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.
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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 notoriou
s 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.
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*1 In 1914, a year before his death, Rice sold his Electric Boat stock at a $2 million profit, roughly $4 billion in today’s dollars. During World War I, Electric Boat built eighty-five submarines for the U.S. Navy. In 1952, the company was reorganized as General Dynamics, which today remains a major defense contractor.
*2 Villa Julia was to be torn down in 1980, but it was saved by Jacqueline Onassis as a historical site. It has since become the decaying home of Yeshiva Ketana, an ultra-Orthodox Jewish boys’ school.
CHAPTER 12
Victory over Alexander Winton at Grosse Pointe once again provided the impetus for a new automobile company for Henry Ford. This time, both Ford and the Ford name would stick. As Ford told it, “The 999 did what it was intended to do: It advertised the fact that I could build a fast motorcar. A week after the race I formed the Ford Motor Company. I was vice-president, designer, master mechanic, superintendent, and general manager.”1
In fact, Ford had been planning for months to move on from Tom Cooper to a new set of investors. As early as May 1902—three months before his breakup with Cooper—Ford had solicited a local coal baron named Alexander Malcomson as a potential new backer. Malcomson—who marketed his product under the brand name Hotter than Sunshine—was a popular, well-connected Detroit man-about-town, who happened to have a rich uncle who owned a bank. He was also a notorious speculator and almost always in debt—often to his uncle—despite the revenues that streamed in from his six coal yards. Malcomson wanted very badly to get into the automobile business—there were few businesses Malcomson did not want to get into—and when Ford presented his plan for a car that could be sold cheaply and in large numbers, Malcomson enthusiastically agreed to fund a partnership. (That Ford had presented the same idea to two previous groups of investors but failed to follow through dissuaded Malcomson not at all.)
In August 1902, before the 999 racer had even been built—and two months before Cooper had been accused of sneaky behavior by Clara Ford—Malcomson and Ford signed a memorandum of agreement. Ford entered the new business with a design for a production model, for which he provided the overview and Harold Wills drew the blueprints.
For a half interest in the new venture, Malcomson agreed to front the $3,000 Ford said he needed to start and to supply any additional financing the venture would require. What he did not divulge either to Ford or to those to whom he already owed money was that, to raise the capital, he would need to pledge all his credit. If Ford once again failed to produce, Malcomson stood to lose his coal yards as well as his automobile.2 For his efforts, Malcomson would ultimately suffer the same fate as Ford’s other partners and, like everyone whose money Ford needed, would earn Ford’s lifelong animus for providing it.
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As his first official act, Malcomson, although he did not know it at the time, made perhaps his greatest contribution to the new venture’s stunning success, and it was not financial. In an attempt to keep news of this latest bout of speculation from his debtors, particularly his uncle, Malcomson opened the bank account of the new company in the name of his office manager, James Couzens. Couzens was also told to work with Ford, both to handle the business side of things and to keep careful watch on where the money went. Malcomson might be impetuous, but he wasn’t stupid.
That assignment turned out to be a stupendous stroke of luck for Henry Ford, because if he had had the option he never would have hired Couzens. The two men were different in almost every way, and during their association their feelings for each other would range from mild antipathy to outright loathing. But each man brought to the company vital skills that the other lacked, and for more than a decade, they put up with each other and became immensely wealthy in the process.
Couzens was nine years Ford’s junior and had emigrated as a teenager from his native Ontario to Detroit. There he found a job inspecting cars at the junction yards of the Michigan Central Railroad, where he would spend the next ten years.
Even as a laborer, Couzens dressed impeccably and conducted himself with sufficient seriousness to be considered aloof by his fellows. But his superiors appreciated his perfectionism and almost obsessive attention to detail, and he was eventually promoted to supervisor. In the new position, Couzens was to deal with shippers and suppliers, one of whom was Alexander M
alcomson. In 1895, the coal man hired Couzens away at double the salary and made him office manager and chief clerk.
The two men worked closely together and eventually developed something of a father-son relationship—a mixed blessing for Couzens, since his own father had been bullying and could exhibit extreme fits of temper, traits that he again encountered at the coal company. But Couzens did not back down when Malcomson’s ire got the better of him—Couzens would never back down from anyone—and when someone was needed to guard what might amount to Malcomson’s last dollar, Couzens was tapped for the job without hesitation.
Couzens, by then married with three small children, had never appreciated the potential of the automobile, a view that did not substantially change when he met Henry Ford. But to Couzens, a business needed to be managed just so, no matter what the product. For his part, Ford never appreciated the necessity of sound business practices, although he thought he did. Their negotiating styles differed as well. Ford tended to be dry and acerbic, which was often merely off-putting, whereas Couzens could be pugnacious and confrontational when the situation called for it (and sometimes when it didn’t)—a useful trait for a small business trying to appear more successful than it actually was.
Soon after the August agreement was signed, Ford and Wills began to hire mechanics and craftsmen to build a prototype for the company’s new car, which Malcomson intended to call the Fordmobile. Both he and Couzens had decided to market the maker as much as the car, a strategy with which Ford was in hearty agreement.
As the prototype began to take shape—Ford and Wills would produce the engine and chassis and subcontract the body, wheels, and other parts—Ford and Malcomson converted the partnership to a corporation. The November 1902 filing indicated a capitalization of $150,000 divided into 15,000 shares. The two principals split 6,900 of those shares and paid $3,500 for an additional 350, which left 7,750 shares to be sold to the public. The paid-in capital was to be used to finance production and marketing of the company’s car.
Drive!: Henry Ford, George Selden, and the Race to Invent the Auto Age Page 15
