CHAPTER 11
After the buyout, the fortunes of the erstwhile partners of convenience, W. W. Gibbs and Isaac Rice, diverged.
Gibbs could not seem to do anything right. Within five years, he had declared bankruptcy, been accused of fraud, moved from his Philadelphia Main Line mansion to a tiny house, and forced his son to drop out of Harvard. The last of these had a serendipitous result, as the son, William Francis Gibbs, became perhaps the foremost naval engineer in America, designer of the SS United States. The younger Gibbs later declared that he “never would have amounted to anything” had his father not gone bankrupt.
Rice fared a good deal better. He resigned from Electric Vehicle in August 1899, his final link with the company severed but his belief in the potential of electricity undiminished. One of Electric Storage Battery’s other customers was a self-taught Irish-born engineer named John Philip Holland, a former music teacher in a parochial school, who was in the process of developing the first self-sustaining submarine. Holland, an Irish nationalist who began his quest in an effort to develop a weapon against the British navy, had been working on his idea for thirty years. He completed his first prototype in 1878—a one-man submersible powered by a foot treadle—and went from there to building machines of increasing sophistication for the next two decades. In 1893, with the Navy Department sufficiently interested in submersibles to offer $200,000 to the winner of an open competition for a workable design, Holland secured the necessary financial backing to form the John P. Holland Torpedo Boat Company and enter the fray. He won handily and was given a government contract, but by 1899, with war declared against Spain and the navy procrastinating, Holland ran out of money.
Even before his negotiations with the Whitney syndicate were concluded, Rice offered to step in. With the proceeds from the sale of Electric Vehicle, Rice purchased a controlling interest in Holland’s company, a stipulation of the deal being that all patents held by Holland personally would be transferred to the corporation, which meant to Isaac Rice. Rice also bought out the Electro-Dynamic Company, which made the motors for Holland’s submersibles, and combined the two in a new corporation, the Electric Boat Company. As with Morris and Salom, once Rice had acquired the patents he both put his own stamp on the design and marginalized the original owner. Holland, like Morris and Salom, was eventually forced out and remained bitter for the rest of his life toward the man he accused of stealing his company.*1
In 1900, Rice used another part of the Electric Vehicle proceeds to purchase land at the corner of Riverside Drive and West 89th Street in Manhattan, on which he erected a four-story Beaux Arts mansion he called Villa Julia, after his wife. Rice designed much of the interior himself. Villa Julia took three years to build and included a soundproof chess room in the basement cut out of solid rock.*2
In 1906, to combat the increasing din from the spate of gasoline automobiles that had proliferated on the streets of New York, Julia Rice founded the Anti-Noise Society. That same year, Isaac Rice received a summons for the unlicensed use of an electric vehicle in Central Park.
Electricity might have been the making of Isaac Rice’s fortune, but it was not going to add to William Whitney’s. Within three years, Hiram Percy Maxim’s prediction as to the limitations of electric vehicles was proven correct.
Whitney and his cohorts had taken on a project that needed more than clever financial structuring. Charging stations were costly and labor intensive, and for all the clean, quiet operation, batteries had severe limits in both power and charge—a 40-mile range for a new battery and only 18 miles after continued recharging, a process that took eight hours. That stunted range might have been manageable in large cities, but it was highly problematic almost anywhere else. The only way to make the venture succeed, then, was through continued innovation, particularly in battery life and efficiency; deft control of costs; and intelligent, hands-on management at all levels, from designing and building the charging stations to managing the drivers—just the sort of things at which Isaac Rice had proved particularly adept.
But the Whitney team did not buy into electric vehicles to laboriously improve an emerging technology. They were interested only in the sort of rapid expansion that could lead to equally rapid and highly profitable turnover. From virtually the moment they acquired the company, its allure began to wane. Daunting operating challenges aside, the Whitney group seemed to have vastly underestimated the effort involved in getting the vehicles built. Even to reach the initial quota of one hundred hansoms involved purchasing, machinery, and organization well beyond the scope of anything attempted in automotive technology to that date.
And although novelty was a strong selling point, getting the public to accept motor vehicles as part of their daily lives was hardly a certainty. Matters were not helped on September 13, 1899, when one of Electric Vehicle’s taxis gained the distinction of striking and killing Henry Bliss, a real estate salesman, as Bliss stepped into the street at 74th Street and Central Park West, the first recorded death of a pedestrian caused by an automobile in United States history. Although Bliss’s mishap was ruled an accident and would not in itself dim the enthusiasm of New Yorkers for their fleet of electric taxis, it proved a harbinger.
As the diseconomies of the electric engine manifested themselves, Whitney’s group cast about for potential alternatives. Although the racing craze had gripped America, at that point gasoline remained a filthy, smoky, cacophonous power source, unacceptable to most of the wealthy patrons who purchased the bulk of private motorcars. “People seem to expect that automobiles should not only be horseless, but noiseless,” Automobile magazine lamented in early 1901. There had, however, been sufficient improvements in the technology—and in sales—to pique the group’s interest. So they called in Hermann Cuntz.
Choosing Cuntz was perhaps the only sound management decision that the Whitney group made. He turned out to be one of those remarkable hires more responsible for the success of a business than the CEO.
After Cuntz stumbled across the Selden patent, he had urged its purchase, but most of Whitney’s group sniffed and proposed the company simply ignore it, as had everyone else. After all, it held no real invention and was for a laughably obsolete design. But Cuntz knew better. He was, as it happened, both a patent attorney and an inventor in his own right—he held a variety of patents for such devices as a gear cutter, a “hand and indicator” for watches that could be coated with radium and made luminous, and a snow-melting machine.
Cuntz once more insisted that, regardless of how primitive the described device, the patent appeared quite solid. In addition, with the concept of “pioneer patents” having been recently introduced into jurisprudence by the Supreme Court, he was convinced that the Selden patent held even greater profit potential than the electric motorcar. That finally won Whitney’s attention. Outside patent attorneys were consulted, and they agreed that the Selden patent seemed to control the art. Whitney and his cohorts instructed Cuntz to purchase the license.
But by then there was competition. After nosing around a bit, Cuntz discovered that another group of Wall Street speculators had set aside $250,000 to acquire the Selden patent, though they had yet to contact Selden himself. Cuntz left immediately for Rochester to make a deal before Selden got wind of the other offer. Like everyone else involved, Cuntz was, at that point, unaware that Selden held only a patent. Once he realized that there was no product or facilities to acquire, Cuntz persuaded Selden to sell for $10,000 and a guaranteed $5,000 yearly stipend, against which a royalty of $15 per car would be applied. Although he did ultimately make hundreds of thousands of dollars, it appears that Selden never learned how cheaply he had given up his monopoly.
Securing Selden’s patent, however, in no way meant that Whitney and his colleagues had abandoned their original scheme. Only the timing had changed. They remained convinced that they could still turn a tidy profit on electric vehicles by building—or appearing to build—a far-flung network of facilities and then selling their interests before the edifice collapsed. The Selden patent could be held in abeyance until that portion of the plan had been actuated.
But Whitney and his fellows had miscalculated. The complex web of subsidiaries that they had created to finance the deal soon came under scrutiny and was revealed—like Selden’s road carriage—to have only paper assets with neither actual sales nor prospects. Investors and newspapers began to talk of fraud, and lawsuits were initiated by minority shareholders. The stock price plummeted.
Under increasing pressure, the Whitney group decided to utilize the Selden patent at once to demand license fees on gasoline motorcars that would, if nothing else, provide an income stream. Fully expecting gasoline car manufacturers to scoff at their demands, the Whitney group prepared legal briefs to enable it to quickly initiate infringement suits. So, just as he had never built the automobile for which he was granted his patent, George Selden, still in Rochester, would have no role in the landmark legal case that bore his name.
When undertaking infringement suits, the usual strategy is to attack the weak first—bring litigation against companies that lack the resources for a protracted legal battle—and then, when those have agreed to pay licensing fees, use the precedent to begin to stalk more robust prey. But Whitney’s group did not have the time to let such a protracted scenario play out. Instead, their first suit was filed against a large supplier of engines, the Buffalo Gasolene Motor Company, and the second against the most successful of the gasoline automakers, Alexander Winton. If these two could be brought to heel, the thinking went, every other manufacturer was sure to follow.
The Winton Company, in particular, seemed a risky choice. By 1899, Winton had sold more than one hundred automobiles, making him by far the most successful manufacturer of gasoline vehicles in the United States. His exploits on the racetrack and in cross-country driving had left him a renowned public figure. Almost certainly Winton had not known of the Selden patent, and so he most likely saw the demand for licensing fees as the transparent dollar grab it was. As a result, when the Electric Vehicle Company initiated legal proceedings, Winton vowed to fight, as did Buffalo Gasolene. To help defer legal expenses, other makers of gasoline-powered cars agreed to fund a protective group, the Manufacturer’s Mutual Association. As an opening gambit, each defendant filed a demurrer, essentially a motion that the case be dismissed out of hand.
Demurrers are pro forma and both motions were rejected, which was not a surprise, but the judges’ rulings turned out also to seriously undercut the defendants’ ability to mount a successful defense, which was a surprise indeed. Electric Vehicles’ legal team, it seemed, had been extremely clever in choosing the venue for its suits.
Winton’s motion went before Alfred C. Coxe, nephew and former law partner of notorious political boss and corporate apologist Roscoe Conkling. (Conkling had once claimed before the Supreme Court, somewhat successfully, that the Fourteenth Amendment had been enacted for the protection of corporations rather than freed slaves.) Coxe had been appointed as a federal judge by Chester A. Arthur, a Conkling associate, and later became the protégé of another New York political boss, Senator Thomas Platt. Platt was known for courting monopoly power and would famously nudge a recalcitrant, trust-busting Theodore Roosevelt out of his way by persuading William McKinley to take him on as vice president in return for a promise to deliver New York’s electoral votes. Buffalo Gasolene faced a similar situation in going before Judge Hazel, whose background and associations were similar to Coxe’s.1
Rather than simply reject the demurrer and allow the cases to proceed to trial, both Coxe and Hazel went to great lengths in their rulings to assert that the Selden patent deserved pioneer status, meaning that the broadest possible latitude would apply. Such strong and unambiguous language established precedent and could not help but create a favorable atmosphere for the Selden interests if and when the cases were actually tried.2
Coxe and Hazel had therefore wholly changed the playing field. What the gasoline car manufacturers had likely considered a nuisance action was now a definite threat to their business. Whitney was sufficiently notorious that his adversaries knew not to underestimate him, but that he might hold the exclusive license to build gas cars was an unexpected cataclysm.
While the scales had tipped his way, Whitney’s position was not all that strong either. Lacking the means to produce a gasoline automobile himself, he would be unable to establish a traditional monopoly—he needed manufacturers willing to actually build the cars or there would be no licensing fees to collect.
It turned out, however, that Electric Vehicle’s lawsuits had provided the impetus for the perfect accommodation between the combatants. Many of the larger carmakers were more than happy to come to terms with Whitney—at the right price—if by doing so they could limit the licenses that Electric Vehicle granted and thus drive the smaller, independent operators out of business. The Whitney group grudgingly agreed to negotiate. When it began to appear that Selden’s patent might enhance their profits rather than limit them, the gasoline faction withdrew support from Winton’s defense and the Manufacturer’s Mutual Association became a shell.
Unable to bleed the licensees, in early 1903 Whitney came to terms. Selected manufacturers—most from the MMA—were allowed to form the Association of Licensed Automobile Manufacturers (ALAM), which would pay modest royalties to the Selden group but would also be allowed to restrict membership and thus licenses to manufacturers of their choosing. To entice Winton to join them as well as to forgo any countersuit, ALAM agreed to foot the legal expenses of any automaker that had been the object of infringement proceedings. Winton, of course, was the only manufacturer that fell into that category. And so, in return for reimbursement of the more than $43,000 he had spent on lawyers, Alexander Winton became perhaps the most auspicious member of a trade group whose sole purpose was to inhibit the very sort of open-source innovation that had allowed the group’s members to establish their own businesses in the first place.
The Selden patent had thus effectively been transferred to ALAM and, in exchange, the Whitney group had obtained the manufacturing facilities it lacked. Any maker of gasoline-powered cars that was denied admission by the ALAM executive board could be put out of business if and when an infringement case resulted in an adverse judgment. ALAM members had gone from victims to oppressors. Almost all of the independents sought to join; some were admitted, some not. One of those denied admission was Henry Ford.