In presenting the material which this committee has requested from time to time, I have never had the desire to make charges against any particular firm. On the other hand, I do not believe that we can afford to overlook the important factual data which has come into the possession of the Antitrust Division as to the operation of these cartels.

In anticipation of denials and charges of unfairness by the people whose documents will be quoted, I wish to offer for the record as an exhibit, an elaborate illustrated brochure published by Bausch & Lomb in 1940.

This was the statement which Bausch & Lomb published after the indictment as stating their own explanation of the situation brought out at the time, and I think it is quite proper it should go into the record.

In March of that year, that company and Carl Zeiss of Germany 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. Bausch & Lomb then published this brochure and distributed it widely to counteract the unfavorable publicity which had resulted from the indictment. The brochure described the founders of the firm, the Civil War participation of one of them, the subsequent history of the firm and the contributions which it has made to the successful conduct of all our wars. Letters from the heads of the War and Navy Departments commending the firm for its cooperation and production record are printed in the pamphlet. There is also a detailed attempt to answer the charges against the company, and criticism of the unfairness of newspaper comment upon the indictment. I am introducing this brochure and asking that it be put into the record in order that there may be no claim that only one side of this picture is being presented.

(The brochure was marked "Exhibit No. 408" and appears on p. 2117.)

Mr. BERGE. Fortune Magazine for October 1940 contained a description of Bausch & Lomb and an explanation of its relationship with Zeiss which contains many of the same statements which are found in the company's brochure.

The documents from which I shall quote are taken from the files of Bausch & Lomb and of Carl Zeiss, Inc., the New York representative of Carl Zeiss of Jena. They show that

(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 & 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 & Lomb to Germans not only before but after Hitler came into power. (4) Unknown to the Navy a secret commission to Bausch & 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 & Lomb to protect itself from competition in that field.

The CHAIRMAN. If I remember, binoculars rose from about $26 a pair to about $78 a pair in that period. I think I have a canceled check that would prove it.

Mr. BERGE. I haven't the figures in mind, Senator, but I am sure your canceled check would be satisfactory evidence.

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, bore sights, bomb sights, telescopes, torpedo directors, gun sights, 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 in 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.

The CHAIRMAN. Mr. Berge what provisions of the Versailles Treaty were designed to limit production of war instruments such as those manufactured by the Zeiss Co. ?

Mr. BERGE. Articles 168 and 170 are the ones I have in mind. [Reading:]

ART. 168. The manufacture of arms, munitions, or any war material, shall only be carried out in factories or works the location of which shall be communicated to and approved by the Governments of the Principal Allied and Associated Powers, and the number of which they retain the right to restrict.

Within three months from the coming into force of the present Treaty, all other establishments for the manufacture, preparation, storage, or design of arms, munitions, or any war material whatever shall be closed down. The same applies to all arsenals except those used as depots for the authorized stocks of munitions. Within the same period the personnel of these arsenals will be dismissed.

ART. 170. Importation into Germany of arms, munitions, and war material of every kind shall be strictly prohibited.

The same applies to the manufacture for export to foreign countries of arms, munitions, and war material of every kind.

The CHAIRMAN. Of course those sights would be included as war matériel?

Mr. BERGE. Yes; and as I will show in a moment the parties themselves fully understood that.

Prior to the First World War Bausch & 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 & Lomb entered into a series of transactions intended to eliminate any such competition. This was the so-called optical triple alliance. The Fauth Instrument Co. of which George Saegmuller was president was absorbed by Bausch & Lomb, and Saegmuller became vice president of the latter firm. Carl Zeiss acquired one-fifth of Bausch & 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 & Lomb agreed to buy its glass for military optical instruments exclusively from Zeiss. In 1915, Zeiss refused to continue to supply Bausch & Lomb with glass, under their arrangements of 1907, because Bausch & Lomb had been supplying military instruments to countries which were at war with Germany. The Zeiss interest in Bausch & Lomb was purchased by members of the Bausch & 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. I think, Senator, that is a good instance. We frequently in our generalized discussion of cartels talk about the shortages that are created by cartel restrictions and people informed on the subject don't need it spelled out but we often have the question: We can't see how it comes about that a cartel agreement restricts production. Why do people sign away their right to produce? This happened time and again. It happened in almost all of these cases involving vital war commodities. In our match case we showed the practical nonexistence in this country of the chemical that was necessary as the igniting property of a match.

Here you had exclusive contract to buy all optional glass from Germany. The war comes along, making it impossible to supply that need, and we are without productive capacity for that vital type of glass and their is a shortage during the most critical period of the First World War.

The Geophysical Laboratory, the Bureau of Standards, Bausch & Lomb, 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 was produced, 65 percent of it by Bausch & 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 a secret arrangement with Bausch & Lomb. A translation of the agreement of April 28, 1921 (less than 2 months after the return to normalcy) is printed in full as exhibit A attached to the complaint and consent decree in our case, which I will offer for the record.

To summarize it briefly, Zeiss placed its know-how at the disposal of Bausch & Lomb. The latter agreed to pay Zeiss a royalty starting at 7 percent and gradually diminishing for 25 years on all its military optical business except field glasses. The two companies divided up the world insofar as the sale of military optical goods was concerned. [Reading:]

Paragraph 3: Bausch and Lomb 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.

Zeiss was given the power to determine who should become the heads of the Bausch & Lomb "military department." [Reading:]

Paragraph 4: In furtherance of the aims of this agreement Bausch & Lomb 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 nonmilitary 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. Paragraph 8 anticipated the possibility of a conflict between the obligations to each other under the agreement and those owing to the nation. And that paragraph provides

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.

The CHAIRMAN. Under that secret agreement, if, say, our naval laboratories developed in peacetime a new optical instrument to be used in gunfiring, Bausch & Lomb, unless they were specifically ordered otherwise, were bound to give full know-how to Zeiss on that if they had the manufacturing of it?

Mr. BERGE. Yes; if they were manufacturing it, unless they were specifically ordered otherwise. That is the interpretation, certainly, that I would put on this, and that is the interpretation we will find they put on it.

I will show that 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.

The CHAIRMAN. The German company had the right to pick the heads of the departments handling military goods in the United States. Mr. BERGE. They had a veto power on the selection of the head of the military department. It was a matter of mutual agreement.

The CHAIRMAN. Bausch & Lomb could not put anyone in who was unacceptable to Zeiss, but on the other hand Bausch & Lomb had nothing to say about whom Zeiss took on.

Mr. BERGE. That is right.

The CHAIRMAN. In Germany the head had to be wholeheartedly in accord with the German Government, and the man in America had to be at least on friendly terms with it.

Mr. BERGE. There was no agreement that gave us veto over the men in Carl Zeiss. Bausch & 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 acually made it possible for that concern to continue its existence in spite of the disarming of Germany and its war partners. The contract provided:

Paragraph 9: 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.

Dr. SCHIMMEL. I notice in glancing through the Bausch & Lomb brochure that there is the statement that the contract was not secret and that it was shown to the United States naval observer in Berlin. What was the situation there?

Mr. BERGE. In the brochure, they contend that the contract was not secret and they said this must be the section you just read:

The original contract was shown to the United States 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, however, it seems clear that what was shown to the United States naval observer 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 & 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 the company dated at Jena, May 6, 1921, is of interest. He was the vice. president of Bausch & Lomb who had gone to Jena to execute the agreement with Zeiss.

I hope you received our cable via Frankfurt in regard to the signing of the agreement April 29 and also my letter of even date in which I entered into the subject more fully. In that letter I stated that Captain Bechler, naval representative of the American 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 and in place sent his aide, Lieutenant Culbert, United States Navy, who was also accompanied by the military representative of the American commission. What the Navy wants at once are enumerating range finders, periscopes, sights, and other similar instru

ments

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 Commander Bechler and 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 guaranty that if they order from us they will really receive Zeiss instruments or rather Zeiss quality. I told Lieutenant 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 account of Zeiss; this they understand.