I have not been able to get out of my mind your statement that you have
not confidence in the younger generation here in Rochester. Since this
is predicated, I believe, entirely upon the binocular situation, I
just want to repeat again what I told you in New York, that I believe
whatever action we took in regard to the tariff on binoculars was
prompted entirely by the fact that you bid a figure on a Navy contract
for binoculars which was absolutely out of reason and made it look
to us as if you were going to get this binocular business from the
United States Navy at any price. When we saw there was no possibility
of getting business from our own Navy at a reasonable figure, we took
the only step that was open to us and made a complaint to one of our
senators that started a Senate Investigation and finally culminated in
an executive order that resulted in changing the method of figuring
tariff to the basis of American valuation.”
On March 8, 1935, K. A. Bauer of Carl Zeiss, Inc., wrote Bausch and
Lomb. The first three paragraphs of his letter are as follows:
“I thank you for your letter of February 28, referring to our
conversation of February 23rd. I wish to correct your impression of my
having made the general statement ‘that I have no confidence in the
younger generation in Rochester.’ I said: ‘How can we have confidence,
that an agreement regarding Contact glasses--if possible at all--will
turn out satisfactorily, after the experience we had in the binocular
matter?’ I also said that under the management of the older generation,
such a thing, as this binocular case turned out to be, would not have
been possible. But I do not wish these words to be generalized to the
above blunt statement, and I am sorry, if I may not have expressed
myself clearly enough.
“Now turning to the binocular matter, you know that I have had
conversations with your firm in which I found a certain degree of
understanding for the untenability of the present tariff situation and
a willingness not to resist a reasonable solution. Due to the political
constellation and to tariff negotiations pending in Washington with
other countries, the flexible tariff clause is at present petrified
and nobody can say, when this may change. In the meantime, importation
of highgrade binoculars continues to be impossible. As long as this
condition lasts, we shall naturally feel irritated and we cannot but
resent the fact that it was brought about by methods which we must
condemn. The nature of the tariff action was camouflaged by the
wording of the Senate Resolution, in order to deceive the importers of
prism binoculars. We ourselves as well as other importers were deprived
of what little right we had under the tariff law to state our side. If
you personally have any doubt as to who engineered this whole affair, I
suggest that you read the stenographic report of the so-called ‘Public
Hearing’ which took place in Washington on October 18, 1932.
“You say that we quoted on 600 binoculars 6 × 30 such a low price that
it was ‘out of reason.’ Admitted that our price of $26--was low. Your
quotation of $39.50, however, seems to be exorbitant. It is also true
that the quality specified by the Navy was of a higher grade than that
of commercial binoculars. But this fact is more than compensated by the
large number of 600 glasses involved, which were to be manufactured,
shipped and delivered at one time to one party, whose credit is beyond
doubt. The large number called for a special low price. Instead you
quoted to the U. S. Navy--your best single customer--considerably more
than what you asked from a dealer for one single glass. At that time
you sold your 6 × 30 model (with central focusing device) at $66 list,
and at $35.18 and even at $33 net to the trade; a few months later at
even lower prices. If you deduct from these prices an adequate amount
for the central focusing device, which the Navy did not require,
your net trade price for one single 6 × 30 binocular with individual
focusing would have come rather close to our price of $26. What
difference remained might have been cut down further by the quantity
factor as explained above. Had your firm quoted as one should have
expected, considering all that has been said above, we would have had
no chance whatever to get the order under the Budget Law even at a
lower price. In our opinion you bid too high, expecting that under the
Budget Law you would have the monopoly anyhow.”
One recalls the urgent plea which was made about the time of Pearl
Harbor for all private citizens to make gifts of their binoculars
for use by the armed service. To the extent that a shortage of such
material can be traced to the squabbles among cartelists it is a
condition which should certainly never be allowed to recur.
One of the most serious problems which will confront our government
and the United Nations in connection with the termination of the war
with Germany is that of eliminating for the future the German war
machine. The relations of Carl Zeiss and Bausch and Lomb show what may
be expected when private business concerns are permitted to handle
such a problem as though it were a matter of private concern. Surely
it is to be hoped that the policy of our government as expressed
in the peace which will be made with Germany will not be rendered
ineffectual because of the private international policy of certain
business concerns. The decree of July 9, 1940, enjoined Bausch and Lomb
from further carrying out any of the provisions of its agreements with
Carl Zeiss. This alone is not sufficient to insure that the public
policy expressed by government action shall not be thwarted by the
machinations of private cartels.
11
_Miscellaneous Products_
Three recent cases illustrate some interesting characteristics of the
cartel problem. These cases--involving cartelization of pharmaceutical
products, chemicals, firearms and ammunition, and matches--include
industrial concerns and individuals in Germany, England, Canada,
Sweden, Chile, the Argentine, and Brazil. They are significant not
only because of their inherent character, but also because the war has
not materially affected their operation. True, the war forced certain
changes upon them, but these were modifications, not cessations.
Since the cases in question had not been legally adjudicated at the
time this was written, it is well for the reader to remember that
the statements which follow are allegations which were a matter for
litigation between the government and the various defendants.
On October 28, 1943, the Department of Justice filed a complaint
charging Merck & Co., Inc., of Rahway, N. J., the largest producer of
pharmaceutical chemicals in the United States, and E. Merck Chemical
Works, of Darmstadt, Germany, with maintaining a cartel agreement in
violation of the antitrust laws.
Named as defendants in the suit were Merck & Co.; George W. Merck,
President of the firm; and Powers-Weightman-Rosengarten Corp., a Merck
subsidiary. The complaint charged that:
(1) The Rahway firm and its subsidiary conspired with the Darmstadt
concern to divide world territory into non-competitive areas by means
of what they themselves describe as a “Treaty,” dated November, 1932.
(2) Under the terms of this “Treaty,” the Rahway firm was assigned the
United States and Canada as exclusive territory, while the Darmstadt
organization was assigned almost all the rest of the world. The
“Treaty” also provided that Cuba, the West Indies and the Philippines
were joint territory in which conditions of sale and prices were fixed
by agreement.
(3) Since the British blockade after outbreak of the war in 1939
prevented the Darmstadt firm from exporting to many foreign countries,
particularly to Latin America, it was agreed that the American
company would supply Darmstadt’s agents in South America but that the
territorial provisions of the 1932 “Treaty” remained in effect, with
Latin American markets returned to Merck of Darmstadt as exclusive
territory after the war.
(4) To carry out this agreement Merck of Rahway revived a dormant
subsidiary, Powers-Weightman-Rosengarten Corporation, to engage during
the war in export business in territory assigned exclusively to
Merck-Darmstadt. The purpose of using this dormant subsidiary was to
enable Merck of Rahway more easily to abandon its export business in
Darmstadt’s territory after the war.
(5) Merck of Rahway not only intends to abandon all its export business
in Darmstadt’s territory after the war but to continue the territorial
division provided in the 1932 “Treaty” until 1982.
(6) The agreement covers approximately 400 pharmaceuticals and
chemicals, including quinines, sulfa drugs, vitamines, narcotics and
mercurials.
The government charges specifically that prior to the last war there
were close ties between Merck of Rahway and Merck-Darmstadt which were
dissolved in 1919 by the Alien Property Custodian. During the last war
the American Merck company gained a large export business in chemicals
and pharmaceuticals in Central and South America only to relinquish
this business and allow it to be recaptured by Merck-Darmstadt after
the war.
In 1932, the two companies entered into understandings and agreements
to divide world markets into exclusive areas, and as a device to
conceal these arrangements they entered into a so-called “Treaty
Agreement” on November 17, 1932, for a period of 50 years. The German
and American Merck companies, it is charged, divided the use of the
“Merck” trade name and the sales of their products throughout the
world. Under this arrangement, the right to sell exclusively in the
United States and Canada was assigned to Merck of Rahway, which was
also permitted to sell jointly with Merck-Darmstadt in Cuba, the West
Indies and the Philippines. The rest of the world became the exclusive
sales territory of the German company.
In making the above charges, the Government asked the Court to dissolve
the 1932 “Treaty Agreement”; to cancel the exclusivity of licenses to
use certain patents of the German firm; to enjoin Merck of Rahway from
refusing to fill orders from established chemical and pharmaceutical
dealers in foreign countries; and to enjoin the American firm from
vesting any patent rights in the German company at any future time
without first notifying the Attorney General of its intention to make
such patent transfer; and to prevent the parties from entering any
similar agreements or arrangements.
* * * * *
On January 6, 1944, the Department of Justice filed a complaint
charging two American companies, a British company, the American agent
of the British company, and five of their officers, with maintaining
an international cartel agreement to restrain trade in the manufacture
of chemical products, firearms, and ammunition, in violation of the
Sherman Antitrust Act.
Named as defendants in the suit were: E. I. du Pont de Nemours and
Company, Inc., Wilmington, Delaware, including Lammot du Pont, Chairman
of the Board, Walter Samuel Carpenter, Jr., President; Remington Arms
Company, Inc., Bridgeport, Connecticut, including Charles Krum Davis,
President and General Manager; Imperial Chemical Industries, Ltd.,
London, England, including Harry Duncan McGowan, Chairman of the Board,
and Henry Mond, Deputy Chairman; and Imperial Chemical Industries (New
York), Ltd., New York City, American agent of ICI.
The government charged that beginning sometime prior to 1920 du Pont,
ICI and, from 1933, Remington, had been engaged in a conspiracy and
combination in restraint of trade and commerce in chemical products,
arms, including war materials, and ammunition in the United States and
with foreign nations, and were parties to contracts and agreements in
violation of the Sherman Antitrust Act.
The alleged conspiracy consisted of an agreement, the terms of which
were:
(1) That du Pont and ICI not compete with each other.
(2) That du Pont, Remington and ICI cooperate to eliminate competition
between Remington and ICI.
(3) That du Pont and ICI each be assigned certain marketing areas as
exclusive territory.
(4) That the defendants agree to eliminate competition between
themselves in non-exclusive territory by various arrangements,
including the formation of joint companies, to sell their products in
accordance with agreed quotas and prices.
(5) That du Pont and ICI exchange exclusive licenses under all patents
and processes for the exclusive territories allocated to each, and
non-exclusive licenses for the remainder of the world.
(6) That du Pont and ICI attempt to obtain for each other the benefit
of agreements and understanding arrived at with third parties for
allocation of world markets or the acquisition of technological
developments.
(7) That du Pont and ICI cooperate to eliminate the competition of
other companies throughout the world.
The agreement was estimated to affect thousands of products, ranging
from explosives to paints and varnishes. Du Pont is the largest
manufacturer of chemical products in the United States, with total
assets approximately one billion dollars, including the ownership of
approximately 23 per cent of the stock of General Motors Corporation.
Remington is described as the largest manufacturer of sporting arms and
ammunition in the United States, and since 1933 has been controlled by
du Pont.
Imperial Chemical Industries, which has a virtual monopoly of the
chemical industry in Great Britain, was formed as the result of a
merger of four major British companies, and it was contended that ICI’s
founders intended not only to gain a monopoly of the chemical industry
in the United Kingdom but to join with the other major manufacturers
of chemicals throughout the world, including I. G. Farbenindustrie of
Germany and du Pont, to safeguard such monopoly position. This policy
was explained by ICI to du Pont as follows:
“Sir Harry explained that the formation of I.C.I. is only the first
step in a comprehensive scheme which he has in mind to rationalize
chemical manufacture in the world. The details of such a scheme are
not worked out, not even in Sir Harry’s own mind, but the broad
picture includes working arrangements between three groups--the I. G.
in Germany, Imperial Chemical Industries in the British Empire, and
du Pont and the Allied Chemical & Dye in America. The next step in
the scheme is an arrangement of some sort between the Germans and the
British.”
Imperial Chemical Industries (New York) conducts no independent
business operations of its own but acts solely as agent for ICI for the
transaction of business in the United States. The complaint stated that
in 1935 the then president of ICI (New York) described the corporation
as the “private commercial legation” of ICI.
Sometime prior to 1920 du Pont and ICI came to an understanding with
each other for the elimination of competition in the sale of explosives
in all parts of the world. By this understanding du Pont was allocated
the United States and Central America as its exclusive sales territory,
and ICI was allocated the balance of the world, with the exception of
Canada, Newfoundland and South America. Both companies were to refrain
from manufacture in or export to each other’s exclusive markets, while
Canada, Newfoundland and South America were to be shared by both
companies on a non-competitive basis.
It was further agreed that profits from the sale of commercial
explosives in South America would be divided equally; and that in
Canada the firm of Canadian Industries, Ltd., jointly owned by both,
would be utilized to eliminate competition between them. Moreover, it
was agreed that du Pont and ICI would exchange exclusive licenses under
all their present and future patents, processes and inventions for use
in the exclusive territory of each, and that non-exclusive licenses
would be exchanged for the territories shared by both companies.
By 1925, however, Dynamit Aktiengesellschaft (known as DAG), a German
corporation, had begun to offer serious competition to du Pont and ICI
in all important world markets, and in that year the two companies
reached an agreement with DAG to eliminate competition in commercial
explosives. By this understanding, DAG agreed to abstain from doing
business in certain markets and to adhere to quota arrangements in
other markets including South America. For this agreement, DAG was
awarded as its exclusive market in commercial explosives Germany,
Holland, Poland, Austria, Denmark and Bulgaria. Du Pont and ICI also
subsequently acquired a stock interest in DAG.
In order to carry out the understanding, it was charged, du Pont, ICI
and DAG about 1925, organized Explosives Industries, Ltd., incorporated
under the laws of the United Kingdom. Du Pont and ICI were each
allocated 37½ per cent of its shares, and DAG 25 per cent; and the
parties agreed to conduct all their exports in explosives to South
America through this corporation. Exports to Chile and Bolivia were
not included, however, as du Pont and ICI had earlier organized a
jointly-owned company, Compania Sud-Americana de Explosivos, to import
and manufacture explosives in Bolivia and Chile.
At the time du Pont and ICI entered into the conspiracy, it was
asserted, they were primarily explosives manufacturers, but both
continually increased the number of products manufactured until
explosives became but one of many items. The growth of the combination
paralleled the grow of the two companies; as each company made new
products, they were brought into the conspiracy.
The complaint cited as an example of the functioning of the conspiracy
that during the period 1920–29, du Pont tried to protect ICI from the
competition of American cartridge companies by withdrawing from these
companies discounts and rebates in connection with the sale of powder
so that they might not disrupt ICI’s markets by cutting prices.
By 1929 the conspiracy had incorporated substantially all of the
products then made by du Pont and ICI, and the complaint alleged that
in 1929 a further agreement was entered into whereby all products other
than explosives would be handled in the British Empire by ICI and in
the United States and Central America by du Pont. It was further agreed
that as to the balance of the world, the two companies would enter into
special arrangements to eliminate competition and would explore the
desirability of utilizing joint companies. Later, two joint companies
were founded to handle products in Argentina and Brazil--Industrias
Quimicas Argentinas “Duperial,” S. A., and Industrias Chimicas
Brazeileiras “Duperial,” S. A.
Military explosives had been omitted from the 1929 agreement, as
the two companies continued to make certain special arrangements to
eliminate competition between them. After 1933, when Remington joined
the conspiracy, the complaint states that further contracts and
agreements were entered into to eliminate competition between ICI and
Remington in the manufacture and sale of ammunition and sporting arms.
The parties clearly understood that they would continue the
relationship between them irrespective of governmental action which
might affect the concerns. In July, 1933, Lord McGowan wrote to Lammot
du Pont as follows:
“I have warned my people that no fiscal alterations in the U. S.
A. must be allowed to affect the interpretation to be placed on
our Patents and Processes Agreement, and the working out of the
co-operation for which the Agreement provides.... I find it is a good
thing to issue such warnings ... so that everything possible is done to
ensure that no prospective political or legislative action on the part
of Governments is permitted to influence relations between du Pont and
ICI.”
To this letter, Mr. du Pont replied in part: “I feel the same; ... If
any legislation or international agreements are brought about which
affect these ICI-du Pont relations, I am sure we will be able to adjust
ourselves so as to get the continued benefit of our Agreement.”
The agreement of 1929 was to expire in June, 1939, and at that time
ICI and du Pont entered into another agreement for 10 years and
indefinitely thereafter. The territorial provisions were continued, and
in addition to the patents and products covered by the 1929 agreement,
numerous other products were added, including cellulose compounds,
alkali metals and their products, fertilizers, dyestuffs, synthetic
resins and plastics, perfumes, flavoring compounds, pharmaceutical
chemicals, and new synthetic products, including rubber, nylon and
neoprene.
The Government charged that competition was restrained successfully
by means of the joint companies in Canada, Argentina and Brazil,
pointing out that because I. G. Farben was encroaching on the field in
Argentina, certain arrangements were made for a further joint company
to be partly controlled by Farben. However, because of the war this
procedure was not carried out, although du Pont’s Foreign Relations
Department stated in February, 1940, that “the du Pont Company informed
I. G. that they intended to use their good offices after the war to
have the I. G. participation restored.”
The purpose of the Government’s suit was to bring about the abrogation
of the illegal contracts, to secure a perpetual injunction against ICI
from violating the American Antitrust Acts, and to require du Pont and
ICI to take further steps to prevent future use of joint companies.
* * * * *
On May 1, 1944, the Department of Justice filed a complaint charging
the maintenance of an international cartel in the manufacture and
distribution of matches, in violation of the Sherman Antitrust Act, by
six American companies, two British companies, a Canadian company, a
Swedish company, two American agents of the Swedish company, and six of
their officers.
Named as defendants in the suit were: Diamond Match Company, New
York City (including William A. Fairburn, President, and Howard F.
Holman, Vice-President); Berst-Forster-Dixfield Company, New York City
(including Robert G. Fairburn, President); William Gordon Corporation,
New York City; Universal Match Corporation, St. Louis, Missouri; Ohio
Match Company, New York City; Lion Match Company, Inc., New York
City; British Match Corporation, Limited, London, England (including
Sir Clarence Bartholomew, Managing Director); Bryant & May, Limited,
London, England; Eddy Match Company, Limited, Pembroke, Ontario,
Canada; Svenska Tändsticks Aktiebolaget (Swedish Match Company),
Jönköpings, Sweden; Transamerican Match Corporation, New York City
(including Fritz Otterberg, President); New York Match Co., Inc., New
York City, American agents of Swedish Match Company (including Paul
Bertil Lind, President).
The Government’s complaint made the following charges:
(1) A cartel comprising American, Swedish, British, and Canadian
match producers eliminated competition throughout the world in the
manufacture and distribution of matches. This cartel has been in
existence since 1901.
(2) The defendants divided world territories into non-competing areas,
established production and sales quotas, and restricted the production
of matches in the major markets of the world.
(3) The defendants suppressed inventions and improvements in the
match art. By the acquisition of patents controlling the “repeating”
or “everlasting” match, the defendants have been able virtually to
suppress its production and use.
(4) Defendants controlled patents, raw materials, chemicals, machinery,
and processes in order to maintain their grip on the industry and
prevent competitive capital from entering the market.
(5) The defendants acquired competing match producers and distributors
wherever and whenever competition threatened.
(6) The amounts of matches imported into the United States from Sweden,
Russia, and Japan have been curtailed and prices have been fixed by
agreement with the Diamond Match Company with the approval of the other
American defendants. Imports into the United States from Canada, the
British Empire, and other markets of the world have been virtually
eliminated.
(7) As part of the conspiracy, match factories in the United States
have been withdrawn from production and scrapped.
(8) As the result of agreements between the Diamond Match Company and
I. G. Farbenindustrie, American production of chlorate of potash,
essential to match production and certain types of ammunition, was
virtually halted during the period between the first World War and
the second World War. This conspiracy resulted in a grave shortage of
chlorate of potash for military purposes and match production.