Part 6
“Schering Corp. has an organization suited for national distribution and promotion of such preparations in the United States of America, and is equipped to manufacture such preparations. It also maintains and operates laboratories to carry on research and development work in connection with such preparations, but has not acquired the extensive scientific knowledge and practical experience in this field that Schering A. G. commands by reason of its longer and more extensive research work and experience.”
This language portrays the true relationship of the parent and subsidiary companies.
The parties agreed to exchange patents and information and to deal in each other’s products in their respective territories. The division of territory, as in so many of these German-American agreements, gave the United States to the American corporation as its territory and the remainder of the world to the German firm.
Article V, Paragraph 5 is as follows:
“Schering A. G. agrees not to deal in selected preparations nor to sell selected preparations to any corporation or person in the U. S. A. except to Schering Corp., nor knowingly to sell them to any corporation or person for purposes of exportation to or resale in the U. S. A. unless Schering Corp. shall first have given its written consent.”
Article V, Paragraph 7 is as follows:
“Schering Corp. undertakes not to export, either directly or indirectly, from the U. S. A., or knowingly to sell for purposes of export to any third party any such preparations unless Schering A. G. shall have previously given its written consent.”
A letter from Schering Corporation to Schering A. G. dated June 2, 1939 contained the following:
“In view of your assignment to us of certain patents in the female-sex-hormone field and your assistance in connection with the acquisition by us of licenses under patents in the male-sex-hormone and cortin fields, we agree not to sell or offer for sale any product made pursuant to the said assigned and/or licensed patents or any of them in any country outside of the U. S.”
All Schering A. G. patents and trademarks in the United States are owned by Schering Corporation or its affiliates. However, the agreement is not limited in its terms to the mere fixing of compensation for the use of patents and trademarks. The American corporation agreed to pay Schering A. G. a royalty on all its sales of pharmaceutical products which had nothing to do with Schering A. G. patents and trademarks. It even went so far as to agree to pay the German firm a royalty of not to exceed 12½ per cent on sales of new preparations developed by itself in this country. The following provisions of Article X of the agreement make clear this unusual relationship:
“In either of such cases [if net sales of Saraka, a proprietary laxative, are more or less than $1,200,000] the royalty shall be as follows:
“(b) On that portion of such amount derived from sales of preparations commonly available in the open market and not sold under a trademark, such as insulin, milk of magnesia, thyroid, or codliver oil, and in the manufacture of which no special Schering A. G. process is utilized, 6¼%;
“(c) On that portion of such amount derived from sales of new preparations developed by Schering Corp, wholly independent of Schering A. G. and which do not fall within a field of preparations already developed or in process of development by Schering A. G., a percentage, less than 12½%, to be determined and agreed upon by the parties from time to time.”
Up to the outbreak of the war there was a constant exchange of experience and knowledge by frequent mutual visits. This differs radically from the conditions which prevailed in many other fields. In the case of synthetic rubber for instance, the Hitler government flatly prohibited the giving out of technical information while using every means of securing the information of developments in this country. It seems obvious that in the case of Schering A. G., the plan, as subsequently carried out, was to place Schering Corporation in a position of being able to carry on Schering A. G.’s overseas business. In this rapidly changing field of hormones, this meant keeping the American corporation completely informed as well as getting from it all available information.
Schering Corporation, before the outbreak of war, was provided with complete instructions about the technicalities of exporting Schering products, with a complete set of Schering export packages, labels, prescriptions, etc., indicating all details of the complicated system of packages which differ from country to country and from product to product. This was done to enable Schering Corporation to start exporting without delay in case of emergency. For these products which, before the war had not been made by Schering Corporation, the necessary manufacturing directions were sent from Berlin. About these products until as recently as 1941 there was a constant exchange between Bloomfield and Berlin.
In addition to establishing a “neutral” manufacturer and supplier in the United States which in case of emergency could be resorted to as a new center of the overseas business, Schering A. G. took other measures as well. The Schering subsidiary in London, Schering, Ltd., was also sold to Chepha. It is understood that it has since been or is being wound up by the British government. Shortly before the outbreak of the war in 1939, all Schering A. G. firms in the British Empire, except London, and those in Latin America, were transferred to Foreign Investments and Invention Company, Ltd. Basle (Forinvent.) This was done to “neutralize” these Schering firms and thus to protect them from seizure in the British Empire or blacklisting in Latin America. Forinvent is wholly owned by Palladium A. G., also a Swiss holding company which in turn is wholly owned by the Swiss Bank Corporation, Basle. Forinvent, like Chepha, is within the premises and organization of the Swiss Bank. The president is the same Dr. Samuel Schweitzer of the Swiss Bank, who is in charge of Chepha, and the connections of Forinvent and Chepha with the Swiss Bank are practically identical. Due to the fact that the selling transaction in the case of Forinvent took place immediately before the outbreak of war, Forinvent could not escape being placed on the blacklist. The same holds true for the Forinvent (Schering A. G.) subsidiaries in Latin America, while the Forinvent (Schering A. G.) subsidiaries in the British countries were placed under enemy alien control.
The carefully laid plans were put into effect upon the outbreak of war. Forinvent advised the British Empire companies to get their further supplies from Schering Corporation and at the same time advised the latter to supply them, which it did.
The fact that the British government acted quickly and placed Forinvent and its subsidiaries in Latin America on the blacklist partially upset the plans which had been made. In view of the increasing anti-German attitude in the United States and the possibility of this country entering the war sooner or later, Schering Corporation had to be very careful of its outward connections with the Schering A. G. set-up. Therefore when Schering Corporation was finally advised to supply Latin America, steps were taken to conceal any connections with the blacklisted Forinvent firms. On January 2, 1940 Schering A. G. gave a release to Schering Corporation as to all products excepting hormones, and on March 1, 1940, cabled a blanket release in the following terms: “We authorize you until further notice to deliver pharmaceutical and technical chemicals to our South and Central American representatives or through their mediation to their customers.” These releases, of course, did not apply to foreign firms not associated with Schering A. G., and evidence shows that the restrictions as to these other companies were still continued, and Schering Corporation refused to sell to them.
Two paper corporations were created to avoid use of the name Schering although both corporations are in the same building with Schering Corporation and are completely identified with it except as to name. Pharmex, Inc., owned by Gregory Stragnell, vice president of Schering Corporation, dealt directly with the ex-Schering A. G. subsidiaries in the British Empire, except Schering Corporation, Limited, of Canada. The latter deals directly with Schering Corporation of Bloomfield.
Delta Pharmaceutical Corporation, owned by Sherka Chemical Company (which was in turn owned by Chepha), purchased raw materials from Sherka and hormone products from Schering Corporation and sold them to Atlantis, a corporation organized in Panama. These two companies, Pharmex and Delta, were really the export department of Schering Corporation. Part of their employees were on the pay roll of Schering and part on the pay rolls of Pharmex, Delta and Sherka. Both companies were under the direction of Dr. Weltzien and Dr. Stragnell, then president and vice president, respectively, of Schering Corp.
Atlantis S. A., Panama, is a wholly owned subsidiary of Forinvent organized in 1940. Its president is Dr. Samuel Schweitzer, who is likewise in charge of Chepha and Forinvent. At first it was considered advisable to set up an actual office in Panama. However since so many technical questions, passport difficulties and tax questions were involved, the whole Atlantis business was centralized in Basle, Switzerland, under the direct supervision of the Swiss Bank Corporation, in closest cooperation with Schering A. G. of Berlin.
One of the problems faced by Schering Corporation in its new foreign trade was that of packaging and labeling the products so that they would seem to be identical with those formerly supplied by Schering A. G. Since one of the chief considerations prompting this whole scheme was preservation of good will, in order that the business could be turned back to Schering A. G. after the war, this factor was most important. On February 10, 1940 Forinvent cabled Pharmex as follows: “fundamental changes of packing latinamerica may jeopardize turnover on account customers mentality and will probably cause difficulties with registration authorities therefore please adopt present style of packing and labeling ... suggest airmailing you immediately films for making plates [for printing Schering A. G. type of labels].” It was not necessary to use the films in question inasmuch as Delta had samples of all the Latin America packages it had used as a standard pattern. Delta on January 28, 1941, sent to Swiss Bank samples of all packages used for export, pointing out that the differences between the new and old packages were very slight.
From early in 1940 until Pearl Harbor the supplying of Schering A. G. firms in Latin America was accomplished in a circuitous manner. Each of the firms kept in close touch with Basle and so with Berlin. They advised Atlantis of their requirements. Atlantis, in Basle, cabled the orders to Delta at Bloomfield and instructed Swiss Bank in New York to honor Delta’s drafts. Delta delivered the goods to a forwarding agent of Atlantis in New York, which shipped them to a dummy consignee in Latin America and they were there received by the particular Schering firm which had placed the order.
About 40 or 45 cents of each dollar paid by the Latin American firm went to Atlantis and thus to Schering A. G. Out of its share, 55 or 60 cents, Delta (actually Schering Corporation) made its manufacturing costs and whatever profit there might be for it. The advertising expense was borne by Atlantis or Schering A. G. The advertising and continuance of the familiar German packages, labels and Schering trade-mark constituted an important form of German propaganda. It was possible for the German agents in Latin America to point to the continuance of German pharmaceutical supplies as indicative of their ability to overcome the British blockade and to carry on their commerce with this hemisphere.
It has been mentioned that the Germans used pharmaceuticals which have a high value in proportion to bulk and weight to make up one third of the air cargoes which were flown into South America along with propaganda and other materials. Pharmaceuticals also constituted an important part of the air cargo which was carried eastward, ranking third among the materials which were flown over the blockade. One order of 10 kilos (22 pounds) of testosterone propionate, the semi-manufactured male hormone, valued at $50,000 was shipped one kilo a week by air mail from Argentina to Spain and from there to the Schering factory at either Milan or Berlin. This and other similar orders, were placed by a dummy of Schering A. G. in Portugal.
Thus far I have been discussing the relations of two firms, one, the largest of the European manufacturers of synthetic hormones, and the other its affiliate or subsidiary, the largest American producer. There are other large European members of the cartel and each has its subsidiary in this country.
Ciba (Society of Chemical Industry in Basle, Switzerland) is another important cartel member. It has been in existence for some sixty years, engaged in the manufacture and sale of dyestuffs and pharmaceutical products throughout the world. In July 1936 it organized a subsidiary, Ciba Pharmaceutical Products, Inc., of Summit, New Jersey. Ciba Basle also came to own several other corporations in fields other than pharmaceuticals and hormones in this country, and companies in Canada, Brazil and Argentina which sell dyestuffs and pharmaceuticals. Ciba’s close relation to Schering A. G. is indicated by its joint ownership with the Swiss Bank of the common stock of Chepha, which in turn owns all the common stock of Schering Corporation.
Until just before the war Ciba Pharmaceutical of Summit, New Jersey, produced no hormone products. These were all purchased by it from Ciba Basle. However, since its organization it has been distributing hormones under its own label.
The subservient attitude of Ciba Summit to the Society (Ciba, Basle) is clearly shown in the following paragraph from a letter of October 17, 1939, from H. Kamp, vice president of the New Jersey corporation, to James Brodbeck, Secretary of Ciba Basle:
“As I have repeatedly said, I am not interested in making profits for Summit out of sales of raw materials or even finished packages sent to foreign countries. _All I am interested in is to help Society in getting the business_, but we must have a certain rule as regards profits for Summit. The simplest way would be if Basle fixed a percentage profit over our price II on all products shipped in bulk to any foreign country. The same, of course, could apply to finished packages if we were to supply finished packages to foreign countries later on. _We want to help Society as I fully realize that we are working for the interest of Society and not for the interest of Ciba Summit alone. Whatever seems most advantageous from your point of view will meet with my approval._”
The same attitude is also reflected in a letter of September 22, 1939 from H. Kamp of Ciba Summit to Dr. J. Weltzien, president of Schering Corporation:
“At the meeting which took place on May 10, 1939 in your offices, among other points, the introduction of desoxycorticosterone acetate was discussed. It was finally agreed that Ciba would introduce the product, but would abide by your suggestion that no other indications be mentioned in the literature than Addison’s Disease. We were, therefore, more than surprised to read your advertisement in the ‘Druggists Circular’ announcing ‘CORTATE,’ where it is suggested that the drug may be of use in the more chronic constitutional types of cortical deficiency, in asthenias, and that certain allergies should be benefited by the administration of Cortate....
“It is again one of your usual methods by putting the other parties before accomplished facts. I have discussed your tactics very thoroughly while in Basle, and I can assure you that our friends in Basle are more than fed up with your _methods. In fact, I have the full authority to give you a dose of your own medicine at the next opportunity, and this I am going to do without any hesitation whatsoever!_”
N. V. Organon of Oss, Holland, is a large manufacturer of hormone products and so is F. Hoffman-LaRoche of Basle, Switzerland. The latter company has had a subsidiary in Nutley, New Jersey called Hoffman-LaRoche, Inc. N. V. Organon of Oss and Hoffman-LaRoche, Inc., of Nutley, have jointly owned a corporation called Roche-Organon, Inc., organized in 1937 and engaged in the sale of hormones. In 1940 Ciba licensed Roche-Organon to manufacture products in the cortin field under a patent for which it had made application in 1938. Ciba agreed to pay Roche-Organon 20 per cent of all royalties collected from other licensees except Schering. Roche-Organon agreed to pay Ciba 6 per cent on its entire turnover in the United States in the Cortin field from January 1, 1940 to June 17, 1955 regardless of whether the turnover involved products made under Ciba’s patent.
The German firm of C. F. Boehringer and Sons of Mannheim-Waldhof, Germany formerly owned 50 per cent of the stock of Rare Chemicals, Inc., Nepera Park, New York. The president of the German firm was the father of E. T. Fritzsching, formerly secretary and more recently president of Rare Chemicals. A memorandum of the younger Fritzsching of Rare, dated March 29, 1939, contains the following opening paragraph:
“In view of the boycott situation and in view of a number of other reasons I have come to the conclusion that the best way to avoid any further trouble for Rare Chemicals is to arrange for a definite purchase of the Boehringer shares by an American citizen. It is my intention to make an offer to Boehringer, by which I shall take over their assets in this country and pay for them at whatever price I could possibly obtain them. I am assuming this obligation personally for the reason that it really makes very little difference whether the shares are owned by Boehringer or by me, since through this transaction the assets would morally still remain within the same family interests. It would also work along the lines of my personal interest and that of my family in the event of war.”
The remaining 50 per cent of Rare’s stock was owned by Pyridium Corporation also of Nepera Park, New York. A letter to Erwin Fritzsching c/o C. F. Boehringer & Soehne, G.m.b.H., Mannheim-Waldhof from W. S. Lasdon of Pyridium and president of Rare dated August 18, 1939 contained the following statement: “I agree with your suggestion to the transfer of the B.&S. stock to a Swiss Company, instead of to you, and of course, your participation in the profits of Rare is to be cancelled upon the signing of this agreement, the understanding being that you and W. S. Lasdon will represent the stockholding interests.” The products of the two companies were exchanged with definite restrictions upon their distribution. The following excerpt indicates that the German firm kept a tight rein on the use by the American firm of the former’s products. It is taken from a letter from Fritzsching of C. F. Boehringer & Soehne, G.m.b.H. to Rare Chemicals, Inc., dated October 31, 1936. It concerns a request of Rare to be allowed to manufacture a product called Eucupin.
“We are acknowledging the receipt of your letter of October 19th and regret to say that we cannot comply with your wishes.
“We must take into consideration also the German interest when weighing the question whether it is right to send manufacturing processes to foreign countries, even though they may go to our friends in these countries. We cannot be responsible for it to give you manufacturing processes, the use of which is not to be expected within a reasonable time. In such a case we cannot truthfully answer any possible questions from authorities to the effect that we can say that when giving away a manufacturing process it will make it possible to manufacture and sell in a foreign country a German preparation, the sale of which from Germany due to duty difficulties and other restrictions cannot be considered. In this fact lies the German interest, and this we have to consider in first line.”
In the summer of 1942 Rare was taken over by the Alien Property Custodian and subsequently sold at public auction to a wholly American independent organization.
After certain separate agreements and considerable negotiation a five party agreement was entered into on May 26, 1937 to which the European firms Schering A. G.; Ciba, Basle; N. V. Organon, Oss, Holland; C. F. Boehringer & Sons, and Les Laboratoires Francais de Chimiotherapie of France (Chimio) were the parties. The male hormone, female sex hormones, and cortin, the cortico adrenal hormone, are covered by the agreement. It involved a division of territories with certain parties being definitely excluded from certain territories. Competing producers of pharmaceutical products were expressly named as firms with which any kind of cooperation is prohibited. Among these were E. Merck, Darmstadt, Germany, and Merck & Co., Inc., of Rahway, New Jersey. Subsequent agreements removed the prohibition as to these firms.
Of course, one of the chief purposes of the cartel agreement was to fix prices. The European parties agreed upon prices and their American affiliates did likewise. A memorandum of a meeting held at Summit on October 6, 1938 between representatives of Ciba and of Schering discusses the fixing of prices on various hormones. The artificial and arbitrary character of the pricing policies is indicated by quotations from some of the documents which were written following this meeting. One of them indicates an agreed price of $3 for a certain hormone product. It then states: “This price was later refused by Mr. Kamp [Ciba’s general manager] who then advocated $4.00. This was submitted to the other with our O.K.”
A memorandum of a discussion held at Bloomfield, New Jersey on October 7, 1938 between representatives of Rare and of Schering, recites a detailed list of prices agreed upon between Schering and Ciba the preceding day as having been submitted to Rare.
As to the item on which the price had been changed as just indicated an endorsement on this memorandum states: “Informed Mr. Landon [Rare official] by phone of Summit’s desire to change this price to $4. He agreed to this.”
The entire world cartel system has been bound together with patents. The contracts among the American companies have been carefully planned and drafted abroad to avoid any appearance of violating the antitrust laws. They were couched in terms of licensing patents to give the impression that the parties were merely procuring rights under patents and not engaging in restraints of competition. The evidence indicates that the cartel participants in Europe had attempted to allocate the issue of patents in the United States to the associated firms in such a manner as to strengthen the defense of the American firms against charges of antitrust law violations. At a discussion in Berlin on March 18, 1939 among representatives of Ciba, Organon, and Schering, A. G. there was set in motion reciprocal concessions of priority in interferences between Organon and Ciba in the U. S. Patent Office relating to the male hormone, and to cortin. It was arranged for Schering to drop out of the interference proceedings. It appears from a circular letter from Organon to Ciba and Schering that the plan was for Organon to concede priority to Ciba in the male hormone interference and for Ciba to concede priority in the interference regarding cortin. The intent of the parties, as to the male hormone interference, was to transfer the application of Organon to the United States Ciba firm. This circular letter of April 4, 1939, from Ciba to Organon and Schering, A. G. reads in part: