CHAPTER 4

Morkrum-Kleinschmidt Corporation (later renamed “Teletype Corporation”)

During and after the first world war, both the Morkrum Company and the Kleinschmidt Electric Company were progressively developing and producing telegraph apparatus and bringing out new and improved operating devices to a point where conflicting patents were at issue. This meant infringement litigation which might destroy both companies. Neither company could obtain orders in sufficient quantity to make the manufacturing of apparatus profitable, and, with costly development work at hand, more capital investment was a continuous requirement.

The following excerpts from the March 1932 issue of _Fortune_[9] tells of the final joining of the two companies.

The Morkrum Co. had no profits to show for its efforts, and one can be fairly safe in assuming that no other maker of telegraph printers made profits. There were competitors, of course. Even the first telegraph invented by Samuel Morse had a printer, but it printed in dots and dashes instead of in letters of the English alphabet. That original Morse printer was abandoned as far back as 1844 because a man who could be trained to read dots and dashes could just as easily be trained to listen to them. The problem of getting a printer to print the alphabet was faced by inventors more than half a century ago, and it was not really a difficult problem. The difficulty was to invent a printer that was not too complicated and delicate to be reliable, that was simple enough to be manufactured for a few hundred instead of a few thousand dollars.

This difficulty occupied many minds other than the Morton-Krum intelligences. The most noteworthy of Morkrum Co.’s rivals in printer-making was Edward Kleinschmidt, an inventor who had all the inventor’s legendary devotion to his task and to nothing else. His creations included a vaccination shield, an automatic fishing reel, and the perfection of the Wheatstone perforator. He had been tinkering with a telegraph printer in one form and another since the beginning of the century. In 1917 his project was revamped. It had the financial backing of Charles B. Goodspeed, of the Buckeye Steel Casting Co.; Paul M. Benedict, assistant to the president of the C. B. & Q.; Edward Moore, son of Judge Moore of American Can fame; Eldon Bisbee, a New York lawyer; and one of Mr. Bisbee’s legal clients, Albert Henry Wiggin, then president of the Chase National Bank. It was Mr. Goodspeed, a quiet, retiring gentleman, who supplied most of the corporate (as distinct from inventive) energy of the Kleinschmidt Electric Co....

In the years from 1917 to 1924 the Kleinschmidt and the Morkrum companies became the leading makers of telegraph printers, but they did not have an easy row to hoe. Their only possible customers were the two great telegraph companies, the Telephone company, the railroads, and an occasional outside business such as a press association. The competition was disheartening, and it became keener with the elevation of Sterling, son of Joy Morton, to the presidency of the Morkrum Co., an elevation that was mainly a War-time accident, for Sterling Morton had resigned from his father’s company to enlist in the Army, had been rejected because of a small steel plate in his anatomy, and had chosen the Morkrum Co. as an alternative. Engineering progress was made, sometimes under ludicrous circumstances.

There was one occasion when Sterling Morton, about to sail for Europe, heard that the Kleinschmidt Co. was about to bring out a simplex printer. Up to that time both companies had been making printers for use with multiplex machines. Mr. Morton was afraid that Mr. Kleinschmidt was about to anticipate him in the simplex development which was the forerunner of the present teletypewriter. This was a contingency which Mr. Morton could not well permit. On the spur of the moment, he called on Howard Krum, who happened to be in New York. They bought a drawing board, hired a room at the Princeton Club, and worked for twenty-four hours trying to design such a machine. Completely baffled by one small detail, they gave up and took a bus for Coney Island. On the way, Howard Krum doubled up in sudden ecstacy and inspiration. They rushed from the bus at Coney Island, entered a soda fountain, and on the spot designed the machine on the back of an envelope. This simplex machine of the Morkrum Co. and the one developed by Kleinschmidt at the same time are the machines which make Teletype commercially important, the substance of the business today.

But engineering progress was not business progress. Both companies from the standpoint of profits were failures. Their few customers played them off against each other. In despair, they were both willing to sell out. At one point Mr. Goodspeed offered the Kleinschmidt company to Mr. Newcomb Carlton of Western Union for $412,000, the amount invested in it. Mr. Morton sold his company in all but fact to Mr. Charles G. du Bois, then president of Western Electric, but Mr. du Bois went off to Europe, and his substitute refused to see any merit in the deal. So it fell through. Unable to sell themselves to their customers, they tried selling themselves to each other. In 1923 Messrs. Goodspeed and Morton came to terms. The Morkrum Co. signed the agreement and, everything arranged, Mr. Goodspeed went off to bicycle with his wife in South Africa—whereupon his company suddenly changed its mind.

That was the situation of these two unfortunate companies in 1924 when Mr. Morton started a suit for patent infringement against his rivals. A counter suit was promptly filed. Mr. Goodspeed was quite right when he said the suits would ruin both—there was every prospect that by the time the courts had settled things, the patents would have been in such a snarl that neither could do anything. The suit, in fact, was Sterling Morton’s way of bringing matters to a head. So, figuratively speaking, on the courthouse steps they merged.

The terms of the merger as embodied in the six-line agreement (it was later made over into a twenty-five-page legal document which concluded by saying that in case of dispute the six-line agreement should be the final authority) were these: each of the old companies received a half interest in the common stock (10,000 shares) of the new company; 15,000 shares (callable at 105) of the new company’s preferred stock should be divided according to the assets of the old companies. Actually, 13,979 shares of preferred were issued, the majority going to the Morkrum group.

And so it was that the agreement to join both companies under the name Morkrum-Kleinschmidt Corporation was consummated and chartered in the State of Delaware on December 29, 1924, with Sterling Morton as President, Howard L. Krum as Vice President in charge of manufacturing, and Edward E. Kleinschmidt as Vice President in charge of development, patents and foreign sales.

One of the first decisions to make was whether the Kleinschmidt plant in Long Island City or the Morkrum plant in Chicago would be the headquarters for the new company. The Kleinschmidt company was on a 27,000-foot leased floor in a building which R. H. Macy Company had just purchased to use for a warehouse, and negotiations had been going on for some time for the purchase of the Kleinschmidt lease—the sum of $25,000.00 having been offered. When the union of the two companies was decided upon, an agreement to vacate on the terms offered was signed, and the Kleinschmidt firm moved to the Morkrum-owned plant in Chicago.

Bringing together the engineering talent and patents of the two companies had an immediate effect toward further progress. The first thing the new company set out to do, through consolidation of their past efforts, was to perfect a satisfactory start-stop-operated tape printer for the Western Union Telegraph Company to use for circuit extension to customers who were extensively using the telegraph for immediate, written communication. (This was to speed up telegraphic communication and eliminate the need for messenger service which had been the custom.) The Morkrum company had submitted their start-stop-operated Baudot tape printer, and the Kleinschmidt company had proposed the Western Union No. 22 tape printer in a redesign to start-stop operation. Now, the new company was able to combine both plans and as a result came up with their first development, a typebar, start-stop-operated, tape printer, the No. 14 (see figure 10). In the final design, Howard Krum and his production engineers took a large part. After tests and evaluation, Western Union’s first order was for 10,000 machines at $317.00 each. This amounted to a total of $3,170,000.00. No such quantity had ever been heard of before!

It is quite evident that while the two companies were separated, each coming up with improved and new designs of telegraph apparatus, there was a lack of decision by telegraph companies as to which type of apparatus to adopt in expanding their operations, and therefore they did not buy in quantity. The largest previous order to the Kleinschmidt Electric Company was for 800 No. 22 typebar tape printers for the Western Union Multiplex.

At Morkrum-Kleinschmidt more space was needed. The corner property on Wrightwood Avenue adjoining the Morkrum plant was purchased, and a four-story building was erected.

The design of a telegraph typewriter that would be more efficient and require a minimum of maintenance service was the most important project, and Morkrum-Kleinschmidt was working with Bell Laboratories engineers endeavoring to meet all the requirements of the Bell Telephone system. A typebar printer with a stationary printing platen and moving typebar printing unit was specified. These requirements were finally met with the design of the No. 15 page printer to operate at 60 words per minute, and manufacture of this apparatus was started in 1927 (see figure 11). The No. 15 page printer became the standard for nationwide intercommunicating telegraph service for many years.

In 1926, soon after the No. 14 tape printer was put into service, Morkrum-Kleinschmidt received a request from the police department of Berlin, Germany, for detailed information, stating that they were interested in the purchase of about sixty No. 14 printers. The letter asked if Morkrum-Kleinschmidt was represented by an agent in Germany whom they could contact. At an executive meeting, Mr. Morton and Mr. Krum asked Mr. Kleinschmidt to take care of this matter since his company, before joining them, had sold apparatus in some foreign countries. After further correspondence with the Berlin police officials, Kleinschmidt decided personally to take a No. 14 printer to Germany and arrange for a representative there. After visiting and conferring with several companies experienced in the telegraph and associated apparatus field, a satisfactory arrangement was consummated with the C. Lorenz Company, on October 25, 1926, for the manufacture and sale of Morkrum-Kleinschmidt equipment in Germany, on a royalty-licensing basis. At that time the Lorenz company manufactured telegraph and telephone equipment and railway signaling apparatus. Their engineering department was under the supervision of Dr. Gerhard Grimsen who took the matter in hand for further exploitation toward an intercommunicating printing telegraph system, using the No. 15 page teletypewriter. Siemens & Halske, the principal manufacturers of telegraph equipment in Germany, were also licensed by the Morkrum-Kleinschmidt Corporation, on June 1, 1929, with the consent of the Lorenz company.

(As may be seen in the following chapter, it was these licensing arrangements which led to the establishment of the TELEX intercommunicating teleprinter system in Europe.)

In early 1927 the well-known newspaper publisher, Mr. Frank E. Gannett, came to Morkrum-Kleinschmidt, bringing his company’s engineer, Mr. Walter Morey, who had heard of various attempts to operate a typesetting machine, such as Linotype or Intertype, directly from the telegraph. Mr. Gannett said, “We have telegraph typewriters in our news rooms that record the news as transmitted from the Associated Press and the United Press, and that is fine. Now, why not go a step further and operate our typesetting machines directly from the telegraph circuit? If you can develop such a device, I will help finance the project.”

Indeed, after some study of the matter, the possibility of devising such a system seemed entirely feasible and the development of suitable apparatus was turned over to the research and development department. A workable plan was soon put together and a separate company, the Teletypesetter Company, was organized, with Mr. Gannett joining financially. Edward Kleinschmidt was elected president. Development proceeded and a complete set of apparatus was set up and publicly demonstrated for the first time on December 6, 1928, at one of Mr. Gannett’s newspapers, _The Times Union_ of Rochester, New York. Teletypesetter equipment was subsequently manufactured for several installations. After the Western Electric Company purchased the Teletype Corporation in 1930, the Teletypesetter Company was sold to the Fairchild Company. Teletypesetter equipment is now in universal use by most newspapers and the larger printing companies.

During the period that the United States’ business cycle was on a continuous upswing (during the late 1920s), securities sales on the New York Stock Exchange were going to constantly higher volume, and the old step-by-step stock ticker did not, by large margins, keep pace in recording stock share transactions. There was a cry for a higher speed stock ticker; in fact, the Stock Exchange officials told Morkrum-Kleinschmidt that they would be happy to convert the entire system if they could get higher speed.

An adaptation of the five-unit-code, start-stop system seemed the solution and the Research and Development department set out to develop suitable apparatus. Several ideas were studied and, because of the frequent changes from letters to figures, requiring printing in separate rows on the tape, a six-unit code was adapted instead in which combinations for a figure included the sixth selecting pulse to operate the figures print hammer and block the letters print hammer.

The Morkrum-Kleinschmidt company was soon able to show the Stock Exchange people a stock ticker operating on a telegraph system that worked at twice the speed of the step-by-step-operated tickers then in use. A speed of 500 printing operations per minute could be obtained, thus attaining a one-hundred-percent increase in the transmitting and recording of stock quotations on the tape (see figure 12). The Stock Exchange ticker service company ordered 15,000 of these high-speed tickers and the Western Union Telegraph Company also ordered a quantity for their national stock quotations distributing systems.

As business of the combined Morkrum and Kleinschmidt companies went along, it was thought that the name “Morkrum-Kleinschmidt Corporation” was a pretty big mouthful and that a simpler name more characteristic of its products would be better. The name “Teletype” was suggested, and in the year 1928 the name change to “Teletype Corporation” was made. The exact origin of the word “teletype” is not known but it is no doubt one of the abbreviated forms of the words “telegraph typewriter” which were used over the years. In literature, in the early 1900s, we find that the word “teletype,” in speaking of printing telegraph equipment, and other shortened forms, such as “telewriter” and “teletyper,” were used interchangeably.

Kleinschmidt’s son, Edward F., who studied electrical engineering at Steven’s Institute and at Northwestern University, was employed as development engineer by the Morkrum-Kleinschmidt company where he assisted in the design of projects at hand, and, during 1929, produced a system and apparatus for transmitting and recording printed characters by the successive transmission of dots arranged in a pattern to form letters. While this system required a higher signaling frequency, it was thought to be superior to permutation-code transmission over radio circuits where electrostatic interference is experienced, since, in the dot pattern transmission, electrostatic interference up to a degree will not change the readability of a transmitted letter.

The system was in test operation to prove its efficiency over radio circuits where considerable static interference was experienced. Upon hearing of this new telegraph for the radio, Mr. R. Stanley Dollar became interested in the use of this communicating system for his steamship line. There was considerable correspondence in this matter during mid-1930, just prior to the sale of Teletype; however, neither AT&T nor Western Electric was interested in further promoting this new radio telegraph, so the matter was dropped.

Business activities of Teletype Corporation were now growing rapidly and with good profit. The capital structure of 10,000 shares was wholly inadequate, so by a 15-to-1 stock dividend the capital structure was raised to 150,000 shares, and dividends on an annual basis of $12.00 were paid.

The successful development of apparatus for different applications useful in the telegraph field was largely due to the close cooperation between the research-development and the manufacturing departments of the organization. Howard Krum had expert engineers and designers in his department, Kleinschmidt brought his leading engineers and designers from the Long Island City plant, and there was a definite spirit of cooperation all around.

To quote again from the _Fortune_ magazine story:[10]

As the years up to 1925, when the Kleinschmidt-Morkrum merger took place, were wanderings in a profitless desert, so the years from 1925 to 1930 found the teletype in a land of milk and honey. Mr. Morton, however, was inclined to think that a company which had only two or three major customers is not strongly placed. Furthermore (and by the spring of 1930), at least one of those customers was actively in the market as a Teletype purchaser. This buyer was Colonel Sosthenes Behn, whose International Telephone & Telegraph Co. includes Postal Telegraph at home in addition to many communication and manufacturing companies abroad. With Colonel Behn wanting to buy and Mr. Morton wanting to sell, negotiations rapidly proceeded to a point at which Mr. Morton, at least, thought the deal was almost concluded. But while Mr. Morton and the Colonel were discussing the prospective acquisition, into the Colonel’s office walked a man who has no other place in this story except that he happened to interrupt at this moment. As this gentleman was introduced, he asked whether Mr. Morton were related to Joy or Paul Morton. When Mr. Morton admitted that they were his father and uncle, the man turned to Colonel Behn and said in jest: “Better watch your step. That’s a smart family.” Only Colonel Behn knows whether he gave that remark any weight, but the point is that the negotiations suddenly collapsed, and that the visitor’s remark about the smart family still lives vividly in Mr. Morton’s memory.

This setback was not a setback at all to such a negotiator as Mr. Morton. Two months later, in May, 1930, you find him walking into the office of Clarence G. Stoll, vice president of Western Electric, A. T. & T.’s manufacturing subsidiary. This time there had been no preliminaries. Mr. Stoll rose from his desk and said: “Good morning. What can I do for you?”

“Do you want to buy Teletype?”

“Is it for sale?”

“Yes, at a price.”

“All right. Let’s get down to business.”

They got down to business on the spot, and they remained at it for three solid days in Mr. Stoll’s office. The agreement as reached called for A. T. & T. to pay off the preferred stock of Teletype, 13,979 shares callable at 105, and to give one share of A. T. & T. in exchange for each common share of Teletype. The A. T. & T. shares were worth about $200, so the price came to upwards of $30,000,000—plus, of course, the $1,467,795 for retiring the Teletype preferred.

It should be noted here that this deal to take over Teletype on a share-for-share basis was exclusive of foreign patent rights but did include patent rights in Canada and Mexico.

The sale to Western Electric was closed on September 30, 1930. Mr. Stoll of that company was made president. Howard Krum continued on as vice president and was a leader in developing a number of commendable devices, including a system for transmitting messages in scrambled, untranslatable code form and receiving such scrambled code in perfect message form. Mr. Morton was retained as consultant. Edward Kleinschmidt made an arrangement to do development work for the new organization in a laboratory of his own, assigning all inventions to the Teletype Corporation (see page 50).

After Kleinschmidt left Teletype, his assistant, Albert H. Reiber, carried on as head of Research and Development for a short while before his untimely death. In the meantime, Walter J. Zenner had advanced and, in 1935, became Department Chief and later Vice President in Charge of Research and Development. Under Zenner’s direction a number of new devices in the teleprinter field were developed, including ultra-high-speed tape-perforating and tape-controlled transmitting devices, as well as a high-speed stock ticker operating at 900 characters per minute (introduced in 1964) to replace the earlier Morkrum-Kleinschmidt ticker which operated at 500 characters per minute. Some 94 patents were issued in his name, which have contributed greatly to the growth of the Teletype Corporation.[11]

On May 15, 1940, Howard Krum and Edward E. Kleinschmidt were both honored by The Franklin Institute and awarded the John Price Wetherill Medal, each one “For his Part in the Development of a Successful Electrically Operated Duplicate Typewriting Machine Now Known as the Teletypewriter,” (Quoted from the medal certificate.)

Howard Krum later also received an award as Modern Pioneer from the National Manufacturers Association. Edward E. Kleinschmidt, on April 19, 1958, was awarded the honorary degree of Doctor of Engineering at the Polytechnic Institute of Brooklyn.

To continue: After the sale of patent rights in Canada, Mexico, and the United States to Western Electric, there remained the European and other foreign patent rights still with the original Morkrum and Kleinschmidt investors. The International Telephone and Telegraph Company wanted these rights, and, after negotiations in New York, a price was set for their purchase through the Creed Company in London, then owned by IT&T. Edward Kleinschmidt was sent to London in 1930 to close the deal. Some changes to the sales contract were requested by Creed which kept the cables busy by Kleinschmidt in asking for approval from A. T. & T. and Western Electric lawyers. Finally, upon all-around approval, the contract was signed at the previously-agreed-to price of one and a quarter million dollars.