Part 13

“Your last monthly report has given cause to the consideration that we surely would be better in a position to assist you _if you would report to us what kinds of instruments are under trial and in use by your military service_. There must be a great many questions regarding instruments for _airplanes, tanks, and ships_ which demand special optical instruments.

“We would ask that you intensively _find out at the proper places and that you communicate to us the different problems_, so that we are placed in a position to name you the necessary instruments which we also make new to satisfy the actual demands.

“We believe that thereby the business could be enlivened and also work could be created for you as well as us.”

A month later on May 11, 1933 Nedinsco again wrote to Bausch and Lomb as follows:

“We find, much to our regret, that the agreement during the course of the last few years has materialized exclusively in Rangefinders and Periscopes for the Navy and that also in this respect it has lost more and more in intensity, whereas all other instruments for Army and Navy have completely ceased.

“_It may be assumed with great probability that the many other kinds of military instruments would find interest in the United States and that there would be a demand for these so that also for these there should be certain business chances._

“Notwithstanding that we transmitted to you information regarding many of our products, you have recently made a demand upon us for our constructive help only to a very limited extent.

“Business possibilities for foreign countries have never been mentioned which may result from American credits to foreign countries or from building contracts of American shipyards, gun factories, etc., and for which you might be considered as subcontractors. _Such business would according to Paragraph 3 of the agreement need a special understanding between us but is not excluded._ In view of the extremely serious economic situation in the world it would seem most urgent in our mutual interest that we endeavor to bring about a more intensive cooperation between us in the frame of our agreement and we therefore ask that you make known your position and make proposals as to how far and in what manner these relations could be furthered and the possibilities of business could be more rationally exploited.

“_We would also be thankful for a comprehensive economic report which would enable us to judge conditions._”

It can hardly be mere coincidence that these repeated requests for military information came so soon after Hitler’s accession to power.

On December 14, 1933 Bausch and Lomb wrote to August Lomb as follows:

“We are sending you herewith our report which unfortunately had to be delayed by reason of the pressure of work which had to be taken care of in this department, due to the sudden activity brought about by the N. R. A.

“_By reason of special secrecy clauses of late attached to each bid 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: