Let's put a temporary hold on discussing the history of Zenith, fascinating as it is, but "cut to the chase," and tell why Zenith failed, and the cause of its failure. To survive , Zenith had to engage in two "wars" the first of which it won, and the second, which it lost, as did the entire American consumer electronics industry.
(Note: The two installments of "First War" that Zenith fought and won were printed in Posts 5 and 6. It is repeated in this Post 15, and an ensuing Post 16, for the benefit of the many new readers who have found this blog. A little "refresher" is often helpful, anyway.)
The First War. Zenith launched a legal attack on the RCA (Radio Corporation of America) patent cartel that was extorting exorbitant royalties from the American radio industry. The cartel was operating in criminal violation of the Sherman Anti-trust Act. Here is a description of the act:
Sherman Anti-Trust Act. Federal legislation passed in 1890 prohibiting "monopolies or attempts to monopolize," and "contracts, combinations, or conspiracies in restraint of trade" in interstate and foreign commerce. The major purpose of the Sherman Antitrust Act is to prohibit monopolies and sustain competition so as to protect companies from each other, and to protect consumers from unfair business practices. The act was supplemented by the Clayton antitrust act in 1914. Both acts are enforced by the Federal Trade Commission (FTC) and the Antitrust Division of the U.S. Attorney General's office. (Source: answers.com)
In short, the Sherman Act prohibits any contract, conspiracy, or combination of business interest in restraint of interstate or foreign trade.
Zenith fought the first war single-handed, and won it for benefit not only for the benefit of Zenith, but also for the entire American consumer electronic industry.
But it was a short-lived victory, for another and more formidable competitor was in the offing, this one inexplicably supported by the government of the United States. This was the war against another cartel which RCA also instigated--an RCA-Japanese cartel. Zenith lost this war. Zenith was not the only loser, for hundreds of thousands of American manufacturing and related jobs were lost when production was transferred out of this continent. In the end, the entire American radio and televisions industry was wiped out. Zenith was the last of the American companies to go under and was declared bankrupt in 1998.
The story of Zenith's initial victory and eventual defeat is told brilliantly in a book by Philip J. Curtis, a Zenith attorney who was the Zenith "point man" is the two battles. His book is titled The Fall of the U.S. Consumer Electronics Industry . . . An American Trade Tragedy. (The publisher is unreachable and has apparently gone out of business.) The book is being "remaindered" by Amazon. com at a price of $114.
|Philip J. Curtis|
The loss of the second war is the reason why you cannot buy an American-made radio or television set, nor any of the hundreds of other revolutionary electronic devices such as iPhones and iPods. Now they are all manufactured overseas, not here. America has lost it all. The total of the casualties: 800,000 American jobs sent off-shore, and most American companies that produced radio, television, and related products, were forced out of business, or taken over by the Japanese.
(. . . and the loss the second war may be the reason why you may have lost your job with Zenith, for Zenith was forced to lay off all its production employees, and sell its factories and production equipment. During its banner years, Zenith employed 32,000 Americans; following the Japanese take-over, Zenith employed only a fraction of that number. )
Curtis casts as the villain in both wars as (to quote) “ . . . the brilliant and ruthless David Sarnoff who ‘seized control of the RCA patent pool’ . . . and who controlled the lucrative industry for over forty years by means of a scurrilous patent-package licensing scheme.”
Defeated in the First War, Sarnoff went on to establish a second scheme in conjunction with the Japanese to literally take over the American television industry. You can read about Sarnoff in the ever-useful Wikipedia, but you won't find there the facts of what he did to destroy an entire American industry.
--and the take-over scheme was made possible by three administrations of the United States Government, beginning with the Nixon Administration, and followed by the Carter and Reagan administrations! Unbelievable? Well, wait until you read the proof!
Let's cover the first Zenith War, the war that Zenith won, as related by Philip Curtis in his book, and adapted for this blog by the author of the blog.
This outrageous levy had the effect of making the licensee a subsidiary of RCA. The penalty for refusing the license was to be tied up in court in prolonged and devastating litigation. Few independent radio manufacturers could afford this, so they had no option but to go out of business. Once there were 500 small, independent radio manufacturers in the 1920’s. All were wiped out by RCA’s predatory licensing.
This scheme had gone on for 30 years until it was challenged by Zenith. Zenith refused to be a licensee. Rather than waiting for a legal attack by RCA, Zenith filed an action in the Delaware federal court for a judgment against RCA and the other pool participants: AT&T, Western Electric, General Electric, and Westinghouse. [Little Zenith picking a fight with this mob!– a David-and-Goliath confrontation if there ever was one!] The suit was based on a declaration that all the patents in the RCA patent license were unenforceable because they were pooled by an unlawful conspiracy with the intent to monopolize the American electronics industry. Further, Zenith was barred from doing business in Canada and in foreign countries by the far-reaching tentacles of the monopoly.
Such a monopoly was a clear violation of the Sherman Antitrust Act, which came into being to break up the monopolies in the last century: the Steel Trust, the Sugar Trust, the railroad trust, and the notorious Rockefeller Oil Trust, all of which had mutually agreed among their co-conspirators to fix prices, to divide up world domestic and foreign markets amongst themselves, and to use their combined power to crush competitors.
The Sherman Act is beautifully simple. It is summed up in the first section which states that “every contract, combination in the form of trust or otherwise, or conspiracy in restraint of trade or commerce among the several States, or with foreign nations, shall be guilty of a misdemeanor. . . ” To put some needed teeth into the law, an offense against the act was later upgraded from the mild misdemeanor to criminal). It was on this basis that Zenith filed suit against the RCA patent cartel in the Delaware Federal Trial Court, Chief Judge Leahy presiding.
The RCA conspirators counter-attacked by alleging infringement of 40 patents in the RCA pool consisting of 24 patents by RCA, 10 by Western Electric, and six by General Electric. There began a “legal war of attrition” against Zenith which entailed the filing of numerous motions and pretrial “discoveries” designed to make it too expensive for Zenith to carry on. And basically, it was designed to obscure Zenith’s original antitrust claim.
Then came what was looked upon as Zenith’s “death sentence”. It was imposed at the defendant’s behest by Judge Leahy of the Delaware federal trial court. Before Zenith’s antitrust claim could even be considered, said the judge, the afore-described forty patents that Zenith had supposedly infringed must each be tried in court. Also, any newly issued patents could be asserted against Zenith, and each in turn must be tried. The cost of the full-scale trials would be enormous, and most pertinent, RCA could continue for years to impose its criminal conspiracy on the industry and reap the benefits thereof. [Judge Leahy’s opinion in favor of RCA is set forth in Appendix II in the Curtis book.]
In a master-stroke, RCA’s lawyers thus persuaded a sympathetic judge to impose on Zenith this course of legal obfuscation and delay. Zenith had failed miserably in its first attempt to break RCA’s monopoly. Maybe it would be better to apply for a license, and pay the royalties . . . .
|Eugene F. McDonald|
Not so, said Commander McDonald. Perhaps, as a Naval officer, he was inspired by the French commander, Marshall Petain. During the First World War, when his forces were driven in on all fronts, Petain said: “The situation is excellent. I attack.”
To lead his attack team, McDonald enlisted Joe Wright, who later became president of Zenith.
And bite he did. He got together with Curtis and Zenith’s long-time counsel Irving Herriot to decide strategy. They had two chances. The first chance was to petition the Delaware Third Circuit Court of Appeals to force Judge Leahy to put Zenith’s antitrust claim ahead of the trial of 40-plus patents. This was considered a hundred-to-one chance, and so it eventually proved.
The second was to springboard Zenith’s antitrust claim on a patent infringement suit against Zenith that RCA had filed in Chicago. Phil Curtis had dug up evidence that the RCA patent cartel was behind the barring of Zenith from the lucrative Canadian market and other foreign markets in clear violation of the Sherman Antitrust Act. This evidence made it possible to show that the Chicago case was different from the Delaware case, and that the antitrust issues could be tried separately in Chicago.
Another bulldog was brought on board, this one in the form of Thomas C. O’Connell, described by Curtis as “a fearless, brilliant trial lawyer.” And so he proved. Cross-claims were filed on the antitrust issue against the RCA cartel, including GE and Western Electric.
The case was under the jurisdiction of Chicago’s Judge Michael Igoe, who allowed Zenith’s case to proceed independently of the Delaware trial and Judge Leahy’s ruinous decision.
It was a great victory for Zenith; however, Zenith had absolutely no evidence admissible in court that a conspiracy actually existed. But Zenith now had the court behind it, and therefore the power to examine files, ask questions and examine witnesses under oath, a legal procedure known as “pretrial discovery.” Failure of RCA to produce the documents would be considered contempt of court and an obstruction of justice.
Along with Zenith patent attorney Frank Crotty, Curtis spent many miserable weeks sorting through this “wallpaper.” It was obvious that RCA was deliberately withholding from Zenith the documents needed to proceed with its case.
End of First Installment of the two installments that describe Zenith’s first war and victory against the RCA cartel.
|Antique style novel dial radio from the collection of Jim's Antique Radios, www.antiqueradiosmusem.org|
(Please note that this account was lifted from Post 9, but it is worth a repeat.)
Zenith Trans-Oceanic: The Royalty of Radios. (2008) $22.95.
(This diagram doesn't work here, but it will when you access it at its location, which is on the front of all posts, right side.)
- February 2014 (2) –Posts 2 and 1
- March 2014 (1) --Post 3
- April 2014 (1) --Post 4
- May 2014 (2) --Posts 6 and 5
- June 2014 (2) --Posts 9 and 8
- July 2014 (2) --Posts 11 and 10
- August 2014 (2) --Posts 13 and 12
- September 2014 (1) –Post 14
Post 1: The story of Zenith . . . its early success and eventual failure . . . help in writing blog needed from the Zenith Pioneers . . . the two principals: McDonald and Nevin . . . named “the Zenith Book” . . . tentative title: A Requiem for Zenith: The Story of the Rise and Fall of a Great American Company, and the Lessons to be Learned from its Fall . . . please tell your friends and former fellow employees.
SO!--Mizpah! until next time.
An explanation of the word "Mizpah" for those who have recently joined: It is a Hebrew term which means (very roughly) ". . . may all be well with you and I until we meet again." Mizpah was also the name of McDonald's yacht.