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Reorganized Radio Telephone Company

Radio Telephone Company officials had engaged in some of the same stock selling excesses that had taken place at American DeForest, and as part of the U.S. government's crackdown on stock fraud, in March 1912 de Forest, plus four other company officials, were arrested and charged with "use of the mails to defraud". Their trials took place in late 1913, and while three of the defendants were found guilty, de Forest was acquitted. With the legal problems behind him, de Forest reorganized his company as the DeForest Radio Telephone Company, and established a laboratory at 1391 Sedgewick Avenue in the Highbridge section of the Bronx in New York City. The company's limited finances were boosted by the sale, in October 1914, of the commercial Audion patent rights for radio signalling to AT&T for $90,000, with de Forest retaining the rights for sales for "amateur and experimental use". In October 1915 AT&T conducted test radio transmissions from the Navy's station in Arlington, Virginia that were heard as far away as Paris and Hawaii.

The Radio Telephone Company began selling "Oscillion" power tubes to amateurs, suitable for radio transmissions. The company wanted to keep a tight hold on the tube business, and originally maintained a policy that retailers had to require their customers to return a worn-out tube before they could get a replacement. This style of business encouraged others to make and sell unlicensed vacuum tubes which did not impose a return policy. One of the boldest was Audio Tron Sales Company founded in 1915 by Elmer T. Cunningham of San Francisco, whose Audio Tron tubes cost less but were of equal or higher quality. The de Forest company sued Audio Tron Sales, eventually settling out of court.

In April 1917, the company's remaining commercial radio patent rights were sold to AT&T's Western Electric subsidiary for $250,000. During World War I, the Radio Telephone Company prospered from sales of radio equipment to the military. However, it also became known for the poor quality of its vacuum tubes, especially compared to those produced by major industrial manufacturers such as General Electric and Western Electric.