the name of any individual
in the employ of your company or any company so controlled by you. You
are also to assign to us all applications for patents in the military
field which are filed prior to October 31, 1940, on inventions made
by any individual or individuals employed by you or any company so
controlled by you. You are to file and prosecute such applications and
pay all expenses and fees therefor. With respect to such pending and
future applications we suggest that you execute the proper assignment
and send it to us as soon as you receive the notice of allowance in
an application. We will promptly record the assignment in the United
States Patent Office and notify you so that you may pay the final fee
in due time so as to have the patent issued in our name as assignee.
_We shall assign to you or your nominee all your United States patents
or pending applications which have been taken out in our name, or
caused to be assigned to us under the provisions of said agreement
prior to April 30, 1941, reserving to ourselves only the license to
manufacture thereunder upon the payment to you of the royalty as agreed
under 2 hereinabove._”
Field glasses or binoculars were expressly excepted from the cartel
arrangement between Zeiss and Bausch and Lomb. In 1931 Bausch and
Lomb bid $39.50 each on a United States Navy request for bids on 600
binoculars. Zeiss bid $26, and this angered Bausch and Lomb to the
extent that they brought about a greatly increased tariff rate on
imported binoculars. The correspondence between the two firms over a
period of years refers to this episode. Edward Bausch of Bausch and
Lomb wrote to August H. Lomb in Frankfurt on November 18, 1932. The
last two paragraphs of his letter are as follows:
“In all other departments we find the Zeiss competition keen and
aggressive. Zeiss have established themselves in this country and have
been for years making more and more intensive efforts to get business.
As an instance of their efforts we will cite the circumstance of
their having put in a bid for Field Glasses to the government at such
ridiculously low prices that we cannot understand how there can be
any profit in it for them, but leaves us with a feeling that they
are aiming to put us out of competition and acquire the business for
themselves.
“Such efforts as they are making in this territory will surely lead to
more aggressive action on our part and will certainly lead to anything
but friendly feeling, and ultimately, to a more serious situation.”
On February 6, 1934, Zeiss wrote Edward Bausch as follows:
“I received your letter of January 25, and at the same time, a report
from our Dr. Bauer about his interview with you and your associates on
January 15, 1934 in Rochester. First of all, I wish to thank you for
having gone to the trouble to write down the sequence of events, which
brought about the change in duty calculation on our prism binoculars,
with the result that the duty, which will actually have to be paid,
comes very close to doubling the present rate. I expressed myself to
Mr. Lomb in a very general way, and had pointed out merely the effect
of the change of duty, which was probably caused by your initiative,
and I used the expression that the sixty per cent rate had, in reality,
been doubled.
“The essential consequence is that quality binoculars--and only those
of more than 5× magnification, and of foreign net value of more than
$12--have been affected by this measure. In reality, only Zeiss
Binoculars fall under this arrangement, whereas all the cheap French
prism binoculars, which are not negligible in quantity, are exempt.
“From your letter, I have noted that the steps taken by you were
prompted by our offer and that of Carl Zeiss, New York, of six hundred
6 × 30 prism binoculars at $26 each, which we made in 1931 to the Navy.
I believe that I do not have to add anything to the explanations
which our Dr. Bauer has given you concerning this matter. The thought
occurs to me, however, whether it would not have been appropriate,
in view of the friendly and long relations between our respective
houses, if one of your gentlemen had communicated with our Dr. Bauer
and had pointed out the low prices to him in order to bring about a
satisfactory solution of the question for the future, and this by
means of a friendly understanding. Such an understanding would have
been readily possible at the time, for we have always been ready to
recognize justified wishes or requests of other houses, especially of
those friendly to us.
“I would consider it to our mutual interests if this duty arrangement,
which, as I admit frankly, has caused great bitterness on our part,
would disappear again. As you know from several negotiations on other
matters here and there, we and Dr. Bauer are always ready for a price
agreement, which protects your just interests.”
On February 28, 1935, Bausch and Lomb wrote to Dr. Bauer of Carl Zeiss,
Inc., New York. The first paragraph of his letter is as follows: