by Edwin Black
HUMMEL: When Mr. Watson returned the medal. It came like a bomb. The man from the radio told us before anything [was] seen in the papers.
CHAUNCEY: Is it your feeling that this brought the thing to a climax, or was it really the reaction which you experienced with your customers and prospects?
HUMMEL: We excuse Mr. Watson because he looked at it from his own viewpoint—but it hurt us. In Italy it was as bad as in Germany…
CHAUNCEY: But let’s have concrete examples. Was it merely talk, or did customers refuse to deal with you?
HUMMEL: You must remember that the Nazis, when they feel insulted, will make certain that they will pay back that injury. It shows [how] they feel when they refused the gift [of a Red Cross donation]!
CHAUNCEY: So they refer to the return of the decoration when they refused the gift?
HUMMEL: They expressed clearly “we do not want anything from that man.” They said Watson and IBM’s gift could not be accepted.
CHAUNCEY: Why was it presented as a gift of Mr. Watson and not of IBM [corporately]?
HUMMEL: They identify Watson and IBM as one person, just like you cannot divide Patterson and the National Cash Register Co.
CHAUNCEY: But Patterson owned the National Cash.
HUMMEL: But the letter was written in [such a] form that it was the instructions from Mr. Watson.
CHAUNCEY: Is there anything I could do to correct that misunderstanding, that it was IBM’s gift and not Mr. Watson’s?
HUMMEL: Don’t try—they will treat you politely and let you go, because they will say or think that you cannot pay for an insult. Here is the letter from [IBM] Geneva, 24 July, saying that Mr. Watson had instructed that the money be given.
CHAUNCEY: Did you present it as a gift from Mr. Watson or as a gift from IBM?
HUMMEL: We had to show the letter. We could not risk saying it was a gift from IBM without having something to show…. It is personal danger to us… if we did not show the letter. If we failed to show the letter we would have been sent to the concentration camp. We had to take all of Mr. Watson’s pictures down because of the visitors or officials who considered that when Mr. Watson insulted Hitler he also insulted them.
CHAUNCEY: Then when did you decide it was necessary to give up the [stockholder] majority—only after the return of the decoration?
HUMMEL: Oh, sure… when the medal was returned it showed that [the]… animosity against us was now proved. Do not worry but when things are settled they have their intentions to reply to Mr. Watson. The Americans refused to give Germany cotton, and Hitler said we will make cotton. Now we have cotton—and rubber and all the other things they wouldn’t let us have without dollars.91
Chauncey turned to the economic outlook. Was Dehomag worth saving? Could it be saved? Hummel equivocated from moment to moment on the prospects. In truth, no one knew in this fluid wartime situation just what Germany’s leaders would decide. Would they choose to angrily excise IBM and proceed with a dubious patchwork of punch card systems that would take months if not years to meet the Reich’s escalating needs, or would some pragmatic modus vivendi be adopted?
CHAUNCEY: Then you are going to lose a lot of business after the war?
HUMMEL: I think… Hitler has so much in mind now, improvements, and you saw in the paper the housing plan! We feel that we will lose that business if German competition comes up. Otherwise not. Very few will discontinue machines after the war—except that they may and probably will change our machines for German machines. I think if we do not get German competition, our business will grow tremendously….
CHAUNCEY: When did you first learn… that a new German company should be formed to compete with Dehomag?
HUMMEL: There are dozens of people who have discussed that and Heidinger believes he knows much more. People say, “We will build a factory—and we will get you.” Take [the] case if Goering [Hitler’s second-in-command] buys Bull patents and gets into the tabulating business. What do you think would happen then?
CHAUNCEY: What information have you obtained as to the purchase of Powers in Germany—I have heard now that it may not be Siemens?
HUMMEL: It may be Goering—whenever the Government feels that the industry should be started, it will put it in Hermann Goering Works. You may be sure that if that happens, Dehomag is no longer in business. Look at what Bull has been doing in France—they claimed that you tried to buy them out but that they would not sell out to Americans. Our security is—Rottke [’s] and mine—is continuing with IBM, because we would have great difficulty with [any new] German partners. We merely think in our hearts that we must show you the danger. If you don’t act on it, all right! We were attacked and attacked, and when Mr. Watson got the decoration it helped us. We have a picture of it—here—and a picture of Mr. Watson and Hitler. It was advertising to us. When we wanted something we could show that and say: “You can’t refuse.” With officials and customers it was a good selling point, and when it was returned it had the opposite effect and worse.92
Chauncey now methodically reviewed for himself exactly what business arrangements Dehomag was engaged in throughout Europe, country by country. At the time, IBM had devised complicated and often circuitous methods of payment that generally but not always followed a 75-25 percent split of revenues between New York and Dehomag. IBM subsidiaries across Europe would generate orders for equipment, parts, and punch cards. Dehomag would supply these, either directly or through the subsidiaries it dominated in Nazi-conquered territory. IBM NY’s 75 percent share of the money would sometimes be sent to Geneva, and sometimes to Berlin. Germany would often—but not always—receive its 25 percent share by crediting what it owed IBM for spare parts, the so-called “goods account.” But all these payment procedures were frequently modified—or even set aside—as conflicting country-by-country wartime regulations emerged.93
IBM received its money either through Geneva, which openly transferred the sums to New York, or through Dehomag, which blocked the revenues until war’s end, although they could be used to grow the subsidiary and purchase real estate.94 Chauncey now wanted to make sure Dehomag was still abiding by the payment procedures as much as possible.
CHAUNCEY: Have you ever had any understanding with IBM in Geneva about the classification of machines for royalties?
HUMMEL: We feel obliged to pay on sorters and tabulators. The Devisenstelle [Foreign Exchange Office] will not permit us to pay royalties on other machines. Patents on the sorters will soon expire, and now there is a serious question whether they will say you can’t pay royalties on expired patents. We have to get all the license statements verified by the Government.
CHAUNCEY: Well, I intend to reserve all our rights…
HUMMEL: Austria. IBM owes Dehomag nineteen thousand dollars. That was five or six years ago…. You agreed… to pay us nineteen thousand in cash. But you never paid it and every time we went to the Finance Department it made a serious problem for us.
CHAUNCEY: Go ahead and try to offset what you say is held in Austria for us against those items. Vienna Company?
HUMMEL: After incorporation of Austria in Germany, the tax people claimed that [with] the existence of that company there, that IBM had business in Germany and thereby [was] subject to the high tax. Every opportunity is taken by the tax authorities to fix liability on IBM for that higher tax. They have always contended that Dehomag is an “organ” of IBM and is subject to the tax….
CHAUNCEY: Countries now incorporated into Germany?
HUMMEL: Austria, Sudetenland, German Poland, Alsace-Lorraine, Silesia.
CHAUNCEY: Bohemia Moravia?
HUMMEL: That is treated as a part of Germany.
CHAUNCEY: Poland?
HUMMEL: Very few customers left, the business is almost destroyed. Besides that they are using all the rentals to pay expenses and the Government will soon close the Company because they will not let it continue to lose money. Dehn [IBM’s Polish subsidiary manager] says he can’t continue to do business—all t
he industry [is] now in German hands and they won’t do business with a Watson company.
CHAUNCEY: Can Dehne come to Berlin?
HUMMEL: Yes.
CHAUNCEY: Have him come here.
HUMMEL: Bohemia-Moravia—last month [the] frontier [was] given up, and since that time they have to buy machines. Geneva can no longer buy machines from us and they have to pay 100 percent for them. It is more or less included in the German territory. Not included de jure, but de facto.
CHAUNCEY: Are the employees there still the employees of the Prague Company?
HUMMEL: Yes.
CHAUNCEY: Silesia?
HUMMEL: We have taken over Silesia, which belongs to Germany. An arrangement was made with Schotte for that.
CHAUNCEY: What happened to our machines there?
HUMMEL: Some were sent to Romania and some to Hungary. Some are still there. Rental on IBM machines that are there still get 75 percent of the rentals—you have no expenses there and get 75 percent.
CHAUNCEY: Is the arrangement for Silesia in writing?
HUMMEL: Yes, a copy was sent to Geneva and agreed to by the Devisenstelle.
CHAUNCEY: Danzig?
HUMMEL: Only one customer. There was an agreement between Dehomag and Geneva. You had no customers there as that was always serviced by Dehomag. The people there refused to do business with Poland.
CHAUNCEY: Sweden? Are you furnishing machines, parts, or supplies to Sweden?
HUMMEL: Yes, if Geneva gives us orders. To every country, if Geneva gives us orders.
CHAUNCEY: How are you paid for them?
HUMMEL: 75 percent from the country [Sweden] and 25 percent from the goods account.
CHAUNCEY: Is there any dollar liability there?
HUMMEL: No.
CHAUNCEY: Suppose that Sweden should block its money, what would then be the position?
HUMMEL: Then you would not get permission to export the products to Sweden. But… there is a clearing agreement between Germany and Sweden and there is no possibility that that would happen.
CHAUNCEY: Norway?
HUMMEL: Just the same as Sweden.
CHAUNCEY: Denmark?
HUMMEL: Just the same.
CHAUNCEY: In those two countries, Norway and Denmark, are you in touch with the IBM people there?
HUMMEL: Certainly, we furnish parts and so on to them.
CHAUNCEY: Do you bill Geneva or the local company?
HUMMEL: We bill Geneva for the 75 percent. Sometimes… the authorities don’t agree, then we have to bill 100 percent.
CHAUNCEY: Holland?
HUMMEL: Same condition in Holland.
CHAUNCEY: Belgium?
HUMMEL: Same condition.
CHAUNCEY: France?
HUMMEL: We have to bill direct to the French [IBM] company [in occupied France]. There is some exchange of goods. I don’t think under present conditions we can bill Geneva. We sent them in exchange against parts for alphabetic machines…. eight kilos of paper. They… said they wanted to buy paper and we did not want to mix in that business. They buy direct from the German paper mill.
CHAUNCEY: Alsace-Lorraine. Have you taken over the territory?
HUMMEL: No, we have been called once for service.
CHAUNCEY: Who called you?
HUMMEL: The customers called on us only once.
CHAUNCEY: [Un]occupied France?
HUMMEL: We have no contact with that part of the country.
CHAUNCEY: You have not furnished anything for that part of the country?
HUMMEL: No. We helped [Roger] Virgile [director of CEC, the IBM subsidiary in France] get permission to go to both parts. This territory is taken care of by Virgile himself.
CHAUNCEY: Is the factory in operation?
HUMMEL: As far as I know, a little bit.
CHAUNCEY: Italy.
HUMMEL: We made an agreement with Geneva with consent of New York that in exchange for alphabetical tabulators which we received from IBM, we gave four used American multiplying punches… the first are delivered and the second will… be delivered in January. He [the Italian manager] is in great need for these machines. We pack the machines and send them back to Milan…. twelve multipliers equal to three alphabetic machines. He [is] still manufacturing but very limited.
CHAUNCEY: Romania?
HUMMEL: If Geneva gives us an order for Romania, we will fill it [under the] same conditions, 75 percent and 25 percent. We have not furnished any to Romania [directly]. Few machines sent from Silesia.
CHAUNCEY: Do you have to get a separate permission for each time you send a machine out?
HUMMEL: No, we have a general permission.
CHAUNCEY: Bulgaria?
HUMMEL: Same condition.
CHAUNCEY: Have you furnished any machines?
HUMMEL: No
CHAUNCEY: Yugoslavia?
HUMMEL: Nothing furnished.
CHAUNCEY: Would you be able to furnish machines?
HUMMEL: Yes, except for transportation.95
Chauncey continued pressing Hummel for payment details, country by country. Throughout, when referring to other subsidiaries in Nazi-dominated lands, he spoke as few words as possible—often speaking no more than the name of the invaded country. Not once in the long questioning of Hummel did Chauncey ever ask what the machines were being used for. Nor did Hummel offer any details. In dozens of pages of notes, reports, and messages sent from Chauncey to New York and back, the question never came up. No one wanted to discuss it.
* * *
SECRECY, CONFUSION, and crisis continued to surround Chauncey’s negotiations throughout November and December 1940 as he and IBM attorneys in Germany conferred with various influential personalities in the business community, German military, and Nazi Party. The tension was building as some, including Chauncey, began fearing for their safety.96
IBM attorney Albert had created a nine-page legal opinion with staunch recommendations. In his written opinion, Albert openly conceded that most German military agencies relied upon IBM machinery, and that the Reich was rightly worried that IBM knew the details of secret projects. The Reich’s fear, Albert later wrote, “is not quite as unfounded as it might appear,” based on the intimate knowledge Dehomag engineers required to create and service Hollerith punch card systems. He added, “It is no use to argue that this fear is absolutely theoretical.” Nonetheless, Albert urged Watson to resist efforts to force IBM to relinquish its majority ownership.97
Chauncey was originally going to cable Albert’s supportive opinion to New York, together with a six-page personal report. But at the last minute, he retreated to the Embassy, “for my own protection,” where he typed his letter. “It is important,” warned Chauncey, “that any reply you send me be sent in code and no reference made to this communication whatsoever.” He added that he had shared its contents with no one except the Embassy staff. Embassy people in turn made copies for review by senior officials of the State Department in Washington, D.C., before they in turn delivered the correspondence to IBM.
Albert’s nine-page opinion itself was undated. Chauncey was to destroy it after reading. But with the assistance of the Embassy, Chauncey elected to send it to Watson anyway, by diplomatic courier, writing, “Dr. Albert’s [opinion] is contained in the enclosed memorandum, which I am sending to you, notwithstanding that I am supposed to return it to him for destruction.” Before enclosing it, Chauncey, for extra measure, removed the first page of the opinion, which undoubtedly included identifying letterhead from Albert’s law office. Chauncey shared his worry: “Our people must report their conversations with me, and in some respects they may be under the instruction of the military authorities.”98
But writing from the security of the Embassy, Chauncey’s own report freely outlined what was at stake for IBM NY in retaining its strategic alliance with Nazi Germany. He described the vast financial promise of the Third Reich where “plans are laid for the great economic future of Germany. One of the creeds here is ‘Europe fo
r Europeans,’ and this probably means ‘Europe for Germans.’”99
His report to IBM NY continued, “Naturally everyone here has no doubt about how the war will end, and they build on that…. consequently, they vision Dehomag doing business everywhere in Europe, and under the guidance of the new economic order in Europe, Dehomag would grow tremendously because all countries would use machines as Germany now does…. I suppose they [are] right.” Chauncey added the converse: even “if Germany loses the war, [and] these things will not come into being… American-owned companies could probably resume business as theretofore.”100
Clearly, Chauncey contended, the Nazis now understood that IBM’s technology was vital to their war aims and too entrenched to be discarded. Replacing Holleriths, he argued, would be a long, difficult task in view of the military’s “large use of Dehomag machines.” Indeed, despite all “the animosity,” Chauncey wrote, “the business has, however, gone forward… due to the need of the authorities.”101
In fact, Germany had already thought better of its first hostile anti-Watson reaction and was trying now to find some rapprochement with the IBM Corporation. As for the machines snatched by the Nazis in France, noted Chauncey, “I understand… rental is being paid for them to our French company.”102
IBM should rely on its decided technologic edge, suggested Chauncey, because of the profound difficulty in starting a punch card industry from scratch, especially if New York could block French Bull competition. In spite of the quality of its devices, French Bull was a very small company with very few machines. Bull’s one small factory could never supply the Reich’s continental needs. Ramping up for volume production—even if based within a Bull factory—would take months. Hitler didn’t have months in his hour-to-hour struggle to dominate Europe. In a section entitled “Length of Time for Competition to Come in Actuality,” Chauncey argued, “Unless the authorities, or the new company, operate in the meantime from the French Bull factory, it would appear that much time may elapse before such new company [could]… furnish machines in Germany.”103