Part 12
Prior to the first World War Bausch and Lomb had been manufacturing military optical goods from glass imported from Germany. This had resulted from an agreement made in 1907. Carl Zeiss had threatened to establish a factory in the United States and sent a representative, Professor Tschopski, to this country in that connection. Apparently frightened by this threat, Bausch and Lomb entered into a series of transactions intended to eliminate any such competition. This was the so-called Optical Triple Alliance. The Fauth Instrument Company of which George Saegmuller was president was absorbed by Bausch and Lomb, and Saegmuller became vice-president of the latter firm. Carl Zeiss acquired one-fifth of Bausch and Lomb’s capital stock and representation on its board of directors. Zeiss abandoned its plan to establish a factory in the United States, and Bausch and Lomb agreed to buy its glass for military optical instruments exclusively from Zeiss. In 1915 Zeiss refused to continue to supply Bausch and Lomb with glass, under their arrangements of 1907, because the Rochester firm had been supplying military instruments to countries which were at war with Germany. The Zeiss interest in Bausch and Lomb was purchased by members of the Bausch and Lomb families. Upon our entrance into the war in 1917 it was found that one of the most badly needed war materials was military optical goods. Neither the glass itself nor the instruments had been produced in this country in adequate quantities prior to the war. The Geophysical Laboratory, the Bureau of Standards, Bausch and Lomb, the Spencer Lens Co., and the Pittsburgh Plate Glass Co., worked strenuously on a program to produce adequate quantities of proper quality optical glass. Between April 1917 and November 1918 over 600,000 pounds of usable optical glass were produced, 65 per cent of it by Bausch and Lomb. Under the stress of war, the manufacture of military optical-gunfire control instruments was increased to the extent necessary to supply the fighting arms of the service.
Confronted with the restrictions imposed by the Versailles Treaty the heads of Carl Zeiss were more than glad to work out, in 1921, a secret agreement with Bausch and Lomb. To summarize this agreement, Zeiss placed its know-how at the disposal of Bausch and Lomb. The latter agreed to pay Zeiss a royalty starting at 7% and gradually diminishing for 25 years on all its military optical business except field glasses. As indicated quite plainly by the third paragraph of the agreement, the two companies divided up the world insofar as the sale of military optical goods was concerned:
“B. & L. obligate themselves not to sell, directly or indirectly, 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: