11 Miscellaneous Products

Three recent cases illustrate some interesting characteristics of the cartel problem. These cases—involving cartelization of pharmaceutical products, chemicals, firearms and ammunition, and matches—include industrial concerns and individuals in Germany, England, Canada, Sweden, Chile, the Argentine, and Brazil. They are significant not only because of their inherent character, but also because the war has not materially affected their operation. True, the war forced certain changes upon them, but these were modifications, not cessations.

Since the cases in question had not been legally adjudicated at the time this was written, it is well for the reader to remember that the statements which follow are allegations which were a matter for litigation between the government and the various defendants.

On October 28, 1943, the Department of Justice filed a complaint charging Merck & Co., Inc., of Rahway, N. J., the largest producer of pharmaceutical chemicals in the United States, and E. Merck Chemical Works, of Darmstadt, Germany, with maintaining a cartel agreement in violation of the antitrust laws.

Named as defendants in the suit were Merck & Co.; George W. Merck, President of the firm; and Powers-Weightman-Rosengarten Corp., a Merck subsidiary. The complaint charged that:

(1) The Rahway firm and its subsidiary conspired with the Darmstadt concern to divide world territory into non-competitive areas by means of what they themselves describe as a “Treaty,” dated November, 1932.

(2) Under the terms of this “Treaty,” the Rahway firm was assigned the United States and Canada as exclusive territory, while the Darmstadt organization was assigned almost all the rest of the world. The “Treaty” also provided that Cuba, the West Indies and the Philippines were joint territory in which conditions of sale and prices were fixed by agreement.

(3) Since the British blockade after outbreak of the war in 1939 prevented the Darmstadt firm from exporting to many foreign countries, particularly to Latin America, it was agreed that the American company would supply Darmstadt’s agents in South America but that the territorial provisions of the 1932 “Treaty” remained in effect, with Latin American markets returned to Merck of Darmstadt as exclusive territory after the war.

(4) To carry out this agreement Merck of Rahway revived a dormant subsidiary, Powers-Weightman-Rosengarten Corporation, to engage during the war in export business in territory assigned exclusively to Merck-Darmstadt. The purpose of using this dormant subsidiary was to enable Merck of Rahway more easily to abandon its export business in Darmstadt’s territory after the war.

(5) Merck of Rahway not only intends to abandon all its export business in Darmstadt’s territory after the war but to continue the territorial division provided in the 1932 “Treaty” until 1982.

(6) The agreement covers approximately 400 pharmaceuticals and chemicals, including quinines, sulfa drugs, vitamines, narcotics and mercurials.

The government charges specifically that prior to the last war there were close ties between Merck of Rahway and Merck-Darmstadt which were dissolved in 1919 by the Alien Property Custodian. During the last war the American Merck company gained a large export business in chemicals and pharmaceuticals in Central and South America only to relinquish this business and allow it to be recaptured by Merck-Darmstadt after the war.

In 1932, the two companies entered into understandings and agreements to divide world markets into exclusive areas, and as a device to conceal these arrangements they entered into a so-called “Treaty Agreement” on November 17, 1932, for a period of 50 years. The German and American Merck companies, it is charged, divided the use of the “Merck” trade name and the sales of their products throughout the world. Under this arrangement, the right to sell exclusively in the United States and Canada was assigned to Merck of Rahway, which was also permitted to sell jointly with Merck-Darmstadt in Cuba, the West Indies and the Philippines. The rest of the world became the exclusive sales territory of the German company.

In making the above charges, the Government asked the Court to dissolve the 1932 “Treaty Agreement”; to cancel the exclusivity of licenses to use certain patents of the German firm; to enjoin Merck of Rahway from refusing to fill orders from established chemical and pharmaceutical dealers in foreign countries; and to enjoin the American firm from vesting any patent rights in the German company at any future time without first notifying the Attorney General of its intention to make such patent transfer; and to prevent the parties from entering any similar agreements or arrangements.

On January 6, 1944, the Department of Justice filed a complaint charging two American companies, a British company, the American agent of the British company, and five of their officers, with maintaining an international cartel agreement to restrain trade in the manufacture of chemical products, firearms, and ammunition, in violation of the Sherman Antitrust Act.

Named as defendants in the suit were: E. I. du Pont de Nemours and Company, Inc., Wilmington, Delaware, including Lammot du Pont, Chairman of the Board, Walter Samuel Carpenter, Jr., President; Remington Arms Company, Inc., Bridgeport, Connecticut, including Charles Krum Davis, President and General Manager; Imperial Chemical Industries, Ltd., London, England, including Harry Duncan McGowan, Chairman of the Board, and Henry Mond, Deputy Chairman; and Imperial Chemical Industries (New York), Ltd., New York City, American agent of ICI.

The government charged that beginning sometime prior to 1920 du Pont, ICI and, from 1933, Remington, had been engaged in a conspiracy and combination in restraint of trade and commerce in chemical products, arms, including war materials, and ammunition in the United States and with foreign nations, and were parties to contracts and agreements in violation of the Sherman Antitrust Act.

The alleged conspiracy consisted of an agreement, the terms of which were:

(1) That du Pont and ICI not compete with each other.

(2) That du Pont, Remington and ICI cooperate to eliminate competition between Remington and ICI.

(3) That du Pont and ICI each be assigned certain marketing areas as exclusive territory.

(4) That the defendants agree to eliminate competition between themselves in non-exclusive territory by various arrangements, including the formation of joint companies, to sell their products in accordance with agreed quotas and prices.

(5) That du Pont and ICI exchange exclusive licenses under all patents and processes for the exclusive territories allocated to each, and non-exclusive licenses for the remainder of the world.

(6) That du Pont and ICI attempt to obtain for each other the benefit of agreements and understanding arrived at with third parties for allocation of world markets or the acquisition of technological developments.

(7) That du Pont and ICI cooperate to eliminate the competition of other companies throughout the world.

The agreement was estimated to affect thousands of products, ranging from explosives to paints and varnishes. Du Pont is the largest manufacturer of chemical products in the United States, with total assets approximately one billion dollars, including the ownership of approximately 23 per cent of the stock of General Motors Corporation. Remington is described as the largest manufacturer of sporting arms and ammunition in the United States, and since 1933 has been controlled by du Pont.

Imperial Chemical Industries, which has a virtual monopoly of the chemical industry in Great Britain, was formed as the result of a merger of four major British companies, and it was contended that ICI’s founders intended not only to gain a monopoly of the chemical industry in the United Kingdom but to join with the other major manufacturers of chemicals throughout the world, including I. G. Farbenindustrie of Germany and du Pont, to safeguard such monopoly position. This policy was explained by ICI to du Pont as follows:

“Sir Harry explained that the formation of I.C.I. is only the first step in a comprehensive scheme which he has in mind to rationalize chemical manufacture in the world. The details of such a scheme are not worked out, not even in Sir Harry’s own mind, but the broad picture includes working arrangements between three groups—the I. G. in Germany, Imperial Chemical Industries in the British Empire, and du Pont and the Allied Chemical & Dye in America. The next step in the scheme is an arrangement of some sort between the Germans and the British.”

Imperial Chemical Industries (New York) conducts no independent business operations of its own but acts solely as agent for ICI for the transaction of business in the United States. The complaint stated that in 1935 the then president of ICI (New York) described the corporation as the “private commercial legation” of ICI.

Sometime prior to 1920 du Pont and ICI came to an understanding with each other for the elimination of competition in the sale of explosives in all parts of the world. By this understanding du Pont was allocated the United States and Central America as its exclusive sales territory, and ICI was allocated the balance of the world, with the exception of Canada, Newfoundland and South America. Both companies were to refrain from manufacture in or export to each other’s exclusive markets, while Canada, Newfoundland and South America were to be shared by both companies on a non-competitive basis.

It was further agreed that profits from the sale of commercial explosives in South America would be divided equally; and that in Canada the firm of Canadian Industries, Ltd., jointly owned by both, would be utilized to eliminate competition between them. Moreover, it was agreed that du Pont and ICI would exchange exclusive licenses under all their present and future patents, processes and inventions for use in the exclusive territory of each, and that non-exclusive licenses would be exchanged for the territories shared by both companies.

By 1925, however, Dynamit Aktiengesellschaft (known as DAG), a German corporation, had begun to offer serious competition to du Pont and ICI in all important world markets, and in that year the two companies reached an agreement with DAG to eliminate competition in commercial explosives. By this understanding, DAG agreed to abstain from doing business in certain markets and to adhere to quota arrangements in other markets including South America. For this agreement, DAG was awarded as its exclusive market in commercial explosives Germany, Holland, Poland, Austria, Denmark and Bulgaria. Du Pont and ICI also subsequently acquired a stock interest in DAG.

In order to carry out the understanding, it was charged, du Pont, ICI and DAG about 1925, organized Explosives Industries, Ltd., incorporated under the laws of the United Kingdom. Du Pont and ICI were each allocated 37½ per cent of its shares, and DAG 25 per cent; and the parties agreed to conduct all their exports in explosives to South America through this corporation. Exports to Chile and Bolivia were not included, however, as du Pont and ICI had earlier organized a jointly-owned company, Compania Sud-Americana de Explosivos, to import and manufacture explosives in Bolivia and Chile.

At the time du Pont and ICI entered into the conspiracy, it was asserted, they were primarily explosives manufacturers, but both continually increased the number of products manufactured until explosives became but one of many items. The growth of the combination paralleled the grow of the two companies; as each company made new products, they were brought into the conspiracy.

The complaint cited as an example of the functioning of the conspiracy that during the period 1920–29, du Pont tried to protect ICI from the competition of American cartridge companies by withdrawing from these companies discounts and rebates in connection with the sale of powder so that they might not disrupt ICI’s markets by cutting prices.

By 1929 the conspiracy had incorporated substantially all of the products then made by du Pont and ICI, and the complaint alleged that in 1929 a further agreement was entered into whereby all products other than explosives would be handled in the British Empire by ICI and in the United States and Central America by du Pont. It was further agreed that as to the balance of the world, the two companies would enter into special arrangements to eliminate competition and would explore the desirability of utilizing joint companies. Later, two joint companies were founded to handle products in Argentina and Brazil—Industrias Quimicas Argentinas “Duperial,” S. A., and Industrias Chimicas Brazeileiras “Duperial,” S. A.

Military explosives had been omitted from the 1929 agreement, as the two companies continued to make certain special arrangements to eliminate competition between them. After 1933, when Remington joined the conspiracy, the complaint states that further contracts and agreements were entered into to eliminate competition between ICI and Remington in the manufacture and sale of ammunition and sporting arms.

The parties clearly understood that they would continue the relationship between them irrespective of governmental action which might affect the concerns. In July, 1933, Lord McGowan wrote to Lammot du Pont as follows:

“I have warned my people that no fiscal alterations in the U. S. A. must be allowed to affect the interpretation to be placed on our Patents and Processes Agreement, and the working out of the co-operation for which the Agreement provides.... I find it is a good thing to issue such warnings ... so that everything possible is done to ensure that no prospective political or legislative action on the part of Governments is permitted to influence relations between du Pont and ICI.”

To this letter, Mr. du Pont replied in part: “I feel the same; ... If any legislation or international agreements are brought about which affect these ICI-du Pont relations, I am sure we will be able to adjust ourselves so as to get the continued benefit of our Agreement.”

The agreement of 1929 was to expire in June, 1939, and at that time ICI and du Pont entered into another agreement for 10 years and indefinitely thereafter. The territorial provisions were continued, and in addition to the patents and products covered by the 1929 agreement, numerous other products were added, including cellulose compounds, alkali metals and their products, fertilizers, dyestuffs, synthetic resins and plastics, perfumes, flavoring compounds, pharmaceutical chemicals, and new synthetic products, including rubber, nylon and neoprene.

The Government charged that competition was restrained successfully by means of the joint companies in Canada, Argentina and Brazil, pointing out that because I. G. Farben was encroaching on the field in Argentina, certain arrangements were made for a further joint company to be partly controlled by Farben. However, because of the war this procedure was not carried out, although du Pont’s Foreign Relations Department stated in February, 1940, that “the du Pont Company informed I. G. that they intended to use their good offices after the war to have the I. G. participation restored.”

The purpose of the Government’s suit was to bring about the abrogation of the illegal contracts, to secure a perpetual injunction against ICI from violating the American Antitrust Acts, and to require du Pont and ICI to take further steps to prevent future use of joint companies.

On May 1, 1944, the Department of Justice filed a complaint charging the maintenance of an international cartel in the manufacture and distribution of matches, in violation of the Sherman Antitrust Act, by six American companies, two British companies, a Canadian company, a Swedish company, two American agents of the Swedish company, and six of their officers.

Named as defendants in the suit were: Diamond Match Company, New York City (including William A. Fairburn, President, and Howard F. Holman, Vice-President); Berst-Forster-Dixfield Company, New York City (including Robert G. Fairburn, President); William Gordon Corporation, New York City; Universal Match Corporation, St. Louis, Missouri; Ohio Match Company, New York City; Lion Match Company, Inc., New York City; British Match Corporation, Limited, London, England (including Sir Clarence Bartholomew, Managing Director); Bryant & May, Limited, London, England; Eddy Match Company, Limited, Pembroke, Ontario, Canada; Svenska Tändsticks Aktiebolaget (Swedish Match Company), Jönköpings, Sweden; Transamerican Match Corporation, New York City (including Fritz Otterberg, President); New York Match Co., Inc., New York City, American agents of Swedish Match Company (including Paul Bertil Lind, President).

The Government’s complaint made the following charges:

(1) A cartel comprising American, Swedish, British, and Canadian match producers eliminated competition throughout the world in the manufacture and distribution of matches. This cartel has been in existence since 1901.

(2) The defendants divided world territories into non-competing areas, established production and sales quotas, and restricted the production of matches in the major markets of the world.

(3) The defendants suppressed inventions and improvements in the match art. By the acquisition of patents controlling the “repeating” or “everlasting” match, the defendants have been able virtually to suppress its production and use.

(4) Defendants controlled patents, raw materials, chemicals, machinery, and processes in order to maintain their grip on the industry and prevent competitive capital from entering the market.

(5) The defendants acquired competing match producers and distributors wherever and whenever competition threatened.

(6) The amounts of matches imported into the United States from Sweden, Russia, and Japan have been curtailed and prices have been fixed by agreement with the Diamond Match Company with the approval of the other American defendants. Imports into the United States from Canada, the British Empire, and other markets of the world have been virtually eliminated.

(7) As part of the conspiracy, match factories in the United States have been withdrawn from production and scrapped.

(8) As the result of agreements between the Diamond Match Company and I. G. Farbenindustrie, American production of chlorate of potash, essential to match production and certain types of ammunition, was virtually halted during the period between the first World War and the second World War. This conspiracy resulted in a grave shortage of chlorate of potash for military purposes and match production.

(9) Post-war plans have already been made by the defendants to resume the conspiracy in full as soon as the difficulties created by the war disappear.

The conspiracy in the world match industry against which the complaint was directed was reinforced by an agreement entered into in 1920 by Ivar Kreuger, the late so-called “match king,” and William Fairburn on behalf of their respective companies, the Swedish Match Company and the Diamond Match Company.

These two companies are the major factors in the match industry of the world. The Swedish Match Company is the world’s largest match producer and exporter. The Diamond Match Company is the largest American match producer. Diamond, through its President, William A. Fairburn, and his personal holding company, the William Gordon Corporation, dominates and controls the policies of Diamond’s partly-owned and affiliated company, Berst-Forster-Dixfield Company, and the Universal Match Corporation, Ohio Match Company, and Lion Match Company, Inc.; these companies together with Diamond, produce approximately 83 per cent of American matches. The annual sales of matches in the United States are in excess of $40,000,000.

Prior to the first World War, Diamond was the exclusive agent for Swedish Match for the sale in the United States, Canada, Cuba, and Puerto Rico of safety matches, the type most widely used by the armed forces. When Swedish imports to the United States were cut off during the first World War, Diamond, in 1917, erected a large safety match factory at Savannah, Georgia, to supply the urgent needs of the armed forces of the United States and its allies and civilian requirements for this kind of match.

After the first World War, Kreuger threatened vigorous competition with Diamond in the United States. Faced with this threat, Diamond and Swedish Match entered into an arrangement in 1920 described by Diamond’s President, William A. Fairburn, as the “peace treaty with the Swedes.” Under the “peace treaty” Swedish Match appointed Diamond its exclusive agent in the United States for the sale of Swedish safety matches and agreed to discontinue all other selling agencies and establishments in the United States. In order to assure Swedish Match of its share of the American match market, it is charged, Kreuger and Fairburn entered into a secret agreement which required Diamond to destroy virtually its entire safety match business, including the scrapping of its largest plant at Savannah, Georgia. Swedish Match agreed that it would not otherwise make or sell matches on the North American Continent; Diamond, in turn, agreed not to make or sell matches in countries supplied by Swedish Match.

The understandings reached in 1920 between Diamond and Swedish Match are still in effect, although the limitation of production feature has been temporarily suspended. Upon the outbreak of the present war a match shortage, particularly of the safety match type, resulted in the United States and in certain South and most Central American countries. In accordance with the agreement between the parties the South and Central American markets were Swedish territory. But war conditions have made it impossible for Swedish Match to supply this market. Instead of selling directly in these markets, however, Diamond, through its controlled affiliate, Berst-Forster-Dixfield, supplied Swedish Match with matches for South and Central American countries. The condition for Diamond’s policy in thus helping out was expressed to Swedish Match as follows:

“We help you now. You stay out of the United States market after the war.”

By 1927 Kreuger became dissatisfied with the share of Swedish Match and its affiliated company, International Match, in the American match market. In violation of the “peace treaty,” he planned to erect new match factories and acquire existing concerns in the United States. William A. Fairburn, on behalf of Diamond, successfully appeased Kreuger for the time being by acquiring Ohio Match, then the second largest domestic match producer, and selling Kreuger a half interest in the company. By 1931 Kreuger, through an arrangement with Fairburn, acquired a one-third interest in Diamond itself. At the same time, Fairburn induced Kreuger to scrap a partly-constructed match factory at Natchez, Mississippi.

In 1901, the complaint charges, Diamond and Bryant & May, virtually the sole match producer in Great Britain, came to an understanding for the elimination of competition between them. Thereafter Bryant & May refrained from producing and selling matches in the United States and Diamond in the British Empire. It is also charged that the Berst-Forster-Dixfield, Universal, Ohio, and Lion companies have followed Diamond’s policies with regard to non-competitive relations with Swedish Match, Bryant & May, and the other corporate defendants.

About 1927 Bryant & May and Swedish Match eliminated competition in the British home market (the United Kingdom and Ireland) and the remainder of the British Empire. Fifty-five per cent of the match consumption of the United Kingdom and Ireland was allotted by Bryant & May’s domestic production; the remaining 45 per cent was allotted to Swedish Match’s imports. India was allocated to Swedish Match and the remainder of the British Empire to Bryant & May. To effectuate the division of markets, British Match Corporation was formed in 1927 as a holding company, and acquired all of the stock of Bryant & May. Swedish Match obtained 30 per cent of the stock of British Match.

In 1927, it is asserted, Diamond, Bryant & May, and Swedish Match eliminated competition in Canada by the formation of Eddy Match, which acquired virtually all of the match factories in that country.

In 1935, after consultation with and approval by Diamond, Swedish Match, by agreement with the Japanese producers and the Soviet Match Monopoly, fixed the price of and limited match imports into the United States from Japan and Soviet Russia. In about 1937 Diamond became the exclusive agent for all Russian and Japanese matches sold in the United States.

The complaint alleges that about 1922 Diamond’s wholly-owned subsidiary, Uniform Chemical Products, became exclusive agent in the United States for the sale of I. G. Farbenindustrie’s German-made chlorate of potash. Chlorate of potash is a chemical not only essential in match manufacture, but also in the production of ammunition, flares, and railway emergency warning signals. In return for Uniform’s exclusive agency, I. G. Farbenindustrie required Diamond virtually to cease the manufacture of chlorate of potash in the United States. As a result of the scrapping of American plants, this country had practically no plant capacity for the production of chlorate of potash at the outbreak of the war. Emergency plant construction has not yet overcome the shortage of this essential chemical.

The complaint recites the heretofore undisclosed history of the so-called “everlasting” match, which has long been a matter of considerable rumor and speculation. About 1932, it is charged, Kreuger obtained control of the patents on this match, and subsequently Bryant & May obtained an interest in them. Diamond later was offered a participation in Swedish Match’s patents and also negotiated with the inventor of certain improvements. Although it was commercially successful in Holland and Switzerland, the everlasting match has never been manufactured commercially by Diamond or any other American manufacturer. Diamond’s decision not to acquire the patents and manufacture the everlasting match was expressed as follows in a document found in their files: “The patents have not so long to run and if it becomes a marketable commodity by our pushing it, once the patents are out—as in the case of book-matches—it would be a fertile field for the rottenest kind of competition. It is to be hoped that if the item is not put out and pushed by a strong manufacturer, no one else will take it up even if the patents expire.”

The Government sought, among other things, the abrogation of the illegal contracts and agreements and a perpetual injunction against the defendants, prohibiting them from violating the Sherman Antitrust Act. The Government also asked that Diamond, Berst-Forster-Dixfield, and the William Gordon Corporation be required to divest themselves of holdings in any other match producer, including the foreign corporate defendants.