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The End of the Radio Trust

By Philip Scranton
November 26, 2012 4:15 PM EST
Radio Corporation of America broadcast transmitter.
Source: FMAMRadios.com
Radio Corporation of America broadcast transmitter.

Since the 1890s, U.S. antitrust litigation had sought to protect consumers and competitors from concentrated business power and the rigged prices it often yielded. On Nov. 21, 1932, a consent decree signed at a U.S. district court in Delaware proved a "decisive step" in the efforts to enforce antitrust law.

The decree separated the Radio Corporation of America from General Electric Co. and Westinghouse Electric & Manufacturing Co., ending the lawsuit the Justice Department had brought against the radio trust in 1930 for monopolistic practices.

All parties had agreed that an antitrust trial would take four to six months, would be expensive and probably wouldn't turn out well for the defendants. The decree avoided trial and allowed RCA’s founders to assert that they had done nothing illegal, even as prosecutors affirmed that they had.

GE and Westinghouse were to dispose of one half of their stock in RCA to their common shareholders within three months and to divest the rest within three years. As the companies together held more than 51 percent of RCA stock, about 8 million shares, this resulted in full ownership reorganization.

The irony was that the federal government had created RCA after World War I. Leading officials, including then Assistant Secretary of the Navy Franklin D. Roosevelt, had urged its creation to protect valuable wireless patents from foreign acquisition or infringement.

“Important military and naval considerations required that the [wireless] art should be permitted the fullest development to meet the demands of this country in time of war,” the Harvard Law Review wrote.

At first, RCA was simply a patent warehouse. The two electrical giants granted it rights to design and sell, but not to manufacture, radio equipment derived from wireless-related innovations. Only GE and Westinghouse would manufacture the equipment.

Until 1927, RCA couldn't license patents to other enterprises. It thus controlled 90 percent of radio-technology products. However, as complaints about monopolistic practices and fees mounted, its corporate owners relaxed the rule. By 1932, RCA shared patent information with about 43 manufacturers of radio-receiving sets and about 19 manufacturers of vacuum tubes.

After the reorganization, RCA would be able to manufacture and market on its own, GE and Westinghouse shareholders would receive RCA stock, and the pooled patents would remain available almost exclusively to U.S. developers. Users, for their part, could celebrate. They would no longer be subject to the high fees resulting from the close grip on radio patents.

The Harvard Law Review concluded that the decree was “a constructive piece of work, an excellent example of dealing with a difficult and complicated legal and business situation.”

(Philip Scranton is a Board of Governors professor of the history of industry and technology at Rutgers University, Camden, and the editor-in-chief of Enterprise and Society. He writes "This Week in the Great Depression" for the Echoes blog. The opinions expressed are his own.)

Read more from Echoes, Bloomberg View's economic history blog.

To contact the writer of this blog post: Philip Scranton at scranton@camden.rutgers.edu.

To contact the editor responsible for this blog post: Kirsten Salyer at ksalyer@bloomberg.net.

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