Part 14

“In all other departments we find the Zeiss competition keen and aggressive. Zeiss have established themselves in this country and have been for years making more and more intensive efforts to get business. As an instance of their efforts we will cite the circumstance of their having put in a bid for Field Glasses to the government at such ridiculously low prices that we cannot understand how there can be any profit in it for them, but leaves us with a feeling that they are aiming to put us out of competition and acquire the business for themselves.

“Such efforts as they are making in this territory will surely lead to more aggressive action on our part and will certainly lead to anything but friendly feeling, and ultimately, to a more serious situation.”

On February 6, 1934, Zeiss wrote Edward Bausch as follows:

“I received your letter of January 25, and at the same time, a report from our Dr. Bauer about his interview with you and your associates on January 15, 1934 in Rochester. First of all, I wish to thank you for having gone to the trouble to write down the sequence of events, which brought about the change in duty calculation on our prism binoculars, with the result that the duty, which will actually have to be paid, comes very close to doubling the present rate. I expressed myself to Mr. Lomb in a very general way, and had pointed out merely the effect of the change of duty, which was probably caused by your initiative, and I used the expression that the sixty per cent rate had, in reality, been doubled.

“The essential consequence is that quality binoculars--and only those of more than 5× magnification, and of foreign net value of more than $12--have been affected by this measure. In reality, only Zeiss Binoculars fall under this arrangement, whereas all the cheap French prism binoculars, which are not negligible in quantity, are exempt.

“From your letter, I have noted that the steps taken by you were prompted by our offer and that of Carl Zeiss, New York, of six hundred 6 × 30 prism binoculars at $26 each, which we made in 1931 to the Navy. I believe that I do not have to add anything to the explanations which our Dr. Bauer has given you concerning this matter. The thought occurs to me, however, whether it would not have been appropriate, in view of the friendly and long relations between our respective houses, if one of your gentlemen had communicated with our Dr. Bauer and had pointed out the low prices to him in order to bring about a satisfactory solution of the question for the future, and this by means of a friendly understanding. Such an understanding would have been readily possible at the time, for we have always been ready to recognize justified wishes or requests of other houses, especially of those friendly to us.

“I would consider it to our mutual interests if this duty arrangement, which, as I admit frankly, has caused great bitterness on our part, would disappear again. As you know from several negotiations on other matters here and there, we and Dr. Bauer are always ready for a price agreement, which protects your just interests.”

On February 28, 1935, Bausch and Lomb wrote to Dr. Bauer of Carl Zeiss, Inc., New York. The first paragraph of his letter is as follows:

“Although I enjoyed my visit with you last Saturday morning very much, 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.