Part 3

In regard to the cartel involving Plexiglass, probably one of the most important plastics, and one which has innumerable military uses, the Rohm & Haas Company (Philadelphia) stated: “We could think of a price agreement on the finished product, or a division of our interests ... we have not only our own interests at stake, but also the ones of our German house [Rohm & Haas of Darmstadt, Germany] and the I. G.”

In December 1934 a high official of the duPont Company wrote to E. W. Webb, president of the Ethyl Gasoline Corporation (copies were sent to every member of its Board of Directors) as follows:

“I learned through our Organic Chemicals Division today that the Ethyl Gasoline Corporation has in mind forming a German company with the I. G. to manufacture Ethyl lead in that country.

“I have just had two weeks in Washington, no inconsiderable part of which was devoted to criticising the interchanging with foreign companies of chemical knowledge which might have a military value. Such giving of information by an industrial company might have the gravest repercussions on it. The Ethyl Gasoline Corporation would be no exception, in fact, would probably be singled out for special attack because of the ownership of its stock.

“It would seem, on the face of it, that the quantity of Ethyl lead used for commercial purposes in Germany would be too small to go after. It has been claimed that Germany is secretly arming. Ethyl lead would doubtless be a valuable aid to military aeroplanes.

“I am writing you this to say that in my opinion under no conditions should you or the Board of Directors of the Ethyl Gasoline Corporation disclose any secrets or ‘know how’ in connection with the manufacture of tetra-ethyl lead to Germany.”

Yet, in the face of this warning from duPont, on January 12, 1935, Webb wrote the Chief of the Army Air Corps that “There is no technical data of military importance known to us which would be involved in the building of such a plant that has not already received wide publicity, or is of common knowledge in the aviation field.”

This statement strikingly ignores the warning received from duPont only one month earlier that such a disclosure would “doubtless” be prejudicial to our national security. In this connection it should not be overlooked that duPont and Dow were the sole producers of the chemical components of tetraethyl lead and, as such, were the concerns which alone possessed the essential know-how.

Why did Ethyl Gasoline disregard duPont’s warning? Webb himself has supplied the answer in the final paragraph of his letter of January 12, 1935:

“There is, furthermore, an equally, if not more, important business aspect to the German situation. We are owned by Standard Oil and General Motors in equal shares. General Motors has important investments in Germany, producing there in excess of 50 percent of the motor cars. Standard Oil has large investments in all phases of the petroleum business in Germany.... We feel ... for the reasons specifically mentioned here, that it would be extremely unfortunate for all concerned if we do not proceed to carry out the agreement with I. G.... A refusal or undue delay on our part ... might bring on some serious reprisal measures.”

This leaves nothing for surmise. It is not unfair to conclude, in view of these facts, that for the directors of Ethyl Gasoline the preservation of I. G. good-will conflicted with the maintenance of good faith in dealings with their own government. Though duPont, from the beginning, was opposed to the entire deal on grounds of patriotic scruples, nevertheless it eventually deferred. In an inter-office memo of the duPont Company appears the following:

“I think we should tell I.C.I. that the technical and engineering information which we are giving I. G. in connection with Tetraethyl Lead is being given them entirely at the request of the Ethyl Gasoline Corporation. As they no doubt know, Ethyl Gas and I. G. set up some arrangements whereby they are going to participate jointly in the manufacture and sale of Ethyl Lead in Germany and we are turning over our information to Ethyl Gas which they in turn can submit to I. G. as part of the bargain in connection with this joint enterprise.”

The full extent of the dilemma in which cartel members are placed by the conflict of their cartel commitments with national interest is indicated in two statements made by a representative of one of the world’s great industrial combines. In a letter written in 1939, after the outbreak of war, a Standard Oil official stated:

“Pursuant to these arrangements I was able to keep my appointments in Holland, where I had three days of discussion with the representatives of the I. G. They delivered to me assignments of some 2,000 foreign patents and _we did our best to work out complete plans for a modus vivendi which would operate through the term of the war, whether or not the U. S. came in_. All of the arrangements could not be completed, but it is hoped that enough has been done to permit closing the most important uncompleted points by cable. It is difficult to visualize as yet just how successful we shall be in maintaining our relations through this period without personal contacts.”

It is of significance also that this same representative of a cartel group brilliantly expressed the cartel point of view when he said:

“Upon completion of that agreement, the war intervened because our grouping of interested parties included Americans, British, Dutch, Germans, and the war introduced quite a number of complications. _How we are going to make these belligerent parties lie down in the same bed isn’t quite clear as yet._ We are now addressing ourselves to that phase of the problem and I hope we will find some solution. _Technology has to carry on--war or no war_--so we must find some solution to these last problems.”

It is in their very nature that cartels restrict the fullest developments of new products and that they attempt to place rigid handicaps on output. Very often they even adulterate the quality of products in order to exact the greatest possible toll from the public. Several examples may be used to indicate the practices and mental attitude of monopoly groups in relation to the quality of material. The following quotation concerning flashlight bulbs speaks for itself:

“Two or three years ago we proposed a reduction in the life of flashlight lamps from the old basis on which one lamp was supposed to outlast three batteries, to a point where the life of the lamp and the life of the battery under service conditions would be approximately equal. Sometime ago, the battery manufacturers went part way with us on this and accepted lamps of two battery lives instead of three. This has worked out very satisfactorily.

“We have been continuing our studies and efforts to bring about the use of one battery life lamps. I think you will be interested in the attached analysis which Messrs. Prideaux and Egeler have worked up covering the various points involved in going to the one battery life basis. If this were done, we estimate that it would result in increasing our flashlight business approximately 60 per cent. We can see no logical reason either from our standpoint or that of the battery manufacturer why such a change should not be made at this time.

“Messrs. Parker and Johnson now have this matter up with the battery manufacturers and I would urge that every assistance be given them to put it over.”

Methyl methacrylate, the name of one of the best known plastics, is used not only in the industrial field to make airplane windshielding and many other structural materials, but it also has excellent qualities for the making of dental plates or dentures. As a result of the monopoly control of this material by the duPont Company and Rohm & Haas, its uses were divided into two fields: industrial and dental. At the time these firms were indicted a sharp difference in price was maintained. When methyl methacrylate was sold for industrial purposes, it cost 85 cents a pound, while the price to dental users was $45 a pound. The dental profession soon learned that there was no difference in the material, whether it was designed for industrial or dental use. As a result they began to purchase their requirements from industrial users, in order to gain the advantage of the cheaper industrial price which, we could assume, might possibly be passed on to the dental patient.

The monopoly clique considered this a form of bootlegging. On March 15, 1940, the Vernon-Benshoff Company (Pittsburgh), a member of the clique, made various suggestions to the Rohm and Haas Company which, although they were not placed in actual effect, offer valuable insight into the shocking extremes to which monopolists will consider going:

“Our discussion of the Pure Food and Drug Law and pulling the acrylic denture under it leads me to wonder if the manufacturers of the commercial molding powders might not add an ingredient which would not effect the molding properties, but which would disqualify it under the act. Apparently a slight trace would suffice. Naturally it would be omitted from the strictly denture powder.

“Recently I asked Dr. Johnson to suggest an addition which might interfere with distillation of monomer or retard polymerization. He could not think of anything that wouldn’t spoil the molding properties or clarity of the powders. But there the quantity needed to accomplish the result was the handicap.

“Under the very finicky regulations of the above act however, it may be the slightest trace of the right agent, too little to constitute harm to molding (or health either as a matter of fact) would suffice to have bootleg products in bad.

“A millionth of one per cent of arsenic or lead might cause them to confiscate every bootleg unit in the country. There ought to be a trace of something that would make them rear up.”

In its reply the Rohm & Haas Company said that it was in agreement with the general principles presented in the letter quoted above and that it would ask its research department to work on the matter. This was expressed in a letter of March 21, 1940 to the Vernon-Benshoff firm:

“With reference to your letter of March 15th, we shall be glad to investigate whether denture materials come under the Pure Food and Drug Act. We agree with you that if we could put some ingredient in our commercial molding material which would disqualify it under the Pure Food and Drug Act, this would be a very fine method of controlling the bootleg situation. We shall take this matter up with our development department and advise you whether any such material could be used.”

A striking way in which research can be perverted is illustrated by another example. The dyestuffs industry is one which is basically monopolistic and cartelized. A tight grip is maintained over its price structure. This is especially true of dyestuffs for textiles. Recently the duPont Company’s research laboratories developed a pigment which can be utilized either in paints or as a dye for textiles. The duPont research laboratories considered various ways to be sure that the pigment could be limited in use to the paint and finishing field so as not to disturb the price structure of the textile dyestuffs field. The trend of duPont’s research thought on this subject was stated by the director of one of its laboratories:

“Further work may be necessary on adding contaminants to ‘Monastral’ colors to make them unsatisfactory on textiles but satisfactory for paints.”

After working on this problem for some time, duPont’s Jackson Laboratory reported on its progress somewhat dolefully. (DuPont says of Jackson Laboratory that it is “one of the largest organic chemical research laboratories in the world.”) The particular task involved was difficult, according to a report by the Jackson Laboratory dated June 26, 1940:

“Mr. Chantler was of the opinion that pigment mixtures, unsuitable for textile printing would be very difficult to obtain.

“(B) _Agents Injurious to Textile Printing._--The suggestion was made that certain compounds that were white under ordinary conditions but that would be oxidized to give colored bodies when the prints are subjected to chlorine bleach, could be used. A few experiments had been made along this line using such compounds as Chlorostain N, dianisidine and DuPont Oxy Black Base. Complete data on this work are not available. Mr. Dahlen expressed the opinion that the addition of such compounds probably would cause as much or more damage to the paint trade as to textile printing.

“Such substances as ground glass and carborundum were suggested for incorporation with the pigment. While these materials would undoubtedly scratch printing rolls, there is considerable doubt as to their effect in paints and lacquers.”

Two days later the problem was again attacked at a meeting between the representatives of General Aniline Works and the duPont Company. Eight possible methods of adulteration were considered. I quote a few from the confidential memorandum of their discussion:

“1. A new type of copper phthalocyanine (CPC) for the paint and lacquer trade which would be unsuitable for application textiles.

* * * * *

“The importance of solving these problems was recognized, and it was agreed that both parties would work on promising ideas which resulted from this discussion. The three problems are closely related, and it is possible that the solution of one or two will automatically solve the third. It was agreed that a powder would be the preferable standard. After detailed discussion of various modes of attack, the following appeared to be outstanding:

“1. (a) Mixtures of CPC with Lakes.--The most promising mode of attack appears to lie in the formulation of a mixture of CPC with a lake, especially a lake of CPC. Such a mixture should have fairly good fastness to light and _yet be poor in wash fastness on textiles_ or incompatible with the usual textile printing lacquers....

* * * * *

“(d) Deteriorate Cotton.--Compounds might be incorporated into CPC which when applied to textiles and followed by bleaching or heating treatment _might increase the deterioration of the cloth_. Compounds such as chlorates or aliphatic halides which would produce hydrochloric acid were specific examples.

* * * * *

“(g) Irritating Substances.--_It is known that certain resins and solvents are irritating to the skin, often causing dermatitis. It might be possible to formulate a CPC composition which will make textile materials irritating to the skin._

“(h) Incorporation of Grit.--It seemed too dangerous to attempt to add gritty material to CPC since, although it would interfere with the use of the material for textiles, it would also offer serious disadvantages in grinding on application of surface coatings.

“It was agreed that the mere dulling of the material would not be a satisfactory solution since dull shades are often used in the textile trade. Most of the above comments are often based on work on blue, and many of the solutions would apply equally well to the green. In fact it is believed that there is a larger market for the sale of green than the blue.”

It seems to me that we cannot afford to place our sole reliance upon monopolistic corporations whose interests have only too often been divided, who have sought restricted production rather than full employment of our resources and labor, and who have sought for monopoly control rather than public welfare. We must learn by the bitter lessons of the early years of this war which found us lacking both materials and the know-how to make them, resulting from the restrictive practices of monopolies which instinctively seek to produce as little as possible for the greatest profit.

In war and peace alike technology is a vital factor in our national life. The present war is being waged with weapons and equipment which represent the last word in scientific development. Careful planning and rigorous adherence to the plans enabled Germany to have, in 1939, the most efficient war machine the world had ever seen. Now, after several years of feverish activity, the United Nations have at last caught up with and passed Germany in the race for armament superiority.

Now that our war effort has finally been put in high gear an entirely different kind of problem seems to be emerging. Under the forced draft of war urgency and unlimited government expenditure, materials and products are being made the like of which we have not heretofore known. The light metals, aluminum and magnesium, the wonder metal beryllium, the miraculously efficient diamond tools and the tungsten carbide tools, the plastics and dozens of other new developments will unquestionably make the postwar world something entirely different from that to which we have been accustomed. Many of the processes which can revolutionize our mode of living are owned by the government. Some are in the custody of the Alien Property Custodian. Others have been developed with federal funds, either by government agencies or by private concerns. No one will seriously dispute the wisdom of retaining control of these government-owned processes and of fostering the fullest possible use of them for the benefit of all.

There can be no denying that the war has resulted in a concentration of productive facilities in the hands of a relatively small number of gigantic corporations. Even before Pearl Harbor some of them were enormous concerns capable of wielding irresistible power in the competitive struggle with other, smaller companies. Today and after the war the smaller competitors which have survived will find the odds against them a great deal more disheartening than before. It is not in the public interest to allow the small competitors to be killed off in the uneven fight. Neither is it in the public interest to place hampering restrictions upon the effects of the large companies to fully utilize their research laboratories and technical experience for the purpose of strengthening their competitive position.

Without doubt the sensible thing for us to do is to make research and technology available to the little fellow as well as to his big competitor. In agriculture this policy has amply demonstrated its soundness. Experiment stations financed by state and federal funds extend the benefits of their research to the small farmer as well as to the large. It is doubtful that one could find a single intelligent farm operator, large or small, who would voice the opinion that governmentally financed agricultural research has not been worth many times the money spent for it. The small industrialist has the same right to expect that a government wishing him to continue to make his contribution to the national welfare shall offer him those benefits of research and expert advice which he cannot afford to provide for himself but which can easily be provided by the government.

There are those who scoff at all mention of cartels and refer to them as bogies conjured up to justify an attack on all big business. Such an attitude is dangerous. Cartels present the greatest challenge to our system of free enterprise.

In every cartel arrangement which has come to the attention of the Antitrust Division of the Department of Justice technology has been a vital factor. It is the responsibility of government to see that technology remains free from artificial control and monopoly perversion.

Every instance of this sort is evidence of the possibility of service to the public which might be expected if the government should see fit to provide itself with an adequately financed and numerically sufficient staff of technologists. It is my belief that the time has arrived for the adoption of legislation which will adequately protect and advance the public interest in technological development.

4

_Patents_

The importance and the position of patents in the American economy have been sharply defined since the outbreak of the present war. While the problem which patents have presented to our economy did not begin with the attack on Pearl Harbor, our experience within the past few years has crystallized many of the questions and issues at stake.

Patents are fundamental factors in the cartel problem because patent agreements are quite frequently used as the basis of cartel arrangements. The vital importance of control over technology and research to the achievement of cartel power enhances the significance of patents as the foundation stones of cartel structures. At the same time, the effects of patent abuses upon the economy are magnified to a critical degree.

We are all familiar with the historical background of the patent system and with the intent of the authors of the Constitution in stating that Congress shall have the power to promote the progress of science and useful arts by the grant of a patent. It is no accident that the original clause in the Constitution was phrased in careful terms. The framers of the Constitution inherited a concern toward the grant of any monopoly by government. They were specific in limiting the scope of the patent monopoly because they did not wish the patent to become the basis of a system of privilege.

When the American patent system was born, we were a frontier nation. Pioneers in every branch of science had before them an inviting horizon of discovery. The recognition of their contribution towards the promotion of science and useful arts served as a stimulus to their initiative and ingenuity. During this period the patent system served our country well and acted as a major incentive in the making of industrial America.

Our patent system was designed to “promote the progress of science and useful arts.” In many respects it has done so, and has given proper protection to inventors and enterprising businessmen. Where it operates to carry out this purpose, there can be no just complaint. But in many instances the patent system has been perverted to accomplish exactly the opposite effect. The patent has become the principal power weapon of modern monopoly, and the misuse of patents the major tactic of industrial cartels. This perversion has become so widespread as to jeopardize the whole patent system.

The patent problem as it exists today arises in an environment vastly different from the handicraft era in which modern industry found its beginnings. It is not the patent grant as such nor is it the operation of the individual inventor that brings the patent system into question. Invention today is a large-scale industry in a complex economy. In many branches of industrial production vast monopolies exercise a dominating influence over research. It is the abuse and misuse of patents by such concentrated groups wielding tremendous economic power which have brought patents into conflict with the fundamental purpose of the patent law and with the Sherman Act.

Monopoly interests, which have violated the antitrust laws in the course of their abuse of patents, have made the claim that the Antitrust Division of the Department of Justice is endangering the patent system by prosecuting restraints of trade based on patents. Many honest and innocent bystanders have been confused and misled by this propaganda. The fact of the matter is that danger to the patent system arises not from enforcement of the antitrust laws but from the flagrant abuses of those who use patents as the foundation stone of illegal monopolistic control of industry. If the patent system is finally wrecked we shall have to thank those who brought it into disrepute by their unflagging attempts to use the patent grant in a manner contrary both to the law and to the national interest.