United States v. Imperial Chemical Industries, Ltd.

RYAN, District Judge.

*

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This shit was instituted with the filing of the complaint of the United States of America on January 6, 1944, against nine defendants — four corporations and five individuals, officers of the corporate defendants. The action proceeded to trial on April 3, 1950; the trial was concluded on June 30, 1950. The issues were finally submitted to the court for determination in November, 1950.

I. The Defendants

Defendant Imperial Chemical Industries, Ltd. (ICI) is a corporation organized under the laws of the United Kingdom with offices and principal place of business in London. It was formed in 1926 as the successor to Nobel Industries, Ltd., which in turn was known from 1919 to 1921 as Explosives Trades, Ltd., and from 1915 to 1919 as Nobel Explosives, Ltd., and prior to 1915 as Nobel Explosives Company, Ltd. of Glasgow. ICI was formed by the consolidation of British Dyestuffs Corporation, Ltd., a producer of dyestuffs; Nobel Industries, Ltd., a producer of explosives, nitrocellulose products and non-ferrous metals; and Brunner-Mond & Co., Ltd. and United Alkali Co., Ltd., producers of alkali products. We have used the letters ICI herein to- designate the defendant Imperial Chemical Industries, Ltd. as well as Nobel Industries and its predecessors. ICI is one of the largest British manufacturers and sellers of a general line of chemical and related products; it is one of the principal companies of its kind in the world.

Defendant Imperial Chemical Industries (New York), Ltd. [ICI(NY)] is a corporation organized and existing under the laws of tire State of New York, with offices and principal place of business in New York

City.

Defendant E. I. duPont deNemours and Company, Inc. (duPont) is a corporation organized under the laws of the State of Delaware. DuPont was founded in 1802 as a partnership, known as E. I. duPont de Nemours

& Co.,

to manufacture gunpowder and other explosives. In 1903, E. I. duPont deNemours- Powder Company was organized as a corporation under the laws of New Jersey to take over the business conducted by the partnership. In a decree of the United States Circuit Court for the Third Circuit (Delaware), entered on June 21, 1911, United States v. DuPont De-Nemours & Co., 188 F. 127 , it was adjudged that E. I. duPont deNemours Powder Company had acquired a monopoly of gunpowder -and it was ordered that two new companies be formed. Pursuant to this direction, Hercules Powder Company and Atlas Powder Company were established and a portion of the duPont business sold to them. Thereafter, on or about September 4, 1915, defendant duPont was incorporated to take over and did take over the remainder of the explosive business. Since 1915, duPont has expanded its business; it now manufactures and sells many chemical products other than explosives. These products are sold and transported in commerce among the several states and between the United States and foreign nations. DuPont is a leading company in its field; it is one of the great chemical and industrial enterprises of the world.

Defendant Remington Arms Company, Inc. (Remington) is a corporation organized under the laws of the State of Delaware. It is a manufacturer of sporting arms and ammunition. The Remington trademark and the reputation of its products are favorably and internationally known. Its products are sold and transported in commerce among the several states and -between the United States and foreign nations.

Defendants Lammot duPont and Walter S. Carpenter, Jr. are both residents of Wilmington, Delaware and long have been in the employ of and officers of duPont. They have actively participated in the management and direction of duPont and

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have taken part for many years in the formulation and carrying out of the policies, agreements and undertakings of that company.

Defendant Charles Krum Davis is a resident of Fairfield, Connecticut and has been president and general manager of Remington since 1933.

Harry Duncan McGowan (now Lord McGowan), herein referred to as Sir Harry McGowan, and Henry Mond (Lord Melchett) are named as defendants but were not served with process. Sir Harry McGowan and Lord Melchett were at the time of the filing of the complaint residents and citizens of Great Britain. The former has been Chairman of the Board of Directors of I Cl, since 1931 and for many years prior thereto had been one of the managing officials of Nobel Industries, Ltd. and of its predecessor companies. Lord Melchett was a director of I Cl from 1928; he took an active part in the management of its affairs. He is now deceased.

The following foreign corporations, although not named defendants, are alleged to have been parties to the unlawful agreements set forth in the complaint:

Canadian Industries, Ltd. (CIL) ;

Explosives Industries, Ltd. (EIL);

Compañía Sud-Americana de Explosivos i(CSAE) ;

Industrias Químicas Argentinas “Duperial,” S. A. Industrial y Commercial (Duperial-Argentina) ;

Industrias Chimicas Brasileiras “Duperial,” S. A. (Duperial-Brazil);

Bunge and Born Limitada, S. A. Commercial, Financiera y Industrial (Bunge & Born);

Dynamit Aktiengesellschaft (DAG). (DAG is controlled by I. G. Farbenindustries, A. G. as is Koln-Rottweil A. G. (Koln) ; DAG as used herein includes Koln, for whom DAG acted in making the various agreements.)

II. The Pleadings

The complaint was filed under Section 4 of the Act of Congress of July 2, 1890, c. 647, 26 Stat. 209 , as amended 15 U.S.C.A. § 4 — the Sherman Anti-Trust Act — to- restrain and prevent alleged continuing violations of Section 1 of the Act.

In essence, the complaint charges a conspiracy among the defendants, having as its purpose a division of world markets and the elimination of competition among themselves and between them and third parties in the trade and commerce of chemical products, sporting arms and ammunition. The complaint alleges the achievement of this purpose by the execution of unlawful contracts, agreements, arrangements and understandings and the establishment and maintenance of jointly-owned foreign companies ; and the continued existence and accomplishment of this conspiracy and its purposes despite various temporary arrangements necessitated by the war. By reason of this, it is alleged that judicial remedy is necessary to restore competition among the defendants and between them and third parties. The complaint prays that the combination and conspiracy and the practices alleged be decreed unlawful and that defendants be perpetually enjoined from continuing, reviving or renewing any of the said violations.

Generally, the several answers of the defendants consist of a denial that any of them violated the anti-trust laws.

Specifically, the answer of the duPont defendants after admitting many of the transactions alleged, avers: that these activities had not for their purpose nor have they effected an unreasonable restraint of trade; that duPont never controlled or dominated the chemical business nor did it ever have the power to do so; that to meet the ever increasing rivalry among manufacturers in this rapidly advancing field it has had to steadily expand its research activities; that the agreements with defendant ICI had for their purpose the ex-, pansion of duPont’s manufacture and commerce in the chemical industry and the facilitation of technological progress by the acquisition and exchange of patents, inventions and licenses not otherwise available to it. The answer further alleges that the licenses which it granted under these agreements represented lawful exercise of its rights and that these agreements did

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not have a restrictive effect on trade, but, on the contrary, opened to each party new manufacturing and commercial opportunities. It is also alleged that the agreements were bona fide and not a device to cloak and conceal a division of markets, that their terms stated the full intent and purpose of the parties to them, that the parties, at all times, operated pursuant to such explicit terms in order to carry out their manifest purpose, and that any exchange or grant of information was subject to adequate and justifiable compensation.

DuPont further alleges that it has consistently sought to expand its foreign commerce, that because of numerous economic, political and business factors, it had to join with other interests; but that, at no time, did it cease to act with a view to the fullest possible development of its trade.

DuPont alleges that the creation of the jointly-owned foreign companies was made necessary by economic conditions, and did not represent an effort to restrict or divide trade; that there was no collusion with de>fendant ICI in the establishment of the prices at which duPont and ICI products were sold to these companies, -but that, on the contrary, prices were fixed independently and separately by each with regard to market conditions and the best interests of their customers. The effect of this, it is alleged, could not >be injurious to trade, since the alternative would have forced duPont, because of factors beyond its control, to yield markets it had previously serviced.

As to duPont’s relation with Remington in the conspiracy charged, duPont points out that it acquired a majority interest in that company, and therefore necessarily exercised some control over its policies and management. However, duPont denies that it ever agreed with ICI to limit Remington’s trade, and asserts that any agreement entered into had for its sole purpose the expansion of that company’s trade.

The answer of the ICI defendants raises substantially the same defenses; their repetition will serve no purpose. In addition, ICI urges that this court lacks jurisdiction •over it, in that it is a foreign corporation, not doing business in the United States, and therefore not amenable to the process of this court. It does admit that defendant ICI (NY) is found here, and that it is beneficially owned - and controlled by ICI, but denies that ICI (NY) is its agent for the transaction of business.

The answer of the Remington defendants; besides denying participation in any conspiracy, also denies that any unlawful understanding existed since 1932 (at which time it became affiliated with duPont) between the other defendants, or that Remington knew of any such combination between the other defendants prior to that time.

Answering the Government’s claim that acquisition by duPont of stock in Remington had for its purpose or effected the elimination of competition between Remington and ICI in the sale of sporting arms and ammunition and the bringing of this industry within the existing over-all conspiracy, Remington alleges: that at no time has duPont controlled its management, policies or activities, other than as a right incidental to stock ownership, but that Remington has continued to act independently; that its affiliation with duPont was necessary if Remington was to preserve and improve its competitive position in this field— a policy from which it has never deviated. It is further alleged that as a result of ecpr nomic conditions, acquisition by duPont of a majority interest in Remington was a logical solution to a serious economic problem confronting both companies, and that Remington has greatly benefited thereby.

With reference to its agreements with ICI, Remington alleges as their effect, not a curtailment, but an increase in its exports to and in its manufacture in the British Empire, as well as the improvement of its products, the addition and substitution of new ones and the saving of expense and time in research. Remington denies making any agreement whereby ICI was to or did curtail its exports to the United States, alleging that because of the extremely high tariffs in effect here, ICI could not, under any circumstances, have developed an extensive trade to this country.

The organization of the jointly-owned foreign companies by Remington with ICI, Remington alleges, was necessitated by po

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litical and economic factors (tariffs and national trade barriers) which were effectively closing markets to Remington. Establishment of foreign plants to manufacture and distribute locally and to act as Remington’s exclusive selling agents, it avers, was the only means by which it could continue to sell in these markets. Remington further alleges that all these agreements and arrangements with ICI were independently arrived at, motivated not by any conspiracy, but prompted solely by independent assessment of commercial factors.

The action was tried by the Court upon the issues thus framed.

III. Jurisdiction over ICI

By way of a separate and distinct defense in its answer, ICI has questioned the court’s jurisdiction over it, asserting that it has not been properly served with process in this action. Service of process upon ICI was made, or attempted to be made, by service upon ICI(NY), a New York corporation wholly owned by ICI and having an office in the City of New York. The issue here presented is whether the relationship between ICI and ICT(NY), and, the activities of the latter company in this district, are such that service upon ICI (NY) is effective to confer jurisdiction upon this court over the parent company.

This very question was raised by ICI in a prior litigation in which it was involved in this district. United States v. United States Alkali Export Ass’n, Inc. et al.,

1

S.D.N.Y.1946. The parties have stipulated herein that the jurisdictional issue should be determined on the basis of the record made in that case (hereinafter known as the Alkasso case), together with the evidence adduced herein. Moreover, ICI has rested its legal position on the arguments it advanced in its briefs in the prior litigation, which briefs it has resubmitted to the court.

We have carefully examined the factual evidence bearing on the jurisdictional issue submitted in the Alkasso case submitted herein, the briefs which have been submitted to the courts, and Judge Leibell’s exhaustive opinion in the prior litigation. We are in complete agreement with Judge Lei-bell’s determination that service of process upon ICI (NY) suffices to confer jurisdiction upon this court over ICI.

We find that the offices and staff maintained in this district by ICI (NY) were used solely for the purpose of carrying out the business of defendant ICI. The conclusion is inescapable that defendant I'CI was doing business within this district through TCI (NY); and that the two were so inextricably associated that every move of the latter was directed by ICI. Consequently, we hold that service on ICI (NY) gave ICT notice of the institution of this suit. There is every “reasonable assurance that the notice will be actual.” International Shoe Co. v. State of Washington, 326 U.S. 310, 320 , 66 S.Ct. 154, 160 , 90 L.Ed. 95 .

It cannot be successfully contended that requiring ICI to defend here will work such an inconvenience as to result in a denial of due process. It is hard to conceive of a forum more convenient to plaintiff and to a defendant who has had such numerous, permanent contacts in this district — contacts so essential to the continued conduct of its affairs. ICI has taken advantage of the opportunities offered here for its corporate activities; it has received the benefit of the laws of the United States; it must expect to be required to answer for their breach. International Shoe Co. v. State of Washington, supra, 326 U.S. at page 317 ,

66

S.Ct. 154 ; Latimer v. S/A Industrias Reunidas F. Matarazzo, 2 Cir., 175 F.2d 184, 185 .

IV. Admissibility in Evidence of Certain Documents

Defendants duPont, Lammot duPont, and Walter S. Carpenter Jr. moved to strike certain of the plaintiff’s exhibits on the ground that they are hearsay and not admissible under any exception to the hearsay rule. The moving defendants urge that even if it be assumed that a conspiracy has been shown,

prima facie,

by evidence

aliunde,

which they do not concede,, the challenged documents are not in furtherance of the conspiracy, but are (!)■

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mere narrative statements of past events, or (2) internal I'CI statements recording gossip, speculation, or opinion, or (3)

ex parte

interpretations of draft or final agreements, or (4) anonymous and other miscellaneous hearsay statements.

There is no disagreement as to the applicable law. If a conspiracy has been shown

prima facie

by evidence

aliunde,

declarations of co-conspirators in furtherance of the conspiracy are admissible against all. Since we have found that a conspiracy has been so proven, the sole issue is whether the challenged documents are declarations in furtherance of the conspiracy. Because of the nature of the conspiracy, and of its participants, we conclude that they are.

Whether a declaration is in furtherance of a conspiracy must perforce turn upon scope and extent of the conspiracy. When the alleged conspirators are large, corporations, doing a world-wide business, with seats of authority geographically distant one from another, numerous internal communications within each corporation are necessary in order to apprise large numbers of corporate officers and employees of the nature of the negotiations, the attitudes of the representatives of other co-conspirators, the decisions reached, their import and the understanding of the agents of the corporation of the decisions reached. Otherwise, such a conspiracy would be inoperative.

Moreover, in a conspiracy 'which continues over many years, which has been adapted to changed conditions, which has altered techniques and tactics from time to time, and where the individuals operating the affairs of corporate members of the conspiracy have changed with the passing of years, the keeping of records of past agreements .and understandings, the preparation of summaries of past relationships between the parties and the making of reports are in aid of the over-all purpose, persisting throughout, which the parties to the agreement have been intent upon accomplishing.

In addition, a broad agreement to divide world-wide markets such as is shown in this case, existing from as early as 1897, cannot be a- static one, else it would find itself ineffective due to rapidly changing world conditions, and the new and frequent developments in technical fields. Revisions, alterations, adjustments, and expansion to new and attractive areas were necessarily part of the conspiracy here proven, and, indeed, at the very heart of its successful survival of altered external factors. Accordingly, the steps taken by each co-conspirator in suggesting alterations, preparing for conferences, reporting discussions among the representatives of the co-conspirators concerning proposed alterations, planning new means of effectuating the joint purpose, all are in furtherance of the conspiracy.

An agreement and conspiracy of the nature proven in this case is a vital, growing, adjustable enterprise, and this growth, vitality and adjustability further the purposes of the conspiracy, for without them, the conspiracy would become ineffectual and fail of its purposes.

All of the challenged documents are therefore held to be in furtherance of the conspiracy. The objections of the moving defendants go to the weight to be given particular parts of particular documents, and where a document contains conjecture or speculation as to the state of mind of individuals employed by a co-conspirator, or similar matter of slight probative value, little if any weight has been given to it.

The conclusion we have reached is in accord with the weight of authority. See United States v. U.S. Gypsum Co., 333 U.S. 364 , 68 S.Ct. 525 , 92 L.Ed. 746 ; Schine Chain Theatres v. United States, 334 U.S. 110 , 68 S.Ct. 947 , 92 L.Ed. 1245 ; Hitchman Coal & Coke Co. v. Mitchell, 245 U.S. 229 , 38 S.Ct. 65 , 62 L.Ed. 260 ; United States v. Hartford Empire Co., D.C.N.D.Ohio, 46 F.Supp. 541 , affirmed 323 U.S. 386 , 65 S.Ct. 373 , 89 L.Ed. 322 ; United States v. General Electric Co., D.C.N.J., 82 F.Supp. 753, 902-905 .

In light of the conclusion here reached it is apparent that six exhibits offered into evidence by the plaintiff during the trial and excluded as to the defendant Remington (with the reservation that in light of later developments, the ruling might

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be changed), should be admitted generally. Each appears to be in furtherance of the conspiracy. Exhibits 1278, 1279, 1280, and 1281 are therefore admitted.

Exhibits 1269 and 1309 likewise appear in furtherance of the conspiracy provided only their authenticity as declaration by agents of ICI is established. Neither is signed and there is no proof as to their authorship. Nevertheless, since there is sufficient circumstantial proof to establish that they are authentic records and declarations of an’agent of ICI, they are received in evidence. Both are from the files of ICI (cf. VII Wigmore on Evidence 2160 (1940 ed.)); the subject matter of both is corroborated by other evidence, and both, the first document especially, give every indication of having been prepared by a responsible agent of ICI. Indeed, the only logical explanation of their appearance in the ICI files if they are not authentic, is that the documents are forgeries, or spurious. Such an explanation is rejected as entirely improbable.

However, the weight to be given the documents, particularly to the second, is necessarily decreased. While they bear every indication that they were prepared by persons in a position to know of the matters set down, their anonymity must go to the weight to be given them. With this caveat, the two documents will be received.

We come now to examine the stenographic record of the trial consisting of over 5200 pages, the 1436 exhibits introduced by the Government and printed in 13 volumes, and the 2264 exhibits introduced by the defendants and printed in 17 volumes. We are grateful to counsel for their cooperation in expediting the presentation and introduction of the evidence, but we have approached the examination and evaluation of the multitudinous exhibits with the reflection that of them there were too many and too much. Perhaps, with knowledge born of this experience, a similar trial in the future will see the introduction of fewer exhibits. However, we have here considered all exhibits and from them and the testimony we make the following findings.

V. The Patents and Processes Agreements

A. The “Explosives Agreements”

The several types of agreement into which the defendants entered present important problems peculiar to each type. Therefore, although the complaint alleges that all the agreements entered into between the defendants reflect a continuing overall conspiracy, the distinct types will be separately examined. We will separately consider the various patents and processes agreements; the agreements affecting the jointly owned companies; and what might be characterized as miscellaneous selling arrangements. Throughout it must be borne in mind that the Government alleges the interconnection of all these agreements.

While reaching the fullest efflorescence in the 1929 and 1939 agreements embracing large categories of products, the patents and processes agreements were first developed with respect to explosives. In ascertaining the intent underlying the patents and processes agreements, a separate study of the explosive arrangements may prove useful. Evaluation of the intent of the parties in making these agreements will be facilitated by first setting forth summarily the content of the major earlier agreements.

1. Content of These Agreements

In 1897, duPont and various other American companies entered into an explosives agreement with Vereinigte Koln-Rottweiler Pulverfabriken, of Cologne, and Nobel-Dynamite trust of London (predecessor of ICI), the latter companies being designated “the European factories.” The spirit of the agreement was set forth in the preface: “Whereas, the parties hereto own or control a large number of companies and works engaged in the manufacture and trade of explosives, and whereas, it has been deemed advisable to make arrangements, so as to avoid anything toeing done which would affect injuriously the common interest” (Ex. 1410, pp. 11148 E, F).

The agreement provided substantially as follows: with respect to Black Powder and Smokeless Sporting Powder, “the

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American Factories undertake not to erect factories in Europe, and the European factories undertake not to erect factories in the United States of America. Both parties, however, were to be free to import into the other party’s territory” (Ex. 1410, p. 11148 G, H).

With respect to detonators it was provided that “the European Factories shall abstain from erecting detonator works in the United States of North America,” and would discontinue works then in the process of construction (Ex. 1410, p. 11148G). In consideration of this undertaking the American Factories agreed to order at fixed prices a certain number of detonators per year. “With regard to Smokeless Military Powder it is hereby agreed that the European Factories undertake not to erect any factories in the United States of America, and that the American Factories undertake not to' erect any factories in Europe. Whenever the American Factories receive an enquiry for any Government other than their own, either directly or indirectly, they are to communicate with the European Factories through the Chairmen appointed, as hereinafter set forth, and by that means to ascertain the price at which the European Factories are quoting or have fixed, and they shall be bound not to quote or sell at any lower figure than the price at which the European Factories are quoting or have fixed. Should the European Factories receive an enquiry from the Government of the United States of North America, or decide to quote for delivery for that Government, either directly or indirectly, they shall first in the like manner ascertain the price quoted or fixed by the American Factories and shall be bound not to quote or sell below that figure” (Ex. 1410, p. 11148 H).

The provisions of the 1897 agreement most pertinent to this suit are those involving high explosives, defined as “all explosives fired iby means of detonators,” as to which it was “agreed that the United States of North America, with their present or future territories, Possessions, Colonies, or Dependencies, the Republics of Mexico, Guatemala, Honduras, Nicaragua, and Costa Rica, as well as the Republics of the United States of Colombia and Venezuela, are to be deemed the exclusive territory of the American Factories, and are hereafter referred to as ‘American Territory’. All the countries in South America not above mentioned, as well as British Honduras and the Islands in the Caribbean Sea, which are not Spanish possessions, are to be deemed common territory, hereinafter referred to as ‘Syndicated Territory’; the rest of the world is to be the exclusive territory of the European Factories, hereinafter referred to as ‘European Territory’. The Dominion of Canada and the Islands appertaining thereto, as well as the Spanish possessions in the Caribbean Sea, are to be a free market unaffected by this Agreement.

“The American Factories are to abstain from manufacturing, selling, or quoting, directly or indirectly, in or for consumption in any of the countries of the European Territory, and the Europeans are to abstain in like manner — in any of the couirtries in the American Territories. With regard to the Syndicated Territory neither party are to erect works there, except by a mutual understanding, and the trade there is to be carried on for joint account in the manner hereinafter defined” (Ex. 1410, pp. 11148-H-I).

It was further provided that the American and the European Factories were each to designate a Chairman, who were to agree upon and fix a basis price for each market in the Syndicated Territory, to include cost of manufacture, and all charges, as well as a stipulated “contribution towards the Common Fund.” The Chairmen were empowered likewise to fix a selling price for each market, below which no sales were to be effected; the difference between the basis price and the selling price was to be deemed the “Syndicate” profit, and to be divided in equal shares by the American Factories and the European Factories (Ex. 1410 p. 11148 1

et seq.).

This 1897 Agreement was cancelled by the parties in 1906, one year before the filing ^)f a government monopoly suit against duPont which resulted,

inter

alia, in its judicial condemnation. United States v.

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E. I. DuPont DeNemours & Co., C.C., 188 F. 127 .

In 1907, DuPont entered into the first of the patents and processes agreements (Ex. D. 1271). The other parties to the contract were Koln-Rottweiler and Nobel Dynamite Trust, Ltd. (the European factories). Many of the provisions of this first of the patents and processes agreements were adhered to in the later agreements.

In it the words “invention” or “inventions” were understood to include American inventions and European inventions. “Explosives” were defined “as including Black Powder and Nitrate mixtures in all their varieties; smokeless propellants, whether for military or sporting purposes; disruptive explosives of any kind, whether for industrial or warlike purposes; * * * and generally all devices for initial detonation or ignition, as also ammunition of every kind, as well as the ingredients and component parts of all the above insofar as they are applicable to explosives.”

To the “Americans” were allocated the United States of America and their present and future territories, possessions, colonies, or dependencies, Mexico, Guatemala, Honduras, Nicaragua, Costa Rica, Panama, Colombia and Venezuela. To- the “Europeans” were assigned all countries not allocated to the “Americans,” except the balance of South America, British Honduras, Islands of the Caribbean, the Dominion of Canada and Newfoundland.

The agreement provided for the exchange of patented and secret processes; each granted to the other exclusive rights for the grantee’s territory and non-exclusive rights in all other territories (Ex. D-1271, pp. 8213, 8214).

Each party further agreed that if it acquired during the term of the Contract any rights under any patents or secret processes relating to the manufacture of explosives in any territory in which it has not granted its “inventions” to the other, “such party shall co-operate and use its best endeavours to obtain such similar rights, licences, etc., for the other party as will enable the other party to use the same in territory in which rights have been granted to it hereunder, but neither party is under obligation to purchase or pay for any such rights for the benefit of the other” (Ex. D-1271, p. 8215).

It was also provided that “For the purpose of making effective the grant's hereby made, each party shall disclose to the other immediately, or in any event within twelve months from the date of this Contract, full particulars in regard to all ‘inventions’ employed by such party, and shall furnish the other with copies of all patents owned or controlled by such party, and wherever necessary shall execute such assignments and licences under such patents as may be necessary to carry out the intent of this Agreement, and each party shall appoint one or more competent and trustworthy persons experienced in the business for the purpose of receiving information from the other party as to all secret processes now used by either party to this Contract, and shall notify the other of such appointment, and immediately after receipt of such notification, or in any event within twelve months thereafter, each party shall disclose to the appointees of the other party all such information concerning any secret process used, owned or controlled by such party as may be necessary to carry out the intent of this Agreement. Each party agrees from time to time during the continuance of this Agreement to transfer any ‘invention’ hereafter owned or controlled by it, and to disclose all such information in regard to any such ‘invention’ whenever the same may reasonably be required under the terms of this Agreement- Each party agrees to use its best endeavours to keep secret any disclosures made by the other party to it, but shall not be liable in damages for failure so to do, Each party will further supply such experienced chemists, engineers, foremen, and other experts as the other party may require to assist such other party in availing itself of any such ‘invention’ and practically applying it, all of which assistance, however, shall be at the expense of the party availing itself thereof, and such assistance shall be afforded by each party to the other from time to time as required” (Ex. D-1271, p. 8215).

Finally, of special significance in this 1907 Agreement was the provision for pay

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ment for the licenses granted, which read: “It being impossible to compute the detailed value to each of the parties of the ‘inventions’ hereby granted, the patents hereby conveyed not having been applied in the business of the grantees, and the secret processes being at present unknown to each grantee hereunder, a proper and fair compensation by each party to the other can most accurately be reached by basing the payment to be made by the parties to each other on the increase in 'their profits as compared with the profits earned in 1906, providing for the normal increase independent of the adoption of the ‘inventions’ hereby granted by allowing 6 per cent on all and any increase in the earnings capital, on the assumption that any increase in the normal profits must call for a corresponding increase in capital” (Ex- D-1271, pp- 8216, 8217).

We find that the purpose and effect of this agreement of 1907 was to eliminate competition in the various explosive markets of the world.

Early in the summer of 1913, duPont counsel “urged upon the Executive Committee the danger of the continuance of this agreement in view of the injunctive provisions of the decree in the government suit.” Conferences were held and the 1907 agreement was cancelled (Ex. 39, p. 213). A new agreement was drawn, which was not executed due to the outbreak of World War I (Ex. 1); however, duPont and the British Nobel Company continued to cooperate during the war and accepted the unsigned draft as if in effect between them during the war. The 1914 draft followed the familiar pattern; if was in the form of an agreement-to exchange present and future patents, processes and inventions relating to military and commercial explosives; the allotment of exclusive territories was identical to that made in the 1907 agreement (Ex. D-1271, p- 8213; Ex- 1)-

The 1913 document was drawn in the light of the recognition “that previous agreements had been based on sound business considerations” and. of duPont’s position that “it is not good business to attempt an expansion in certain directions if such an act is bound to result as a boomerang of retaliation” (Ex- 37, p. 198). It was drafted to replace the 1907 agreement with a document which gave outward service to the law of the United States. The negotiations left Judge Laffey, duPont general counsel, who had participated in the conference which brought it forth, with the impression that, “ * * * we were getting our house in order legally, abolishing all contract relations that might be construed in restraint of trade, but that, as a matter of-voluntary policy, nothing would be done by either party that under the 1907 agreement would constitute a violation of the coív tract” (Ex. 39, p. 213).

It was also noted by Judge Laffey that, “It was well understood by both parties that there was no legal obligation under the Sherman Law to compete and that even natural competitors in the same territory might as a voluntary policy refrain from competition” (Ex. 39, p. 213)-

The evil, however, lay in that here the competitors were by collateral understanding effectuating a purpose to refrain from competing with each other (Ex- 37, pp- 197-99; Ex. 39, p. 213; Ex. D-1275 to 1280-C).

In 1920, duPont entered into an agreement with Explosives Trades Ltd., successor to Nobel, which again repeated the pattern of the 1913 Agreement. It was provided that products other than explosives might be added if the parties so elect (Ex. 3, pp. 55-56). It was called by the parties the “General Explosives Agreement of 1920.” The German companies were not made parties; World War I had intervened. This agreement Sir Harry McGowan of ICI referred to on September 19, 1923 as “a camouflage to cover all relationships between the two companies” (Ex. 43, p- 228)-

2- The Intent of the Parties

These agreements represent the major Patents and Processes Agreements involving explosives. The claim of the Government with respect to this phase of the case simply stated is:

The 1897 Agreement was at least in part an open effort to divide markets. Recognizing its illegality under the Sherman Anti-Trust Law, 15 U.S.C.A. §§ 1-7 , 15

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note, the parties sought to achieve the same purpose through a patents and processes agreement which it was hoped would give a color of legality to the unlawful operation. Through their lack of experience with this technique of evasion, however, they included provisions which exposed its unlawful purpose- When apprised of this by counsel, they eliminated the ' offending provisions, but did not, however, change the essential purpose of the arrangement or the suitability of the agreement to that purpose.

The position of the defendants may be stated as follows: the 1897 Agreement was an illegal one and for that reason was can-celled; the Patents and Processes Agreement of 1907 was not a continuation of that arrangement but a genuine effort to achieve the benefits of exchange of technology; its illegal aspects did not represent an effort to continue the 1897 Agreement, but resulted from inexperience with the legal requirements of such agreements; and in any event, if there had been any illegal purpose originally, it was abandoned in the subsequent Agreements-

A basic issue in the conflicting analyses is, of course, the role played by the Patents and Processes Agreement of 1907- A comprehension of this is facilitated by examination of a factor of central significance in the patents and processes phase of the alleged conspiracy; the utility of these Agreements as instruments of territorial division. This can be appreciated by observing the operation of the agreements with respect to patents and secret processes involving techniques or methods in the production or utilization of non-patented products. All may compete in the production or sale of such commodities. Under the agreements the granting or acceptance of a license to such a technique results directly in the elimination of competition. The accepting party is given the exclusive right to utilize the technique in producing a non-patented commodity in its allocated exclusive territory; but it may not utilize the technique in the territory reserved by the grantor. Similarly, the granting party may not utilize the technique in the territory reserved to the other. It is plain that, acting in strict accordance with the terms of the patents and processes agreements, parties so disposed could effectively eliminate competition between themselves.

We here assume that the patents and processes agreements are not invalid on their face. The burden thus devolves upon the Government to prove that the defendants entered into these agreements with an illegal purpose, or that they operated to achieve an illegal result.

It should be noted again that both agreements were cancelled by the parties on advice of counsel that it was illegal- The correctness of this opinion can scarcely be doubted, nor do we understand the defendants to dispute it now. The immediate question is whether the illegality of the 1907 Agreement reflected only innocent inexperience with the legal requirements or whether it also represented a deliberate effort to continue the purpose of the prior 1897 Agreement-

In this connection, several #facts seem reasonably apparent. The 1897 Agreement was a palpable effort to eliminate competition among the contracting parties- In part, this was to be accomplished by a division of territories. It was cancelled because the parties recognized it to be illegal- A reading of the 1897 and 1907 Agreements convinces that the latter Agreement was worded and designed to effectuate the purpose of the former. Some of the incriminating similarities were well pointed out by counsel in urging the cancellation of the 1907 Agreement: “The parties to the Agreement of 1907 are substantially the same parties to the Agreement of 1897; the territorial division is the same in both Agreements; what was European territory under the old Agreement is European territory under the present Agreement; what was American territory under the old Agreement is American under the present Agreement; much of the phraseology of the old Agreement is found in the new Agreement” (Ex. D-1279, p. 8283). .

The single most illuminating provision of the 1907 Agreement concerned payments for the mutual exchange of patents and

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processes. This exchange of patent and process licenses, coupled with territorial limitations, can be considered legal only on the theory that it represents a legitimate exploitation of a legal monopoly. An essential element of such legitimate exploitation is that a bona fide effort be made to exact royalties proportioned to value. Thus, if a patent and process agreement of the kind involved here was to provide for exchanges of licenses with no remuneration at all, absent an exchange equal in value, its efficacy as an instrument to divide markets could scarcely be questioned- What the parties did do in the 1907 Agreement was hardly preferable. In substance, they provided that one-half of the increase of profits subsequent to the exchange of licenses would be attributed to the use of the licensed inventions, and paid to the licensing party- The effect of this provision was to eliminate all possible inducement between the parties to compete. The explanation that, absent experience as to the value of the licenses, these provisions represented a bona fide effort to assess value, does not merit consideration. Its destructive effect on competition is too plain to admit of doubt.

The inherent utility of the 1907 Patents and Processes Agreement as an instrument of trade division, the nature of the 1897 Agreement, the similarity between the two agreements, the special profit sharing provisions, and the historical recordings and writings lead us to conclude that the 1907 Agreement was designed to effectuate the purposes of the illegal 1897 Agreement-

The weight to be accorded duPont’s declarations, which recur throughout the relationships of the parties, that the agreement was to be considered on its face, and no subterraneous intent was to be imported therein will be considered later. It suffices to say that they do not successfully rebut the inference here drawn with respect to the 1907 Agreement. Nor is this conclusion rebutted by evidence purporting to indicate a genuine desire to achieve the advantages and exchange of technology. So long as a major purpose of the agreement was an illegal one, a complementary legitimate purpose does not immunize the parties from Anti-Trust prosecution. See U. S. v. National Lead Co., D.C., 63 F.Supp. 513, 524 .

Not only are the patents and processes agreements susceptible to being apt instruments of territorial divisions, but the very first such agreement was deliberately entered into with.a view to effectuating that illegal purpose-

From the finding above that the 1907 Agreement was intended to achieve an illegal purpose it does not necessarily follow that all the subsequent patents and processes agreements were similarly motivated. It thus becomes necessary for us to determine whether or not the subsequent agreements are expressions of the same basic policy. In this inquiry two factors must be borne in mind: first, as we have noted, the 1913 and 1920 Agreements deleted those provisions which in the 1907 Agreement gave clear internal corroboration of the parties’ unlawful intent; second, the potentiality of the patents and processes agreements for territorial allocation is inherent in the structure of the agreements, and is in no way dependent upon the omitted provisions. If a material consideration in inducing the agreement was to divide markets and restrain United States imports and exports the agreements were unlawful. We turn then to examine the circumstances surrounding these agreements and to inquire into the manner in which they were carried out.

DuPont points to vigorous statements by their executives to the effect that they would not agree to any effort to use the agreements as a tool of territorial division and repudiating any construction of these agreements as designed to achieve territorial allocation. Defendants urge these duPont statements as decisive on the question of intent; the Government asserts that they are purely record making statements, and merit no consideration whatsoever. The weight to be accorded these contemporaneous utterances may be most profitably considered in an examination of a dispute between the parties, concerning the proper interpretation of these agreements, which arose latér in connection with its military explosives aspects.

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However the following" may be noted here. It is established in law that the agreements were unlawful if entered into with an unlawful intent and to accomplish an unlawful purpose. U. S. v. Columbia Steel Co., 334 U.S. 493 , 522, 68 S.Ct. 1107 , 92 L.Ed. 1533 . The evidence is that counsel fully advised defendants that the law so provided (Ex. D-1279, p-. 8284). Under these circumstances it is reasonable to assume that if the parties had the unlawful intent ascribed to them, they would have sought to conceal that fact by statements of the kind here made. This does not mean, of course, that such statements are to be considered evidence of guilt (as the Government appears to urge), but it does mean that they must be weighed carefully in their context and measured against the course of events.

In connection with the 1913 and 1920 Agreements, the Government points to, as important evidence of duPont intent and purpose, a memorandum drawn up by Lam-mot duPont in 1919 setting forth a proposed duPont export policy. He embraced within the projected policy four categories of products: (1) explosives, accessories and ingredients; (2) artificial leather; (3) dye stuffs and intermediates; and (4) all other products. With respect to each of these categories three distinct trade areas were proposed, varying slightly with each of the categories of materials, and paralleling the areas set forth in the various patents and processes agreements. The three areas are designated: (1) Active Territory —“Territory where duPont or subsidiaries expect to and will endeavor to, become the leading source of supply”; (2) Representative Territory- — ‘‘Territory where duPont company or subsidiaries expect to do business now or later, but do not expect to become the leading seller”; (3) Inactive Territory — “Territory where duPont company or subsidiaries do not expect to do any business and will not attempt to supply in any way. Inactive Territory includes all above in which we have given to other manufacturers, through Agreements, exclusive rights to our own Patents and Processes” (Ex. 2, p. 36).

The Government urges that this document establishes the “camouflage” nature of the patents and processes agreements; that this policy (which Lammot duPont asserted to be already in effect) represented fulfillment of the agreements. The position of duPont, apart from denial of the secret understanding underlying the patents and processes agreements and the claim that Lammot duPont misstated past policy, and that his recommendations were not accepted, is that the document, at worst, indicated a unilateral policy dictated by business considerations; which, if the fact, would admittedly not be within the purview of the Sherman Act. In support of this, duPont points out that the policy concerned commodities not within the scope of any agreement. Furthermore, duPont does not dispute that the agreements inevitably involved some territorial withdrawal, but urges that the surrendered territory was competitively difficult, and that the technological benefits outweighed the loss of markets. Thus, Lammot duPont’s export policy might be explained as reflecting the same view of the competitive unremunerativeness of the “Inactive Territories,” as was reflected in the patents and processes agreements themselves.

This ingenious interpretation becomes difficult to sustain, however, when considered with other language in the same document. Lammont duPont also- wrote: “As far as placing an obligation upon the company is concerned it appears to me that we are practically obligated to this policy now, insofar as it limits our activities” (Ex. 2, ■p. 34). This language is subject to several possible interpretations. One is that the exchange of licenses under the patents and processes agreements had been so complete that under the terms of the agreements complete territorial division had already taken place. Nothing in the record indicates this to he the fact. But, if this be considered the fact, it would afford striking confirmation of the utility of the patents and processes agreements as a device for dividing territories, and its identification in the minds of the parties with that result-Another interpretation — and in our view

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the more probably correct one — is that Mr. duPont understood that his company was under an obligation not to compete in the “Inactive Territory.” Under the circumstances, such an over-all obligation must have involved an agreement with Nobel. Whether the obligation became effective irrespective of the granting of licenses, or whether it was intended to

make

it effective upon interchange of licenses intended to achieve that purpose, is not here important.

The claim that the memorandum misstated duPont policy and that its recommendations were never adopted, is a subject for further inquiry. What is presently significant is that an important duPont executive apparently understood, twelve years after the termination of the 1897 Agreement, and six years after the termination of the 1907 Agreement, that his company was committed to a policy of territorial division-

This conclusion, almost irresistible upon close study of the memorandum in the light of surrounding circumstances, casts a curious light on previous disavowals of such purpose by duPont executives, and indeed, on the weight to be accorded subsequent statements of similar import. It is particularly important in view 'of the fact (which will receive more detailed consideration), that ICI executives later persisted in the same understanding of the nature and effect of the patents and processes agreements.

Another feature of this memorandum 'deserving of note is the inquiry addressed by Lammot duPont as to whether anything in his memorandum “-Would be objectionable as a matter of record” (Ex. 2, p- 34), a statement which may well be taken as an indication of a policy of concealment by duPont.

In 1923, a controversy between duPont and ICI resulted from sales in Europe by duPont of I. M. R- powder (a new form ■of nitro-cellulose powder). Unfortunately, the factual background of this disagreement is not entirely presented by the evidence but it appears that duPont had offered licenses for the I. M. R. powder to ICI which they had declined. Military -authorities had interposed objections to the licensing of some secret military inventions, but whether this objection extended to I- M- R. powders does not appear- DuPont had discontinued licenses in this area allegedly with a view to freeing itself to sell military products abroad; but what licenses these were, and to what products in Europe they related, and what the sales picture was with respect to those products remains obscure. Another element in the factual melange was the pressure to which duPont was subjected by American Army officers to sell abroad in order to keep works in operation, and skilled personnel on the job, in preparation for any -emergency.

The controversy was initiated by ICI in a letter from. Sir Harry-McGowan (Ex- 33, pp. 186-7). Subsequently, ICI's position was fully stated in a memorandum in which they noted that: “Nobel have always interpreted the arrangement with duPont by reference to the sequence of agreements and arrangements dating back to 1897 and not merely on a strict reading or interpretation of the present Patents and Processes Agreements, * * (Ex. 36, p. 193).

In this connection, the language' of Barksdale, duPont’s counsel, describing the 1913 Agreement as an effort to maintain the spirit of the 1907 Agreement, was cited (Ex. 36); the memorandum continued:

“2. Nobel have n'o desire, nor do they see any necessity, to make any change in the -existing arrangements which, have worked all this time so satisfactorily, leading as they have done to a free and frank exchange of ideas on all -sorts of subjects to the mutual benefit of both parties.

“3. If duPont consider that any altered conditions have arisen, which call for a change in the business policies of the parties and also possibly of the actual agreement, as it now exists, then it would appear to be a matter for duPont to put forward their proposals, in the promulgation of which it seems advisable to keep the following points in mind:—

“(a) According to Mr- Felix duPont, the reason for the development of the duPont ideas is based on a desire to keep their powder factories employed with orders from the European markets. It must be

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borne in mind that our American friends are not alone in this, because many of the European manufacturers (apart altogether from Nobel) have unemployed capacity not only in military powders but also in other Commercial products, which they are all equally anxious to fill.

“Note

at this point if duPont seek business in European markets it will be no longer possible for Nobel to hold the European manufacturers off in the manner which we have been able to d'o so far-

“(b) From our knowledge of the European markets, which duPont are investigating, it seems that most if not all such countries have now or will have in the near future factories adequate for the production of normal needs, and that 'only in case of emergency or of special circumstances will orders be placed with outsiders. In such cases the Governments in question will be influenced entirely by the presence of stocks and will place the business with whichever supplier has the goods available. Spain, for instance, where duPont claim to have sold, only bought because of and at the time of the Moroccan troubles, and we have recently been assured that the factories existing in that country and owned by the Union Española and by the Government are adequate for all normal needs and that no business will be placed outside which can be filled from those sources.

“(c) Nobel have no desire to sustain an arrangement which will preclude duPont from supplying anything which they themselves or the local people are unable to supply, and some machinery might be devised dealing with emergencies or special demands, should duPont be approached, but Nobel hold strongly that the introduction of an active campaign in the European markets is a violation of the spirit of the understanding which must have far-reaching effects on the general business of both parties, and which cannot possibly lead to any regular trade, and certainly not to a volume of business sufficient to employ duPont plants economically or regularly” (Ex. 36, pp. 193-95).

Finally, it is observed, “ * * * if the subject is to be governed by a strict reading of the existing agreement, Nobel has the right to take the I. M. R. manufacturing rights for European markets (subject to the Government Prohibition Clause), but it is felt by N'obel that the agreement should not be construed on its exact phraseology, but rather on the broad lines of interpretation which have always governed the dealings between the parties” (p. 195).

This memorandum was relayed by Crane, then in duPont’s London office, to Haskell, vice-president of duPont. He prepared a response by letter to Crane. It is not entirely clear whether it was intended that the letter was to be shown by Crane or whether it was designed merely to guide Crane in conversations with Nobel officials (Ex. 36, p. 192).

Mr. Haskell commenced by repudiating .the interpretation placed on Barksdale’s language by ICI to the effect that the Patents and Processes Agreement referred back to the 1897 Agreement; but he acknowledged that the previous arrangements had been based on sound business considerations ; that mutual benefits had come from friendly relations, and that expansion in certain directions might well result in harmful retaliation (Ex. 37, p. 198).

lie takes issue with the Nobel “camouflage” view of the agreement which he states to be contrary to the fact, in that the 1907 Agreement was cancelled and its place taken by the 1913 Agreement which “was complete in itself and represented all that could be done legally, and was so> accepted by the parties” (Ex- 37, p. 198).

Mr- Haskell then notes that the sale by duPont of military powders to Europe was at the base of the controversy. He recalls that on several previous occasions duPont had sold military powders to Europe without protest from Nobel. He considered the “present situation” to be an outgrowth of the First World War when duPont supplied European requirements which in turn developed new buyers who preferred duPout powder. He observed that while Nobels disclaim any desire to act the part of dog in the manger, they are really so acting, for they “ ‘hold strongly’ that we should not sell nitrocellulose powder-something they do not themselves manufac

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ture in Europe” (Ex. 37, p. 203)* Furthermore, he points out:

“ * * * the kind of powder required by European buyers is the same as that formerly produced by the Germans. It also happens that the territory in-question is to a very large extent the same territory the Germans enjoyed before the war. Therefore, in introducing a campaign in Europe to sell nitrocellulose powder, we are really entering the countries formerly sold by the Germans in which Nobel powder (Cordite) was never in demand.

“Since we are supplying something the Nobels have not yet manufactured to countries formerly supplied by the Germans, it seems rather far-fetched to evoke the spirit of a contract which would have expired in 1921 and to which the Germans were pre-viously a party but which was cancelled in 1913 and by the Germans never renewed, and use this as a basis for excluding duponts from the former German markets and preclude their selling nitrocellulose powder — something Nobels have never themselves manufactured” (p. 205).

Mr. Haskell points out the change in conditions over the years, and that “I.M.R. powder was unknown in those years and the present trade conditions resulting from the War were then undreamed of” (p. 207).

The divergence in interpretation of the 1920 Agreement, he attributes to Nobels’ inability to understand the Sherman Act, and, finally, he summarized his conclusions as follows:

“1. The Patents and Processes Agreement signed in 1919 means what it says and not more or less.

“2. Experience has indicated that friendly cooperation between such concerns as duPonts and Nobels is preferable to antagonism. The word ‘friendly’ is used in its widest sense and embraces not only the give-and-take of every day life but also rivalry and competition having due regard for fair play and the ethics of the game. * * *

“3. It must be recognized that new conditions constantly arise and that in composing differences in point of view it is of first importance to have full information as to the facts and to clear away misconceptions of facts and then adjust differences in accordance with the principles set forth in the preceding paragraph, considering each case on its merits and with relation to the whole” (Ex. 37, pp. 208-09).

Haskell’s letter was submitted to duPont counsel, Judge Laffey, before being transmitted to Crane. Judge Laffey confessed that he was unable to understand precisely what policy Haskell was advocating and that he was uncertain as to the policy he would advocate (Ex. 39, p. 211).

He emphatically stated that duPont was under no legal or contractual obligation to abstain from sale of explosives in Europe absent the granting of exclusive licenses, “ * * * but I fee), as I think we -all feel, that we must look at this matter from the moral or ethical standpoint. In the light of what has gone before and in view of the fact that the Nobels are partners not only in Canada and Chile but in the automobile field, we must look at it with a view, I should think, of avoiding what, for the want of a better name, are often called ‘unfriendly acts’” (Ex. 39, p. 212).

Judge Laffey described as the “strongest point” in,Haskell’s letter the assertion that the territory interested in duPont powder was substantially that previously served by the Germans. He urged, “ * * * it would be logical for us to contend that this territory should be treated as so-called neutral territory, or to put it -another Way as ‘spoils’ belonging to the British and ourselves as allies in the late war” (Ex. 39, p. 215). He then suggested that duPont should, “ * * * either say to Nobels we will as a matter of voluntary policy do nothing in European territory that, under the 1907 agreement, would be contrary thereto, or we should do what I am inclined to think we can properly do, take the position that the dropping out of the German company should leave the territory supplied by the Germans neutral territory in which we have equal rights. That would leave us free to sell nitrocellulose powders wherever the Germans sold them” (Ex. 39, pp. 215-216). Finally, he suggested three alternative courses, but, again, indicated his preference that duPont adopt the posi

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tion that the territory supplied by the Germans during the existence of the 1907 Agreement should be neutral territory.

A meeting was held on April 29, 1924, minutes of which record that Irenee duPont stated, with respect to the interpretation of the 1920 Agreement, that it did not obligate the parties to abstain from sales to the other’s exclusive territory where no license had been granted or accepted. It was also recorded that “the Nobel representatives accepted Mr. duPont’s statements as being the proper interpretation of the understanding. * * * ” (Ex. 48, p. 252).

The position of the duPont defendants

concerning

this episode is as follows: in the conviction that the 1920 Agreement did not obligate them to abstain, absent licenses, duPont sold, first I. M. R. powders, and then other military nitro-cellulose powders, to Europe. When Nobel objected to these sales and described the agreement as a camouflage, duPont unequivocally rejected that construction. Ultimately, duPont exacted from Nobel acquiescence in its construction of the agreement, as reflected in the minutes and confirmed by the undisputed fact that duPont continued to export military products to Europe. This sequence of events, duPont insists, completely refutes the Government charge of a continuing conspiracy to divide markets.

We hold that analysis of the evidence sustains an entirely different interpretation of the dispute.

The first major document was the note of September 19, 1923, sent by Sir Harry MlcGowan of ICI to Carpenter of duPont, which set forth the position that the 1920 Agreement was a “camouflage,” intended to be interpreted with reference to prior agreements extending back to 1897 (Ex. 43, p. 228). It is to be noted that the Nobel interpretation succeeds various apparently unequivocal statements by duPont executives, preserved in the records, that the patent and processes agreements were just that and not a territorial agreement (e.g. Ex. D.-1280, p. 8288). These documents to which duPont points as probative of its innocence, were apparently regarded by their business associates of many years’ standing as mere record serving statements. That duPont had been unable to impress upon Nobel this understanding of the agreements, assuming them to be free of territorial implications, seems a remarkable circumstance. It is no answer to say that Nobel had difficulty in understanding the nature of the Sherman Act and the significance of duPonts’ comments with respect to it. That fact and its possible dangers had been understood from the beginning and it is inconceivable that duPont did not state its position with that difficulty in mind.

The view expressed by Nobel as to the camouflage nature of the agreements should be compared with the understanding of the agreement indicated by Lammot duPont in the document previously discussed (Ex. 2), and also with the significant comment of Carpenter of duPont that “there is much right in McGowan’s position” (Ex. 37). Haskell’s letter to Crane and Judge Laffey’s comment on it, must be read with recognition of the fact that duPont, at all times, realized that their agreements and dealings with Nobel contained the seeds of possible trouble as far as the anti-trust laws were concerned, and that records should be completely free of language which might give color or support to such an accusation. Confronted with a document like the Nobel note, it became essential for duPont, irrespective of their actual position, to state on the record dissent from the Nobel view, and, indeed to require Nobel to place on the record acceptance of the duPont construction. These observations are made, not to discount in advance all duPont’s disavowals of guilt, but rather to emphasize the necessity for careful scrutiny of the correspondence and records.

Haskell first repudiated the Nobel “camouflage” theory but thereafter he intimated duPont’s recognition of the desirability of cooperation. Repeating his repudiation of any territorial connotation, he emphasized the greatly changed conditions resulting from the war with respect to military explosives, the essential lack of competitiveness between the duPont military product and the Nobel product, the circumstance that the territory primarily interested' in

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the duPont military product was that formerly serviced by Germany and in which Nobel powder was never in demand.

If Haskell were flatly repudiating any theory of territorial abstention, the question arises as to why he should refer to cooperation and lay such heavy emphasis on other justifications for duPont sales of military powder to Europe. Perhaps, this might be explained in part by the fact that duPont did not wish to offend Nobel unnecessarily, but this explanation is not entirely satisfactory. The Nobel note indicated to Haskell that Nobel continued to regard the patents and processes agreement as a camouflage. Moreover, Nobel was aware that duPont considered itself under a necessity'to keep out of its records language savoring of a territorial arrangement. Under these circumstances, the Haskell memorandum certainly involved the danger that Nobel would consider it an attempt to modify a territorial arrangement with respect to a particular type of product rather than a denial of the existence of any territorial arrangement. Why Plaskell should have used language capable of such construction, when he could hardly have been unaware of such a possibility, is difficult to understand.

It is important to note, again, that Judge Laffey, general counsel to duPont and a man intimately familiar with the history of the duPont-Nobel dealings, to whom the Haskell letter was referred for consideration, confessed himself “in doubt as to just what you advocate should be the position of the duPont company.” He himself believed that duPont was under no legal or contractual obligation to abstain, but from the “ethjcal” standpoint it was a different matter.

Nor may we fail to give weight to Judge Laffey’s report of his understanding of the •1913 Agreement, that the parties were getting their house in order legally, but that, “as a matter of voluntary policy, nothing would be done by either party that under the 1907 agreement would constitute a violation of the contract.” It must be recalled, too, that the defendants have insisted that the 1907 Agreement was not intended to continue to effectuate the purposes of the 1897 Agreement, but that it was cancelled and replaced by the 1913 Agreement only because certain provisions gave it an air of illegality. We are unable to discover in the 1907 Agreement a provision absent from the 1913 Agreement, such that a course of action might constitute a violation of the first agreement without constituting a violation of the second. The conclusion is inevitable, particularly in view of the context of Judge Laffey’s letter, that he understood the 1907 Agreement to mask a territorial understanding, and that the 1913 Agreement was to be interpreted in accord with the earlier understanding. Any doubts on this score would seem to be dispelled by Judge Laffey’s further statement that it was “well understood by both parties that there was no legal obligation under the Sherman Law to compete and that even natural competitors in the same territory might as a voluntary policy refrain from competition” (Ex. 39, p. 213). Under the circumstances, such a mutual understanding can be viewed only as a euphemistic description of an agreement not to compete.

•There is no record of any reply to Judge Laffey’s letter. Notwithstanding his comments, which made clear the basic ambiguity in duPont’s position as set forth by Haskell, the Haskell letter was transmitted. Subsequent documents add little to the picture, looking forward to the resolution of the dispute after discussions held on the highest levels.

No record of these discussions was maintained other than the minute wherein Nobel suddenly appeared to acquiesce in the supposed duPont view. The matter was recognized to be of such fundamental importance that it could not be resolved either by correspondence or by discussion among subordinates (Ex. 42, p. 223). Its resolution was deferred pending the convenient assemblage of the higher officials of the two companies. It is inconceivable that the memorandum of agreement (Ex. 48, p. 251) had not been preceded by detailed discussions over the history and operation of the agreement. During their long association other discussions and negotiations were recorded with meticulous care. If duPont genuinely rejected the territorial theory,

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and if it brought ICI over to its view, it is difficult to understand why no records of these particular discussions were preserved. This gap in the records becomes particularly important in the light of the fact that Nobel, after formally acquiescing in the duPont view, continued to regard the agreement as a camouflage (Ex. 179, p. 824).

We are unable to accept at face value the document in which Nobel apparently acquiesced in the duPont construction of the agreement (Ex. 48), nor do we regard duPont’s continued sales of such military explosives as decisive of the non-existence of territorial restriction. The basic facts are at least equally consistent with another view, namely, that the real disagreement arose out of an effort by duPont to modify the territorial arrangement.

It should be noted that the disagreement involved solely military explosives. DuPont was under pressure from the government to maintain in operation their military facilities. Moreover, their military commodity was not in direct competition with the Nobel military product. The main European market for their product was one previously serviced by Germany, and where Nobel had made no sales of note. In urging duPont’s right to sell, Judge Laffey certainly regarded these considerations as the decisive ones. Haskell was, at best, ambiguous as to the ultimate basis of his position under circumstances in which ambiguity can only be considered unfavorably to the defendants. The mere fact of duPont’s continued sales of military products to Europe is as consistent with the existence of an underlying territorial arrangement as with its nonexistence. We are persuaded that the military explosives dispute, far from disclosing the abandonment of a territorial arrangement, serves only to confirm its continued vitality.

Any substantial doubt on this score would seem to be resolved by an arrangement into which the parties entered during November, 1925 (Ex. 51) and which they made public in 1926. This agreement was the first of four related to military explosives on the European continent. Here, we confine our interest to the first of these -arrangements solely for the light it sheds on the Patents and Processes Agreement of 1920. In substance, the arrangement provided that “duPont was to have the priority on nitro-cellulose powder business, and that Nobel Industries would have the priority on T.N.T. and nitroglycerine powders” (Ex. 51, p. 259). Nobel was also to limit its sales of nitro-cellulose powder to three hundred tons a year.

Apparently, after duPont secured Nobel’s consent to its sale of military powders in Europe, some competition had developed between the two. The nature of this competition is not detailed in the documents, but, at least, in part, it followed Nobel’s apparent entrance into the nitro-cellulose field. It is not, however, a permissible inference from the fact of this competition that duPont had previously insisted on its right to sell military explosives to Europe irrespective of competition with Nobel. In fact, a key argument in the duPont position had been that at that time little or no competition would follow from its entry into the European military explosive field.

That the agreement here described was illegal, if within the jurisdiction of the, Sherman Act, can scarcely be questioned. It is apparent that the parties then thought that the agreement was not within the jurisdiction of the Act, and that they were free to embody in writing their real understanding. This jurisdictional question does not presently concern us, for we are now interested in that agreement solely to the extent that it illuminates the preceding dispute.

The fundamental fact is that after a prolonged dispute involving military explosives, the parties entered into an agreement to divide the European market between themselves. Originally, Nobel had contended that duPont was foreclosed from the European market and duPont had claimed the contrary, but ultimately, both parties agreed upon a division of that market between themselves. This development adds still greater weight to the position that the earlier dispute in fact involved only a disagreement as to the nature of the territorial arrangement and not as to the fact of a territorial arrangement. It is contended by the defendants that this latest agreement, sue

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ceeding by a year and a half the “termination” of the previous dispute, was quite unrelated to it. But it is significant to note that at the very inception of the prior controversy, Carpenter, for duPont, had suggested as a possible and desirable solution that the nitro-cellulose business be reserved to duPont and the cordite to Nobel (Ex. 34, p. 189). In connection with this, note must be taken of a still later expression of the duPont view after the acceptance .of special European arrangements for military explosives. A minute of a duPont Foreign Relations Committee conference, held February 7, 1928,, reports as follows: “The above should not be taken to mean that Nobels are dissatisfied with the present arrangement; as they have done very well on their T.N.T. sales. They seem to have accepted our position of being in Europe; i. e., that the business we are enjoying formerly belonged to the Germans and that we have as much right to it as they have” (Ex. 60, p. 302).

The conclusion is difficult to avoid that the entire “controversy” indicated, not the non-existence of a territorial arrangement, but a dispute against the background of altered trade conditions as to an appropriate division of the European military explosives market.

3. Expansion of Conspiracy to Embrace DAG

During 1924-1926, various discussions took place between duPont, ICI and various German companies headed by DAG. In part these discussions concerned plans for the elimination of competition between the companies in South and Central America; this phase will be considered later. To the extent that they involved patents and processes agreements, consideration is presently appropriate. The result of these discussions were the following agreements entered into in 1926:

(1) A patents and processes agreement was drawn up between duPont and DAG, which followed the now familiar pattern, with DAG receiving as its exclusive license territory the following area carved out of the previous ICI exclusive license area: Germany, Holland, Poland, -Austria, Denmark, and Bulgaria (Ex. 85, pp. 424 — 427). Due to objections from DAG, this agreement was never signed (Ex. 98; Ex. 634). The Government claims that it was nevertheless carried out; duPont denies this, and insists that whatever exchanges of licenses took place were worked out separate and apart from this agreement. We deem it unnecessary to decide this question.

(2) DuPont and ICI entered into a new patents and processes agreement replacing the earlier 1920 Agreement and embracing substantially the same products (Ex. 97, p. 499). Only two changes from the earlier agreement are of note. Military explosives were not included and the territory assigned to DAG under the separate agreement was excised from ICI territory. Otherwise the 1926 Agreement was substantially the same as the one in 1920. •

(3) ICI and DAG entered into a patents and processes and trade abstention agreement (Ex. 96, p. 480). The exclusive license territories under the patents and processes agreement were identical with the territories set off for each other in the trade abstention part of the agreement. The territories set apart for the German company included those countries assigned as German exclusive territory under the duPont-DAG agreement (Ex. 85), and several' others.

DuPont was well aware that ICI and DAG were interested in achieving agreement, and indeed did achieve agreement,, dividing trade areas between themselves.. More precisely duPont was aware that this, division of territory pertained to the subject matter of its patents and processes agreement with ICI and that the territory in question was that assigned under its-earlier agreement to ICI. Not only wasduPont aware of this, but it entered into-separate agreements with DAG and ICI in which the exclusive license territories assigned these companies dovetailed neatly with, and was obviously planned to dovetail with, the territorial division which the-latter companies had entered upon between themselves. Together with these circumstances, it must be noted (and this will receive more ample comment later) that duPont joined with both companies in ar

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rangements looking forward to the elimination of competition in South and Central America — arrangements which involved only exports and were therefore probably believed by duPont to be outside the purview of the Sherman Act.

On the one hand, then, we find a network of agreements, into some of which duPont openly entered, looking forward to the elimination of competition. On the other hand, precisely at the point beyond which it was believed the jurisdiction of the Sherman Act extended, we have patents and processes agreements — which the parties now urge were solely concerned with the exchange of technology. And we find these latter agreements, allegedly motivated solely by technological considerations, fit with miraculous neatness into the general pattern of territorial arrangements. We are unable to accept the proposition that this happy harmony was the result of sheer coincidence. This pattern of arrangements furnishes proof that the patents and processes agreements represented, in major part, an effort to camouflage an illegal trading arrangement under an appearance of legality.

We have found that the agreements, heretofore examined, primarily involving explosives, reflect an underlying conspiracy between the defendants duPont and ICI to divide markets between them. The 1907 patents and processes agreement, the first real utilization of that device, was an attempt to effectuate the purposes of the illegal 1897 Agreement, under the color of legality provided by its patent features. The cancellation of that agreement, and its replacement by more carefully drawn patents and processes provisions, in no way altered the underlying motivations of the earlier agreements.

4. The Addition of Products to the “Explosive Agreements”

DuPont and ICI, originally commenced as explosives companies, expanded the scope of their operations over a period of time, particularly during 1920-1929, until they became great chemical combines, producing large varieties of chemical products. Both the 1920 and 1926 agreements provided that new products might be added to the agreement by mutual consent. This was done with respect to a number of products (Ex. 37, pp. 205, 206). These additions simply relate to the number of products within the patents and processes agreement and do not help to define the nature of the agreements.

With respect to other products, also not within the scope of the original agreements, arrangements other than mere exchanges of licenses were undertaken. In accordance with its contention that the patents and processes agreements masked a territorial division, the Government insists that these other products were brought within the scope of the conspiracy to divide markets. In form these other arrangements, relating to the exclusive territories, were similar to the devices employed in the non-exclusive territories, and we shall consider them in connection with our discussion of the jointly-owned companies.

B. The 1929 and 1939 Agreements

With the growth of duPont and ICI the desirability of expanding their patents and processes arrangements to embrace the numerous new products became apparent. The agreements we are about to consider represent the fruits of this determination.

It must be remembered that the patents and processes agreements did, according to their terms, involve a division of territories; that is not disputed. It is the contention of the defendants, however, that this division of territories is a mere byproduct of a legitimate exploitation of valid patent and secret invention monopolies. With respect to this, it, is clear that the parties were not primarily interested in exploiting their monopolies in order to get royalties. As set forth in the 1929 Agreement, and amplified in argument, the defendants claim that they entered into these arrangements with the purpose of securing for themselves the benefits of an exchange of technology.

The query then, is whether the agreements were entered into with a view to dividing territories, or to securing the benefit of technology; or, if both motives were present, whether the unlawful motive

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was a material consideration. The imposition of territorial division was not necessary to achieve the benefits of an exchange of technology. The same benefits could be equally well achieved without any territorial allocation.

It is argued in justification for the assignment of territories that the parties deemed exclusive license territories necessary so that they would not be faced with competition utilizing their own inventions. Let us see how this worked out under the terms of the patents and processes agreements. Until 1934, every licensing of a patent or invention had a dual aspect: the licensee could not utilize the invention in the territory of the licensor, and to that extent the contention has support; but, on the other hand, 'the licensor could not utilize his own invention' in the licensee’s territory. This territorial restriction, included in every patents and processes agreement until 1934, cannot be explained by the need to 'protect a party .against the adverse use of its own technology. Unless this .territorial restriction can be otherwise satisfactorily explained, it opens to the severest scrutiny the authenticity of the entire technological justification for these agreements.

Similarly, it may be noted that the patents and processes agreements provided for nonexclusive licenses in areas other than those set up as exclusive. In those areas the parties were willing to permit their technology to be used against themselves. .Oddly enough, the non-exclusive areas, as the duPont documents themselves emphasize, were areas in which the conditions for effective competition between the parties existed to a far greater extent than in the exclusive territories, and in which licensed technologies could be more effectively used against the licensor. This apparent contradiction, duPont seeks to dispel by the argument that their exclusive market, though less vulnerable, was also more important to promote. While this might be considered satisfactory on the surface, we must observe that the situation it describes is equally susceptible to another’ interpretátion, that pressed by the Government, namely the exclusive territories were considered so important to the respective parties that they sought to protect them, not against adverse use of technology, but against competition.

Nor can we accept the defendant’s explanation that by the territorial restriction in the patents and processes agreements until 1934 upon the licensor with respect to its own inventions in the licensee’s exclusive territory, the parties restricted themselves because they determined that the best way to exploit their inventions was through royalties flowing- from licenses, and that to compete with respect to that territory would simply reduce its royalties value. The decisive inquiry would appear to be whether or not the bulk of inventions licensed had, or were expected to have, any appreciable royalty value. The proof demonstrates that many of the inventions licensed did not have such value, but were nevertheless made the basis for a territorial allocation. The inference necessarily follows that the territorial division was the-real purpose of the arrangement.

The discussions pertaining to extension of the duPont-Nobel relations to the newly formed ICI were initiated in July 1927 when duPont sent to Europe a delegation headed by Lammot duPont. The purpose behind the formation of ICI was to monopolize the British chemical industry; Sir Harry McGowan described it as the first step in a “scheme to rationalize chemical manufacture of the world” (Ex. 122, D-2235 to D-2238). Further steps were to be development of the existing intimate contact with duPont (Ex. D-2236, p. 11504) and arrangements with I. G. Farben and Allied Chemical and Dye Co. of the United States (Ex. 122, pp. 607-608; Ex. D-2236, p. 11504). Earlier in the year, ICI had commenced discussions with I. G. Farben looking forward to

a

“cooperative arrangement” involving the world’s chemical industry. DuPont also separately engaged in conversations with I. G. Farben. While their discussions proceeded independently, ICI and duPont kept each other informed of the ‘ results. In • December, 1927 both came to the conclusion that an agreement could not be reached with I. G. Farben for the time being, and that they

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ought to proceed independently to expand their own patents and processes agreements, leaving I. G. Farben arrangements to the future (Ex. 124; Ex. 125).

The documents dealing with the discussions and negotiations preceding and following the duPont-lCI agreement of 1929 are extremely voluminous and varied. A large variety of products, presenting individual and difficult problems, are involved. A complete and exhaustive recital of all pertinent material would be impractical. We have made an effort to recite and synthesize what we regard as the most significant portions.

1. Negotiation of the 1929 Agreement

a. The Internal duPont Discussions

Preparatory to entering negotiations both parties undertook to ascertain the views of those within their organizations directly familiar with the individual products. With duPont this took the form of meetings of its Foreign Relations Committee with representatives of the separate departments.

On February 6, 1928, a meeting of the Foreign Relations Committee was held (Ex. 179). The chief topic of discussion was Id’s proposed entrance into the plastic field, which duPont urged should be done through the purchase of the British Xylonite Company, if done at all. The duPont Viscoloid Company had dealings with the British Xylonite Company which consisted of “an exchange of technical information without any understanding on.markets whatsoever.” The disadvantages to duPont of the ICI purchase were pointed out; it was felt that “the ICI were not an aggressive research and development concern” and that “if they took over the Xylonite Co. it was likely that we (duPont) would receive less rather than more technical aid than under the present arrangement.” It was also believed that “If an agreement were made with ICI, they would undoubtedly ask for a territorial arrangement” (Ex. 179, p. 823). The real interest of “Viscoloid” in the English market was that it was “the largest export market of the Italian subsidiary companies” and duPont opposition to withdrawal from England was recorded because “such withdrawal would not be of benefit to the ICI as the business would be taken by the Germans”' (Ex. 179, p. 823). The minutes then note that

“ * * * In this connection the question of our withdrawing from English and European markets whenever we competed with I.C.I. was discussed, and the precedents of military powders and Fabrikoid were mentioned.

“The question as to DuPont’s attitude if I.C.I. should put this subject on a broad basis, and ask for an exchange of information on all subjects was then discussed. Mr. Crane thought that the Brunner-Mond crowd wanted such an agreement but he thought that a Patents and Processes agreement had meant and still meant to Sir Harry McGowan and his associates a camouflage to cover a division of territory. Our attitude continues to be that such an agreement means exactly what it says. It was agreed that from the broad company standpoint it is desirable that1 we act as friendly advisors, but that if the Patents and Processes agreement were extended it should not carry any implication of limitation of territory on non-patented products” (Ex. 179, pp. 823, 824).

A further meeting of the committee was held the next day; the agenda included discussion of the extension of the patents and processes agreement, and the competitive situation existing in Great Britain between a duPont subsidiary, National Ammonia Company, and an ICI subsidiary,, the Standard Anhydrous Ammonia Company.

It is reported that “Mr. Crane stated that * * * ICI has intimated that the National Ammonia -Company should cease selling in England. The point of view of the latter company is that they should continue in competition to maintain a trading position, i. e,, that they would be willing to withdraw on some such basis as money compensation or an understanding whereby Standard would agree not to compete-with the National Company’s Canadian-subsidiary” (Ex. 180, p. 826). .

Further, it was noted that the “real basis-of discussion with ICI is the extension

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of the Patents and Processes Agreement. If this is brought up, we can discuss withdrawing from selling anhydrous in England on terms; if it is not, then there is no basis for discussing the point of withdrawal at all” (Ex. 180, p. 827).

It is clear that ICI’s interest in withdrawals was strictly to eliminate competition and that the officials of the subsidiaries were entirely willing to negotiate a territorial division; the subsequent reference to the patents and processes agreement as the only basis of withdrawal illuminates the way in which that agreement was viewed by both duPont and ICI. The significance of this is not altered by the statement that both parties might profit technologically, or that the future of the duPont Company in England was insecure.

On February 14, 1928, another meeting discussed the proposed extension of the patents and processes agreement with reference to paint, lacquer and chemical technology. A duPont official pointed out that through Nobel Chemical Finishes, Ltd. all products of the Paint, Varnish and Lead and Chemical products division were already covered.

Later it was recorded that “Mr. Crane asked why we withdrew from England on Fabrikoid without compensation. This was done because the President felt it was right from a broad company standpoint, and also it was found that we had been bad price cutters and were disturbing the market. All agreed that they should not be considered a precedent for future withdrawals” (Ex. 181, p. 830).

The insincerity of this duPont resolution to leave behind their evil ways is plain; there was never a firm purpose of amendment; these were but empty words and not the precursor of a new and different duPont-ICI era.

Of particular interest is the record of another meeting of the duPont Foreign Relations Committee called to discuss the extension of the patents and processes agreement to dyestuffs (Ex. 182) ; this, as well as other documents bearing on dyestuffs, must be read in the light of defendants’ claim that acquisition of I. G. Farben technology was a major factor inducing duPont to enter into these arrangements.

It is recorded that

“As a background Mr. Harrington reviewed the situation with I. G. Farben. The ideal situation is to be let alone:

“1. The Germans to refrain from making any large investments in this country.

“2.

Competition with the Germans in present export markets — We are perfectly willing not to open any new offices.

“3. Germans to cease an attempt to break down our tariff.

“4. Patents and Processes Agreement with I.G. would be very advantageous. This is of little interest to the Germans as they are seeking a market for their product, and not for their processes. An alternative but less desirable arrangement would be the formation of an American partnership with the I.G., although any consideration of this must be on the basis of complete control by duPont Company” (Ex. 182, pp. 832, 833).

DuPont’s primary concern with respect to I. G. Farben and dyestuffs was to eliminate their competition. The entire program was in elaboration of the statement of “the ideal situation,” which was “to be let alone.” Three of the points involve restriction on competition, two of them in American markets, and one of them in export markets. While a patents and processes arrangement would be desirable, it was apparently precluded by I. G.’s refusal to abstain from American markets. The possibility of acquiring I. G.’s eminently desirable technology without imposing territorial abstention did not even occur to duPont!

The alternative to the first program — an American partnership with I. G. — was obviously set forth as a device to eliminate competition in the American market.

The minutes then report consideration of an arrangement with ICI and note the following stumbling blocks:

“1. Any real international understanding must include the I.G. and we should not make commitments with the ICI that might preclude future conversation leading to an understanding with them. * * *

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“2.

Territorial Limitations: if such an understanding becomes impossible and it becomes necessary for us to fight the I.G. in their export markets due to an increase in their aggressiveness in this country, we must have a free hand. The ICI would undoubtedly ask for the British Empire, possibly recognizing our market in Canada. It is extremely doubtful whether we should sacrifice our rights to sell in India, this being one oí I.G.’s most important markets” (Ex. 182, p. 833).

This still further demonstrates the complete trade psychology which dominated duPont’s view of the I.G. dyestuff problem. Continuation and intensification of the duPont dyestuffs business in India was viewed solely as a technique to force I.G. to a territorial arrangement. But if that was duPont’s controlling consideration with respect to I.G. concerning dyestuffs — • what then can we think about their understanding of the ICI relationship? (See Ex. 184.)

Another meeting was held February 18, 1928 to discuss matters to be taken up with ICI (Ex. 185). It was noted at this meeting held in Lammot duPont’s office on February 18, 1928, that “Any extension would probably be based on N.A. (excluding Canada) as exclusive territory for duPont, as against British Empire as exclusive territory for ICI. Mr. Lammot duPont questioned the eventual lairness of this decision, suggesting that S.A. should also be included in duPont territory. It was recognized, however, that ICI could fairly point to a large number of industries in which the United States was half the world’s market (Ex. 185, pp. 851, 852).

This last comment is of considerable significance. Both parts of the defendants’ explanation for the use of exclusive territories — self-protection against adverse use of technology and the superiority of licensing where competitive possibilities are limited — hinge upon the concept that there were territories in which one party had strong competitive advantages and other territories where the other party enjoyed such advantages. These quoted paragraphs indicate that a significant factor in determining exclusive territories was to divide trade evenly between the parties. The vitality of such a consideration is inconsistent with the claims asserted, and lends further support to the view that they regarded the patents and processes agreement as a camouflage for a territorial division.

Immediately following this revealing quotation, the minutes of the meeting of February 18, 1928 continued: “The implications of a Patents and Processes agreement should be included in the Minutes. It means exactly what it says and is not a camouflage for a sales arrangement” (Ex. 185, p. 852).

The weight to he accorded such declarations has been previously discussed. To us, it reads as an expression of a consciousness of guilt of wrongdoing, a protestation of innocence in the absence of an accusation, an attempt to create an explanation or defense prior to detection.

Preliminary meetings were then held at Wilmington in March, 1928, attended by duPont executives and an ICI delegation headed by Sir Harry McGowan. With respect to the extension of the patents and processes agreement certain complicating factors were pointed out: the I. G. situation ; ICI’s stock interest in Allied Chemical and desire to maintain friendly relations with them in various world markets; Id’s relation with Newport Chemical Company, which “would of necessity cause duPont’s information to be passed along to Newport.” In response to a query by Sir Harry McGowan as to the possibility of getting together to form a tri-partite agreement with Allied Chemical, duPont was of the opinion that “any agreement between A.C. D. and duPont would cause so much hostile criticism as to preclude the subject from consideration” (Ex. 186, p. 861).

b. The Internal ICI Discussions

Like duPont, ICI also held preparatory internal discussions. Letters were sent to the various ICI product groups (Ex. 194). It was pointed out that: “The existing agreement in effect gave (1) North America (excluding Canada) to duPonts; (2) British Empire to Nobels, and (3) The remainder of the world is common” (Ex. 194, p. 896).

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The new agreement was to be explored preliminarily on the basis of the same general demarcation. To get a clear picture, answers were sought to the following questions:

“(1) What agreements have ICI or the subsidiaries with concerns in U.S.A. or elsewhere which might cut across any extended arrangement with duPonts ?

“(2) What in effect are the provisions of such arrangements?

“(3) Where, if at all, are duPonts competing with us in the British Empire?

“(4) Is any such competition serious? In. other words, can a view be taken on the probability of duPont’s agreeing readily- to withdraw from any such British markets?

“(5) In what countries under (3) i.e., 'the remainder of the world’ can ICI claim to have all, or a large share of the market ? In other words, to which countries do ICI attach importance?

“(6) Can a view be taken of the countries in (3) to which duPonts are likely to attach importance?

“Replies to these queries are only desired in general terms. If the relatively simple markets can be eliminated, it may be necessary to go into specific situations in detail.

. “It is only proposed at this stage to as'k one question -affecting the technical situation, viz:—

“In what technical fields can ICI claim to be ahead of duPonts? In other words, where are we likely to have more to give -than to get?” (Ex. 194, pp. 897-98).

These letters initiating ICI preparation for the .negotiations with duPont placed primary emphasis on the commercial situation. It is possible that this arose from a belief in the importance of such considerations in working out an effective, legitimate patents and processes agreement, but the whole approach of the letter suggests the contrary. The evidence substantially confirms the territorial view as representing ICI’s dominant attitude.

The responses to this ICI letter from their department héáds reflect the belief of ICI that it had considerable information of great value to give duPont. To that extent, they rebut the Government’s contention that ICI’s technology was so far behind that duPont could not possibly have been genuinely interested in its acquisition. Note should be taken, however, of various comments in the answering letters which disclose an interesting pattern.

In the response of the British Leather Cloth Manufacturing Co., Ltd. (The British Pluvium Co. Limited), it is reported that duPont is competing in South America, but that the competition is not serious, and it is not “desirable that duPonts should withdraw from this market at this stage.” A list of countries in which ICI has a large share of the trade is appended and it is indicated that duPont would attach importance to the trade in five countries, all of which are on the ICI list (Ex. 195). Another letter disclosed that ICI’s leatherclo-th business in -the United States, “ * * * is -comparatively small and that any question of ICI withdrawing from that market would not -be one of major importance. You will appreciate, of course, that nothing will be given away without some quid pro quo, although in comparatively minor issues the quid pro quo might be obtained in some general sense or affecting another industry in ICI” (Ex. 196, p. 903).

It was pointed out in an ICI memorandum of February 8, 1929, that,

“ * * * in actual trading there are many modifications to the general statement that the remainder of the world is common.

“We have in mind such arrangements as apply in the case of China and Japan, whereby the Americans quote considerable higher prices than ours, if called upon to do so, thereby in effect giving us protection in these markets also. We merely cite this as an example but our point is that the Patent and Processes Agreement is generally looked upon as a guide in the matter of trading and that in any revision of the agreement care should be taken to safeguard the position from a trading point of view. This may even have to be done in a manner verbally but it is necessary to keep it in mind. A general statement to

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the effect that the position applying at present in regard to high explosives would also apply in the future ought to be sufficient as our American friends do not like to put things too concretely in writing in view of the Anti-trust regulation in the States” (Ex. 201, pp. 917-18).

•c. The Joint duPont — ICI Discussions

It was finally determined in October, 1928, at a meeting of the duPont Foreign Relations Committee that duPont should approve of extending its agreement with ICI to cover products other than explosives, “provided suitable territorial arrangements can be made” (Ex. 190, p. 888). Dr. Fin Sparre, with Mr. John K. Jenney as his secretary, was designated the duPont negotiator; ICI named Messrs. 'George W. White and Francis Walker (Ex. 191; Ex. 192). Later, at a duPont meeting, it was resolved that the existing Explosives Patents and Processes Agreement between duPont and ICI should be suggested to the negotiating committee as a form for the new agreement, ‘.‘it probably being the only legal method of effecting the purpose of the two companies” (Ex. 205, p. 927).

With this background, the patents and processes negotiations took place in two sections: first, preliminary conferences

in New York, and then later conferences in London. It is our purpose here to determine what light these discussions cast upon the intent of the parties.

At the first meeting held at Wilmington on March 4, 1929 of the “sub-committee” appointed by duPont and ICI to consider the extension of the patents and processes agreements, a dispute arose concerning the basic territorial allotments. It was recorded that:

“I.C.I. raised the broad principle that its logical markets were its export markets, while duPont’s logical market was the United States. They therefore suggested that duPont’s exclusive territory be North America (except Canada), that South America be non-exclusive, and the rest of the world exclusive territory for I.C.I.

“Dr. Sparre replied that duPonts could never accept this principle. It was his contention that the size and competitive situation in the United States market could not be considered as an argument against duPont’s equity in other markets. He also pointed out that duPont had an international position which had cost considerable time and expense to. build up, and that duPont would never accept the principle that it must confine itself to the American hemisphere” (Ex. 205, p. 932).

Finally, it was “ * * * decided to carry on discussions from the standpoint of recognizing United States as duPont’s exclusive territory (duPont representatives entered the reservation that they considered North America exclusive of Canada as being the proper division), against the British Empire (exclusive of Canada) as exclusive I.C.I. territory, the rest of the world to be non-exclusive. It is recognized that on individual products, exclusive territories will' not be necessarily confined to these territories” (Ex. 205, p. 932).

Dr. Sparre’s statement that duPont would not confine itself to the American hemisphere is interesting in its revelation of a fact made clear throughout the record, namely, that the parties recognized that the assignment of a territory as exclusive to one party meant the elimination of the other party from that territory.

The minutes further record that “The British Empire being I.C.I. territory, duPont would expect to withdraw when I.C.I. is prepared to take over its business. Proper compensation will be arranged by the Heads of Industries concerned” (Ex. 205, p. 933).

The reference to withdrawal, unqualified by any allusion to the granting of licenses, in terms seems to disclose a territorial understanding. The defendants insist, however, that patents and processes licenses were an unstated but generally accepted qualification of such language. Since substantially similar language was used in the London Draft of the Agreement, and the same difference of interpretation there arises, this question can be best examined in that context.

Two observations, however, may be presently made: (1) even if licenses were in the minds of the parties, it is clear that

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they understood the agreement to entail withdrawal from present business in the other’s exclusive territory, and to preclude future or potential business therein; 'and (2) it seems plain that by arrangement for proper compensation, the parties had in mind payment for withdrawal from business rather than payment for the value of patents. If in fact consideration was to be paid for the value of surrendered business, independently of payment for the value of technology, the inference is strong that the primary concern of the parties was to divide territories, and not to exchange patent technology.

At a second meeting of'the Committee held the following day, “It was decided to proceed in discussions along the lines of attempting to reduce neutral territory to a minimum. A list of the interests and commitments of both parties in this connection as far as the members of the subcommittee had knowledge, was submitted” (Ex. 206, p. 934).

At this meeting, the first of a series of discussions concerning provisions for particular products was held.

With respect to coated textiles, it was reported that: “DuPont has a certain export business in the British Empire * * *, from which it might withdraw, at such time as I Cl could supply, for suitable territorial compensation elsewhere” (Ex. 206, p. 935).

Assuming that the withdrawal was envisaged as occurring only upon licensing of inventions, it is difficult to relate the projected transaction to any legitimate patents and processes agreement purpose. The business in question must be assumed to have been profitable, else there would seem no reason why withdrawal should be conditioned upon territorial compensation. Thus, the parties here, as elsewhere throughout their relationship, contemplated the direct elimination of competition between themselves; and that fact ¡has significance independent of the actual intent of the parties. But, in addition, the proposed exchange cannot fit into the defendants’ rationale for’ assigning exclusive territories.

That rationale assumes that there were territories wherein one party had natural economic advantages and that these territories should be assigned to the preferred party as exclusive license territories for the reasons: (1) that party should not be required to permit its technology to be used adversely in their main markets; and (2) the parties preferred to forego their individual right to exploit their own invention where the competitive possibilities were limited in exchange for the right to exploit the other party’s technology in its own territories. Assuming that the British Empire was properly deemed the exclusive territory of I Cl, and so deemed even with respect to products made the basis for a profitable business therein by duPont, the question arises how the surrendered business can be made the basis for assignment of additional territories to duPont. The assignment of .territory as exclusive to one party simply to compensate it for a prospective loss of business is difficult to reconcile with the needs of a legitimate technological agreement. Such a territorial assignment, however, does fit into the pattern of a commercial tinder-standing. The approach here disclosed,, echoed throughout the record of negotiations, strongly supports the conclusion that’ at least one major objective of the patents, and processes agreement was to eliminate, competition.

A major topic of discussion throughout: the negotiations, and one to be read in the-context of the preceding consideration, was-also alluded to in the following language:: “DuPont would agree to withdraw from India when ICI was in a position to supply duPont trade there and upon suitable compensation” (Ex. 206, p. 937).

Note should also be taken of the immediately following comment.

“It was agreed that it would not be desirable for either party to withdraw from. China or Japan, but that the two parties, could gain material advantages by close collaboration. Mr. White suggested the feasibility of DuPonts considering the I.C.I.. Trading Companies in those countries for-their. agents” (Ex. 206, p>. 937).

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A territorial agreement was reached with respect to exclusive and non-exclusive areas. The dominant consideration underlying the assignment of exclusive areas was stated as follows: “ * * * it is recognized that for most efficient operations, licenses and rights under this agreement should be exclusive in areas having close relationships with the home country of each company” (Ex. 208, p. 949).

With respect to non-exclusive areas, the following was tentatively agreed upon: “(5) For the same existing operations in which both companies are engaged, nonexclusive licenses will be granted by one company to the other for all other countries not in exclusive territory, but it shall be the duty of the heads of each industry of each company to endeavor to formulate mutually acceptable plans for either joint operations or further extension of exclusive rights under patents and processes to the end that the maximum value of such patents and processes be realized” (Ex. 208, p. 950).

The reference to joint operations is omitted from the final agreement; whether or not the jointly owned companies subsequently effectuated the above understanding remains open for later inquiry.

Certain it is that the parties were not happy to have much of the world embraced in the non-exclusive license area.

“It is recognized that the granting of non-exclusive licenses to each other in large and important countries must lead to some conflicting developments and lessen the efficiency in operation and value of processes. * * * It is therefore necessary to devise means whereby to reduce to comparative unimportance conflicts or inefficiency caused by mutual non-exclusive licenses. Therefore, * * * it is further agreed to extend the countries of exclusive licenses as follows:

“(A) Explosives — this industry to follow the present explosives patents and processes agreement.

“ (B) All other products and industries to be examined in detail in order to propose extensions of the exclusive license countries so that the exclusive territory of each company will comprise countries in addition to those designated in Section

4” (Ex. 208,

pp. 951, 952).

A subsequent duPont letter indicates that discussion of the proposed extensions could not be entered into during the early part of the negotiations because ICI did not have the commercial information necessary for its discussion at that time (Ex. 209, p. 956).

We find of considerable interest a letter written at this time to Dr. Sparre, duPont’s Chief negotiator, by E. G. Robinson, Ass’t General Manager of the duPont Dyestuff’s department. The opinion is there expressed that “As far as dyes and intermediates are concerned, we are very definitely of the opinion that the information which we could furnish them would be of very much greater value than that which we could expect to receive” (Ex. 210, p. 962).

This statement is particularly

interesting

in light of duPont’s claim that a primary objective of the agreement was the acquisition of dyestuffs technology. However, defendants point out that the ICI dyestuff’s people had expressed the contrary view (Ex. 200, p. 916), and suggest that the

Robinson statement ■was in the

nature of puffing. Moreover, Robinson himself goes on to indicate that a pooling of technology would be of benefit.

The most interesting comment in the Robinson letter ‘ is the following: “In the case of the original Patents and Processes Agreement applying to

the

explosives Department, it is our belief that the arrangement was attractive and continues to be attractive because of the extent to which an allocation of territory between duPont and ICI, can be made effective, due to the absence of other important competitors. In the case of dyes and intermediates, because of the great importance of the Germans in this field, any agreement which can be reached between I.C.I. and ourselves as to allocation of world territory, is of much less significance” (Ex. 210, p. 962).

The presence or absence of important competitors would seem quite clearly to be immaterial if the objective of the agree-, ment was to secure to the parties the benefit of each other’s technology. Patents and processes received under the agreement do not lose their technological utility because

*536

of the existence of a competitor. The existence of outside competition was relevant to the patents and processes agreement only if a principal purpose of that agreement was to eliminate competition between the parties. In that event, the presence of a competitor not subject to the agreement would, of course, reduce to the parties the benefits of eliminating competition

Ínter se.

It is plain that Robinson considered the then existing agreements to be motivated by an effort to eliminate competition, and was objecting to any attempted application of that principle to dyes and intermediates. .

On April 18, 1929, a preliminary draft' agreement was drawn up (Ex. 212, p. 976); many of its provisions embrace points previously considered, but a few of the provisions merit mention.

It was set forth that:

“4.

Such granting of exclusive licenses should be made as each company may become in a position to undertake business in new territory inasmuch as otherwise, one company might lose business which the other company might not be able to secure” (Ex. 212, p. 979).

Putting to one side any question of an underlying purpose to' divide markets, it is made perfectly clear by this statement, as well as by numerous others in the record, that an effect of the proposed agreement was expected to be the elimination of existing competition between the parties.

The draft agreement also declared that in at least two instances duPont was assigned additional exclusive territory in part as compensation for business which was to be surrendered to ICI (Ex. 212, p. 982).

During the London conferences, Dr. Sparre sent to Lammot duPont, who was fully informed of the course of the negotiations, a letter on the progress of the conferences which contained a reference of interest: “Salt Cake has bothered me quite a little bit. Approximately 75,000 tons annually are exported to the U. S. jointly by German and English manufacturers under a pooling arrangement. All the Salt Cake exported to the U. S. is of German manufacture and export, although I.C.I. share in the profit and place their quota in other markets. I think that when it comes to drafting the agreement, good care should be given to this point, but no doubt Mr. Mudge will consider this is a difficult situation to handle, and I do not have a suitable solution to propose at this time”' (Ex. 218, p. 1052).

Dr. Sparre was concerned with the salt cake situation because it involved competition with duPont in the American market, and he was desirous of eliminating that competition. The objective could not be achieved because the product was of German manufacture and export; although the profits were shared by ICI, the patents and processes agreement could not be utilized to effect this purpose. This statement from duPont’s chief negotiator is further proof that the parties considered the patents and processes agreement an instrument for elimination of competition.

A consolidated minute was prepared for meetings occurring May 6, to May 11, 1929. At the outset of the meetings, “Dr. Sparre outlined the legal situation relative to agreements between companies in the United States of America. It was agreed that the agreement must conform to the laws of the United States and for this reason the agreement must take the form of an agreement to purchase and sell exclusive and non-exclusive licenses to patents and secret processes and for that reason the phraseology of the agreement would be left to the duPont Legal Department” (Ex. 219, p. 1059).

• The words “the agreement must take the form of” necessarily implies that the parties were seeking to achieve an objective other than that implicit in. an exchange of technology. The facts and circumstances of the arrangements make it plain that the other objective was a division of territory.

This is followed by: “It is understood that references in these Minutes to ‘territories’ refer to territories in which licenses to patents and secret processes are to be granted'by one party to the other and that such terms as ‘existing business’, ‘trade’, ‘exports’, etc. refer only to such products as are covered by patents or secret processes owned by one party or the other” (Ex. 219, p. 1059).

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Further on it is recorded with respect to coated textiles- that duPont will receive Germany, France and Italy for exclusive territory. However, it was provided that ICI could continue certain business in those countries which it was conducting through agents until such time as duPont could take over the business. This presents still another instance in which one of the parties was to withdraw from a business which it was competitively able to sustain. That this is so is indicated by the further statement that ICI volunteered to give duPont “such detailed information on customers, qualities and prices as would give duPont an opportunity to go after this business” (Ex. 219, p. 1063).

Similar provisions were made with respect to paints and varnishes.

The same minutes also record a continuation of the discussion concerning duPont’s dyestuff business in India: “In view of duPont’s desire to maintain an aggressive sale policy in all important markets as a tactical weapon against the I.G. it was agreed that duPont should continue its ■existing business, in India. DuPonts conceded that India, as part of the British Empire, should be exclusive I.C.I. territory but requested that they be given a non-exclusive trading license until such time as the I.G. situation might be settled, at which time they would withdraw for adequate compensation in money and/or territory” (Ex. 219, p. 1067).

It, thus, is evident that duPont continued to regard its Indian dyestuff business as a tactical trading weapon to be used against I. G. Farben and in the light of previous duPont discussions it is apparent that the weapon was intended to- force I.G. to a territorial arrangement. DuPont’s contemplated withdrawal was to be compensated for, not on the basis of the value of the patents given, but rather on the basis of the value of the business- to- be surrendered. Indeed, the projected withdrawal is no way conditioned upon, or discussed in terms of licenses. Assuming licenses to be implicit in the discussion, it seems perfectly obvious that where business withdrawal is theoretically conditioned upon the granting of exclusive licenses but compensation in fact is based upon the value of the surrendered business the licenses simply constitute a subterfuge for a territorial understanding. Certainly, with respect to the duPonts’ Indian dyestuff business, the underlying arrangement was an illegal territorial one.

A very similar arrangement was noted with respect to rubber chemicals: “Mr. Walker stated duPont should be free to take steps to expand this business until the situation vis-a-vis prior commitments should be cleared up. DuPonts should bear in mind the eventual inclusion of these products under the general agreement, at which time they should expect to withdraw from the British Empire for proper compensation” (Ex. 219, p. 1070).

At the end of the negotiations, the representatives of the two parties drew up a draft agreement, known as the “London Draft” which was to be submitted for final approval and rephrasing to the executives of the two companies (Ex. 221). Considerable controversy arose at the trial with respect to this draft and in particular Section 3(a), which reads:

“While British Possessions in North and Central America and the West Indies as coming within the British Empire is exclusive I.C.I. territory, except Canada, duPont may be in a favorable position to export certain products to these British possessions, and for this purpose, wherever it may be mutually agreed that duPont can advantageously handle such trade it will be free to continue its activities in this British territory. However, such concession to duPonts may be terminated on reasonable notice by I.C.I., whenever the latter is in a position to assume such trade.

“It is recognized that in certain cases exports to the exclusive territory of one company can be handled more advantageously by the other company and may be so permitted by mutual consent for such purpose only, until such permission may be terminated (upon reasonable notice if an established business) by the company having such exclusive right, whenever it may be in a position to assume such business” (Ex. 221, p. 1080).

When granting exclusive licenses the grantee may not be able for some period

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of time to take over the business of the grantor; in such event the grantor will continue its established business until the grantee is in a position to assume the business. However, it was provided that, “In no case under this subsection is there any change intended in territorial rights, 'but each company will enjoy the results of its operations whenever established and permitted under this agreement” (Ex. 221, pi. 1081). ■

In the ultimate agreement prepared by the duPont legal department this provision was re-worded so that territorial withdrawal was conditional upon the granting of exclusive licenses. However, the record makes it clear that both parties regarded the re-wording as working no material alteration in the original arrangement.

The Government explains this on the theory that the London Draft set forth the real understanding between the parties, that this understanding was an illegal territorial one, and that the ultimate agreement, acknowledge by duPont officials to work no real alteration, was merely a camouflage. The defendants position is that the London Draft was a rough understanding in which limitation of withdrawal to licenses was tacitly understood, and that the ultimate arrangement simply made it explicit.

On the facts of the entire record of negotiations between the parties, with its numerous allusions to territorial arrangements inconsistent with the legitimate requirements of a patents and processes agreement, we are convinced that subsection (3) of the London Draft in fact disclosed the essence of the arrangements between the parties, and that these arrangements were and are illegal.

That the London Draft was in terms illegal and that it was necessary to reword the language carefully was appreciated by the duPont officials. The whole tenor of comment by these officials reveals that the revised phraseology of the final agreement worked no substantial change in the business arrangement embodied in the London Draft (Exs. 222, >p. 1093; 223, p. 1095; 224, p. 1101; 225, p. 1102; 231, pp. 1127-8).

There appears only one intimation that the final agreement was to differ substantially from the London Draft (Ex. 228, p. 1120), and that is contradicted by the bulk of comments (Ex. 231, pp. 1127-8; Ex. 232, p. 1149) and was palpably designed for record purposes only. Indeed, duPont regarded itself as “morally bound by the London Draft” (Ex. 232, p. 1149).

The basic theory of the understanding was clearly intimated in a letter from J. K. Jenney, of duPont. Discussing the withdrawal sections of the London Draft, and stating that they would not be embodied in the final agreement, he Went on to point out: “It is obvious that when one company has given the other licenses in that company’s exclusive territory that it becomes more and more difficult for the granting company to carry on business in the territory of the grantee, as the granting company gradually loses its rights to use the various improvements which keep its product abreast of the times. It also follows that it would not be good business practice to maintain agents in these territories who would only be free to sell products not covered by patents or processes. There is no obligation to get out of any territory, although it is obviously necessary from a common sense view point to gradually withdraw from the exclusive territories of the other party” (Ex. 227, p. 1107).

The object of this statement was to make it plain that the final agreement, which would condition withdrawal upon licensing, was in effect the same as the London Draft, which imposed no such limitation. Thus, it was anticipated that the patents and processes agreement would eliminate competition between the parties, not only as to products concerning which licenses had been granted but as to other products as well; in short, that the patents and processes agreement would result in a general withdrawal by the parties from each other’s exclusive territory.

2. The Provisions of the 1929 Agreement ■

Working with the London Draft as a basis, the new patents and processes agree

*539

ment was drawn. It was prepared by the duPont legal department and had its “fullest endorsement” (Ex. 232, p. 1148). When forwarding a copy to the duPont London office on August 7, 1929, Dr. Sparre pointed out that “we have had a great deal of difficulty in preparing this paper in such a

form

that it would be legally correct” and that “some of the paragraphs have been prepared with the utmost care.” He wrote of one comparatively brief paragraph (Art. 3A of the London Draft), “namely II (e) required several days’ discussion and study before it was prepared in its present form.” He urged that “no changes should be proposed even if it is only a word or two unless there is a strong reason for such proposal” for “every sentence and practically every word have been carefully selected in order to produce a legally acceptable document” (Ex. 232, pp. 1150-1151).

Dupont and ICI signed the 1929 agreement, effective July 1, 1929 (Ex. 1 of Complaint). By its terms it was to last for 10 years (Art. XIII). With a few specified exceptions, principally rayon, cellophane and products of the general alkali industry, the agreement covered substantially all of the chemical products made by the two companies. Prior contractual arrangements by either of the two companies were responsible for the exceptions (duPont & ICI Ans. par.-83). Military explosives were also excepted because duPont and ICI had made separate arrangements with respect to such explosives (duPont & ICI ¿Yus. par. 95).

The following products were included in the 1929 Agreement (Art. Ill) :

a. Explosives other than military powders.

b. Compounds of cellulose and its derivatives, including nitrocellulose compounds such as plastics and films, but excluding rayon, cellophane, nitrocellulose explosives, and coated textiles made from cellulose compounds.

c. Coated textile products, including components of those covered under (b).

d. Paints, varnishes, and lacquers, including the cellulose finishes known as “Duco” and “Delco” and similar chemical finishes, and exclusive of synthetic resins and colloiding agents, for use in paints, varnishes and lacquers, and plastics derived from cellulose.

e. Pigments, lakes and colors.

f. Acids, both organic and inorganic, for both the heavy chemical industry and special industries.

g. Chemicals of the general heavy chemical industry, excluding products of the general alkali industry.

h. Dyestuffs, their intermediates, and other organic chemicals, including rubber chemicals.

i. Synthetic ammonia, synthetic alcohol and other products and by-products of the fixed nitrogen industry.

j. Fertilizers.

k. Synthetic products from the hydrogenation of coal and oil.

l.

Insecticides, fungicides and disinfectants. '

m. Alcohols manufactured by either synthetic or fermentation processes other than synthetic alcohol as covered in sub-paragraph

“1”

above.

The 1929 Agreement assigned to duPont for its exclusive license territory North America and Central America, exclusive of Canada, Newfoundland, and British possessions. It assigned to ICI for its exclusive trading territory the British Empire, exclusive of Canada and Newfoundland (Art. II). The agreement provided that each party would, upon request, grant to the other an exclusive license to make use and employ within their respective exclusive territories all patented and secret inventions relating to agreement products, “now or hereinafter during the life of the agreement, owned or controlled by the parties,” and to sell within the respective territories all products containing such invention (Art. II).

The agreement provided that the remainder of the world outside of the exclusively licensed territories would be considered non-exclusive territory, as to which ICI and duPont would exchange non-exclusive licenses.

*540

DuPont and ICI were not free to grant licenses or any other interest in or under patents dr secret inventions relating to agreement products to persons in the nonexclusive territories without first advising the other party of its intention to make such a grant (Art. V).

Although sub-licenses might.be granted to subsidiary corporations by either party subject to the terms of the grant of the license so sub-licensed, no other sub-licenses could foe granted without consent in writing first - obtained from the original licensor (Art. IX). As Dr. Sparre later, on March 13, 1931, pointed out this clause was intended “to make sure that patents and secret processes of either company are not made available to parties beyond control of duPont or ICI and who may use the information for purposes outside of the duPont-ICI agreement, or to the detriment of duPont or ICI” -(Safe 313, p.,1369)..

As was indicated previously, in connection with the London Draft, the agreement also provided that where either of the parties “may' have established,” with respect to certain products, internal trade in or export trade to a country within the exclusive territory of the other party, and the other party was not in a position to utilize the licenses granted to it in any such country for the time being, the licensor might continue its operation therein until given reasonable notice to withdraw from such territory (Art. 11(e)).

To assist duPont in its negotiations, with I. G. Farben, the agreement provided that although India came within ICTs exclusive territory, duPont could continue to- export dyestuffs to India as a temporary measure (Art. 3(h) I).

It was recognized in the 1929 agreement that each party had existing relationships with third parties which might be in conflict with the agreement. Each party agreed that in negotiating for the renewal of any existing relationships it would endeavor to harmonize as fully as possible these relationships with the provisions of the 1929 agreement (Art. X, Exs. 357-362).

It should be noted that the 1929 agreement did not in itself license patents; it defined the territorial limits within which each party might acquire from the other licenses to patents and secret inventions for the designated products and industries (Art. II).

3. The 1934 Amendment to the 1929 Agreement

In 1934 duPont and ICI adopted an amendment to the 1929 Agreement (Ex. 609). Among other things it provided for the cancellation of the. 1926 Agreement concerning industrial explosives and the integration of the subject matter of that agreement into the 1929 Agreement. The amendment also modified the 1929 Agreement by providing that licenses under the patents and processes agreement were riot to prohibit the licensor from exploiting its own inventions in the exclusive territory of .the other.

Unquestionably, this feature of the 1934 Amendment was motivated by legal considerations. In a letter written subsequent to the adoption of the Amendment, L. J„ Greenwood of ICI, on June 18, 1938, quoted from a duPont memorandum on this, change to the following effect: “The courts of this country have expressed the view that cross license agreements between two or more of the dominating members, of an industry violate the anti-trust laws-where any licensor accepts restrictions, ■upon the sale.of products embodying or produced by means of his own inventions”' (Ex. 613, p. 2284).

That the amendment was not intended to work any material change in the relationship of duPont and ICI is apparent from the way in which it was broached to Sir Harry'McGowan in a letter dated November 9, 1934 from Lammot duPont. The latter described the- change as being rather difficult to explain. He stated that

“ * * * we have given very careful consideration to this matter and feel that, it is very important from our point of view that these modifications should be put into effect promptly; but we, of course, have no intention of urging the modifications on you if, for any reason, you feel that the modifications would be detrimental to our heretofore very satisfactory relations.

*541

“Please do not trouble to- give the matter any thought or study until Mr. Pickard arrives, as I feel quite sure his explanation will make the matter entirely clear” (Ex. .607, p. 2269).

Writing several years later, L. J. Greenwood described the change effected by this amendment as “more of a theoretical than a practical one” (Ex. 613, p>. 2285). There is not a scintilla of evidence in the record which discloses the slightest practical change in the affairs of ICI and duPont.

4:

The 1939 Agreement

DuPont asad ICI executed a new agreement effective June 30', 1939 (Ex. 2, attached to complaint), the date of termination of the 1929 Agreement. The 1939 Agreement substantially incorporated the provisions of the 1929 Agreement, with a few alterations introduced principally for anti-trust reasons (Ex. 628, p. 2329; Ex. 629, p. 2339; Ex. 633; Ex. 1371, p. 10984). In addition, it omitted the provisions of Article II (e) of the 1929 Agree,ment, which were no longer deemed necessary, since by that time each party had transferred to the other substantially all the business it previously had in the other’s territory.

Another change introduced in the 1939 Agreement merits more detailed consideration. Under the 1926 Agreement relating to commercial explosives, which had been incorporated by the 1934 Amendment into the 1929 Agreement, ICI was allotted considerably more extensive exclusive territory than was allotted it for other products under the 1929 Agreement. DuPont proposed that this territorial arrangement should he conformed to that

\

prescribed for the other products. _ J,

To secure Id’s acquiescence in the change, “Dr. Sparre assured Lord Melchett that the deletions in question would not in any way affect the commercial arrangements in regard to Explosives which have governed the relations of the two Companies on these matters over the past 35 years. He confirmed that the deletion in question merely referred to the exchange of patents and processes” (Ex. 632, p. 2348).

In a subsequent ICI memorandum Dr. Sparre is recorded as having emphasized that “ * * * with or without the Patents and Processes Agreement it was open to duPonts as and when they cared to depart from the territorial marketing understandings. He most categorically, however, stated that there was no intention to-day on the part of Mr. Yancey and his sales section to depart from existing practice” (Ex. 634, p. 2351).

A minute of a joint duPont-lCI meeting of June 6, 1939 sets forth the understanding of the parties on this score with admirable clarity: “Lord Melchett informed Dr. Finn Sparre that this matter had been discussed very fully with the Group and Committees concerned, and that we had reached the conclusion that, on the clear understanding that the alteration of territory would not affect the commercial policy of the duPont Explosives Division, we agreed that we had no justifiable reason for resisting this amendment, and that we accepted it. Dr. Finn Sparre assured Lord Melchett that there was at present no intention on the part of duPonts of changing their commercial policy in regard to explosives, and if any such question ever arose it would be considered as a matter of high policy by Mr. Lammot duPont and the higher Executive officials” (Ex. 637, p. 2368).

It would be difficult to conceive a more explicit acknowledgment of the existence of a commercial understanding between duPont and ICI than that embodied in these declarations by Dr. Sparre, who was duPont’s chief negotiator of the 1929" Patents and Processes Agreements. His statements expose as a complete travesty duPont’s reiterated denials of the existence of any commercial understanding, as well as their assurances of the bona fide purposes of the patents and processes agreements. They explain the understanding of ICI officials, persisting through the years, that the patents and processes arrangements masked a territorial understanding — an interpretation which resisted numerous formal duPont disavowals.

It is significant that these damaging utterances — explicit and unqualified reports

*542

of statements by a responsible duPont official — are to be found only in the files of ICI. We now appreciate why duPont should have so impressed upon ICI officials the high importance of avoiding in writing anything damaging from an anti-trust point of view that Mr. Mitchell of ICI felt compelled to write: “Subject to human frailty, everything that can be done to .guard the position is being done” (Ex. 428, p. 1790).

Perhaps ICI had thought that “concealment” had been the watchword as a result of the instructions sent on October 20, 1937 to its Central Administration Committee which called attention to “ * * * the importance of taking care that all correspondence and cables despatched to the United States and Canada are so phrased that they do not imply a restrictive agreement or understanding with a North American Company such as contravenes the American or Canadian Anti-Trust Laws” (Ex. 429, p. 1792).

Perhaps, too, ICI felt that members of the Committee had, as requested, no.t only taken “an early opportunity of reminding their staffs of the necessity of careful phraseology in this connection when cabling to or corresponding with any company in North America” (Ex. 429, pp. 1792-1793); but that this had been extended to include internal reports, writings and memoranda. In this, however, they were mistaken.

That duPont files should contain no explicit references to. an understanding which Dr. Sparre describes as having lasted for 35 years is testimony to the vigor of duPont’s efforts at concealment.

5. Operations under the 1929 and 1939 Agreements

a. Elimination of Competition

After the 1929 Agreement was executed, and in accordance with its provisions, both duPont and ICI commenced to make available to each other their individual technologies. Exclusive licenses for inventions relating to the whole area of embraced products were exchanged.

As the terms of the agreement implied, and as both duPont and ICI plainly contemplated, the effect of these licenses was to eliminate competition between the parties in their respective exclusive areas with respect to the included products.

DuPont and ICI have, except for limited exceptions, adhered to the allocation of exclusive markets for the manufacture and sale of chemical products as provided for in their understanding and the agreement of 1929. DuPont turned over to ICI its existing export trade of chemical products to ICI’s exclusive territory when requested to do so by ICI, and thereafter refrained from exporting such chemical products to ICI’s exclusive territory without ICI’s consent (Exs. 292-296, 303-306; Ex. 537, pp. 2014-2015; Exs. 308-311, 314-316, 322-324, 368-370, 441-445, 456-466, 467-514, 1352-1354, 1356). ICI did likewise for duPont’s exclusive territory (Ex. 317; Exs. 515-523; Ex. 524; Ex. 525, p. 1983; Exs. 526-534; Exs. 1341, 1355). ICI recognized that it was under an obligation not to expand in duPont’s territory (Ex. 594, pp. 2217-2218).

Where one party had an established business in the territory of the other, in accordance with Article 11(e), that business was permitted to continue until such time as the party whose exclusive territory it was, could take over the business. But the effect everywhere was the same, elimination of competition between the parties through the exchange of exclusive licenses.*

It is unnecessary to-set forth those transactions in full. Characteristic is the following in a report by a duPont official.

“At the same time, our formerly important business in Great Britain is diminishing; and this we believe is at least partly in consequence of the perfectly natural positive policy on the part of I. C. I. to crowd us out of that market as promptly as they may be able to replace our products with their own” (Ex. 310, pp. 1360, 1361).

As the patents and processes agreement resulted in diminishing existing competition,

a

fortiori, it put an end to possibilities of future competition.

That there did exist genuine potentialities for business expansion in the exclusive territory of the opposite party cannot be successfully disputed. On at least two occasions ICI was desirous of entering into col

*543

laboration with companies intent on serving the American market but because of complications arising out of obligations to license duPont exclusively, the projects were eventually dropped (Exs. 331-339; Exs. 348-356).

In a document substantially devoted to a candid examination of the restrictions imposed by the patents and processes agreement on third party dealing, the duPont Foreign Relations Department reached the following conclusion: “The DuPont-I.C.I. Agreement imposes obligations on DuPont which unquestionably restrict its present and future activities in the British Empire. If these restrictions are considered to be an impediment to DuPont’s progress and not to be counterbalanced by similar restrictions which the Agreement imposes on I.C.I.’s activities in North America (exclusive of Canada and Newfoundland), then it is recommended that the matter be taken up with I.C.I. with a view to changing the Agreement to coincide with our wishes” (Ex. 363, p. 1558).

During the 1929 negotiations, duPont demanded and ICI acceded to a special provision permitting duPont to continue their activities in India “until such time as may be mutually agreed upon by the Chairman of the Boards of Directors of the two companies, from which time duPont’s rights in India will be terminated, compensation to be paid to duPont acceptable to both parties” (Ex. 221, p. 1085). The original motivation for this insistence was duPont’s desire to use this Indian trade as a weapon to force I. G. Farben to' a commercial understanding.

By May 18, 1931, Dr. Sparre of duPont concluded that “the reason for making duPont’s dyestuffs business in India an exception to the general terms of the ICIduPont agreement no longer” existed and that duPont was “ob’igated to turn this business over to ICI” (Ex. 596, p. 2228). At the same time it was arranged that ICI would withdraw from the selling of dyestuffs in the United States and that ICI would transfer to duPont ownership of Dyestuffs Corporation of America which had been operated as ICI’s selling company for dyestuffs in the United States. This was done by agreement between ICI and duPont dated September 15, 1931 (Ex. 598). Payment of compensation was provided in the agreement for both these transfers.

It should be noted in connection with this 'agreement that duPont promised to continue to supply to ICI, at prices to be mutually agreed upon, “such of duPont’s special types of dyestuffs and related products as have been heretofore sold by duPont in the Empire of India,” and ICI made a similar pledge with respect to its sales to the Dyestuffs Corporation (Ex. 598, p. 2235). Thus, ICI and duPont were surrendering business in each other’s exclusive license territory which the other party was in no position to take over. It should be noted also that this transaction was in no way dependent upon the existence of exclusive licenses.

In the Patents and Processes Agreement of 1929, duPont’s projected withdrawal from India was, in part, made contingent upon the assignment to ICI of exclusive licenses (Art. 111(h) (1)). DuP'ont’s actual withdrawal, obviously regarded as pursuant to the 1929 Agreement (Ex. 596, p. 2228; Ex. 599, p. 2244), had nothing whatever to do with exclusive licenses. It follows, therefore, that the surrender by duPont of its Indian dyestuffs export business to ICI and duPont’s acquisition of the Dyestuff’s Corporation of America, can be explained only as part of an overall plan to divide world markets. These surrenders occurred solely because there existed a basic arrangement under which the British Empire was ICI’s exclusive trading territory, and the United States was part of duPont’s exclusive territory.

We later will consider- the effect of the 1929 Agreement on the duPont investments in NCF and LPL.

b. The Evaluations.

During the negotiations for the 1929 Agreement, ICI had objected to, and duPont had insisted upon, the inclusion of a provision for compensation for the licenses exchanged (Art. 11(g)). The respective positions of the two parties were aptly pointed out in a letter to Lammot

*544

•duPont from J. K. Jenney, Secretary of the duPont Foreign Relations Committee, as follows:

“You reported that Sir Harry McGowan had stated that ICI objected to the clauses of the proposed Patents & Processes Agreement which provide that patents and secret processes should be sold by one party to the other for compensation because it had been agreed that the contributions of the two parties should be roughly equal over a period of years, and that the idea of compensation would prevent Department Heads from full cooperation, particularly in the early stages of the development of an invention because they would desire to hold back until the development had taken such shape that it could be offered for sale.

“Mr. Mudge stated that while an agreement involving a full and free interchange of all secret processes and patents and also providing for exclusive territories might not be illegal, if the agreement should ever be scrutinized by the Courts the presumption would be that the agreement was for a division of markets leaving the burden of proving the contrary on our side. In its present' form the agreement, in Mr. Mudge’s opinion, is legal and leaves the burden of proof on the Government” (Ex. 565, pp. 2130, 2131).

The opinion of Sir Harry McGowan, quoted above, conforms, of course, to the persistently held ICI view that the patents ' and processes agreement was a camouflage for a territorial understanding. Regarding the projected exchange of licenses simply as an instrument to' mask a territorial division, ICI could see little justification for payment of compensation based on the value of licenses • exchanged.

DuPont, it will be noted, defended the provision for compensation solely on the ground of legal necessity. Whole technologies were to be made available to one another by two great chemical combines, with an almost mathematical certainty that there must be some disparity in value; yet, duPont insisted upon a compensation provision solely to safeguard its legal position.

Certain it is that ICI received the distinct impression that, with the exception of patents and processes “of outstanding merit,” the provision for compensation was largely a legal formality (Ex. 568, p. 2136).

It was recorded by ICI in an internal communication marked “Private and Confidential” on November 5, 1929 that “At a meeting held at Wilmington on ,27th September, at which the President and Colonel Pollitt were present, it was agreed that both Companies would table all patents and secret processes as were considered to be of outstanding merit. An effort would then be made to evaluate the processes and settle compensation with a view to clearing the way for fullest possible technical cooperation thereafter without payment” (Ex. 568, p. 2136).

DuPont, it is true, did prepare for a more inclusive evaluation (Ex. 570, p. 2141); but that this preparation represented anything more than an elaborate pretense is rendered highly doubtful by the actual evaluation negotiations.

Both duPont and ICI had formally determined that the “contemplated evaluation” discussed in the Fall of 1929 involved “processes of outstanding merit only.” Within the dyestuffs department, the duPont men felt “they were not able to take any official attitude on the suggested method for a general evaluation of dyestuffs processes.” On this a duPont technician “gave voice to his personal feeling that there were no processes that could be described as coming under the definition 'of outstanding merit’ * * But the decision as to this division was left to be dealt with by the astute duPont negotiator, Dr. Sparre, who already expressed the thought to ICI that a settlement could be rapidly reached (Ex. 570, pp. 2140, 2141).

A tabulation of patents and processes exchanged by duPont was prepared; when it reached ICI on June 19, 1930, ICI note was made that “Bearing in mind that this is a Patents and Processes Agreement, and also taking into account the anti-trust laws of the States, it will no doubt be deemed desirable by our American friends to formally effect some interchange of patents and

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processes, and I should imagine it is not their intention to push for payment against all the items mentioned on the attached list” (Ex. 575, p. 2152).

The first evaluation conference was held during 1930. The documents make it clear that ICI entered the conference with the view that a 50/50 settlement was desirable. Thus Walker, ICI’s chief negotiator for the 1929 Agreement, writes: “Mr. Akers and myself have got rather accustomed to the frame of mind that this whole question of evaluation presents so many difficulties that it will probab’y have to be settled on a 50/50 basis” (Ex. 576, p. 2154).

Moreover, and again even before the conference began, ICI anticipated the legal necessity for a token payment. Thus A. G. Major of the ICI Foreign Department in a note wrote: “In the evaluation of the pre-Agreement Patents and Processes with duPonts, it has been our understanding that we should endeavor to arrive at a solution which would involve acceptance of the principle of approximate parity of value of processes offered by both sides, the actual document embodying this to- be adjusted to the legal requirements of Amer-' ican law. This would involve payment by one side to the other of a sum of money, probably 6000 pounds or 7000' pounds” (Ex. 577, p. 2156; see also’ Ex. 578, p. 2157).

Minutes of the meetings do disclose that a number of patents and processes were canvassed, and views as to their usefulness were exchanged1 (Ex. 579, 580, 581; pp. 2158-2177). The day following the last recorded meeting F. Walker of ICI reported by letter, also marked “Private and Confidential,” as follows:

“In effect, the stage we have now reached is that 50/50 for patent and process evaluation has been agreed. However, owing to American legal conditions, it is desirable that a considerable differential should be created and be paid for by one side or the other. I have taken the line that I do not care what we hang this differential on to, but if it happens that payment is to be made by ICI to duPont, I must naturally be clearly satisfied that we are getting something for the money.

“Briefly, the line taken by Finn Sparre regarding the Neozones was that duPonts have a considerable trade in our territory and under the terms of the Agreement are entitled to compensation as and when they give up this trade.

* ‡ ‡ ‡ ‡ ‡

“We are now trying to find a thoroughly equitable reason for passing money from one side to the other. The Neozones are only one of several means suggested” (Ex. 582, pp. 2178-2179).

A memorandum from Dr. Sparre to Walker makes it crystal clear that duPont was insisting upon a differential in its favor, not on the basis of any comparative appraisal of the value of the two technologies, but solely to' compensate duPont for its loss of business in the British Empire. In that memorandum Dr. Sparre alludes to Neozones and several other products wherein the patents and processes agreement cause duPont commercial loss, and goes on to point out:

“I have mentioned a figure of $125,000. I do not think it will require more than a profit of $25,000 per annum to justify a settlement on the basis of $125,000 once and for all.

“I believe you will agree that under the duPont-ICI Agreement the duPont Company has taken an annual reduction in profits from export business which exceeds by much more than $25,000 per annum any possible loss which your company can be shown to have suffered under the agreement.

“Please also keep in mind that under the duPont-ICI agreement we are selling you trademarks, patents and processes which have resulted in par already, and which will further result, in the discontinuance of a comparatively large export business to the British Empire, the method of handling which is shown in the duPont-ICI Agreement, and for which we must have a reason which is sound and proper from a business and legal standpoint” (Ex. 583, p. 2182).

The situation is aptly summarized in an ICI document as follows: “It was realized that the meetings with Dr. Finn Sparre

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were arranged with the definite object of arriving at the differential, if any, due by one company to the other on the value of patents and processes at the time of the signing of that agreement (1st July, 1929). However, it had been agreed that for various reasons the exchange of information had balanced out, consequently no payment was .due either way. This decision, although satisfactory to both companies, was not in Dr. Finn Sparre’s opinion a satisfactory settlement from the point of view of the U. S. Anti-Trust Law, and he wished a difference, one way or the other, to be arrived.at. To do this he suggested taking clauses of the Agreement and deciding a balance of existing trade of the companies in the other’s territory which would have to be given up at the request of the other Company and for which the Agreement provided that compensation was due” (Ex. 584, p. 2184).

This same ICI memorandum finally concluded with the statement that “It was agreed that Mr. Walker would see Dr. Finn Sparre and endeavor to reach a final decision. It was also agreed that Mr. Walker should endeavor to establish a 50/50 basis, but if Dr. Sparre insisted on a differential, then D.C.A. would be suggested as that differential” (Ex. 584, p. 2186).

This was followed by a further ICI memorandum, dated November 20, 1930, ten days later, in which it was recorded that

“It was agreed with Dr. Finn Sparre to settle the matter of exchange of patents and processes on the basis of parity of ■values.

“It was not, however, quite so easy to deal with the trade still being done by each party in the other’s territory. Finally the President agreed in conversation with Dr. Sparre to wrap up the settlement of this phase of the matter round the purchase by ICI of duPont’s business in Neozones and other rubber agers in this country for the sum of $125,000, provided duPont’s take from us, at a figure to be agreed, the Dyestuffs Corporation .of America” (Ex. 585, p. 2187).

Ultimately, the figure of $125,000.00 was agreed upon. In a report to the Presidents of the two companies signed by the negotiators the following significant comment is made:

“It finally being evident that no agreement could be arrived at as to certain patents and processes, the Committee determined to report the result of its confe

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