United States v. General Electric Co.

Citation80 F. Supp. 989
Decision Date08 October 1948
CourtUnited States District Courts. 2nd Circuit. United States District Courts. 2nd Circuit. Southern District of New York



John F. X. McGohey, U. S. Atty., of New York City, Herbert A. Berman, Bartholomew Diggins and Malcolm Hoffmann, Sp. Asst. to the Atty. Gen., Robert B. Hummel, of Alexandria, Va., John S. James and Carlisle P. Myers, both of New York City, and Gareth Neville, of Washington, D. C., Sp. Attys., for the Government.

Walter Gordon Merritt, of New York City (Hyler Connell, James T. Mackey, John B. Tittmann, Thomas P. Dwyer, and Andrew M. Calamari, all of New York City, of counsel), for all defendants except Fried, Krupp Aktiengesellschaft.

KNOX, Chief Judge.

This is a criminal prosecution under an indictment returned October 21, 1941, charging defendants in four counts with violations of the Sherman Anti-Trust Law, §§ 1 and 2, 15 U.S.C.A. §§ 1, 2; and in a fifth count with violation of the Wilson Tariff Act, 28 Stat. 509. By stipulation, a jury was waived, and the case tried to the Court.

The suit concerns trade and commerce in so called hard metal compositions and products containing such compositions. By hard metal composition is meant tungsten carbide and all other combinations of tungsten, tantalum, titanium, or a similar metal, with carbon, particles of the carbide being cemented or bound together by iron, cobalt, nickel, or a similar matrix.

When hard metal is cut, or drawn out in wire or other forms, it is necessary to have a cutting tool or a wire-drawing nib that is harder even than the metal cut or drawn. In addition, the machining of other materials often requires an extremely hard cutting tool. These processes are highly useful in carrying on modern industrial life, and the search for harder cutting tools and nibs has been a closely studied problem. Prior to the introduction of hard metal compositions, the materials generally used in the metal trade were two steel products known respectively as high-speed steel and Stellite. Hard metal compositions, to a considerable extent, have replaced the use of the last named materials. The cemented carbides have a capacity to perform tasks that other materials were unable to accomplish, and to contribute greater efficiency to many others. In addition to their use as cutting tools and drawing dies, these carbides are of importance in the fields of extrusion dies, wear resistant parts of factory equipment, and wearing surfaces of precision instruments.

The corporate defendants are Fried, Krupp Aktiengesellschaft, which is not before the Court, the General Electric Company, and two General Electric subsidiaries, the Carboloy Company Inc., and the International General Electric Company. The individual defendants are Walter Stearns, who was manager of special contracts for the General Electric Company; Zay Jeffries, technical director of the Lamp Department of that corporation and formerly chairman of the Board of Carboloy; and Walter Robbins, president of Carboloy. The four companies owned and acquired patents which were so used as substantially to dominate the entire interstate and foreign commerce of the United States in the field of hard metal compositions. This situation continued from the inception of the industry in this country in 1928, until 1940, when some of the patents were declared invalid in an infringement suit in Michigan, General Electric Company v. Willey's Carbide Tool Co., D.C., 33 F.Supp. 969.

In order to reach a conclusion as to whether defendants' activities transgressed the criminal law, it is necessary to make extensive reference to the patents involved, and also to the series of agreements by means of which the patents were exploited.

The first U.S. patent is Baumhauer, No. 1,512,191. Application therefor was made in December 1922, and the patent was issued in October, 1924. It includes both process and product claims. There is some question as to whether the product claims are limited by the process claims, an issue which would be important in the evaluation of the patent because, as the defendant Jeffries admitted, the process claims have never been used. The product claims are very broad, the inventor claiming, among other things: "4. A tool for working hard metals made from a carbide with its pores saturated with a metal," and "7. A tool made from a carbide impregnated with a metal."

Two other important patents are those which stand in the name of Karl Schroter. The so-called first Schroter, No. 1,549,615 was applied for in October, 1923, and issued August, 1925. This, also, contains product and process claims. The product claims are more specific than Baumhauer, the patentee specifying that the carbon content should run from 3 to 10% of the tungsten, and that the binder should not exceed 10% of the tungsten content. The process disclosed by this patent is known as the cold-press process, and is employed in perhaps 98% of all cemented carbide production. It consists of mixing the carbide being used, e. g. tungsten carbide, with a binder metal such as cobalt, both being in powder form, cold-pressing the mixture, and then sintering the ingredients at a temperature of about 1500 degrees, at which point the binder melts while the carbide does not. In practice, in the majority of cases where the Schroter process is used, the material is presintered, then formed, and then brought to the sintering temperature. These process claims contain the same percentages as do the product claims.

The second Schroter, No. 1,721,416, applied for in April, 1926, and issued July, 1929, claims the process and product wherein the binder metal exceeds more than 10% of the composition.

There was a variation between the first and second Schroter patents, the first claiming up to 10% of the tungsten, and the second over 10% of the carbide composition. To fill the gap thus caused, an application for a reissue of the first patent was filed in July, 1929, and issued March, 1930, and being Reissue No. 17,624.

The Schroter patents are fully discussed by Judge Tuttle in his opinion in General Electric Co. v. Willey's Carbide Tool Co., D.C. Mich. 1940, 33 F.Supp. 969, in which he held them to be invalid in view of the prior art.

These patents were originally owned by the Osram Company in Germany. Under a contract General Electric Company had with Osram, the American concern was granted the exclusive United States right to use the disclosures in its own manufacture of electric lamps. Consequently, the patents were issued in the name of General Electric as assignee. All the remaining rights in the patents were sold by Osram to the Krupp Company of Germany.

However, and somewhat unaccountably, it was not through the shop rights in the lamp field which were already held by General Electric, that the company became interested in the other advantages of these patent applications and patents. It remained for Dr. Hoyt, a GE engineer visiting Europe on another mission in 1925, to appreciate the further possibilities of the patents. Dr. Hoyt was introduced to Schroter at Osram and received from him certain information concerning the inventor's process and product. On returning to the United States, Dr. Hoyt brought with him a small piece of the Schroter material, "about a quarter of an inch square by 5/8 of an inch long."

Later on in that year, Hoyt began work on the material, and was shortly assisted by another engineer named Gilson. By 1928, the Schenectady works of the General Electric Company were manufacturing a substantial amount of cemented carbides for its own use for machining and wiredrawing purposes, not only at Schenectady, but elsewhere. Hoyt and Gilson both applied for patents in April, 1927, and two more GE patents were applied for in 1928. Indicative of the extent of GE research is the fact that by the end of 1929, fifteen additional patent applications had been filed, and thereafter as many patents were issued.

Of these GE patents, the more important ones are Hoyt No. 1,843,768, filed April, 1927, granted February, 1932, and Gilson, No. 1,756,857, filed April, 1927, granted April, 1930. Both of these are known as hot press patents, in contrast with those of Schroter, which are cold-pressed. Essentially, Hoyt's contribution to the art was to abbreviate the Schroter process by mixing the carbide with the binder, and then pressing and heating the compound at one and the same time. Gilson shortened the process still further by his so-called 3 powder hot-press method. Where Hoyt mixed, for example, tungsten carbide with cobalt, Gilson taught the process of mixing tungsten, carbon, and cobalt. Under his method of procedure, the carburizing and sintering take place together. Each of these patents contain product, as well as process claims.

Meanwhile, Krupp itself was manufacturing a hard metal composition that was called Widia. This material was being sold in the United States, but the volume of the business, and the selling price of the material were not clearly established upon the trial. The evidence does show, however, that on January 31, 1928, Krupp gave Morris Simons of the Union Wire Die Company a three months exclusive option on the right to import Widia into this country for use in dies, and on July 7, 1928, Simons and Krupp signed a three years contract along these lines. Furthermore, Widia appears to have been sold here in 1928 for use in tool cutting by the firm of Thomas Prosser & Sons. By letter dated August 13, 1928, Krupp quoted Prosser prices which were in the neighborhood of 10¢ per gram. There are 453.59 grams in a pound.

By September, 1926, GE had begun to think seriously of the desirability of acquiring rights in these patents, in addition to such as had already been acquired through its Osram contract. The original thought was that GE would bargain for shop rights, and that Krupp would have all others, including rights to the GE improvements, and the...

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