United States v. National Lead Co.

• Decision Date: 11 October 1945
• Citation: 63 F. Supp. 513
• Parties: UNITED STATES v. NATIONAL LEAD CO. et al.
• Court: U.S. District Court — Southern District of New York

63 F. Supp. 513

UNITED STATES v. NATIONAL LEAD CO. et al.

District Court, S. D. New York.

August 24, 1945.

Final Decree October 11, 1945.

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John F. X. McGohey, U. S. Atty. (Herbert A. Berman and William C. Dixon, Sp. Assts. to Atty. Gen., and Julian Caplan, of Detroit, Mich., and Ephraim Jacobs, of Washington, D. C., Sp. Attys., of counsel), for plaintiff.

Bethuel M. Webster and Clifton P. Williamson, both of New York City (Bethuel M. Webster, Clifton P. Williamson, Edward L. Rea, and Carolinda Waters, all of New York City, of counsel), for defendants National Lead Co. and Titan Company, Inc.

Cravath, Swaine & Moore, of New York City (William Dwight Whitney and John Logan O'Donnell, both of New York City, and Gerhard A. Gesell and Nestor Shea Foley, both of Washington, D. C., of counsel), for defendant E. I. du Pont de Nemours & Co.

RIFKIND, District Judge.

By its complaint the United States alleges a cause of action under sections 1 and 2 of the Sherman Act, 26 Stat. 209, 15 U.S. C.A. §§ 1, 2. Its prayer is for an injunction to restrain the alleged violations of the statute and for ancillary remedies to make the court's mandate effective.

The defendants are National Lead Company and E. I. du Pont de Nemours & Company, Inc.,¹ the two principal producers of titanium pigments in the United States and the two largest producers thereof in the world; and Titan Company, Inc., wholly owned by NL and in turn the owner of substantial stock interests in the following corporations, producers of, dealers in titanium pigments: BTP, TG, SIT, TAS and TK.

The complaint charges that:

"Beginning on or about July 30, 1920, defendant National and co-conspirator Titan A/S, and the remaining defendants and co-conspirators, and others to plaintiff unknown, on various dates thereafter, continuing at all times thereafter to the date of the filing of this complaint June 24, 1944, have been continuously engaged in a combination by the means and methods hereinafter set forth, in restraint of, and to monopolize, the aforesaid trade and commerce in titanium compounds among the several states of the United States and with foreign nations and have been and are now parties to contracts, agreements, and understandings in restraint of such trade and commerce, all in violation of Sections 1 and 2" of the Sherman Act.

The evidence supports the allegation in every material respect.

Titanium is a very abundant element. The principal ores which yield titanium in commercial concentration are ilmenite and rutile. Titanium compounds and particularly titanium dioxide possess the characteristics of opacity, great hiding power, high tinting strength and chemical inertness. These properties make it superlatively suitable for the manufacture of white paint and valuable in the production of rubber, glass, paper and several additional materials.

The commercial development of titanium compounds is founded largely upon the work of three groups of chemists working independently at and about the time of the first World War. In the United States, at Niagara Falls, New York, Messrs. Barton and Rossi developed a process for the manufacture of titanium compounds. Patents were issued to them; and these they assigned to TP, a corporation formed for the purpose. In Norway, Gustav Jebsen and his associates interested in the utilization of a large ilmenite deposit, developed another process. The patents which were granted thereon were assigned to TAS, organized for the purpose of exploiting them.

In France, Joseph Blumenfeld invented and procured patents for a third process. Terres Rares acquired these patents.

In 1920 NL held 10% of the stock of TP and had an option to acquire up to 50% of its stock. NL thereupon negotiated an agreement with TAS which was executed and went into effect on July 30, 1920. This agreement became the basic charter for the world-wide regulation of production and commerce in titanium compounds.

It marked the birth of a new industry. In the course of the ensuing twenty years titanium pigments outstripped the production and sale of lithopone and white lead. In the United States production rapidly mounted and by 1940 more than 100,000 tons of pure TiO2, having a value in excess of $40,000,000 were manufactured and sold. In Europe and other parts of the world, too, the industry took serious hold and production mounted to approximately one third of the United States tonnage. By 1944 American production had risen to 133,000 tons of pure TiO2. Most of the sales were not in the form of pure TiO2 but in the form of extended pigments — that is, pigments composed of TiO2 chemically united or mechanically mixed with other ingredients.

Throughout this period prices were repeatedly reduced and only once, in 1941, increased.

At or about the time of the outbreak of World War II this point of time is taken arbitrarily we find this industry predominantly occupied in the United States by two producers, NL and DP, who supplied, in 1939, 73,645 tons out of a total of 82,940 tons. The balance of 9,295 tons is produced by American Zirconium, a licensee of both NL and DP and by Virginia Chemical, a licensee of DP². We further find a complete absence of imports of titanium products from abroad, and complete absence of exports from the United States, except to the countries of the Western Hemisphere.

In order to understand how this condition of affairs came to be, it is necessary to review the provisions of the mentioned contract of 1920 and briefly to relate the history of the persistence of its principles in more than 60 agreements subsequently executed.

The 1920 agreement between TP and TAS provided:

The preamble recited that each of the parties owned and expected to own certain patents and that each desired to obtain rights under the patents owned by the other, within the "licensed field."

"Licensed field" was defined to include all substances consisting of or containing above two per cent. of titanium, or a compound or compounds thereof, unless such substances contained by weight more than five per cent. of a metal other than titanium in its purely metallic state, and all apparatus, methods, and processes useful in the obtainment or manufacture or use of said substances.

TP agreed to grant to TAS and TAS accepted a license, exclusive of all others including TP, to manufacture, use, and sell each and every invention improvement, or subject matter in the licensed field, under existing or future letters patent; but only in or for territories outside of North America and South America.

TAS agreed to grant to TP and TP accepted a license, exclusive of all others, including TAS, identical in scope and extent except that it was limited to and for the territories within North America (defined to include Central America and Panama).

Each party granted the other a nonexclusive license to use or sell, under patents issued by South American countries, but only in South America.

The parties agreed to make available to each other copies of patent applications; and detailed provision was made for the prosecution of patent applications and the maintenance of patents within the territory of each party respectively.

Each party agreed never to question the validity of the patents of the other.

TAS appointed TP its sole agent for the introduction into and sale in North America of all products of TAS in the licensed field. Such importation into the United States could take place only upon the order of the agent; and the sales in North America were to be made at prices and upon conditions fixed by the agent.

TP similarly appointed TAS its sole agent for introduction and sale, outside of North and South America, of all TP products in the licensed field.

Each party was permitted to import into the territory of the other finished articles, such as paint, glass, rubber, in which a titanium product had been used as a raw material — but only when the titanium product did not constitute such an important part of the finished article that its sale would substantially interfere with sales of its own products by the other party within its own territory.

Each party agreed to impart to the other full and accurate technological information relating to the licensed field, and to permit plant inspection (exclusive of research laboratories).

Article XIV of the agreement conferred upon each party the right to grant licenses under its own patents or sublicenses under the other's patents, on condition that every such licensee or sublicensee would

a) grant to the party to the 1920 agreement, other than its licensor, exclusive licenses under all its patents, present and future, in the licensed field, identical in character, territorial scope, and duration to the rights granted by the 1920 agreement by the parties thereto;

b) appoint such other party its sole agent on the same terms as obtained between the parties to the 1920 agreement;

c) would impart to such other party technological information to the same extent as obtained between the parties to the 1920 agreement;

d) would abide by the territorial allocation of the 1920 agreement.

The agreement of 1920 was to continue in effect until 1936, and was then to be automatically renewed for successive ten year periods, each party having the right to cause a termination by notice given at least five years before the end of such period.

By an agreement executed simultaneously with TP and TAS, NL bound itself to respect the contract of 1920, promptly to assign to TP all its then owned or thereafter acquired patents, inventions and improvements relating to the licensed field, throughout the world, and to communicate to TP all its technical information in the licensed field.

It is manifest that by the terms of this agreement the parties had divided the world into two trade areas or territories; that each party agreed not to trespass into the territory allotted to the...