Jay Gould was a railroad Robber Baron. In the Gilded Era of unregulated financial markets and turbulence, Gould knew how to manipulate markets and execute hostile take-overs. Both railroads and telegraph were inventions of the industrial era, requiring access to long stretches of right of way, and were carriers of third-party goods, information, and passengers. Both were interstate corporations and the country's first nationwide monopolies. Both were vital to the economic development and the defense of the nation. From 1860 through 1888, Congress passed a series of Manifest Destiny laws that were simultaneously railroad and telegraph authorizations. Railroads were the property owners of vast rights-of-way, they were legally mandated to construct and operate telegraph service, and were the anchor customers of telegraph. The business of railroads and telegraph went inextricably intertwined.
In 1874, Jay Gould acquired control of Union Pacific Railroad. Union Pacific Railroad had control of the small Atlantic & Pacific Telegraph Company. Gould was now in the telegraph business. The 'Dark Genius of Wall Street' he set his gaze on Western Union.
See Edward J. Renehan, Jr., Dark Genius Of Wall Street: The Misunderstood Life Of Jay Gould, King Of The Robber Barons (2005). C-Span video of Renehah book tour.
Gould and the Railroads
Gould was a a robber baron and was skilled a manipulating markets in order to gain control of railroads. In 1874, Gould gained control of Union Pacific Railroad (The Union Pacific had been established in 1862 by an act of Congress [U.S. v Western Union, SCt Nov. 18, 1895]) and therefore the Atlantic and Pacific Telegraph Company. Gould was now playing with the telegraph market.
Gould negotiated with the Baltimore & Ohio Railroad to switch teams. It went from having an exclusive contract with Western Union to having a contract with the Atlantic & Pacific Telegraph company (which was then acquired by Western Union)
After Gould sold Atlantic & Pacific Telegraph to Western Union, he then acquired the Wabash Railroad, formed the American Union Telegraph, and granted himself permission to use the railroad's right of way. We also negotiated with other railroad companies to break their exclusive contracts with Western Union and grant permission to his American Union telegraph.
Protecting the Western Market of Union Pacific, Gould acquired the St. Joseph and Western Railroad in 1879 and the Kansas Pacific Railroad in 1880. [Stock Certificate for the St. Joseph Railroad Company, owned by Jay Gould, dated 1879] St. Joe had had an exclusive contract with Western Union. Gould had St. Joe seize control of the lines. A federal court enjoined the railroads self-help seizure of the telegraph lines - holding that such a contractual matter properly needed to be litigated through the courts - but also held that Western Union's exclusive contract with the St. Joseph was void
Atlantic & Pacific Telegraph Company
In 1852, Henry O'Reilly was the first to publicly advocate for an Atlantic & Pacific line (a.k.a. a transatlantic line).
[A Memorial by Henry O'Reilly, Proposing a System of Intercourse Across the American Continent, American Telegraph Magazine Vol. 1, No. 1, Oct. 1852]
[Memorial of Henry O'Reilly, concerning Military Highways or Stockade Routes for protecting travellers and settlers, facilitating mail and telegraph communication through vast interior territories, and rendering the United State independent of foreign countries for transmitting mails between Atlantic and Pacific states, 35th Cong., 1st Sess., Misc. Doc. No. 134, Jan. 5, 1858.]
[Marysville 1861 ("It is not know who first conceived the idea of building a wire across the continent, but it was first made the subject of a public effort by Henry O'Reilly, who, about ten years ago memorialized Congress on the feasibility of telegraph communications between the Mississippi Valley and the Pacific")] When Morse's patents expired in the 1860s, O'Reilly was first in line for a chance to take Western Union down a peg. James Reid recounted
"Now, unshackled by patents, a clear field before him, he commenced, with characteristic impetuosity, the organization of Companies to carry out his various undertakings. His plans, though somewhat vague and general, were such as to inspire much of the old enthusiasm under which his early projects had been accomplished. He was aglow with all the energy of his sanguine character, and his elastic sunny nature won again, as in other days, many friends." [Reid at 578]
Awaiting the expiration of the Morse patents, O'Reilly had an office in Manhattan where the huge signs in the window read "Telegraph to the Pacific." His stationary letterhead read "Atlantic and Pacific Telegraph, Telegraph Construction Office." But when the moment came, O'Reilly had failed to learn the lesson of network economics and network effect. [Reid at 578 ("But Mr. O'Reilly had not learned by experience, and commenced again districting the face of the map with independent, or co-operating lines. He seems never to have fully conceived the grandeur of the telegraph as a unit. This may have been the result of an innate hatred of monopolies.").] He again embarked on a series of small, independent telegraph network projects, and by the time in 1866 when he turned to the Atlantic & Pacific Telegraph company, he received the "unexpected blow" that his financial backers had formed the company without him. O'Reilly, instead, turned his endeavors to the National Telegraph Company.
"The Atlantic and Pacific Telegraph Company was regularly organized December 2, 1865, under the telegraph laws of the State of New York, with a capital of $ 5,000,000." [Reid at 579]
[A New Company, The Telegrapher, Vol. II, No. 26 April 16, 1866 p. 94 (describing the "Atlantic and Pacific Telegraph Co." as a "New Company.")]
[Atlantic and Pacific Telegraph Company, The Telegrapher, Vol. III, No. 51 May 1, 1867 p. 191 ("This company have completed their organization")]
The A&P from New York to Buffalo opened to the public in 1867. In 1874, A&P formed an agreement with the Chicago, Rock Island and Pacific Railroad and provided telegraph service to Omaha. [Reid at 580]
In 1869, Union Pacific Railroad acquired control of the small Atlantic & Pacific Telegraph Company; A&P leased the railroad's telephone poles; Union Pacific received 24,000 shares - a controlling interest - of A&P.
[The War of the Telegraphs, NYT April 4, 1880 ("In 1869, the Union and Central Pacifici Railroad Companies leased their telegraph lines to the Atlantic and pacific Telegraph Company in perpetuity, the consideration received by the railroad companies being a certain amount or capital stock of the telegraph company, the railroad companies agreeing to maintain the lines in good working order and to furnish all needed instruments and operators.")]
[Nairn at Chap. 3 ("The only competition of any note came from the Atlantic and Pacific Telegraph Company, which had come to arrangements with Union Pacific in 1869 (and later also Central Pacific) in exchange for stock.")]
[Reid at 580 ("In 1874 they had reached Omaha, Neb., by the Chicago, Rock Island and Pacific Railroad, and Ogden in Utah, by the Union Pacific Railroad. Connections with the Pacific coast were secured by contract with the Central Pacific Railroad Company which had constructed a line of iele graph of its own between Ogden and San Francisco.")]
[The War of the Telegraphs, New York Times, April 4, 1880 ("In 1869, the Union and Central Pacific Railroad Companies leased their telegraph lines to the Atlantic and Pacific Telegraph Company in perpetuity, the consideration received by the railroad companies being a certain amount of capital stock of the telegraph company, the railroad companies agreeing to maintain the lines in good working order and to furnish all needed instruments and operators.").]
In the early 1870s, Atlantic & Pacific made an overture to Western Union to be acquired. "but the panic of '73 had come in, and the W.U.T. had by that time swallowed so many companies that it was suffering from indigestion, and had been put on a low diet for a time by President Orton." [Harlow at 325]
In 1874, Gould acquired control of Union Pacific, and therefore Atlantic and Pacific Telegraph Company. At the time, "By these various extensions and alliances the lines of the company embraced, in 1874, 5,097 miles of poles and 12,039 miles of wire. It had an authorized capital of $10,000,000 with an actual issue of $ 9,578,100." [Reid at 580] A&P is approximately 7% the size of Western Union.
Gould and Gen. Thomas Eckert
Gould would leverage the expertise of Thomas Eckert. Thomas Eckert had been Assistant Secretary of War, an officer for the US Military Telegraph Office, during the Civil War. Eckert emerged from the Civil War to become General Superintendent of Western Union
[WU Report 1869at vi]
[WU Report 1873 at 15 (Eckert was assigned to looking into the pneumatic tube business)]
1867: Vanderbilt controlled WU overlooks Eckert and names William Orton President of WU. Eckert did not get along well with Orton.
[Klein at 199 ("Jay learned of his discontent and resolved not only to acquire his services for A&P but also to use him as an intermediary in reaching Edison.")]
January 1875: Eckert resigns Western Union position; becomes President of the Atlantic and Pacific Telegraph Company.
[Reid at 584 ("Gen. Eckert's resignation and election to the Presidency of the Atlantic and Pacific Telegraph Company was sudden and unexpected. It was at once instinctively regarded as a sign of battle with the Western Union Telegraph Company, whose service he had left.")]
[NYT Jan. 15, 1875]
[Klein at 200 (week after the Edison agreement)]
[Harlow at 325 ("Gould struck up a friendship with General T. T. Eckert,
Superintendent of the Eastern Division of the Western Union,
and playing upon the latter's dissatisfaction with what he regarded
as certain mistaken policies of his company, induced him
to leave it.")]
Gen. Eckert hires "as his three chief aides none other than the three former cipher men in the War Department during the recent war Albert B. Chandler, D. Homer Bates and Charles A. Tinker."
[Reid at 583]
[Harlow at 323 ]
In 1893, After Gould's successful takeover of WU, Eckert becomes President of WU. [Gen. Thomas Eckert Elected to Succeed Dr. Green, Western Union's President, New York Times, March 9, 1893 ("he quit the company to join the Atlantic and Pacific Company. In this stop, however, he was led by Jay Gould, who greatly admired his talents and employed them in the warfare conducted against the Western Union, both by means of the Atlantic and Pacific and the American Union")] [Edison Papers, Automatic Telegraphy]
Gould took advantage of The Post Roads Act to give him access to Post Roads and railroad ROW, ending Western Union's exclusive agreements with railroad companies. Thomas Eckert had been on the WU Board of Directors when it agreed to the Post Roads Act. He would have understood Norvin Green's strategy - and would have been able to bring it over to A&P and Gould. [Klein at 194 (Klein quoting Matthew Josephson in The Robber Barrons, Gould, "with the advice of a technician, a certain General Eckert, set about building a telegraph line of his own along the tracks of his railroads, which he named the 'Atlantic and Pacific Company.'")]
Gould, Edison, and the Little Automatic Telegraph Company
Image of Edison's American Automatic Telegraph at the Henry Ford Museum. Youtube.
Gould leveraged technological advantages. He took control of the Little Automatic Telegraph Company, along with Little's and Edison's inventions. After Edison and Orton had a falling out, Gould stepped in and hired Edison as Chief Electrician.
The Duplex and Quadruplex allowed the telegraph service to send multiple telegraph signals over a single line - with transmitters and receivers tuned to the different messages. The automatic telegraph was a traditional decision of network design, relying on processing power versus line capacity. Messages would be prepared at the sending station by having an operator perforate a paper tape. The paper tape was fed into the automatic telegraph machine which could send the message faster than a human operator, and received by an automatic telegraph machine, which would produce a corresponding perforated paper tape. Whether the automatic telegraph machine was worth the extra time necessary to prepare the paper tapes depended on the traffic load of the telegraph circuit. If the circuit was operating at above capacity (if messages were being cued), then the automatic system could increase capacity. But if the circuit was operating at less than capacity, than the time necessary to prepare the paper tapes would delay the transmission of the message (increase the latency). For this reason, James Reid stated "the automatic method is useful only as an auxiliary , and has nowhere shown itself practicable as a separate system." [Reid at 588] The efficiency of the automatic system also depended on the quality of the line and the distance of the circuit; longer circuits supported only lower words per minute rates. The automatic telegraph only made sense when demand exceeded capacity - and capacity could always be increased by stringing another line.
The technological advantages enable Gould to reduce costs and reduce price in order to engage in a price war with Western Union. Western Union felt the squeeze, with Orton reportedly stating "last year a man invented a method of sending four messages simultaneously along the same wire, and the Pacific Telegraph Company (SIC) bought his patent for seven hundred and fifty thousand dollars ($750,000). The result is that the Pacific Company (SIC) has been able to reduce their prices so as to compete successfully with Western Union." [Michael Wolff p. 44 (quoting Orton)] [Klein at 203] According to James Reid
"At last, on January 1, 1877, the announcement was made that a general tariff of twenty-five cents for ten words had been established over all territory east of Omaha. This was a bold step. It seemed, and was, suicidal. The Atlantic and Pacific Company had not wires enough to transmit with promptness the increased business which such a reduction required to keep up its average receipts. By means, however, of the duplex and automatic systems and under very expert handling, a large business was done." [Reid at 587]
The relationship between Edison and Gould would sour, and Edison would return to Western Union - and eventually stop working in the field of telegraph and telephone.
1869: George Little patents an automatic telegraph system, calls it the Little Automatic Telegraph system. [Automatic Telegraphy, Journal of the Telegraph, Vol. III, No. 24, p. 1, Nov. 15, 1870 ("In 1869, Mr. George Little, of New Jersey, patented an apparatus for preparing messages for transmission by Bain's automatic system")] Western Union spent three pages of its 1869 Annual Report declaring that the automatic telegraph is no threat because (a) it owns the invention and (b) it is "totally impracticable." Western Union described an automatic telegraph as follows:
"For many years past efforts have been made to perfect a system of rapid telegraphing, which should be able to transmit several times as many despatches per hour over a telegraph wire as can be done by the Morse instrument. The theory upon which all the experimenters in this direction have proceeded is that electricity has a definite velocity like light, and that all that is necessary to produce the most rapid writing at any dis tance is an instrument to record the signals produced by an automatic process, similar in principal to Professor Morse's original type and port rule transmitter.
"In 1844 Mr. Bain, of Edinburgh, devised a plan of perforating the despatches for transmission through a strip of paper, in the characters of the Morse alphabet. The prepared paper was then passed between a metallic comb and roller, which were in connection with the line wire, the circuit being completed when the teeth of the comb passed through the holes in the paper. At the receiving station he used chemically prepared paper, upon which the messages were recorded in colored dots and lines. The apparatus, although very attractive in theory, has never been of any practical value, as the time occupied in preparing the messages for transmission is many times greater than that required for sending by the Morse system, and an equal, if not greater length of time is consumed in copying them, while the Morse operator, who reads by sound, copies his messages as fast as they are sent. Subsequently, Mr. Ilumaston and others invented instruments for more rapidly perforating the paper, which it was thought by some would bring the "fast sytem" into general use, but these anticipations have never been realized. Mr. Humuston's apparatus, although very ingenious in design, is of so complicated a character as easily to get out of order, while its capacity for producing the Morse characters, when worked by an expert operator, is only about one third as great as that of the ordinary hand key. Added to these difficulties are the still more serious ones that messages cannot be sent by this system at a faster rate of speed than by the ordinary Morse apparatus, except over comparatively short distances; that it cannot be used upon a wire strung upon poles with other wires; nor will it work during a magnetic storm, except by the employment of a double line. Taking all of its merits and demerits into account, it is so greatly inferior to the Morse, and other systems in use, that it cannot be profitably employed either in connection or in competition with them."
[WU Report 1869 at 37] Compare [Report of the Executive Committee of the National Telegraph Company, To Subscribers of its Capital Stock, on Little's Automatic System of Fast Telegraphy, Letter from D.H, Craig, p. 10 (1869) ("Prominent gentlemen connected with the Western Union Telegraph Company have gone out of their way to assail the modest statements of myself and friends in connection with the Little Automatic machines, and on the strength of the fact that Company tried in vain to utilize the clumsy, complicated, incorrect and expensive Bain-Hummaston machinery for fast or automatic telegraphy, they do not hesitate to condemn all automatic telegraph machinery, and assert that, after full and expensive tests, the company had 'discarded it as totally impracticable.'")]
National Telegraph Company (1866): In 1869, Little licenses his automatic telegraph to the National Telegraph Company (1866). In 1870: The National Telegraph Company (1866) attempted to demonstrate the superiority of the invention on a NYC to DC line, but the experience went poorly. In 1871, The National Telegraph Company sold the NY-DC line and rights to automatic telegraph to that Automatic Telegraph Co.
[Agreement, National Telegraph Co, Automatic Telegraph Co, January 18th, 1871]
[Letter from George Harrington to George B Walter, February 2nd, 1871, Edison Papers Digital Edition (negotiating terms between NTC and Automatic Telegraph)]
[Harrington v A&P, SDNY 1906 ("Under a contract of purchase from a company known as the National Telegraph Company, the Automatic Telegraph Company had the right to use, and at that time did use, the line of the latter from New York to Washington.")]
Automatic Telegraph Company 1870: George Harrington of the Automatic Telegraph Company brings the Little Automatic Telegraph to Edison, offering Edison $40,000 to make the device work and become commercially viable. Edison works on and improves the invention. Edison assigns a two-thirds interest in his inventions to Harrington and retains a one-third interest. The first patent for his work was issued December 5, 1871. [Thomas Edison, Improvements in Printing-Telegraph Apparatus, Patent #US113033A (granted March 28, 1871)] [Thomas Edison, Improvements in Machinery for Perforating Paper for Telegraph Purposes, Patent #US121601A (granted Dec. 5, 1871)] [Hughes at 162] [Klein at 198 ("In 1870 Edison devised an automatic, or high-speed, telegraph with funds advanced by the Automatic Telegraph Company, a new firm headed by former diplomat George Harrington and Josiah C. Reiff, financial agent for the Kansas Pacific.")] [Harrington v A&P, SDNY 1906] [Automatic Telegraph, Thomas Edison Papers, Rutgers School of Arts and Science ("Edison worked on automatic telegraphs between 1870 and 1874. He first developed an improved perforator with a keyboard similar to that of a typewriter that operated at about 35 words per minute. ") (includes photos of Edison's automatic telegraph device)]
1872: George Little sells his automatic telegraph patent to the Automatic Telegraph Co. Agreement is signed by Harrington and Little. [“Agreement, Automatic Telegraph Co, George Little, May 6th, 1872,” Edison Papers Digital Edition, accessed April 23, 2020,]
1873: Edison invents Quadruplex telegraph. Estimates potential savings to WU of $450,000. Attempts to negotiate new contract with Orton. Contract negotiations fail. Edison walks out with ownership of his telegraph inventions. Takes his inventions to the Automatic Telegraph Company. [Klein at 199] [Hughes at 164 ("In a single stroke Edison had multiplied Western Union's output capacity, but the company (probably also hard-pressed) still would not pay him.")] [Michael Wolff 43 (1875: New York Times reports on Thomas Edison's quaduplex telegraph research)] [“Publication, Daniel H Craig, Automatic Telegraph Co, February 1873,” Edison Papers Digital Edition, accessed November 19, 2020, http://edison.rutgers.edu/digital/document/Z100BP.]
1872-1874: Edison invents improves the automatic telegraph. Edison's American Automatic Telegraph is used on NYC-to-DC line of the Automatic Telegraph Co. It is displayed at the Centennial Exhibition in Philadelphia in 1876.
[Thomas Edison Papers, Rutgers] [Harrington v A&P, SDNY 1906 (alleging that A&P "falsely claimed to have the right to use such system, together with a telegraph line between New York and Washington, owned by the Automatic Telegraph Company.")]
[“Agreement, American Automatic Telegraph Co, 1874,” Edison Papers Digital Edition, accessed October 19, 2020, (standard agreement for the use of the Edison Automatic Telegraph system on railway telegraph lines.)]
[Patent Model of Edison's Automatic Telegraph, 1879, The Henry Ford]
[Thomas Edison, Improvement in automatic telegraph instruments, U.S. Patent 0,134,867, 1873-01-14 Application granted]
[Reid at 587-89]
December 1874. Gould and Eckert visit Edison for a demonstration of the Quadruplex telegraph.
[Klein at 200]
[Thomas Edison Papers, Rutgers]
Atlantic and Pacific Telegraph Company: Gould gains control of the Automatic Telegraph Company including the NYC-to-DC line and the automatic telegraph inventions. 1874-1876: Edison's automatic telegraph is used on lines of the Atlantic and Pacific Telegraph Company. [Thomas Edison Papers, Rutgers] According to James Reid,
"The Atlantic and Pacific Company which has been practically alone in the test of the automatic system under which the telegraphs of England have been more or less successfully operated, had, in 1876, twenty two automatic stations. The chief of these were New York, Philadelphia, Baltimore, Washington, Pittsburgh, Boston, Albany, Buffalo, Cincinnati, Chicago, Omaha. From January, 1875, to July, 1876, the through business of the company to these and more distant points was transmitted almost solely by the automatic process. On the New York and Washington circuit (250 miles) press matter was transmitted at an average rate of 250 words per minute and dropped at the chief intermediate stations. On this circuit the system is still employed. The circuit from New York to Pittsburgh (500 miles) is worked at an average of 100 words per minute, although, on a test, 900 words have been transmitted. Between New York and Boston a speed of over 2,000 words per minute has been reached. On other circuits, because of inferior conductors, the speed did not exceed seventy-five words per minute. The preparatory perforation of the paper strips is done at an average of twenty words per minute. But for this capacity of transmission the lines of the Atlantic and Pacific Company would have been thoroughly choked, and the press business, for which it was largely employed, lost." [Reid at 589]
January 1875: Eckert brings Edison to Gould's home. Edison accepts offer of $30,0000 and A&P stock. [Klein at 200] [Hughes at 164 (Gould "gratefully replied with a check for $30,000 for Edison's part of the quadruplex system. Bother Western Union and Atlantic & Pacific were now using the system, Western Union by Prescott's patent rights, and Gould by Edison's")]
January 1875: Atlantic & Pacific Telegraph Company acquires the Automatic Telegraph Co. , along with its Edison patents and the NY to DC line.
[Thomas Edison Papers, Rutgers]
[Bill/Receipt From Jay Gould To Automatic Telegraph Co, April 1St, 1875, Thomas Edison Papers, Rutgers (receipt dated Jan. 16, 1875 "Received of Thomas T. Eckert (for Jay Gould) twenty-five hundred dollars, on condition of the transfer of the line and equipment of the Automaticd Telegraph Company to the said Eckert, in accordance with agreement between Jay Gould and George Harrington")]
[Harrington v A&P, SDNY 1906 ("sale and transfer to (Jay Gould) of the automatic telegraph system, with the telegraph line and apparatus, officers, etc., above mentioned, including any similar patents that Mr. Edison might thereafter invent.")
[Reid at 588 ("The Atlantic and Pacific Company which has been practically alone in the test of the automatic system under which the telegraphs of England have been more or less successfully operated, had, in 1876, twenty two automatic stations")]
1875: Western Union rehires Edison to research the harmonic telegraphs that Gray and Bell had been working on. Western Union's Orton tells Edison about Phillip Reis's telephone research. [Wolff 49]
1876: Edison and Harrington sue Gould concerning the 1875 deal where Gould acquired the Automatic Telegraph Co. The lawsuit is resolved in 1906. [Harrington v. Atlantic and Pacific Co., (SDNY Jan. 25, 1906) ("holding "the assignments in question to Gould and from him to the company were inoperative.... infringement is not controverted"")]
Western Union and Bell Telephone Agree to Divide the Market
Orton immediately regretted calling Bell's telephone a "silly toy," and directed Edison, while Edison was still working for him, to invent a telephone so that Western Union could enter the telephone market. Bell and Hubbard did not welcome Western Union's entrance into their market, and sued. But with the main attack coming from Jay Gould, this was not a battle that Orton could afford to expend Western Union resources on - especially given Orton's hubris that the telegraph was superior to Bell's telephone. In 1879, Western Union and Bell agree to divide the market and not compete directly with each other.
1872: Gardiner Greene Hubbard meets Alexander Graham Bell, invests in his "harmonic telegraph" with goal of promoting patents that can compete with Western Union. 1874: Having been unsuccessful in establishing his Postal Telegraph Service through congressional legislation, Hubbard returns home to Boston, where he is greeted by Bell with a new invention. [Michael Wolff p. 42]
March 1874: Alexander Graham Bell visits Orton. Orton refuses to invest in Bell if Hubbard is involved. Bell threatens to take his invention to the Atlantic & Pacific Telegraph Company. Orton backs down indicating that WU would buy the invention if it could be perfected. [Michael Wolff p. 45] Negotiations conclude in 1878 with Orton's refusal to buy.
WU directed Edison to investigate telephony "with a view to acquiring such patents as would enable the Western Union to use the telephone in connection with its business." Franklin Pope, Edison's partner, recommend acquisition of the Gray patents. WU acquires telephone patents from other telephone companies [Michael Wolff 49-50 ("Dec. 13, 1877: Edison files patent describing variable resistance. Edison files patent caveat for device that analyzes sound waves. ")] [Kingsbury 109 (Mar 22, 1877: Thomas Edison and WU enter agreement whereby Edison assigns his telephone / telegraph inventions to WU.)] 1878: Edison files patent for essentially a microphone. [Michael Wolff p. 49]
1877
Bell's telephones are very well received. WU's telegraph units were being taken out and replaced with Bell's telephones. [Kingsbury 98] [Field 249]
December: WU enters the telephone market based on the patents of Edison and Gray. Forms the American Speaking Telephone Company. [Brooks at 61 (stating that WU also based its actions on the work of Professor Amos E Dol bear)]
[Scripophily]
[Photo of American Speaking Telephone]
[George Walker, President, American Speaking Telephone Co., Telephone Patents, Circular to the Public, Feb. 19, 1879, Library of Congress ("Mr. Bell's patent of that date contains no mention whatever of a speaking telephone It is for an improvement in a system of multiple telegraphy, an invention of the same general character as several prior inventions patented by Mr. Gray. In his specifications for this patent Mr. Bell makes no reference whatever to the possibility of transmitting articulate speech by his apparatus. Moreover, the apparatus there described never was a speaking telephone and is incapable of being made such.")]
[Field 250 ("Western Union built telephone systems in fifty-five cities.")].
"The Harmonic Telegraph Company was owned and controlled by Elisha Gray and SS White... The American Speaking Telephone Company was organized to develop the Western Union telephone interests. Gray with his partner held one-third interest in it." [Kingsbury 187]
[Telephone Cases, 126 U.S. at 319 (Argument of AT&T "Mr. Gray claimed it only when the Western Union Company acquired his pretensions in the fall of 1877 and set him up as a "prior inventor."")]
1878
March: Based on Gray's patents, WU files a claim of interference against Bell's patents. Known as the Dowd Case, filed in federal district court in Massachusetts. Western Union, the American Speaking Telephone Company, and the Gold and Stock Company were the plaintiffs. [Telephone Cases, 126 U.S. at 147] [Michael Wolff 50]
September: Bell sues WU. [Telephone Cases, 126 U.S. at 464 (Argument of American Bell Telephone "When their agent Dowd was sued for infringing the Bell patent they defended the case, set up for him that Gray was the, first inventor, and that he made his telephones under license from. Gray. This was done in the name of the American 8peaking Telephone Company, in which Gray and his partner owned a third of the stock and in which Gray was a director, while Gray was called as a witness to maintain that defence.")]
Bell had $850k; Western Union was the "largest corporation that ever existed." WU had ~$41m capital and was backed by the Vanderbilts. [Michael Wolff50] [Brooks at 63] [Coon at 41]
Gould buys telephone exchanges from Bell with threat to compete against WU's telephone service.
1879
Sept. 15: Western Union opens telephone exchange in Cleveland. Will be sold to the Cleveland Telephone Co. [Busch]
November: Bell and Western Union settled
Bell Telephone and Western Union agree not to compete with each other.
Bell Telephone would depart from the telegraph market and Western Union would depart from the telephone market (note that at this time long distance communications was feasible only using a telegraph, not a telephone).
Western Union agreed to recognize Bell's patent. Western Union transferred all of its telephone patents (Edison, Gray) to Bell.
AT&T agreed to pay 20% of its profits to Western Union for 17 years, and to buy 55 Western Union telephone exchanges.
[The Telephone Settlement, Boston Daily Advertiser, Oct. 25, 1879 ("The compromise thus not only secures freedom from litigation and control of all the patents now out for the purpose of transmitting human speech, but establishes harmony of interests between the Western Union and the new company, which must be of inestimable value to both.")]
[Telephone Cases, 126 U.S. at 467 (Argument of the National Bell Telephone Company, stating that Western Union "surrendered," recounting "The settlement between the two parties was that while it was recognized, both in language and by financial result, that the Bell patent was valid and controlled the profits of the business, yet that the subsidiary inventions of Edison, Page, and others owned by the Western Union were of some value; that they should be put into the hands of the Bell company to use; and that the Western Union should have such proportion of the total proceeds as might represent the value of these subsidiary patents. It was agreed that one-fifth of the proceeds corresponded to that value, and that was what they received.")]
[Sterling p 55]
[Farley at 4]
[Mueller p 33]
[FCC 1939 p 124]
[Catania]
[Porticus]
[Kingsbury 188]
[Coon 51]
[Wolff 51 ("over the enxt 17 years WU received nearly $7 million in royalties from the Bell Company")]
[Bolter 75 ("this agreement established the basic monopoly service and product structure for domestic U.S. communications, as divided between Western Union and Bell, for roughly the next 100 years.")]
[Matthew Lasar, How AT&T Conquered the 20th Century, WIRED September 3, 2011 ("Western Union resorted to vicious tactics in its fight with Bell. It refused to install telegraph lines in locations where Bell had set up franchises.")]
WU settled with Bell in order to deal with Jay Gould's hostile take-over attack. [Brooks at 71] [Coon at 42] [Michael Wolff p. 51 ("within a year Gould gained control of the company anyway.")]
"Insiders in Western Union and the Bell companies were thinking of their investments. To the public, however, it must have seemed strange that the Western Union lawyers should make overtures for a compromise. Apparently, nobody in the communications field was fond of the idea of competition. They had all experienced competition and they definitely did not like it. As far as their business was concerned, they could see no advantages in it. They only people who could profit by competition were gamblers like Jay Gould who could use a competitive company for its nuisance value and sell out to the monopoly." [Coon at 42] [See alsoWolff p. 51 (both parties realized that competition benefited no one)]]
"Testimony was prepared, but the case never came to trial. Experts in electrical science and in law had examined all the evidence that could be got together, and advised the Western Union that it was impossible to plead anticipation or to impeach the validity of the Bell patents. Mr. Frank L. Pope, a well-known electrical and patent expert, advised to that effect, and Mr. George Gifford, an eminent lawyer who was leading counsel for the Western Union, reached the same conclusion. In consequence, overtures were made with a view to a settlement on terms. The nature of these overtures and the result were subsequently recorded by Mr. Gifford in an affidavit, in the course of which he stated that in the years 1878-1879 he was one of the counsel for the Western Union Telegraph Company." [Kingsbury 187]
Telephone Cases, 126 U.S. at 466 (argument of National Bell Telephone: "The Western Union Company had spent two years' time, with'all its wealth and resources, hunting this country and Europe for a defence. But when this testimony was taken aid printed, the late Mr. George Gifford advised them that the courts would always find that Bell was the inventor of the speaking telephone and that he had a good patent for it. They thereupon surrendered and submitted to a decree against them. The whole story is told by Mr. Gifford under oath, and is in the record. No judgment of a court could be more persuasive than the surrender of such a corporation, under the advice of such counsel, after such a preparation.")
1909
1909: AT&T acquires - but then is forced to sell off - Western Union.
Gould also was able to leverate his newspapers. [Daniel Alef, Jay Gould: Ruthless Railroad Tycoon (2010) ("Gould's newspaper The New York World... denounced WU and drove down the price of its stock.")]
Repeatedly over the next few decades Post Office will argue in favor nationalizing the telegraph and telephone service. As fervor in favor of nationalizing the telegraph grew, it met opposition from Jay Gould who was seeking to corner and monopolize the telegraph market.
Gould's Timeline
1869
Atlantic & Pacific Telegraph Co. enters into an agreement with Union Pacific Railroad. A&P leases UP's telegraph poles in exchange for a controlling share of A&P's stock.
[Union Pacific, 160 U.S. at 59]
[NYT April 5, 1880]
[Nairn at Chap. 3 ("The only competition of any note came from the Atlantic and Pacific Telegraph Company, which had come to arrangements with Union Pacific in 1869 (and later also Central Pacific) in exchange for stock.")].
1873: Long Depression Weakens Players Financially
1874: Round I: Gould Gains Control of A&P
1875: Gould Launches First Rate War with A&P
A&P enters merger negotiations with National Telegraph, Franklin Telegraph, and WU. The negotiations with National Telegraph fall through; A&P acquires Franklin Telegraph in the next year.
[Telegraph Companies, Yankton daily press and Dakotaian., Vol. 1, No. 111, September 01, 1875, p. 1 (merger negotiations between WU and A&P fail, resulting in a decline in WU's stock price)]
[Reid at 594 ("With the close of the year 1874 the contest between the Atlantic and Pacific and Western Union Telegraph Company began to show signs of vigor. The former company, to strengthen its position, purchased through John R . Duff 5,100 shares of Franklin stock, elected a new board who, November 20, 1874, voted under the advice of W. J. Syms, the President, to lease the Franklin Lines to the Atlantic and Pacific Company, at $25,000 per annum, for a term of ninety - nine years.")]
[Harlow at 325]
Western Union acquires The Central Union Telegraph Company; and the New England Telegraph Company [Smithsonian (this date might be wrong - this might be a Gould company acquired by WU along with A&P)]
Drives down price and price of WU stock. WU skips April dividen; attempts to purchase A&P; WU stock declines 10 points. [Klein at 202] [Lindley 1974 at 262]
Franklin Telegraph leases all of its lines to A&P. [Franklin Telegraph, 145 U.S. at 463]
[Reid at 586 ("On May 1 , 1876 , the lines of the Franklin Tele graph Company between Boston and Washington were leased . This gave a commanding position on the seaboard .")]
[Harlow at 323 ("Under Eckert's direction, the lines of the Franklin Company were leased and the company's territory increased until by January I, 1877, it had 17,759 miles of line, carrying more than twice that much wire.")]
Atlantic & Pacific Telegraph acquires Domestic Telegraph Company (established in 1874) [Edison, Rutgers]
1877: Cornelius Vanderbilt dies
Vanderbilt owned control of Western Union, and had placed Orton as President. With Cornelius' death, control and management of Western Union fell to his son William, whose tactics were far less aggressive.
The Atlantic and Pacific Telegraph Company: "By the first of January, 1877, the pole line of the company, including its connections, was 17,759 miles bearing 36,044 miles of wire. The pole line of the company proper was about 8,000 miles. The whole number of offices inclusive of connecting lines was 1,757" [Reid at 586] Eckert announces plans to build thousands of additional miles. [Coon at 41] [Klein at 203]
Gould negotiates with railroads to break their contracts with WU and switch to A&P. "Much activity prevailed during 1876 in securing connections with Railroad Companies . Contracts were executed with the Baltimore and Ohio, Pennsylvania, Northern Central, Philadelphia and Erie, and Grand Rapids and Indiana Railroad Companies ; and with the Hawkeye Telegraph Company of Iowa and Western Telegraph Company of Illinois , by which the volume of business was much enlarged." [Reid at 586].
Western Union obtains an injunction against the Atlantic and Pacific Telegraph Company and the Missouri Pacific Railroad; Western Union claimed that it had an exclusive contract to construct and operate telegraph lines along the Missouri Pacific Railroad. [NYT May 1, 1877]
Rate war continues. Value of WU stock continues to decline. Gould leverages control of railroads in his fight for control of telegraph. [Klein at 203]
Supreme Court holds in Pensacola that Post Roads Act prohibits exclusive railroad / telegraph contracts
1878: WU Acquires A&P
April 1878: WU President Orton dies. Norvin Green becomes President. [Lindley 1974 at 254][Wolff 51]
Western Union retreats to a familiar tactic - it acquires A&P. The battle had weakened Gould financially, and the sale made Gould a good profit. Western Union believed that it had won. But Gould did not want profit, he wanted control. "Orton hailed the acquisition of A&P as an end to 'wasteful competition'" [Klein at 204 ("Late in August, it was announced that Western Union would purchase from Keene and Sage 72, 502 Shares of A&T at 25, somewhat higher than the current market price. Within days the telegraph war vanished and rates advanced sharply.")]
[Testimony of Norvin Green, Feb. 26, 1884 at 230 discussing the acquisition of A&P ]
1877: Round II
Yup, Round II begins a year before Round I ends. In 1877, the Supreme Court handed down its decision in Pensacola, breaking exclusive contracts between telegraph companies and holders of right of way. In Pensacola, Western Union had an agreement with the Pensacola and Louisville Railroad to build a telegraph line over the railroad ROW - it was for the small market in Pensacola, Florida. Pensacola Telegraph claimed an exclusive right to the market, pursuant to a statute from the Florida legislature. Pensacola Telegraph sued to exclude Western Union. Western Union avoided arguing that the loathsome Post Roads Act gave it the right to enter the market; instead, Western Union argued that Pensacola and Louisville Railroad had also received authority from the Florida legislature to build a railroad, that authority was proper, and that authority was delegated to Western Union. The Supreme Court went rogue, and in a case of first impression, found that the Post Roads Act permitted any telegraph company to enter a market and therefore the state legislature had no authority to exclude Western Union. As a company whose business strategy was exclusive contracts with railroad companies in order to erect barriers to market entry for rivals, this was a huge blunder for Western Union.
Jay Gould was listening and knew what his next move was. He would acquire the Wabash Railroad - which had an exclusive contract with Western Union; he would create the American Union telegraph company; and he would grant himself permission to construct a telegraph line over his own railroad ROW based on Pensacola. Western Union sued to enforce its exclusive contract. A Circuit Court applying Pensacola found that Western Union's exclusive contracts were null and void. Gould now had his Golden Ticket into the telegraph market - using his railroad connections, he flipped railroad companies to his side and built out lines for his new American Union telegraph service.
American Union sues Western Union, Continental Telegraph Company, and the New Jersey & New England Telegraph Company for $104,000 damages caused by defendants for tearing down plaintiff's telephone poles and wires. (therefore can infer that at this point WU has acquired Continental and New Jersey) [The weekly miner. [volume] (Butte, Mont.), 25 Nov. 1879. Chronicling America: Historic American Newspapers. Lib. of Congress. ]
Gould's American Union contracts with the Pennsylvania Railroad Company for use of its right of way. [The Pennsylvania Road's Lines, NY Times Jan. 20, 1880 Page 1]
March 1: Atlantic and Pacific Telegraph Company's contract with the Baltimore & Ohio Railroad for exclusive use of the B&O's telegraph lines expired; B&O gave notice that it would retake control of the lines; it negotiated a 10 year exclusive contract with the American Union Company. Atlantic and Pacific Telegraph Company's company predated its "amalgamation with Western Union." [NYT March 1, 1880] American Union leases use of Baltimore & Ohio Telegraph lines
[Telegraph War in the West, NY Times March 7, 1880 p. 1 ("The question of the validity of the injunction recently obtained by the Western Union Telegraph Company against the Union Pacific Railway and the American Union Telegraph Company was argued bofore Judge Stevens at ...")]
Telegraph Matters South, NYTimes March 18, 1880 Page. 5 ("In the case, heretofore referred to, of the petition of the American Union Telegraph Company, before the United States Court, for permission to erect its line along the New-Orleans ...")
Gould uses Pensacola against Western Union. Takes control of Wabash Railroad which has an exclusive contract with Western Union. Wabash Railroad gives Gould's American Union Telegraph permission to build. Western Union files for an injunction. Justice Harlan, Circuit Court Indiana, holds pursuant Pensacola, exclusive contracts violate the Post Roads Act. Westen Union's petition for an injunction is denied and Western Unions exclusive control of railroad ROW is broken. [American Union, Cir. Court at 173] Gould takes advantage of this to build American Union Telegraph lines along multiple railways. [Wolff at 253] [Telegraphic Right Of Way.; The Suit Of The Western Union In Support Of Its Contract With The Wabash Railway. NY Times August 2, 1879 Page 1]
"Map of the Toledo, Wabash, and Gt. Western Rail Road Line, and its connections." Library of Congress. 1859.
Jay Gould's Union and Kansas Pacific Railroad wins court injunction seizing telegraph lines that Western Union claims to have built, owned and operated along the railroad Right of Way. [NYT March 3, 1880] [Wolff at 255]
Western Union Telegraph Co. v. St. Joseph & Western Railway Co., 3 F. 430 (D.K.S. 1880) (In 1871, Western Union entered into a contract with St. Joseph & Denver City Railroad. St. Joseph gave Western Union exclusive use of the railway road in exchange for "transacting the telegraph business of the railroad company." St. Joseph went bankrupt and was purchased by the St. Joseph & Western Railway Co., which ratified the railways previous contracts. In February 1880, Gould had the railroad seize control of the telegraph line on the basis of contractual disputes. Court enjoined defendant's seizing of plaintiff's property until such time as the validity of the contract could be properly litigated, but also holding that the exclusive provision of the contract "is void; and should any telegraph company desire to erect another line along the railroad, I do not think the plaintiff could be heard to object," citing American Union) [St. Joseph, 3 F. at __]
Gould opens new front in his financial attack on Western Union. Challenges the Atlantic Cable Cartel by threatening to establish the Atlantic Telegraph and Cable Company. Having taken control of Western Union, Gould's Atlantic Telegraph and Cable Company joins the Atlantic Cable Cartel, reestablishing market control. See Undersea Cables. [Wolff at 282]
1881: Gould acquired control of Western Union
WU's stock declined. Gould bought WU stock. Vanderbilt attempted to sell WU stock in order to buy RR stock to counter Gould. Vanderbilt was too late. Gould gained control of WU. Vanderbilt "surrendered." WU would acquire all of A&P and American Union. Gould had won and was in control. Western Union purchase's Gould's American Union Telegraph for $15m and acquires the remaining stock of A&P for $4m.
[Senate Report on Postal Telegraph 1884 at 5 (providing purchase prices, "It is evident, without pursuing this branch of the subject further, that the price which the Western Union paid in its stock for competing lines was vastly in excess of either the cost or earning capacity of the property acquired.")]
[Wolff at 259]
[Another Vast Monopoly, NYTimes, Jan. 22 1881 at 1]
[Shaping American Telecommunications p. 44-45]
[Western Union in Possession, NY Times (Feb. 4, 1881)]
[Porticus Western Electric]
[Brooks p 63]
[Hubbard 1883 p. 526 ("In 1881, $8,400,000 of stock of the Western Union was issued in exchange for the capital stock of the Atlantic and Pacific Telegraph Company ($14,000,000), over one-half of which was then owned by the Western Union Telegraph Company, and $15,000,000 for the stock and bonds of the American Union Telegraph Company")]
[Agreement, American Union Telegraph Co, Western Union, Atlantic and Pacific Telegraph Co, January 19th, 1881]
[Western Union Arguments.; John K. Porter And Chauncey M. Depew Explaining The Brnefit Of Consolidation. NYTimes Feb. 10, 1881 p.2]
[NYT Feb. 27, 1881 (In September Western Union becomes owner of a majority of the stock of the Atlantic and Pacific Telegraph Company, according to WU 1881 court filing.)]
July 1: Gould's Western Union now enters into an agreement with Gould's Union Pacific such that Western Union will operate all of Union Pacific's telegraph lines (the lines on the north side of the track, Union Pacific's, fall under the Pacific Railway Act, and the lines on the south side of the track, Western Union's, fall under the Post Roads Act). [Union Pacific, 160 U.S. at 62]
Edison, working at Western Union and not wanting to work with Gould, leaves the company and leave stops inventing telegraph equipment. [Hughes at 165]
Advertisement of the American District Telegraph Company of Oakland, announcing telegraph service is being constructed in the city. "No family can afford to be without the District Telegraph: the sense of security it affords to unprotected families is alone worth the small monthly cost." "Terms: $2.50 per month for rental. No charges for putting in the apparatus. Messenger service, 35 cents per half hour; 5 cents for each additional ten minutes." James Gamble is listed as President.
American Rapid Telegraph established. Bankrupt by 1884. Acquired by WU.
[Hochfelder]
[Reid at 778]
[The Strike. The daily enterprise. [volume] (Livingston, Mont.), 30 July 1883. Chronicling America: Historic American Newspapers. Lib. of Congress. ("The American Rapid Telegraph company has notified the Baltimore & Ohio Telegraph company that they cannot receive messages from that company to be forwarded over the American Rapid Company's wires, as the operators refuse to handle them. On the other hand the B&O company has sent notice to the American Rapid company that no more of its business will be allowed over B&O wires.")]
[Testimony of Norvin Green March 1, 1890 at 24 ("the American Rapid went to the wall , and sold out to the Bankers and Merchants , another weak concern , for $ 3 , 000 , 000 , and took the pay in its own bonds .")]
[Taltavall, "American Telegraph Engineering," 488 ("About the years 1877-77, the widely advertised claims of the Atlantic and Pacific Telegraph Company relative to the advantages of the chemical automatic and Wheatstone automatic telegraph systems controlled by that company were having a depressing effect on the stock of the Western Union Telegraph Company. Presumably to offset this effect President Orton… contracted with Messrs Craig. Randall and Foote to pay $500,000 for a chemical automatic telegraph system that would be superior in every respect to that operated by the rival company. Tests were made of the new automatic system and the eperts reported that all the technical conditions of the contract were fully met. Upon the sudden death of President Orton shortly thereafter, however, complications arose, a compromise offer of $250,000 being declined, whereupon the contract was abrogated and the inventors' interests in this system were turned over to the American Rapid Telegraph Company.")]
1881: Market War Fall Out
Western Union
Gould takes control of Western Union
Chauncey Depew joins the board of directors of Western Union
Northwestern Telegraph Company leases its lines to WU for 99 years. [U.S. v. Northwestern Telegraph Co. 83 F.2d 468 (1936) (tax case)]
Mutual Union Telegraph company founded, builds 30,000 miles of line between New York and San Francisco. [The Mutual Union Telegraph Company, Sacramento Daily Union, Volume 15, Number 8, 2 March 1882 ("Mr. Gamble says that his company has no intention of selling out to Jay Gould… We hope that Mr. Gamble's prediction may prove correct, though the tendency toward consolidation is nowadays so powerful that it is difficult to believe in the possibility of two rival telegraph companies permanently co-existing.")] [Robert Harding and Alison Oswald, Guide to the Western Union Telegraph Company Records, Archives Center, National Museum of American History, 1986 (Box 60 including articles of incorporation of Mutual Union Telegraph from various states dated 1881).
"in 1883 the Western Union leased its (Mutual Union's) lines for 999 years for an annual rental of $500,000" [Hubbard 1883 p. 527]
Mr. Jay Gould formally announced yesterday that he had secured control of the Mutual Union Telegraph Company, and had thus removed the chief obstacle to ... Gould Controls the Telegraph, A Combination of Mutual Union and Western Union, NY Times, March 31, 1882
"The growth of the telegraph is shown by the statistics of the business of this company from its re-organization, in 1866, to the present time. The telegrams have increased from 5,000,000 to 40,000,000, the capital from $20,000,000 to $80,000,000, the gross earnings from $6,000,000 to $19,000,000, the wires from 75,000 miles to 432,000 miles. The telegrams have doubled every six years, and now equal in number the letters transmitted by the Post-office in 1843, when Congress made an appropriation for the construction of the first telegraph line ; and the revenue for the year ended July 1, 1883, is larger than that of the Post-office Department in 1870. " [Hubbard 1883 p. 521] NB: This type of remarkable growth also characterized the nascent period of the commercial internet during the late 1990s.
Baltimore & Ohio Telegraph no longer working in concert with Gould's American Union telegraph, establishes an independent telegraph service along its railroad, resulting in a rate war. According to Pres. Norvin Green recounting this history, the rate war had the collateral damage of bankrupting the Bankers and Merchants' Telegraph Company, the American Rapid Telegraph company, Mutual Union Telegraph, and Postal Telegraph. [Testimony of Norvin Green March 1, 1890 at 24]
Labor Strike lasts one month. [Parsons at 69 (quoting the Washington Sunday Herald "“A country that leaves its most vital means of intercommunication, the very nerve of thought, in the grasp of a Jay Gould, deserves to have a strike every week that will paralyze correspondence, railway traffic, governmental operations (signal service, etc.), and everything else until it learns sense in the school of experience.”")]
[Crouch at 397 (Western Union "refused to bend, and the wires stayed quiet through the end of the month. Possibly precipitated into action by the telegrapher's strike, John Mackay landed in New York on August 2.")]
[Makley at 155 ("In 1883 when telegraphers struck, demand-ing better wages, more reasonable hours, and equal pay for women—they were starved into capitulation. Gould merely commented that “the poorest part of your labor” was behind the effort.")]
American Institute of Electrical Engineers founded (precursor to the IEEE). Officers: Norvin Green, President of Western Union, Vice Presidents: Alexander Graham Bell, Charles A Cross, Thomas Edison, George A. Hamilton, Charles H. Haskins, Frank L. Pope. Other officers included Elisha Gray and Theodore Vail. [Kieron Murphy, IEEE 125th Anniversary, IEEE Spectrum (May 14, 2009)]
Western Union total capital stock $80m; 800k shares; par value per share $100; market value each share $59.37. Value of real estate $3m (note this appears to exclude the value of property received by WU from USG through the grants of public lands). Total miles line owned or leased 146k. [Massachusetts, 125 U.S. at 536]
1886
Western Union and Postal Telegraph collude and establish a set rate for transatlantic cables
