If the conversation had lagged last week at the New York Hilton Hotel, where the Salvation Army in nonsectarian generosity honored Francis Cardinal Spellman, hosts and guests could have turned to a subject of mutual interest: sales of Listerine antiseptic. Listerine at a religious convocation? Why not—since, under terms of an old and apparently inviolable legal document, Warner-Lambert Pharmaceutical Co. must still make royalty payments on Listerine to the heirs, executors or assignees of its originator. The assignees include the Salvation Army, and until recently counted the aging cardinal as a major holder.
Almost as Fortunate. In 1950, New York Real Estate Broker John J. Reynolds—the man who first interested Joseph P. Kennedy in Manhattan real estate—purchased a 50% share of Listerine royalties; the beneficial rights were later transferred to the Catholic archdiocese of New York. The 1950 price was about $4,000,000, and few investments have proved more profitable. In less than 16 years, the royalty payments on the 50% exceeded $13 million; this year alone the church's share is expected to reach $2,000,000. Two weeks ago, in order to obtain funds, the archdiocese sold its interest to a group of 15 pension funds, universities, hospitals and individuals. It had to pay $1,000,000, covering legal fees and a commission, to the Wall Street firm of Laird & Co., which arranged the transaction. But the sales price, along with the yearly royalty payments, , meant a cool $25.5 million collected from Listerine.
The Salvation Army has been almost as fortunate. The army, through a gift, owns a small share of the royalties, which have steadily increased as Listerine remained dominant in the rapidly expanding U.S. mouthwash market. Other small amounts are held, and income is gained, by Wellesley College and the American Bible Society.
From the Formula. The base for these royalty riches was laid in 1881 when Dr. Joseph Joshua Lawrence, a St. Louis physician who worked out the secret formula for Listerine, decided to retire. The canny doctor sold his formula for Listerine and, four years later, for another remedy called Lithiated Hydrangea, to fellow St. Louisan Jordan W. Lambert. In the deal, Lawrence got a royalty for each gross (144 bottles) of Listerine that was first set at $20; this was later scaled down to $6 on sales of either preparation. Lithiated Hydrangea has disappeared—but Listerine sales spiraled after Lambert's son made halitosis a household word. The rights remained within the Lawrence family until 1950, by which time the massive royalties were making them expensive for tax-paying individuals to own.
The royalty arrangement meanwhile has lasted despite efforts to break it. Warner-Lambert, the company that' evolved from the Lamberts' firm, last tried to break the arrangement in 1960 and was turned down flatly by a federal appeals court. Lawrence's heirs, who still retain about three-eighths of the royalties, continue to benefit as a result, and so do assignees of one of the most remarkable transactions in U.S. business history. Warner-Lambert this year, on sales of Listerine worth $50 million or more, will pay out about $4,000,000 in royalties.