if you persist in the stand you have taken, this offer will be withdrawn and we must be entirely free to advance any and all claims which are, under the circumstances, warranted. Very truly yours, MHEisenhart B. BAUSCH & LOMB OPTICAL CO., Copy to: J. F. Taylor, C. L. Bausch, W. W. McQuilkin, O. Seebach, C. S. Hallauer, T. B. Drescher, F. E. Devans. EXHIBIT No. 413 [Translation of Letter Received from Carl Zeiss] Their Reference: Geschaeftsleitung. JENA, July 22, 1939. Subject: Agreement of November 26, 1926. Messrs. BAUSCH & LOMB, Rochester, New York. After receipt of your letter of May 25, 1939, which we acknowledged with our letter of June 30, we are coming back today to your letter of February 10. We have carefully examined the statements made by you in reply to our letter of January 3, 1939, but can only find that your reply does not contain anything which could weaken our conception. Your new arguments, also to which we shall reply in the following, overlook the fact that we, disregarding a few immaterial limitations forced upon us by circumstances (Compare to 5), have fulfilled the condition of giving support to your company, whereas you have failed to make use of the ideas conveyed to you and of the data given you. We mentioned in our last letter to what extent we have been active for you. We, as a matter of course, could only bring to you what we accomplished as a result of our constructive work. To evalue these designs and patent rights and to adopt them to the demands of your authorities could, of course, only be your own task. It was also your task to bring to us new problems in the sphere of military optics as should have been presented to you by close cooperation with your authorities. However, if we ask ourselves what has happened in your place in the past two decades, we find very little which would show the active efforts which are necessary for a fruitful business connection with the military authorities. You must permit us to remind you in this connection that we much earlier made an effort to cause you to make greater efforts. We merely wish to refer to our letter of January 4, 1928, which was directed against disadvantageous changes in your business organization. We cannot help to place again before you emphatically our two letters of April 7 and May 11, 1933, which were written at a time when, according to your presentation, we had been so greatly neglecting you, which prove plainly the efforts which we made just at that time when a new rise of the military business was in sight in order to bring about that you would do more intensive work. Inasmuch as evidently you have forgotten about these letters, we do not wish to neglect to send you copies herewith. They will be very useful to clear up this question. If you in your letter wish to justify your small share of the military business in your territory by the fact that your government authorities in principle insist upon being served by a number of firms, we wish to state that in that respect there is no distinction in principle from the conditions prevailing in Germany, and that we nevertheless succeeded to maintain by constant development work and close cooperation with the authorities the leading position in all branches of our manufacture up to the present date. In respect to the individual points of your letter, we have the following comments to make: In reference to 1. You have communicated to us the exact total of the royalty amounts on patented apparatus for the year 1938 with your letter of May 25th. This amount, however, is not decisive to enable us to pass judgement on your proposition. It would have been necessary that you would have set opposite the amount which in accordance with the agreement are to be paid in total in royalties. If we may draw the conclusion that the two amounts are in the same proportion to each other as was the case in the previous year 1937, when the royalties on patented apparatus amounted to about 80% of the total amount of royalty paid by you we must question whether we may find in this small saving really the only deciding factor for your wish to change the agreement now for its short duration of its period after it has existed for 18 years and is now favored by the decreasing royalty scale. 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 experiences 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. If you now set forth that your competitors in the U. S. A. without our help have had considerable success you surely do not wish to pretend seriously that the sphere of activity of these firms in the amount of their development work in this line could be compared even approximately with our own to which you had urlimited access without the risk which the others had to take. If these firms have had success, this may be assumed to be due entirely to your efforts to satisfy the special demands of the American Government. You would have had the same privilege, but it would have been necessary that you energetically made an effort to use the material which was at your disposal by adapting same to the needs of your authorities. Whatever demands are made upon you we cannot judge from here. It would, however, have required only your urging in order to adapt ourselves and to work with you in mutually fruitful cooperation to satisfy the wishes of your authorities. We are sorry that you lacked cooperation to that end. In reference to 3. We are acquainted with the fact that some of our patents fall under the Nolan Act. It is, however, not clear to us what prompts you to mention in this connection the Nolan Act considering the fact that of the total amount of our patent rights you make use of only four. In reference to 4. If you furthermore consider today the efforts of our engineer, Mr. Mueller, whom we sent you to aid you in your constructive developments as unsatisfactory and valueless, we are astonished that you today have such a judgement of Mr. Mueller. Your Mr. Carl Bausch was evidently of different opinion when on the occasion of his last visit he asked Mr. Mueller expressly whether he would be agreeable to come permanently to Rochester and in this connection he had some very appreciative words as regards the ability of Mr. Mueller which we, in view of the valuable work of Mr. Mueller in our own establishment up to the present day, can only confirm. We would furthermore remind you of the very valuable assistance which Mr. Mueller has rendered you in view of his special ability in bringing about the acceptance of a submarine range finder according to our design "Ergosub." In reference to 5. We have to contradict also your statement in regard to the meaning and significance of paragraphs 8 and 11 of our agreement in which you see the legal basis for your proposition to change the agreement. If paragraph 8 limits the obligations of the agreement in respect to national interests the fact of a limitation caused thereby does not signify that solely on that account a change in the agreement is to take place according to paragraph 11. That paragraph 8 is one of the paragraphs of the agreement proves on the contrary that both sides already at that time were anticipating certain limitations in regard to the exchange of information without finding any reason for changing the agreement in view of the conditions of paragraph 11. Paragraph 8 limits especially in consideration of the national necessities of secrecy the conditions which are obligatory for both parties to the agreement. It therefore establishes the frame within which the obligations of the agreement shall function. It is an error on your part not justifiable by the wording of the agreement if you assume that paragraph 11 already becomes active only, as you express it, if the complete fulfillment of the agreement is rendered impossible i. e. already then when paragraph 8 limits in the least the unlimited exchange of construction details. The significance and purpose of paragraph 11 is that to create a way out for the case that the fulfillment of the agreement in total, that is, without exception and in its full scope is rendered impossible. The impossibility of the fulfillment which is the basis of paragraph 11 has only one meaning according to the German law and as such has purposely been incorporated in the German text of the agreement. thereby it is expressly stated that at least one of the parties to the agree ment must be hindered completely to fulfill its obligations. Only if that should be the case paragraph 11 would govern as a legal way out of the difficulty. The impossibility of fulfilling the agreement in that sense cannot be questioned as long as we communicate to you the essential parts of our valuable knowledge and experience and as long as we are the ones who repeatedly have urged you to more intensive activity and to cause you to call on us for further cooperation. We would specially mention in this connection that right from the beginning on account of conditions of secrecy imposed on us we have made separate developments for the German authorities and for foreign countries with best success. You cannot retire to the position, in order to ground your proposal to change the agreement, that the royalty to be paid to us according to the agreement of your total military turn-over presupposes a steady equal amount of assistance to be given you. Not to speak of the fact that our support has never been denied you the royalty on the total turn-over is not dependent therefrom but is the return service for our communicating to you at the beginning of the agreement and conveying to you drawings and knowledge and experience which we collected during many years of experience, exploration, trial, and labor since the beginning of this century and have built up uninterruptedly to the present day. This knowledge and experience we otherwise keep carefully secret. Its transfer to you which in part also took place by sending coworkers to your firm determines the amount of the royalty from the turn-over. That in concluding the agreement we regarded the main services in the transfer of basic knowledge as taking place in the beginning may be drawn from the fact that the royalty scale provided for in the agreement is gradually lowered. Moreover you are in error when you state in this connection that in case of the complete impossibility of fulfilling the agreement the agreement itself must cease. Even though we were for any reason whatsoever not giving you patent designs and other assistance, our efforts in the past would not have become valueless for you and you would still remain in possession of valuable rights which would justify our demands for the continued payment of royalty. Including all we come again to the results as stated further in our letter of January 3, 1939, that there is no basis for a change in the agreement. After we have seen from your letter of May 25, 1939, to what small extent you make use of all the material received from us and how far, notwithstanding this, the major part of your manufacture is based on our patent rights, we find renewed lack of understanding for your complaint regarding the amount of assistance rendered and your attack on the agreement. If during this disclosure we were forced in order to explain our viewpoint to refer to occurrences in the past which might possibly be construed to be unfriendly, we would ask that you do not feel offended thereby. We believe that in this connection it was necessary to speak openly without restraint as you as well considered it necessary to attack us in your explicit letter wherever you found this necessary. This undoubtedly has helped in every direction to clarify this matter. We would now presume that in view of this lengthly exchange of letters you have come to the conviction that your demand for a limitation in the license agreement has not any justification. We would be very glad to receive your confirmation of this. Very truly yours, EXHIBIT No. 414 APRIL 19, 1938. MEMORANDUM ON CONTRACT WITH CARL ZEISS COVERING MILITARY INSTRUMENTS Approvement of payment of over $46,000 in royalties for the year 1937 brings up the question again whether we are justified in continuing royalty payments to Zeiss on all military instruments made and sold by Bausch & Lomb. Our contract reads: Paragraph I. "The firm of Carl Zeiss agrees to assist the firm of Bausch & Lomb in the sphere of military instruments in the manner that- "(a) Places at the disposal of the firm of Bausch & Lomb all of the drawings and other supporting data necessary for the manufacture in America. "(b) To participate in the scientific and constructive improvement of existing instruments as well as in the development of new designs and problems with the same amount of interest that it would bestow on its own task. "(c) It places at the disposition of the firm of Bausch & Lomb manufacturing rights in the United States of America for all existing inventions and industrial protected rights and those that out of the joint labor may still be created. "(d) It assists in the engagement of the proper scientific and technical personnel and if desired, will temporarily send some of its higher officials to America, traveling expenses per account of Bausch & Lomb. In regard to the above items: (a) Review of the past five years shows that in respect to aid, we have received practically nothing from Zeiss, unless we have asked for it. In the past they used to send us designs of new instruments as they developed them. (b) They have done some work for us in connection with new instruments, but they have been so slow that their work has not been helpful. The only sizable job they have tacked is that of a submarine periscope. Although they have made several designs, they have been so long in making each of them that government specifications have been changed before we have had a chance to take advantage of the design. (c) Patents have been assigned to us in accordance with the supplementary agreement. Although the Zeiss patents have been assigned to us, they have been of very little defensive use to us as we are not in a position to know whether competitors are infringing these patents or not. Because of the secrecy clause in all government contracts, it is impossible to find out just what the internal features are on range finders made by the competitors. (d) We have had very little luck in getting help from Zeiss with one exception. When I was abroad in 1934 I made an urgent plea for technical help from them. They said because of the political situation, this was impossible. As I review the contract, I believe that we have met all of our obligations under it. Paragraph VII of the contract reads: "Both parties shall, in the military line of instruments, and in all other lines of endeavor where they cooperate technically within the provisions of this agreement, exchange their manufacturing experience and give access to the workshop to confidential representatives of the other party." 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. Paragraph VIII reads: "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 interests of the nation." I imagine they are taking advantage of this paragraph in not meeting their full obligation. Paragraph XI reads: "If by reason of unforeseen political events the execution of this contract should be made impossible, temporarily or permanently by the firm of Carl Zeiss, Ltd. in the enjoyment of its sole license claim, this agreement shall be suspended for that time, and upon an appeal, the Board of Arbitrators shall make such disposition as seems necessary to carry out the will of the parties to this agreement under the changed conditions as far as possible." The agreement, as it stands, expires on April 30, 1941, unless extended prior to April 30, 1939. After April 30, 1941, to May 1, 1946, we enjoy a nonexclusive license. Under this arrangement we pay a 6% royalty on all instruments that we make coming under patents included in the contract. After 1946 we may continue to use patents, but we must pay a royalty which will then be agreed upon. This is to be not more than 10%. I would suggest that we take advantage of paragraph XI and claim that this agreement as drawn up shall be considered suspended and that we pay them only royalties of 6% on instruments which come under the patents under which we are operating. Although we are not getting any protection from these patents, I believe as the next step this suggestion is better than trying to cancel the contract altogether. Royalty payments made over the last five years have been as follows: 1933 1934 1935 $4,768. 50 | 1936 $42, 140. 37 46, 417.32 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. With Theodore Drescher contemplating a trip to Europe, it seems to me it might be an opportune time to discuss this whole matter with Zeiss and see if the suggestion that I make cannot be carried out. Under the arrangement suggested our royalties would amount to $26,790.89 for the year 1937, instead of $46,417.32. C. L. Bausch: MS Copies to Mr. M. H. Eisenhart, Mr. C. S. Hallauer, Mr. T. B. Drescher. From: Carl Zeiss, Jena. EXHIBIT No. 415 JANUARY 3, 1939. Their Reference: Executive Office Mur/Schl. BAUSCH & LOMB OPTICAL CO., Rochester, New York. GENTLEMEN: Only today is it possible for us to revert again to your letter of July 18, 1938, receipt of which we acknowledged on August 1. At first the vacation period and absence of the gentlemen in question delayed the taking care of this matter, but in the meantime we have endeavored to ascertain what significance your proposal of changing the contract would be likely to have. So far we have, unfortunately, not succeeded, on the basis of the data received from you earlier, to form a clear picture to what extent you have applied in your manufacturing processes the patents placed at your disposal up to now, and to what extent the royalty payments made by you pertain to instruments manufactured under our patent rights. Doctor Eppenstein, who is probably the only one of our organization who had an opportunity to become acquainted with your works and products personally, has been unable to ascertain from your statement of royalty payments on what types of constructions the instruments listed by you are based. We have, therefore, not been in a position to judge what financial effect the limitation of royalty payment proposed by you would have on the instruments made under Zeiss patents, and whether we may expect this effect to be so minor that, in view of the termination of the agreement within about two years, we can now avoid basic discussions and take your proposal into the bargain in order to simplify matters. As a dependable survey, which would be necessary for this purpose, is lacking we cannot follow this consideration any further and must, therefore, discuss the basic questions brought up by you. We have to contradict emphatically your statement that we have failed in the last five years to give you the assistance agreed upon by contract. While we see from your remarks that you recognize, as far as the past is concerned, the scope |