Part 11
The 1933 agreement further provided that each party was to pay a royalty to the other on the basis of titanium dioxide produced and packed by it. DuPont was to pay National Lead a royalty of 2½% based on the average published carload price and National was to pay Krebs (duPont) 1% on a similar basis. It was provided, however, that in no event was royalty to either party to exceed $10,000 in any given year and all royalties were to cease as of December 31, 1936. The parties undertook to use their best efforts to acquire the rights for each other from third parties and duPont further agreed to offer licenses to the foreign associates of National Lead for the various countries of the world. This virtually was a commitment by duPont to give National Lead’s foreign subsidiaries a preference in granting licenses.
Following the execution of the duPont-National Lead Agreement in 1933, duPont entered into a series of four contracts with Titan Company, Inc. By these agreements, duPont agreed to turn over all its foreign patents to the various foreign associates of Titan Company, Inc. The result was a virtual consolidation of all the important titanium interests throughout the world. All commercially useful patents were under the control of the parties involved. Future control was assured by the various provisions of the agreements requiring the continuing exchange of licenses and patents to the practical exclusion of all would-be competitors.
At the time of the formation of Titangesellschaft, it was the intention of the National Lead-I. G. groups to extend their facilities into any country if and when it seemed necessary. From time to time beginning in 1933 the National-Titan-I. G. group because of threatened competition in one country after another was forced to take action to control the various competitive forces. This happened in Great Britain, Canada and Japan.
As early as 1930 the British Chemical Trust, Imperial Chemical 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.