Mr. SCHIMMEL. Wouldn't that transaction alone show how high the prices have been marked up?

Mr. BERGE. In South America? Yes, I think so.

The advertising and continuance of the familiar German packages, labels, and Schering trade-mark constituted an important form of German propaganda. It was possible for the German agents in Latin America to point to the continuance of German pharmaceutical supplies as indicative of their ability to overcome the British blockade and to carry on their commerce with this hemisphere.

I have mentioned that the Germans used pharmaceuticals which have a high value in proportion to bulk and weight to make up onethird of the air cargoes which were flown into South America along with propaganda and other materials. Pharmaceuticals also constituted an important part of the air cargo which was carried eastward, ranking third among the materials which were flown over the blockade. One order of 10 kilos (22 pounds) of testosterone propionate, the semimanufactured male hormone, valued at $50,000, was shipped 1 kilo a week by air mail from Argentina to Spain and from there to the Schering factory at either Milan or Berlin. This and other similar orders, were placed by a dummy of Schering A. G. in Portugal.

OTHER MEMBERS OF THE HORMONE CARTEL

Thus far I have been discussing the relations of these two firms, one, the largest of the European manufacturers of synthetic hormones, and the other its affiliate or subsidiary, the largest American producer. There are other large European members of the cartel and each has its subsidiary in this country.

Now I will briefly discuss the relations, which follow a somewhat similar pattern of some of the other members of the cartel.

CIBA BASLE AND CIBA PHARMACEUTICAL PRODUCTS

Ciba (Society of Chemical Industry in Basle, Switzerland) was another important cartel member. It has been in existence for some 60 years, engaged in the manufacture and sale of dyestuffs and pharmaceutical products throughout the world. In July 1936 it organized a subsidiary, Ciba Pharmaceutical Products, Inc., of Summit, N. J. Ciba Basle also owns several other corporations in fields other than pharmaceuticals and hormones in this country, and companies in Canada, Brazil, and Argentina which sell dyestuffs and pharmaceuticals. Ciba's close relation to Schering A. G. is indicated by its joint ownership with the Swiss Bank of the common stock of Chepha, which in turn owns all the common stock of Schering Corporation.

Until just before the war Ciba Pharmaceutical of Summit, N. J., produced no hormone products. These were all purchased by it from Ciba Basle. However since its organization it has been distributing hormones under its own label.

The subservient attitude of Ciba Summit to the Society (Ciba, Basle) is clearly shown in the following paragraph from a letter dated October 17, 1939, from H. Kamp, vice president, of the New Jersey corporation to James Brodbeck, secretary of Ciba Basle:

As I have repeatedly said, I am not interested in making profits for Summit out of sales of raw materials or even finished packages sent to foreign countries. All I am interested in is to help Society [that is the Swiss company] in getting the

business, but we must have a certain rule as regards profits for Summit. The simplest way would be if Basle fixed a percentage profit over our price II on all products shipped in bulk to any foreign country. The same, of course, could apply to finished packages if we were to supply finished packages to foreign countries later on. We want to help Society as I fully realize that we are working for the interest of Society and not for the interest of Ciba Summit alone. Whatever seems most advantageous from your point of view will meet with my approval. [Italics supplied.]

Here is the full letter which I think had better be offered in evidence. This attitude is also reflected in a letter dated September 22, 1939, from H. Kamp of Ciba Summit to Dr. J. Weltzien, president of Schering Corporation. Here is the full letter.

Senator MURRAY. That is received in evidence.

Mr. BERGE. Here, of course, you have certain squabbling between monopolists, but the point of the letter, for which I cite the letter, is that Kamp plainly says he is carrying on this fight really because Basle wants him to. He discussed the thing in Switzerland, and they were all agreed over there that he had better give Weltzien a dose of his own medicine. It shows the subservience of the American to the Swiss company.

N. V. ORGANON, F. HOFFMAN-LAROCHE BASLE, AND ROCHE-ORGANON, NUTLEY, N. J.

N. V. Organon of Oss, Holland, is a large manufacturer of hormone products and so is F. Hoffman-LaRoche of Basle, Switzerland. The latter company has a subsidiary in Nutley, N. J., called HoffmanLa Roche, Inc.

N. V. Órganon of Oss and Hoffman-La Roche, Inc., of Nutley, jointly own a corporation called Roche-Organon, Inc., organized in 1937 and engaged in the sale of hormones.

In 1940 Ciba licensed Roche-Organon to manufacture products in the cortin field under a patent for which it had made application in 1938. Ciba agreed to pay Roche-Organon 20 percent of all royalties collected from other licensees except Schering. Roche-Organon agreed to pay Ciba 6 percent on its entire turn-over in the United States in the cortin field from January 1, 1940, to June 17, 1955, regardless of whether the turn-over involved products made under Ciba's patent.

There are several other cartel members, and I will summarize my testimony in regard to them. The pattern is much the same.

The German firm of C. F. Boehringer & Sons and Rare Chemicals, of Nepara Park, N. Y.: Through stock ownership and family relationship, the German company there was in a position to dominate the activities of the American concern. That is developed in the full statement, and I will not take the time to read it all, but I will refer, on several points later in the testimony, to the Rare Chemicals, Inc., so it is important to keep in mind that it is the American affiliate of Boehringer & Sons of Germany. We will hand to the reporter the full letters that are quoted in the part I am omitting to read.

(The full text of the portion of the statement summarized by Mr. Berge follows:)

C. F. BOEHRINGER & SONS, OF MANNHEIM, GERMANY, AND RARE CHEMICALS, INC., NEPARA PARK, N. Y.

The German firm of C. F. Boehringer & Sons, of Mannheim-Waldhof, Germany, formerly owned 50 percent of the stock of Rare Chemicals, Inc., Nepara Park, N. Y. The president of the German firm was the father of E. T. Fritzsching, formerly secretary and more recently president of Rare Chemicals.

A memorandum of the younger Fritzsching of Rare, dated March 29, 1939, contains the following opening paragraph:

In view of the boycott situation and in view of a number of other reasons I have come to the conclusion that the best way to avoid any further trouble for Rare Chemicals is to arrange for a definite purchase of the Boehringer shares by an American citizen. It is my intention to make an offer to Boehringer, by which I shall take over their assets in this country and pay for them at whatever price I could possibly obtain them. I am assuming this obligation personally for the reason that it really makes very little difference whether the shares are owned by Boehringer or by me, since through this transaction the assets would morally still remain within the same family interests. It would also work along the lines of my personal interest and that of my family in the event of war.

The remaining 50 percent of Rare's stock was owned by Pyridium Corporation also of Nepara Park, N. Y. A letter to Erwin Fritzsching, care of C. F. Boehringer & Soehne, G.m.b.H., MannheimWaldhof from W. S. Lasdon of Pyridium and president of Rare dated August 18, 1939, contains the following paragraph:

I agree with your suggestion to the transfer of the B. & S. stock to a Swiss company, instead of to you, and of course, your participation in the profits of Rare is to be canceled upon the signing of this agreement, the understanding being that you and W. S. Lasdon will represent the stockholding interests.

The products of the two companies were exchanged with definite restrictions upon their distribution. The following excerpt indicates that the German firm kept a tight rein on the use by the American firm of the former's products. It is taken from a letter from Fritzsching of C. F. Boehringer & Soehne, G.m.b.H. to Rare Chemicals, Inc., dated October 31, 1936. It concerns a request of Rare to be allowed to manufacture a product called Eucupin.

We are acknowledging the receipt of your letter of October 19 and regret to say that we cannot comply with your wishes.

We must take into consideration also the German interest when weighing the question whether it is right to send manufacturing processes to foreign countries, even though they may go to our friends in these countries. We cannot be responsible for it to give you manufacturing processes, the use of which is not to be expected within a reasonable time. In such a case we cannot truthfully answer any possible questions from authorities to the effect that we can say that when giving away a manufacturing process it will make it possible to manufacture and sell in a foreign country a German preparation, the sale of which from Germany due to duty difficulties and other restrictions cannot be considered. In this fact lies the German interest, and this we have to consider in first line.

In the summer of 1942 Rare was taken over by the Alien Property Custodian and subsequently sold at public auction to a wholly American independent organization.

THE EUROPEAN HORMONE CARTEL

After certain separate agreements and considerable negotiation a five-party agreement was entered into on May 26, 1937, to which the European firms Schering A. G.; Ciba, Basle; N. V. Organon, Oss,

Holland; C. F. Boehringer & Sons, and Les Laboratoires Français de Chimiotherapie of France (Chimio) were the parties. The male hormone, female sex hormones, and cortin, the cortico adrenal hormone, are covered by the agreement. It involved a division of territories with certain parties being definitely excluded from certain territories. Competing producers of pharmaceutical products were expressly named as firms with which any kind of cooperation is prohibited. Among these were E. Merck, Darmstadt, Germany, and Merck & Co., Inc., of Rahway, N. J. Subsequent agreements removed the prohibition as to these firms.

Senator MURRAY. Are those firms German firms also?

Mr. BERGE. Yes. That involves another story, which is concerned in an antitrust suit we recently instituted. But there is a somewhat similar relationship between Merck of Darmstadt, Germany, and Merck & Co. of Rahway, N. J. But at the time this agreement was entered into, 1937, this cartel was fighting Merck's, and so this agreement that was made prohibited any kind of cooperation with the Merck companies.

Mr. SCHIMMEL. But they had to get together in Germany, quite clearly, in order to remove the restriction.

Mr. BERGE. Yes. That happened.

Of course, one of the chief purposes of the cartel agreement was to fix prices. The European parties agreed upon prices and their American affiliates did likewise. A memorandum of a meeting held at Summit, N. J., on October 6, 1938, between representatives of Ciba and of Schering discusses the fixing of prices on various hormones. The artificial and arbitrary character of the pricing policies is indicated by quotations from some of the documents which were written following this meeting. One of them indicates an agreed price of $3 for a certain hormone product. It then states:

This price was later refused by Mr. Kemp (Ciba's general manager) who then advocated $4. This was submitted to the others with our O. K.

A memorandum of a discussion held at Bloomfield, N. J., on October 7, 1938, between representatives of Rare and Schering, recites a list of prices-previously agreed upon between Schering and Ciba the preceding day-as having been submitted to Rare.

As to the item on which the price had been changed as just indicated an endorsement on this memorandum states:

Informed Mr. Lasdon [Rare official] by phone of Summit's desire to change this price to $4. He agreed to this.

PATENT ARRANGEMENTS

The entire world cartel system was bound together with patents. The contracts among the American companies were carefully planned and drafted abroad to avoid any appearance of violating the antitrust laws. They were couched in terms of licensing patents to give the impression that the parties were merely procuring rights under patents and not engaging in restraints of competition. The evidence indicates that the cartel participants in Europe had attempted to allocate the issue of patents in the United States to the associated firms in such a manner as to strengthen the defense of the American firms against charges of antitrust law violations. At a discussion in Berlin on

March 18, 1939, among representatives of Ciba, Organon, and Schering, A. G., there were set in motion reciprocal concessions of priority in interferences between Organon and Ciba in the United States Patent Office relating to the male hormone, and to cortin. It was arranged for Schering to drop out of the interference proceedings. It appears from a circular letter from Organon to Ciba and Schering, that the plan was for Organon to concede priority in the male hormone interference and for Ciba to concede priority in the interference regarding cortin. The intent of the parties, as to the male hormone. interference, was to transfer the application of Organon to the United States Ciba firm.

The reasons for this "swapping," however, are interesting. They are very clearly indicated in the following quotation:

As it is known in the United States the antitrust legislation is of extremely great significance. The different agreements which are in the state of preparation in the United States are intended to put all contractors into position to sell hormone compounds in the United States without any violation of those statutes ** *. So far as * * * cross promises to maintain prices exist, this promise is only lawful if the licensee, in this case Ciba, possesses the protection of a patent claim. ** ** According to the information of Dr. Joseph Engi almost daily new indictments based on the antitrust legislation are made. Under such circumstances it is extremely important to obtain as fast as possible the protection of the most important patent claims.

However, Roche-Organon resisted the transfer of the application, writing in its circular letter to Ciba and Schering, A. G., dated April 15, 1939:

An expert would understand immediately that the transfer of this application served only aims which have to be considered as lawful according to the antitrust legislation. We couldn't even mention any consideration given the Ciba.

Although Organon's male hormone application was in fact not transferred to Ciba, the result which the parties contemplated appears to have been effected. Ciba, apparently relying upon its own male hormone patents in the United States, presently is the licensor of Roche, Schering, and Rare, while Roche-Organon participates in the licensing arrangements only under its cortin patents.

There are numerous indications in the Schering correspondence that the American license agreements are so bound up with the basic cartel agreements that the sums of money paid by the American firms to each other are regarded as parts of the total considerations which the European firms are bound to pay each other.

Now, that is borne out by the language in the letter dated December 11, 1939, to E. T. Fritzsching of Rare Chemicals, Inc., Nepara Park, N. Y., from Kamp of Ciba, in which he said:

Although the license is silent on the point, Ciba would not institute actions for infringement without consulting the other parties. The foreign agreement provides for such consultation, and the parent companies guarantee performance of the terms of that agreement by their American subsidiaries. If, therefore, Ciba (Summit) should bring an action without prior consultation with the other parties, it would subject Ciba (Basle) to penalties under the foreign agreement. The reason that consultation in America is not provided for is that the parent companies wished to keep the ultimate decision on litigation in their own hands. Our counsel advise us that consultation between the parties as to introduction of new products might constitute a violation of the antitrust laws. For this reason the decision as to new products is left with the parent companies and the license provides for enforcement of their decisions by the powers given under the license to the licensor.