[HM89AAG], Report from Thomson-Houston Electric Co, March 23rd, 1889

Item

Abstract

Summary: 1) This is a memorandum of the Thomson-Houston Electric Co. The authors argue that their company is doing a large isolated business, due to their exclusive right to exploit the Thomson-Houston automatic dynamo, to the exclusion of Westinghouse, Sawyer-Man, thereby dominating the US market, contradicting Edison's assessment. ### 2) The memorandum declines Edison's request that the Thomson-Houston Electric Co. go out of the lamp business, and assures Edison that they will not be directly competing with his lamp manufacturing, since their lamps are of a different make, manufactured for different installations and circuits. The authors argue that cooperation and division of market share will ensure more profits for both companies than will competition. They argue that their lamps may be more expensive than Edison's, but are more economical than Sawyer-Man, Westinghouse. ## 3) Leaving aside questions of patent rights, the authors argue that on a purely commercial basis their two companies can share the three-wire license to mutual benefit, agreeing not to use the system for any isolated work, and to work out profit-sharing agreements when used otherwise. Again, greater profits are assured by cooperation than "demoralizing" competition. ## 4) The authors assuage Edison's worry that any agreement binding their company to purchase apparatus from Edison could only be temporary. ## 5) The authors argue that Edison has misrepresented the methods that the Thomas-Houston Company uses to calculate it's profits. They do not figure their profit by taking stocks and bonds at par value, they say, rather, they value their stocks, bonds and securities at a fraction of their face value. Moreover, in a previous annual statement of Edison himself, the authors himself, stocks and bonds were taken at par. ## 6) The authors argue that they can compete successfully with Edison in bringing the three wire system into big cities, and therefore their agreement not to go into large cities is indeed a cooperative concession. ## 7) The authors argue that cooperation would offset any inefficiencies of an alternating over a direct lighting system. ## They Conclude by arguing that after 10 years of rough competition and expensive litigation over patent rights, etc., their mutual interests in the future lie in cooperation. They reiterate that they are not making this request from a position of weakness, being more than capable of competition if need be. The gist of Edison's spirited reply, running through his drafts and his final finished version, is to reject the scheme of collaboration, suggest that no satisfactory contract for market sharing could possibly be drawn up, insinuate that the Thomas-Houston Company is overvalued and that some of it's officers are incompetent, insist on Edison's right to the contested patents, assert that prices are too high, rather than too low, and to insist that innovation and business profit depends upon competition. ## Text: Edison's attachment: ## 1st= his is a change from a fixed profit to an unknown one which I apprehend is not great as they lack of fierce competition. The Sawyer Man Co made a very serious loss selling the TH Dynamics, & the break of relation resulting the change of method of disposing of the Dynamics hasn't bettered the TH Exchequers, before the profit was fixed, now the sales are made under competition, in which the Saw Man lost money. ## They put forward their acquisition of Mr. [Waren?] formerly of the US Co as a consideration, he having done 1/2 of the whole US Co biz as the US Co did an almost exclusive [localed?] Business & lost in seven years upwards of 1,400,000. [crossed out: "Mr. Warren may not be so valuable a person."] This statement does not appear to be of great argumentation value-- ## 2 = See lines 9 &10 page 6; Reduced Expenses so one of the attachments held out one of the greatest reductions is making all lamps in one factory yet they refuse this and give us reasons. A & B. paragraph 2: Reasons that might pass with a board but which the writer if he understood his own business oculd not for a moment believe would blind those familiar with it. They are absolutely silly & fallacious. Well equipped lamp factory could on 60 days notice furnish lamps of any voltage & with any socket in connection with lines 9 & 10. See statement in R. Westinghouse 2 lamps factories. I suppose the lamps cost extra, where does the value of this statement come into this argument except on the WRONG side. ## 3. If at the proper time they can produce evidence to void our 3 wire patent why do they want a license, no secret thing can be used to void a patent, & if a public thing [alters?] competition can void it, & yet the TH want a license. They say in paragraph 8 or last paragraph they have a very efficient corps of lawyers, hence I infer they must know the ABOVE FACTS. [If the above statement is true they would not want a license if untrue they would, as they ask for the license the statement is another very poor example of argumentation ## Paragraph 3, page 4. They speak of fierce competition, low prices and assume that if we make a [coalition] this will be stopped--this is a conceited assumption. The Th & Edison Co. can no more control the price than the tides--The Co with the best second the best & cheapest machinery will do the business patents or no patents. The fact of the matter is Mr. Villard that all Electric Lighting machinery is entirely too high now. These high prices hurt business with the leaden collar of the Edison & Light Co around me if we have never been able to show what can be done. All these people are amateurs. The ground of cheapening has scarcely been scratched. They do the best they can with what they have but let us create the Leaden Collar and you will see a brainy competition that will show them what the real competition is. ## Paragraph 4--The man has yet to be born who can draw a contract with the writer of the TH Memo that cannot be evaded. The business is too comprehensive. The moment they want to stop payments they can do. The [Bill?] Co did to evade their Cold contract drawn by several lawyers after three months work-- ## paragraph 5-- I did not assume any particular value for the Edison stocks. Whatever value they have the Co or stockholders paid no cash for them. ## The statement that the TH took bonds at 50 cents & stock at 33 and 1/2 in dollars is only a play on figures/ Bookeeper humbuggery & no statement at all, no data [helping?] [a crossed out paragraph follows] ## What relation does the actual bottom cost of the station bear to the bonds & stock is the only determining factor for ascertaining whether the bonds are taken at 50 c or some other figures-- ## paragraph 5= My statement holds good had we done as TH does we would have made enormous profits. AS the TH sold their bonds & hold their STOCK & took it at 33 1/2 cents on dollar/ They should inventory them at about 1/10th as the Edison Co took these stocks at par and from Cos which have no water and what is of far more consequence NO [BONDS?]. This paragraph serves to show the loose character of the arguments of the writer. ## Paragraph 6. These are not large cities. Their stations are two penny affairs overhead are makeshift to and are equivalent to about 1/10 of the gas supply one night as well bond that part of a Railroad which runs to gravel pits. They are not permanent & go when confidence & [illusions?] go with. ## Paragraph 7. Why should we divide! Why give the TH to do our business. ## Page 6. 7 top paragraph. ## These are the usual stock phrases: The reduced business expenses stc. Argument is entirely nullified by the other paragraph of the memo--the statement that they ask no favors from the Edison Co might be met by the fact that having boldly appropriated & infringed every patent we use there is very little left to favor them with exception business which they are now after ## The way to reduce expenses would be for the TH to turn over their Incandescent business to us who know it & own it & keep their one light to themselves: Work together, But they do not want this but keep everything & propose a working arrangement which would give them everything & us a sum [precarious?] in reception & [eventualy?] inadequate to reimburse us for loss of buz prestige & other things. Speaks of costly litigations; They can easily reduce this expense by stopping infringing our patents. Last part of paragraph speaks of efficient Corps Lawyers & control of inventions early unfilled. As none of these Cos went into the [filled?] until years after I proved the commercial value of Incandescent system & then only to save themselves the character & value of these EARLY inventions can be realized. ## Finally, on no solid business ground is there a shadow of reason or any justification for any [coalition] with the TH or any other Co. The more I figure on the benefits of any [coalition] the more worried I become that you may be [indered?] to enter into one. I have figured it out in every light over a period of years & the more I figure the more fatal it seems to the general Edison Co being the dominant Electrical Co in the Country, not only in prestige but in profit. If you fear we cannot do the business as well as TH why go on with the scheme--The ruinous competition may be correct in their point of view but I assure you that prices are too high now, I sweep aside all consideration of competition and maintain that to do a great business in this Co prices must be got down 50 to 75 per cent lower than now. And the moment the Leaden Collar of the Light Co is removed it will be done and we make a great profit at prices that would soon show our competition what good Brainy aggressive competition means. But to do this the new Co must stand alone unencumbered by any allowances or contracts. The money we will have will be sufficient to raise any more. If you make the [coalition] my usefulness as an inventor is gone, my services wouldn't be worth a penny. I can only invent under powerful incentive, no competition means no invention. It's the same with the men I have around me. It's not money they want but a chance for their ambition to work. ### April 1, 1889 ## Mr. Edison's Reply to Thomson-Houston Memoranda of March 23rd, 1889. ## FIRSt. This is a change from a fixed profit to a unknown one, which I apprehend is not great, as they talk of fierce competition. The Sawyer-Man CO. made a very serious loss selling the Thomason-Houston dynamo, and the break of relation realizing, the change of method of disposing of the dynamo has not bettered the Thomason-Houston exchequer. Before the profit was fixed, now the sales are made under competition, in which the Sawyer-Man lost money. ## They put forward their acquisition of Mr. Warren, formerly of the U.S Co., as a consideration, he having done hafl of the whole U.S Co. business. As the United States Co. did an almost exclusive isolated business, and lost in seven years upwards of $1,400,000, this statement does not appear to be of great argumentative value. ## SECOND. (See lines 9 & 10, page 6, T-H memo.) Reduced expenses is one of the inducements held out. One of the greatest reductions is making all lamps in one factory, ditto similar type dynamos. Yet they refuse this, and give as reasons a. and b. paragraphs--reasons that might pass with a Board, but which the writer, if he understood his own business, could not for a moment believe would blind those familiar with it. They are absolutely sillyl and fallacious. Any well equipped lamp factory could on sixty days notice furnish lamps of any voltage and with any socket. In connection with lines 9 & 10, see statement in re Westinghouse lamp factories. Because of two factories I suppose the lamps cost extra. Where does the value of this statement come into this argument, except on the WRONG side. ## THIRD. If the proper time they can produce evidence to void our three wire patent, why do they want a license. No secret thing can be used to void a patent, and if a public thing, other competitors can void it, and yet the Thomson-Houston CO. want a license. As they say in paragraph 8, or last paragraph, they have a very efficient corps of lawyers; hence I infer they must know the above facts. IF the above statement of capability of voiding is true, they would not want a license; if untrue, they would. AS they ask for the license, the statemnt is another very poor sample of an argumentation. ## In paragraph 8, page 4, they speak of fierce competition, low prices, etc., and assume that if we make a coalition this will be stopped. This is a conceited assumption. TheThomson-Houston and Edison Companies can no more control the price than the tides. The Company with the best record, the best and cheapest machinery will do the business, patents or no patents. The fact of the matter is, Mr. Villard, that all electric lighting machinery is entirely too high. These high prices hurt business. With the leaden collar of the Edison Electric light Co. around me, I have never been able to show what can be done. All these people are amateurs. The ground of cheapening has scarcely been scratched. They do the best they can with what they have, but let us break the leaden collar, and you will see brainy competition that will show them what the real competition is. ## FOURTH The man has yet to be born who can draw a contract with the writer of the Thomson-Houston memo that cannot be evaded. The business is too comprehensive. The moment they want to stop payments, they can do as the [Bell?] Company did to evade their Western Union contract drawn by several lawyers after three months work. ## FIFTH I did not assume any particular value for the Edison stocks. Whatever value they have, the Company or stockholders paid no cash for them. ## The statement that the Thomson-Houston Co. took bonds at 50 cents and stock at 33 and 1/3 on dollar, is only a play on figures, bookkeepers' humbuggery--and no statement at all, no data, nothing. ## What relation does the actual bottom cost of the station bear to the bonds and stock is the only determining factor for ascertaining whether the bonds are taken at 50 cents or some other figures. ## (Last six lines of paragraph 5 T-H memo) My statement holds good. Had we done as the Thomson-Houston does we would have made enormous profits. As the Thomson-Houston Company sold their bonds and hold their STOCK, and took it at 33 1/3 cents on dollar, they should inventory them at about 1/10, as the Edison company took their stock at par, from Companies which have no water, and what is of far more consequence, NO BONDS. This paragraph serves to show the loose character of the arguments of the writer. ## SIXTH These are not large cities. Their stations are twopenny affairs overhead, are makeshifts and are equivalent to about 1/10 of the gas supply. One might as well bond that part of a railroad which runs to gravel pits. They are not permanent, and go when confidence and investors go into real electric lighting. ## SEVENTH Why should we divide? Why hire the Thomson-Houston Company to do our own business? (Page 6, T-H memo, top paragraph). These are the usual stock phrases. The reduced business expenses argument is entirely nullified by the other paragraph of the memo. ## The statement that they ask no favors from the Edison Company might be cut by the [cant?] that having boldly appropriated and infringed every patent we use, there is very little left to favor them with, except our business, which they are now after. ## The way to reduce expenses would be for the Thomson-Houston Co. to turn over their incandescent business to us who know it and own it, and keep their arc light to themselves, and work together, but they do not want this; they keep everything and propose a working arrangement, which would give them everything and us a [sum?] precarious in reception and entirely inadequate to reimburse us for loan of business prestige and other things. ## Thomson-Houston people speak of costly legislation. They can easily reduce this expense by stopping infringin our patents. ## Last part of concluding paragraph speaks of efficient corps of lawyers, control of inventions, early in the field, etc. As none of these companies went into the field until years after I proved the commercial value of incandescent system, and then only to save themselves, the character and value of these EARLY inventions can be realized ## Finally, on no solid business ground is there a shadow of reason or any justification for any coalition with the Thomson-Houston or any other Company. The more I figure on the benefits of any coalition, the more worried I become that you may be induced to enter into one. I have figured it out in every light over a period of years, and the more I figure, the more fatal it seems to the General Edison Co. being the dominant electrical Company in this country--not only in prestige but in profit. If you fear that we cannot do the business as well as Thomson-Houston, why go on with the scheme? The ruinous competition may be correct in their point of view, but I assure you that prices are too high now. I sweep aside all consideration of competition, and maintin that to do a great business in this country, prices must be got down 50 to 75 percent lower than now. And the moment the leaden collar of the Light Company is removed, it will be done, and we will make a great profit at prices that would soon show our competitors what good, brainy, aggressive competition means. But to do this, the new Company must stand alone, unencumbered by any alliances or contracts. The money we will have willn be sufficient if you find it difficult to raise any more. If you make the coalition, my usefulness as an inventor is gone. My services wouldn't be worth a penny. I can only invent under powerful incentive. No competition means no invention. It's the same with the men I have around me. It's not money they want, but a chance for their ambition to work. ## Additional text: [On pages 4 and five, TAE scribbled notes, which are transcribed below:] OVER The man (has yet to be born that could draw a contract with the order of this memorandum that could not be [escaped?] ## all prices are too high. We make big money at present because I did not assume any particular value--if they did not take Bonds at par they look then to me [after tenure?] but whatever that was the [comer?] value was bookeeping humbuggery. If they took them at 50 c they took twice as many of them--so it comes to same thing. I made no argument about the value of Edison securities. We haven't floated them, we paid no money for them. My argument still is around the TA made when profits by reason of being able to [fenane?] the money that bought their machinery that this shuffling of risks was done from the [coronation?] of the individual stockholders and the actual profit will depend on whither these individual stockholders ever get their money back in bonds they being in little twopenny makeshift Cos. All liable to [cancelation?] far [inslavor lef?] the Edison Co go we 20 if the towns where they have stations always on a small [seat?] & put a large comprehensive station set the [illegible] to the ruination point of the TH. The E Co would earn money & the TH Bonds wouldn't be worth a copper. Notwithstanding the 20,000 worth of machinery with 40,000 bonds sold at 50.

Date

1889-03-23

Decade

1880-1889

Type

Identifier

HM89AAG

Folder Set

HM89

Title

[HM89AAG], Report from Thomson-Houston Electric Co, March 23rd, 1889

Microfilm ID

144:198

Publisher

Thomas A. Edison Papers, School of Arts and Sciences, Rutgers University