10 Optical Instruments

How was it possible for Nazi Germany to emerge as a fully armed aggressor nation when she had been so thoroughly disarmed as a result of the Versailles Treaty? What can be done to prevent German technology from being utilized in preparation for another war? I propose in this chapter to discuss a particular cartel situation which sheds much light on the first question and will, I believe, be of value in finding an answer to the second.

There were, of course, many factors which contributed to the failure of the Versailles Treaty to accomplish the permanent peace which was contemplated at the time of its execution. It is my purpose to show herein that there was a definite program to sabotage the effectiveness of the Treaty and that that program was conceived in Germany almost as soon as the peace was made and many years before Hitler came into power. Furthermore, I shall prove, on the basis of documentary evidence, that evasion of the disarmament provisions of the Versailles Treaty was facilitated by a cartel agreement between a German firm and an American corporation. The agreement was between Carl Zeiss of Jena, Germany, and the Bausch and Lomb Optical Company of Rochester, New York.

In March, 1940, Bausch and Lomb and Carl Zeiss were indicted for violation of the antitrust laws. Pleas of nolo contendere were made, fines paid and thus trial of the indictment was avoided. A civil complaint and consent decree were filed in July 1940. The investigations in connection with this case revealed the following:

(1) Action was taken in 1921 to nullify the provisions of the Versailles Treaty which prohibited Germany from large scale manufacturing of military equipment.

(2) The parties caused Zeiss patents in this country to be taken out in the name of Bausch and Lomb, thus giving an appearance of American ownership and consequent protection against seizure by an Alien Property Custodian.

(3) Secret United States military information was given by Bausch and Lomb to Germans not only before but after Hitler came into power.

(4) Unknown to the Navy a secret commission to Bausch and Lomb was included in prices paid by the Navy for equipment furnished by Zeiss.

(5) Public declarations were made as to a policy of not selling military equipment to England and France for fear it might be used against this country, when the reason such policy existed was because of the provisions of a secret agreement with a German concern.

(6) Threats of patent infringement were used to frighten competing firms bidding upon military equipment for the United States Army.

(7) The cost to United States users of binoculars was greatly increased by reason of the efforts of Bausch and Lomb to protect itself from competition in that field.

No one factor is of greater importance in the waging of modern mechanized warfare than the precision instruments which indicate the exact location of a target and permit the accurate aiming of the gun or other device which will throw the projectile. The instruments which come in this category include periscopes, range finders, height finders, boresights, bombsights, telescopes, torpedo directors, gunsights, searchlight lenses and reflectors, as well as others. The glass which is used in making such instruments is of extremely high quality, it being absolutely essential that it be free from striae or streaks, bubbles, cloudiness and other defects which would impair its transparency or refractivity. At the outbreak of the first World War practically all such glass was made in Germany at the Schott glass works at Jena. Moreover, practically all first quality military optical instruments were also made in Germany, at Jena, in the factory of the Carl Zeiss Stiftung. The latter is a foundation created by bequests from Carl Zeiss and Dr. Ernest Abbe for the purpose of perpetuating the instrument business which their research had founded. By the time of the first World War it had grown into a tremendous establishment employing something like 10,000 people and supplying most of the Kaiser’s war machine with optical-gunfire control instruments. Its continuance as a large scale producer of war instruments was entirely inconsistent with the aims and provisions of the Versailles Treaty.

Prior to the first World War Bausch and Lomb had been manufacturing military optical goods from glass imported from Germany. This had resulted from an agreement made in 1907. Carl Zeiss had threatened to establish a factory in the United States and sent a representative, Professor Tschopski, to this country in that connection. Apparently frightened by this threat, Bausch and Lomb entered into a series of transactions intended to eliminate any such competition. This was the so-called Optical Triple Alliance. The Fauth Instrument Company of which George Saegmuller was president was absorbed by Bausch and Lomb, and Saegmuller became vice-president of the latter firm. Carl Zeiss acquired one-fifth of Bausch and Lomb’s capital stock and representation on its board of directors. Zeiss abandoned its plan to establish a factory in the United States, and Bausch and Lomb agreed to buy its glass for military optical instruments exclusively from Zeiss. In 1915 Zeiss refused to continue to supply Bausch and Lomb with glass, under their arrangements of 1907, because the Rochester firm had been supplying military instruments to countries which were at war with Germany. The Zeiss interest in Bausch and Lomb was purchased by members of the Bausch and Lomb families. Upon our entrance into the war in 1917 it was found that one of the most badly needed war materials was military optical goods. Neither the glass itself nor the instruments had been produced in this country in adequate quantities prior to the war. The Geophysical Laboratory, the Bureau of Standards, Bausch and Lomb, the Spencer Lens Co., and the Pittsburgh Plate Glass Co., worked strenuously on a program to produce adequate quantities of proper quality optical glass. Between April 1917 and November 1918 over 600,000 pounds of usable optical glass were produced, 65 per cent of it by Bausch and Lomb. Under the stress of war, the manufacture of military optical-gunfire control instruments was increased to the extent necessary to supply the fighting arms of the service.

Confronted with the restrictions imposed by the Versailles Treaty the heads of Carl Zeiss were more than glad to work out, in 1921, a secret agreement with Bausch and Lomb. To summarize this agreement, Zeiss placed its know-how at the disposal of Bausch and Lomb. The latter agreed to pay Zeiss a royalty starting at 7% and gradually diminishing for 25 years on all its military optical business except field glasses. As indicated quite plainly by the third paragraph of the agreement, the two companies divided up the world insofar as the sale of military optical goods was concerned:

“B. & L. obligate themselves not to sell, directly or indirectly, Military instruments to countries outside of the United States of America, and vice versa Carl Zeiss obligate themselves not to sell such instruments, directly or indirectly to the United States unless the parties have come to an agreement regarding the conditions of sale and the respective territories of distribution.”

In the fourth paragraph, Zeiss was given the power to pass upon who should become the heads of the Bausch and Lomb “Military Department.”

“In furtherance of the aims of this agreement B. & L. in Rochester will create a new Department solely responsible to the Board of Directors, which is charged with the independent development of all scientific and technical tasks within the Military scope and the maintenance of connections with Jena. The parties will come to an agreement as regards the heads to be placed in charge of this department.”

In non-military fields the parties, while competing, were to give due regard to each other’s interests. In the military field they agreed to full exchange of know-how and to rights under inventions acquired by them. The eighth paragraph anticipated the possibility of a conflict between the obligations to each other under the agreement and those owing to the nation: “The mutual obligation regarding the exchange of Military designs shall be void whenever the highest home Government of one party expressly demands that they be kept in confidence in the interest of the nation.”

As will be shown, Zeiss subsequently demonstrated a very keen awareness of the privilege thus accorded it to obey Hitler’s edicts and to keep its know-how in Germany. Bausch and Lomb on the other hand on more than one occasion weighed the demand for secrecy by our Army and Navy against the obligation to keep Zeiss informed and decided in favor of the latter. Both parties were fully aware of the fact that such an agreement had to be kept secret. It was intended to give Zeiss a new lease on life and actually made it possible for that concern to continue its existence in spite of the disarming of Germany and its war partners. The contract bluntly stated: “The contracting parties agree to keep the foregoing agreement in strict confidence as regards a third party and to guard silence concerning this agreement also with their own employees as far as this may be practical under the circumstances.”

In contending that the contract was not secret, Bausch and Lomb states: “The original contract was shown to the U. S. Naval Observer in Berlin within a month of its execution, and through him the Bureau of Naval Intelligence and the Bureau of Ordnance were informed.” As a matter of fact it seems clear that what was shown to our Naval representative in Berlin was not the “original contract” but only a portion of it with a certain other part withheld. The explanation for withholding part was that it related to matters which did not concern the Navy. The Navy representative was told that the Bausch and Lomb connection with Zeiss must be kept strictly confidential to protect Zeiss. The latter was not permitted under the terms of the Versailles Peace Treaty to continue the manufacture of military optical goods. In this connection a letter from George N. Saegmuller to Bausch and Lomb, sent from Jena on May 6, 1921, is of interest (Saegmuller was the vice-president of the firm who had gone to Germany to execute the agreement with Zeiss):

“I hope you rec’d our cable via Frankfurt in regard to the signing of the agreement Apr 29th and also my letter of even date in which I entered into the subject more fully. In that letter I stated that Capt. Bechler, Naval representative of the Am. Commission, telephoned for me to come to Berlin. This I intended to do but upon reflection I thought it best for him to come here as the various instruments in which they are interested are here. He assented to this and was to come yesterday but was taken sick so in place sent his aid, Lieut. Culbert, U. S. N., who was also accompanied by the Military represt. of the Am. Commission. What the Navy wants at once are: [enumerating range-finders, periscopes, sights and other similar instruments].

“For these instruments they are in a hurry and most probably we will have to import the optics from here as it would be impossible for us to produce them in time even with Zeiss opticians. I thought it best to go with Fred to Berlin to see Comdr. Bechler & impress upon him the importance of finding out how many of the various instruments are wanted, so as to receive the optics in time.

“The Navy Department wants to obtain a copy of the agreement as a kind of a guarantee that if they order from us they will really receive Zeiss instruments or rather Zeiss quality. I told Lieut. Culbert that in my opinion there would be no difficulty in giving them a copy of the agreement which relates to military instruments. An entire copy we could not give as it relates to matters which does not concern the Navy; I wrote out what I thought and gave it to Dr. Fischer who will consult with the others; I don’t think there will be any trouble on that score. I told both officers that our connection with Zeiss must be kept strictly confidential, chiefly on acc’t of Zeiss; this they understand.”

The reason it was necessary to keep the agreement secret is quite obvious but it need not be left to inference. On Dec. 27, 1930, Bausch and Lomb wrote to Interflash Signal Corporation of New York in reply to an inquiry concerning a range finder for the Grecian Navy Department. The letter contains this language:

“Our activities in the military line of instruments in general are concentrated in supplying the requirements of our own Government. While we have occasionally supplied foreign Governments with a few of these instruments, this has only been by chance as far as our facilities have permitted. We appreciate very much the offer of Admiral Dedes to become our special representative, but under the circumstances above stated we are unfortunately not in a position to accept this offer. We would suggest that he communicate with our friends, the Nederlandsche Instrumenten Compagnie, Den Haag, Holland, who manufacture the military line of optical instruments formerly made by Messrs. Carl Zeiss of Jena, Germany, the latter not being permitted under the terms of the Peace Treaty to continue the manufacture of these products....”

On October 20, 1926, Bausch and Lomb wrote a letter to one of its representatives in the New York City office. J. A. Scheick of that office had quoted a price on two range finders to a New York firm which intended to ship them to Laredo, Texas for the ultimate use of the War Department of Mexico. The letter states:

“We have, on previous occasions, explained to Mr. Scheick that we must know the customer for whom this Military equipment is ultimately intended and we have also withdrawn our previous quotations stating that by reason of the limited supply of instruments on hand, it would be best to refer all such inquiries first to us, to find out whether or not we can take care of such an order. The real reason, as you are aware, is our agreement with Zeiss, which, of course, we cannot explain to Mr. Scheick, as we are not only required to keep the nature of the agreement confidential, but the very existence of such an agreement. As you are probably aware, this prevents us from making sales in the Military line, directly or indirectly, outside of the United States, unless by previous agreement with Zeiss on the price question; the price agreed to by Zeiss will be higher than their direct quotation. Obviously, we cannot accept the inclosed order intended for the War Department of Mexico.”

The 1921 agreement was to run for 20 years with Bausch and Lomb obligated to continue to pay royalties for 25 years on all its military business whether based on Zeiss patents or not.

To carry out its agreement with Bausch and Lomb, Zeiss used the device of a corporation organized in Holland called N. V. Nederlandsche Instrumenten Compagnie—or Nedinsco, for short. It is a wholly owned subsidiary of Zeiss with its principal office at The Hague and its plant at Venlo, a town on the German border. Thus, in the years which passed before Hitler came into power in the face of the disarmament provisions of the Versailles Treaty, Carl Zeiss was enabled to continue in the production of military optical equipment by merely moving its plant across the border. It was assured of and received royalties from all sales of such equipment in the United States by Bausch and Lomb, and assured of and received for Nedinsco freedom from competition in all the rest of the world so far as Bausch and Lomb was concerned. The survival of Carl Zeiss and its ability to provide at Jena one of the most important cogs in the Hitler war machine is clearly understandable and is in large part the result of the secret agreement of 1921.

The following paragraphs from a letter from Bausch and Lomb to Zeiss dated February 10, 1939, substantiates this statement:

“We are uncertain whether your reference to the more distant past is intended to cover the period between 1907 and 1915, during which time we freely admit that you were of assistance to us in the establishment of our military department, or to the period following the resumption of our cooperative endeavor after the World War.

“On the assumption that you are referring to the earlier period, we believe that you were completely compensated by the dividends which you received on the stock held in our company and by the appreciation in the value of this stock which you realized at the time of its sale.

“If, on the other hand, you are referring to the later period, we believe that inasmuch as the arrangement made accomplished the primary objective of keeping your scientific staff intact at a time when you could not manufacture war materials, you were adequately compensated, particularly in view of the fact that, as you then knew, our Government was at that time very little interested in the development of, and made but very small appropriations for, fire control apparatus. In other words, we believe that the development work which you did during this period was primarily for your own benefit and not of great value to us here.”

Here we see quite clearly how an American company aided a German company avoid both the spirit and the letter of the Versailles Treaty. Although Germany was prohibited from manufacturing and exporting military equipment, Bausch and Lomb “accomplished the primary objective of keeping your scientific staff intact at a time when you [Zeiss] could not manufacture war materials.” In response to the letter just quoted, Zeiss replied on July 22, 1939:

“In reference to 2. In the reference to our letter of January 3, 1939, page 2, to a more remote time, that is, the time further back than 5 years, we have had reference to the first decade of the operation of the agreement as it now exists. Your assumption that during that time the development work done for you was above all to our advantage and had served the purpose of maintaining our design force is absolutely misjudged. We had at no time the intention to allow our experience and knowledge of the military business to rest but have, as you know, established the Nedinsco branch for the express purpose so as to keep our place in the world market. If the Nedinsco was a successful competitor where high grade equipment of our sphere of activities was in demand, this success is due to the work and efforts of our scientific staff and technicians who building on experiences before and during the war have explored all kinds of military spheres for our designs. The fruits of this successful, constructive labor has of course been reaped in general by Nedinsco. Surely we could not have continued the development work of even a small part of these activities from the small royalties received from you. From this follows definitely that you were the one who profited, without merit of your own, from the advantages of our complex and expensive development work, and that you unfortunately, notwithstanding repeated urging on our part, did not sufficiently make use of the given possibilities, a fact with which we found fault repeatedly verbally and in writing.”

The sentence which I have italicized is a positive statement by Zeiss of its utter disregard of the conditions imposed by the Peace Treaty.

On June 27, 1925 a supplemental agreement was made which slightly changed the royalty provisions of the 1921 agreement. The division of world territory remained as before, except that the parties undertook to protect each other in bidding on government contracts by overbidding.

Subsequently on October 28, 1925, a further supplemental agreement was signed by Zeiss at Jena and on December 11 by Bausch and Lomb at Rochester. After repeating the provisions of the supplemental agreement of June 27, 1925, it added:

“In case the inquiries referred to in paragraph 2 and 3 should not come to Bausch & Lomb from a Government, but exceptionally from a commercial house of a country outside of the United States, the firm of Bausch & Lomb is to communicate immediately with the firm of Nedinsco, and, depending on the situation at Nedinsco, either to make the protective offer named to her by the latter firm, or to decline the inquiry under pretense. The information in question will be given to the firm of Bausch & Lomb by the firm of Nedinsco.”

The second supplemental agreement also contained the following provision:

“If the firm of Bausch & Lomb is furnishing to American shipyards, optical instruments as equipment for a ship of a country outside of the United States, all instruments in which the ideas of construction of the firm of Carl Zeiss have been used, shall, besides the trade name of Bausch & Lomb, be engraved with the designation, “System Nedinsco-Zeiss.” Instruments according to the construction of Bausch & Lomb shall bear only their name. On instruments furnished by Nedinsco the name of Nedinsco will appear next to the name of Bausch & Lomb.”

Thus, as early as 1925 there is evidence of the determination to place the Zeiss name back in the consciousness of the world. One more step was thereby taken to nullify the effect of the Versailles Treaty and to reestablish Germany in her place in the sun.

In 1926 Bausch and Lomb caused the 1921 agreement and its supplements to be modified because its counsel declared them to be wholly invalid as violating the antitrust laws. In place of the division of territory provision in the third paragraph, as quoted previously, the following language was inserted: “The license hereby granted is exclusive, the firm of Carl Zeiss agrees that it will grant no license to another American manufacturer.”

This was a change in the language of the agreement to give an appearance of legality. Actually, after 1926, as well as before, the parties maintained a definite and illegal division of territory. The following sentences from a memorandum of Edward Bausch, dated January 27, 1927, show that no change in the actual relationship took place in the previous year: “It is my understanding, in accordance with the opinion of Carl Lomb, that we are not to bid on any military instruments for use anywhere outside of the U. S. The agreement is that if such inquiries come to us we are to refer them to Zeiss.”

Paragraph 9 of the 1921 agreement, quoted above, providing for strict secrecy as to the agreement was dropped out as being (in 1926) unwise and unnecessary. In its place was inserted an innocuous provision that neither party has any claims against the other arising from previous agreements. This agreement of 1926, along with the early agreements which it purported to supersede was declared in violation of the antitrust laws by the decree entered by the court on July 9, 1940.

The 1921 agreement and also those which were subsequently executed contemplated an exchange of information and experience between the parties. This included the right of each party to send confidential representatives to the workshops of the other. Bausch and Lomb was more than anxious to have Zeiss employees visit its plant and its only complaint in connection with the visit of one such employee was that he had not been of great help to Bausch and Lomb while in this country. When Hitler came into power the American company found the door to the Zeiss designing rooms closed to it.

In a memorandum of April 19, 1938 Carl L. Bausch, Vice President of Bausch and Lomb, quoted paragraph VII of the contract providing for exchange of experience and access to the workshop and then stated: “In 1934, although they allowed me to go through their plant at Venlo, I could see none of the work that was being done at Jena, although all the design, part work and optical work was being done there at that time.” In the same memorandum Mr. Bausch stated:

“My contention is that over the past five years we have paid out $139,000 without receiving any benefit from it except for the fact that our contract might have kept Zeiss out of this market. I doubt very much whether our government would have purchased any Zeiss range finders, even if Zeiss was allowed to solicit business.”

In a letter from Carl Zeiss to Bausch and Lomb dated January 3, 1939 referring to the period of the past five years, i.e., since Hitler came into power, Zeiss said: “It certainly cannot be denied that we have been restricted in many respects in the execution of the agreement out of national interests particularly as far as visiting our plant is concerned.”

In the matter of knowing what Zeiss was building for Hitler, of course, there was no passing of information to Bausch and Lomb. On the other hand, Zeiss was kept informed at least until well into the Hitler regime as to what was being ordered by our military departments. This was done not by sending the information directly to Zeiss but through Bausch and Lomb’s German representative. August Lomb of Bausch and Lomb G.m.b.H. Frankfurt-on-the-Main acted as the conduit for the information. On July 9, 1929 Bausch and Lomb wrote to August Lomb as follows:

“We are appending our report which will bring the Military transactions up to date.

“We have nothing further to say at this time than what has already been stated in our report as regards the confidential nature of this information. Heretofore, the Government has merely been insistent that none of the details as regards the design of these instruments be made public, but lately it seems as if the quantities, prices, etc., and the amount of equipment purchased, etc., are also considered secret. Obviously, our agreement with Messrs. Carl Zeiss cannot work satisfactorily unless, at least the latter information, becomes common knowledge to both parties, but some arrangement must be made whereby we are assured this information will be kept in strictest confidence.”

The accompanying report is headed “Statement of Military Department to Mr. August Lomb, For the Months of April, May and June 1929.” It gave the number of antiaircraft range finders, 26½ ft. range finders, periscopes, telescopes, and bombsights which it had delivered and discussed the items for which other bidders had been successful. Near the end of the report was this paragraph:

“It will be noted from the foregoing statements that not much information can be further obtained regarding competitive prices. While these bids are supposed to be public, it has lately become the practice to withhold the information from the public. Every letter and envelope from the Government is marked ‘Confidential’ and we are held accountable that the information will not become public, and that it will be treated in strictest confidence.”

On December 20, 1932, Bausch and Lomb sent August Lomb a letter marked Military Department 8430 and enclosed a pamphlet dealing with submarine periscopes which he was to give to Zeiss and make sure that it was returned to him and by him to Bausch and Lomb. On the following day Bausch and Lomb wrote Zeiss this letter:

“We confirm having written you the letter stated in the above reference. The pamphlet referred to in it has been sent to Mr. August Lomb, via registered mail.

“It occurs to us that we were not sufficiently specific regarding the caution that must be exercised for our protection in keeping the loan of this pamphlet a secret, and particularly as regards the inspector. If any question should arise with regard to the pamphlet which you are preparing, please do not admit to any one that this has been prepared analogous to our copy.

“By reason of the great importance which we attach to the secrecy of this question, the copy has been sent via our Frankfurt office, and please make sure that after it has served its purpose it is again safely returned to our Mr. August Lomb.”

The year 1933—the year Hitler became Chancellor—brought a greatly enlivened interest on the part of Zeiss in the military secrets of our country. The following is a translation of a letter from Nedinsco to Bausch and Lomb dated April 7, 1933:

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

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

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

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

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

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

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

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

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

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

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

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

“By reason of special secrecy clauses of late attached to each bid and contract, these reports, as harmless as they are considering that they have a commercial purpose only, are contrary to these clauses. We cannot very well eliminate them under the existing agreement with Carl Zeiss; however the regulations are so stringent that particular care must be exercised to keep these reports in strictest confidence and they should be kept in a separate file under lock and key.

“We would ask that you be governed accordingly and that you bring these facts to the attention of Messrs. Carl Zeiss.”

August Lomb answered this letter on December 29, 1933. The first three paragraphs of his reply were as follows:

“Since writing you December 5th, your letter Nr. 8909 of December 14th was received. It just arrived before the writer went to Jena and could therefore be discussed there.

“Monthly report. That enclosed in your letter Nr. 8909 was therefore transmitted personally, impressing again the necessity of considering this information strictly confidential and secret. This is fully understood by the management as well as their Mil. Department and we were again assured that these reports are locked up and only accessible to a few people who are fully responsible so that you can depend on your instructions being carried out.

“The contents of this report were very pleasing so far as the important orders are concerned which you were able to secure. It is to be regretted that the thirty-four 11 ft. R.F. were lost, but evidently other firms also have to expect part of the business.”

It would no doubt have been very reassuring to our War and Navy Departments to know that these reports were “only accessible to a few people” in Hitler’s Germany.

On October 16, 1934 Bausch and Lomb wrote to August Lomb as follows:

“We are very sorry to find that we neglected to send you our report for a considerable length of time. As you know, we are not free to give you these reports. This is about the best excuse that we can offer; the less reports we make the less the chance of any going astray.

“We shall try to keep you informed more regularly having your assurance that these matters will be treated by you and Carl Zeiss in strictest confidence.”

The report of October 16, 1934 entitled “Statement of Military Department to Mr. August H. Lomb” lists the number and kinds of range finders delivered each month and also the total number of various types of instruments, orders for which Bausch and Lomb has booked since their last report. There is also the remark that they lost an order for four 13½ ft. height finders awarded to Keuffel and Esser (another American firm). This report contains the following remarkable statement in connection with designs for submarine periscopes:

“Our design force now consists of thirteen men all occupied on present contracts so that it cannot be assumed that we want to throw the burden of the design work on Carl Zeiss. As a matter of fact we could not do this under the secrecy clauses of the ‘Recovery Act,’ but surely we ought to be able to rely on Carl Zeiss for support when and where it is most important. We are hopeful that the promise made in letter of October 5 to give us this design by next spring can be considerably improved, in fact that every effort will be made to bring the solution of this problem to a point which will enable us to enter into competition in the next bid.”

On October 20, 1936 Bausch and Lomb wrote the following letter to Carl Zeiss:

“With your letter in reference we received from you a new optical layout in the form of your drawing A 33 08 65/Opt. L. No. 2 for the altiperiscopes of 34 foot optical length.

“We recently learned that our Government is now contemplating the use of 40 foot submarine periscopes and that bids for these will soon be submitted for consideration. These periscopes will be built according to the identical specifications as those you have in your possession with the exception that, as already stated, the optical length has been increased from 34 feet to 40 feet and the reduced section has been increased in length as shown on our drawing Mil. 458 sent herewith. Moreover, the inner diameter of the main body tube now measures 6,500 inches diameter for a distance of 11 feet from the eye-piece and while its remaining length has an inner diameter of 6.375 inches as shown on our drawing Mil. 458.

“We would ask that you kindly prepare for us immediately a new optical layout conforming to these changes and that you give us this information at the earliest possible date. As stated this question will soon need our consideration and unless we have the data available by that time we shall have to forego bidding on this new proposition.”

August Lomb realized the situation in which Bausch and Lomb was placed in sending written reports of secret military information to Germany. In a letter of July 9, 1937 to Bausch and Lomb he made this very helpful suggestion:

“Prior to the years 1935 and 1936 Zeiss have always received a list of numbers, kinds and prices of the instruments furnished during one year when the commission statement for the respective year was rendered. Since 1935 such a statement was not received, probably because you did not want to furnish any such data in accordance with your letter Nr. 9383 of October 16th, 1934. Zeiss, however, would be satisfied with very brief and condensed information, for instance Range Finders abbreviated to R.F. etc., if possible.

“Of course you will have to consider this with the Executive Office and may let us know occasionally whether feasible or not.”

In a letter of March 24, 1939—the week after Hitler invaded Czechoslovakia—Carl Zeiss made this demand upon Bausch and Lomb:

“For this purpose it is absolutely necessary, and that is why we ask you for it, that you supply us, before we arrive at our final decision, with a precise statement of those patents of ours which you use in your manufacturing processes, designating at the same time those instruments in whose manufacture these patents are used, also indicating the turnover you have had in these instruments during the last two business years, and the volume of orders which you have at present on hand for such instruments.

“We take it for granted that your Administrative Division can make up such a statement without trouble and loss of time so that we may expect it within a month at the latest.”

Instead of the detailed reports which had formerly been sent, Bausch and Lomb complied with this demand by giving a statement of the aggregate amount of sales of instruments covered by Zeiss patents in 1937 and in 1938, designating the patents. They stated they had orders for future delivery of instruments covered by Zeiss patents totaling approximately $1,000,000 and giving the patent numbers.

From the foregoing quotations it seems rather clear that Bausch and Lomb put their own interpretation—and a strange one—upon their obligation to keep military information secret and confidential.

The supplemental agreement of June 27, 1925 contained the following provision:

“In the case of inquiries, received by Bausch & Lomb from authorities outside of the United States of America, by Carl Zeiss from the authorities of the United States, one party informs the other of the inquiry and is obligated to make the protective offer named by the other party. The increase of the protective offer over the normal price for the corresponding quantity of instruments in question shall not be higher than 20%. Both parties are obligated to treat such inquiries as promptly as possible. If the party, that has made the protective offer should, nevertheless, receive the order, it is obligated to cede in full to the other firm the excess price representing the protection. The firm of Bausch & Lomb besides, has to pay to the firm of Zeiss the royalty on the normal price according to paragraph 2, in case Bausch & Lomb is awarded the order.”

This arrangement served the purpose of making a governmental authority—United States or some other—believe that bona fide bids were being made in response to requests. Such collusive bidding is a fraud upon the government and while a similar provision was included in the supplemental agreement of October 28, 1925, it was omitted from the agreement of 1926. And yet in 1932 there is evidence of willingness on the part of Bausch and Lomb to be less than forthright in dealing with the Navy Department. The following excerpt is from a letter from Bausch and Lomb to Carl Zeiss dated February 24, 1932:

“From the copy of the above contract which we have sent you with our other letter of today, Mil. Dept. 8077, you will take notice that the contract provides that customs entry will be taken care of by the Government. In view of this, and in order not to divulge to the Navy Department that we earn a commission of 10% on this transaction, it will be necessary that the consular invoices and export declarations which you will have to make out be higher in this particular case than your net invoice prices to us. Your shipping papers, consular invoices, and export declarations, etc., accordingly should state the following prices, f.o.b. Venlo:

Item Unit Total

1 The unit price to be declared by you will be $7,400 $14,800.00

1a The unit price to be declared by you will be 470 470.00

2 The unit price to be declared by you will be 6,780 20,340.00

(Note: The repeater motor is here included)

2a The unit price to be declared by you will be 470 940.00

“The difference between the above prices and those stipulated in the official contract are satisfactorily explained by shipping expenses, etc.

“It goes without saying that you will bill us for these periscopes in accordance with your letter of December 29, 1931 (N XIII/6661), less 10% commission.”

The provisions of the 1921 and 1925 agreements prevented Bausch and Lomb from selling to any purchaser outside the United States unless such sale was approved by Zeiss. That the omission of this provision from the agreement of 1926 did not mean a change in policy is clearly shown by the following memoranda exchanged by two Bausch and Lomb officials:

“From: Mr. M. H. Eisenhart

Date: Jan. 11, 1927.

“To: Mr. Edw. Bausch.

“I have read the following paragraph in August Lomb’s letter of December 20, 1926:

“‘We note that you have decided to give up all military work in connection with foreign countries, thus doing away with the supplementary agreement of October 28th, 1925. Its second paragraph on page 2 treats of instruments which you might be called to supply for foreign vessels built or equipped on American ship yards, as was the case for Argentine. We understand that, as this entire agreement is now canceled, you will renounce to bidding for such instruments hereafter.’

“Is it your understanding from this that in the future we will not bid on any military instruments for use anywhere outside of the United States? As this is a change over our present procedure, I think we want to be sure of the definite understanding.”

“From: Mr. E. Bausch

Reply

Date: Jan. 27, 1927.

“To: Mr. M. H. Eisenhart

“It is my understanding, in accordance with the opinion of Carl Lomb, that we are not to bid on any military instruments for use anywhere outside of the U. S. The agreement is that if such inquiries come to us we are to refer them to Zeiss. If, on the other hand, any inquiries come to them which belong to this territory, they are to be referred by them to us. A condition may arise, as has been the case before, where a foreign government might want to place an order with us, this to be under supervision of Army and Navy officers and the inspection as well. The procedure then would be—I should think—that we defer giving any definite answer until we had submitted the matter, according to agreement, to Zeiss, and await their disposition of it.”

The Edward Bausch who wrote the latter memorandum is the same gentleman who was quoted in the Literary Digest of December 12, 1936 in the following item:

“Millions of dollars of foreign Government orders for military optical instruments have been rejected by the Bausch & Lomb Co., of Rochester, New York, because they might conceivably be used against the United States or its interests in another War.

“Proudly last week, vigorous, eighty-two-year-old Dr. Edward Bausch, founder and chairman, declared that to be his company’s settled policy, developed ‘through a close understanding with the Departments of the Army and the Navy of our Government.’...

“Chiefly, Bausch & Lomb’s rejected orders have been offered by England and France, have been for range-finders, periscopes, gun-sights, binoculars, artillery fire-control instruments. Business from those two Governments would have exceeded $1,500,000. Various smaller nations have also sought to make contracts and have been refused. Self-sufficient Germany, however, has shown no needs.

“War-Time Seller—During the World War, encouraged by Washington, Bausch & Lomb made large sales to the Allies, built up an extensive business with Great Britain. Promptly with the reappearance of European war-scares several years ago, however, the policy of no supplies to potential combatants abroad was adopted. ‘They are not prepared for war over there,’ a company officer gravely explained last week, ‘and if we refuse to help them prepare, it puts it off just that much.’”

In the documents taken from Bausch and Lomb’s files there are dozens of letters in which inquiries from foreign buyers of military optical instruments were answered by Bausch and Lomb with an expression of disinterest and a reference to Nedinsco. On March 30, 1938 Bausch and Lomb wrote the British Military Attache in Washington as follows:

“In reply to your letter of March 24, 1938 we wish to inform you that the instruments that we manufacture for the U. S. War Department are 4 meter Stereo Height Finders.

“Unfortunately we have to inform you that we are not in a position to take British Government orders at the present time.”

On June 20, 1938 the International Standard Electric Corporation of New York wrote Bausch and Lomb with regard to procuring manufacturing equipment for its English associate, Standard Telephone and Cables, Ltd., to manufacture certain lenses and optical systems from British optical glass. After some conferences and consideration, Bausch and Lomb wrote to International Standard Electric Corporation on July 1, 1938 as follows:

“One of the first steps I took in giving consideration to your proposition which we discussed yesterday was to look into the contractual arrangements to which we are already obligated which I spoke to you about in my conversation.

“Our attorneys tell us that we are absolutely tied up in a way that will prevent our giving you the type of assistance you need to get into the manufacture of optical fire control instruments. My thought was that events over the last few years had changed our foreign relationship in a way that might allow us to work with you, but I am definitely satisfied now that such is not the case. Because of this situation, there is no need for us to delay you any further in your plan.

“I enjoyed very much your visit here and perhaps at some future occasion I may have the opportunity of meeting you again.”

In the October 1940 number of Fortune Magazine which contained an article about Bausch and Lomb there was a two-page spread devoted to “The Critical Geography of Industries Essential to U. S. Rearmament.” With reference to optical goods, this statement appeared: “After aircraft engines, armor plate, and machine tools this little industry (range finders, aircraft height finders) stands fourth among defense bottlenecks.”

There are undoubtedly many factors which contributed to defense bottlenecks. It seems quite certain that the Zeiss-Bausch and Lomb restrictive arrangement has had a substantial part in bringing about this condition. There is no way of ascertaining how many times competitors were intimidated by threats from the combination of the two companies which were the largest in the world. The following quotation is taken from a letter from Bausch and Lomb to Carl Zeiss dated June 12, 1932 and referring to a new order for Height Finders for which the Frankford Arsenal was contemplating asking bids:

“Bids for this new prospective order have not yet been received by us. It is at present our intention after the bids have been received to wait until a few days before the opening of the bids and then call the attention of the Keuffel & Esser Company to the fact that we are controlling patent No. 1638190 which prohibits their furnishing the Height Finder in question. In this manner we hope to be able to make them afraid of touching this business. You will understand, therefore, how anxious we are to receive your opinion that the arrangement of four compensator wedges on one side of the Range [sic] Finder infringes your patent.”

The foregoing quotation indicates one of the reasons for the arrangement by which all Zeiss inventions were to be patented in the United States by Bausch and Lomb. There can be little doubt that American patentees of competing military optical instruments would have much more to fear in infringement litigation initiated by the American firm of Bausch and Lomb than would be the case if the real owner of the patents, the German firm of Carl Zeiss, were the patentee. The other reason for this arrangement was the fear that Zeiss-owned patents would again be confiscated by the United States Government as had been done in the first World War. For the two reasons and possibly others it was clearly understood that all Zeiss inventions patented in the United States should result in patents issuing to Bausch and Lomb. What was just as clearly understood was that at the expiration of their contract all these patents were to be reassigned to Zeiss. This was stated in many documents one of which, a letter from Bausch and Lomb to Zeiss, dated January 17, 1936, should suffice to substantiate the point.

“We have given consideration to the suggestions which you have made for further clarification of the interpretations of the existing contract which was the subject of our letter of October 14, 1935. We are, therefore, restating the points covered in that letter, as follows:

[Par. 1 and 2 deals with termination of the contract]

“3. You are to assign to us all unexpired United States patents and all pending applications for United States patents in the military field now standing in your name or the name of any company controlled by you through stock ownership or otherwise, or in the name of any individual in the employ of your company or any company so controlled by you. You are also to assign to us all applications for patents in the military field which are filed prior to October 31, 1940, on inventions made by any individual or individuals employed by you or any company so controlled by you. You are to file and prosecute such applications and pay all expenses and fees therefor. With respect to such pending and future applications we suggest that you execute the proper assignment and send it to us as soon as you receive the notice of allowance in an application. We will promptly record the assignment in the United States Patent Office and notify you so that you may pay the final fee in due time so as to have the patent issued in our name as assignee. We shall assign to you or your nominee all your United States patents or pending applications which have been taken out in our name, or caused to be assigned to us under the provisions of said agreement prior to April 30, 1941, reserving to ourselves only the license to manufacture thereunder upon the payment to you of the royalty as agreed under 2 hereinabove.”

Field glasses or binoculars were expressly excepted from the cartel arrangement between Zeiss and Bausch and Lomb. In 1931 Bausch and Lomb bid $39.50 each on a United States Navy request for bids on 600 binoculars. Zeiss bid $26, and this angered Bausch and Lomb to the extent that they brought about a greatly increased tariff rate on imported binoculars. The correspondence between the two firms over a period of years refers to this episode. Edward Bausch of Bausch and Lomb wrote to August H. Lomb in Frankfurt on November 18, 1932. The last two paragraphs of his letter are as follows:

“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.