HOME   SOCIAL CRITICISM LIBRARY CATALOGUE   GO TO NEXT CHAPTER


SEE FOOTNOTES

    

The Marriage of I.G.
and Standard Oil under Hitler

Shortly before Krauch demolished Loeb and assumed the post of chemical czar of the four-year plan, he was approached by the Air Ministry on a matter of the highest priority. The Luftwaffe did not have sufficient tetraethyl lead, a vital gasoline additive, should Hitler miscalculate in his planned thrust into Czechoslovakia in the fall of 1938 and find himself in a general war. Unfortunately, Germany's own tetraethyl lead plants were not scheduled to be ready until late 1939, more than a year away. The Air Ministry, fully aware of I.G.'s relationship with Standard Oil, requested Krauch to use his position in I.G. to borrow 500 tons of the desperately needed gasoline additive from its American partner.

   Probably more than the officials of any other private institution, the I.G. executives understood the Air Ministry's problem. To conduct modern war "without tetraethyl lead," one of them noted, "would have been impossible." 1 Immediately, three of I.G.'s senior officials, Krauch, Schmitz, and Knieriem, traveled to London to negotiate the loan. There they met with officials of the Ethyl Export Corporation, a Standard Oil affiliate, taking great care not to mention that the tetraethyl lead was for the Luftwaffe. Yet, despite the delicacy with which the I.G. men handled the deal, they were not quite sure that their attempt at concealment could be successful. Considering the timing of the request, who else but the armed forces would require such large amounts of tetraethyl lead in such a hurry? In this connection, Knieriem later pointed out, "It is quite unusual for I.G. to purchase oil in the amount of 20 million dollars. Our business is to make oil by the hydrogenation process and not to purchase gasoline." 2 In any event, I.G. accomplished its mission for the Luftwaffe without mishap. It informed the Air Ministry on July 8 that the Ethyl Export Corporation would begin shipping the tetraethyl lead within the month. 3 The delivery was completed before the Czech invasion, materially strengthening Hitler's hand in the confrontation with Chamberlain and Deladier.

   Some years earlier an American concern, the Ethyl Gasoline Corporation (owned fifty percent each by Standard Oil and General Motors), had become the principal developer of the technology of tetraethyl lead and its foremost if not exclusive producer. In the middle thirties, when the Nazi rearmament effort was gaining momentum, it became obvious to I.G. that Germany must have a tetraethyl lead capacity of its own. Without it the Luftwaffe would be seriously handicapped. Through the good offices of its cartel partner, Standard Oil, I.G. approached the Ethyl Gasoline Corporation with the suggestion that they enter into a partnership to build tetraethyl plants in Germany. The Ethyl Corporation was receptive and before long negotiations got under way. Apparently there was no great fear that the U.S. War Department would object to the transfer of the tetraethyl know-how to Germany. Instead, it was left to the Du Pont Company, the principal stockholder in General Motors, to express opposition to the deal. Once Du Pont became aware of the negotiations between Ethyl and I.G., it made its views known to the president of the Ethyl Corporation in no uncertain terms:

It has been claimed that Germany is secretly arming. Ethyl lead would doubtless be a valuable aid to military aeroplanes. I am writing you this to say that in my opinion, under no condition should you or the Board of Directors of the Ethyl Corporation disclose any secrets or "know-how" in connection with the manufacture of tetraethyl lead in Germany. 4

   The Du Pont warning was ignored and the negotiations went on. At its conclusion Ethyl and I.G. entered an agreement to form a jointly owned company, Ethyl GmbH, to build and operate the tetraethyl lead plants in Germany. After studying the matter, the U.S. War Department expressed no objection and the joint enterprise was put into operation. These plants were not quite ready when Hitler was preparing his move into Czechoslovakia--hence the need to acquire the tetraethyl lead through Standard.

   While the Nazi government encouraged I.G. to exploit its cartel arrangement with Standard to acquire technical know-how and other benefits for Germany, it kept a careful watch that the flow of information as far as possible travel only in one direction. With this in mind, the Reich Air Ministry in June 1935 reviewed the hydrogenation contracts between Standard and I.G. It noted, "The I.G. is bound by contract to an extensive exchange of experience with Standard. This position seems untenable." It then added quite pointedly, "Therefore the Reich Air Ministry will soon conduct an extensive examination of applications for patents of the I.G." 5 The trouble caused by I.G.'s international cartel agreements, especially those with Standard Oil, led I.G. to make a determined effort to clarify the situation for the benefit of the German authorities.

   That fall Knieriem and Carl Krauch raised the issue with Colonel Thomas of the High Command. They acknowledged that in the interests of national defense leakage of technical information abroad had to cease. However, Knieriem pointed out that the solution was not an easy, clear-cut one.

It would certainly be a simple thing to insist on secrecy in the interest of national defense in all cases where there is any doubt. But the consequences of such an action would he very serious. ... To begin with, it would mean that other countries would not share their know-how with us any more. But for us, too, this know-how of other countries sometimes carries decisive weight.

   In support, Knieriem cited the extraordinary benefits of the tetraethyl lead contract with the Ethyl Gasoline Corporation: "In this affair . . . the War Department in Washington after lengthy deliberation granted permission for this process, which is so important for the conduct of the war, to be made available by American heavy industry to I.G. Farbenindustrie in Germany." 6 Later, when the war was going badly for Germany and it appeared that serious consequences for I.G. might result from its contractual relations with Standard Oil, Knieriem once again sought the protection of the tetraethyl lead experience. "Without tetraethyl lead," he wrote in defense of I.G.'s relations with Standard, "the present method of warfare would have been impossible. The fact that since the beginning of the war we could produce tetraethyl lead is entirely due to the circumstances that shortly before, the Americans presented us with the production plans, complete with their know-how." 7

   Despite I.G.'s argument that secrecy pressed too far could be self-defeating, the German government was inflexible. It forced I.G. to take strong measures to insure the maintenance of secrecy in its own plants and to adopt stringent safeguards against leakage of technical information. In a memo circulated to all employees working on inventions, secret patents, and experimental and developmental work for the army or for the four-year plan, I.G. warned that they were subject to the penalties of the penal code introduced by the Nazis. This warning was necessary "not only for efficient protection against espionage and treason, but also . . . for the protection of the I.G. employees concerned against eventual legal prosecution for negligence." 8 With death the penalty for violations the matter was at the very least disquieting.

   Since oil and rubber were the keys to German rearmament, the I.G. Farben-Standard Oil agreements were elevated to a matter of highest official concern. To be absolutely certain that secrecy would not be compromised, representatives of Goering's Air Ministry met with I.G. executives in July 1937. The Air Ministry wanted to be sure that Standard was not being informed of the work done by I.G. toward the large-scale production of synthetic oil. They set forth guidelines to be followed by I.G. with its American partner:

In consideration of its exchange of know-how agreements I.G. Farbenindustrie is permitted to inform its partners in the agreements, in a cautious way, shortly before the start of large-scale production, that it intends to start a certain production of iso-octane and ethylene lubricant. The impression is, however, to be conveyed that this is a matter of large-scale experiments. Under no circumstances may statements on capacity be made [emphasis added]. 9

   In late 1937, with war seeming more certain, Standard Oil began to recognize the fact that its cartel arrangements with I.G. could pose serious trouble with the United States government. Should war break out, the problem of synthetic rubber would prove an especially sensitive matter. Standard began to request I.G. to supply it with the rights and know-how for making Buna rubber even though both sides agreed that I.G. was not obligated to do so under the Jasco agreement. On the other hand, Standard was required to turn over to I.G. the patent rights and know-how for a promising new synthetic rubber called Butyl since the original I.G.-Standard agreement assigned all rights in the chemical field to I.G.

   In March 1938, immediately after Hitler's troops invaded Austria and war was a step closer, Frank Howard was in Berlin to talk to Ter Meer about Buna. He pleaded for the Buna know-how. Ter Meer explained that until his government gave permission, he could not honor Standard's request, but he convinced Howard that it would be to their mutual advantage for Standard to turn over to I.G. all know-how on Butyl. In return, Ter Meer promised, I.G. would continue to try to secure Nazi government "consent" to make available the know-how on Buna. Howard, sympathetic to I.G.'s problem, explained Ter Meer's difficulties in a letter to Standard officials in New York.

Certain difficulties still exist which prevent our I.G. friends from giving us full technical information and proceeding in the normal manner with the commercial development [of Buna] in the United States. It is to be hoped that these difficulties will be surmounted in the near future and we here desire to do everything possible to bring about the result.

   In view of the very genuine spirit of cooperation which Dr. ter Meer displayed, I am convinced that it is not only the right thing to do, but the best thing from every standpoint to pass on to them full information on [Butyl] at this time. I do not believe we have anything to lose by this which is comparable with the possible benefit to all of our interests. 10

   And so Standard turned over the Butyl know-how without getting the Buna information in return. It is unfortunate that Howard could not have been present at a top secret meeting a few days later at which Ter Meer reviewed the status of the American rubber program with German officials. 11 He would have gained a shocking insight into Ter Meer's "genuine spirit of cooperation." Present were Brigadier General Loeb of the four-year plan; Botho Muelert, fuel expert in the Ministry of Economics; Johannes Eckell; and Ter Meer himself. The purpose of the meeting, as stated in Ter Meer's file note, was "to halt the development in the U.S.A. [emphasis added]" of a synthetic rubber capacity. In this connection, there was a long discussion as to whether further American developments in synthetic rubber could be delayed by withholding information on the Buna process. Ter Meer argued that it was unrealistic to try to maintain secrecy for long. In many respects American rubber manufacturers were at least as familiar with the technology of synthetic rubber as German manufacturers. He insisted that "an attempt to hold back the development of things in the U.S.A. by affecting secretiveness could mean nothing else but indulging in illusions." Nevertheless, he said, I.G. had been doing its part to delay rubber progress in the United States. It had been holding meetings with Standard Oil, Goodyear, and Goodrich with the "sole object of easing the minds of American interested parties and possibly to prevent an initiative on their own part." I.G. had been treating the license requests of the American firms "in a dilatory way so as not to push them into taking unpleasant measures." But Ter Meer did not believe a holding operation could be continued for any length of time: "We are under the impression that one cannot stem things in the U.S.A. for much longer without... the risk of being faced all of a sudden by an unpleasant situation." If the American rubber companies were stalled too long, they would begin a program of their own without the benefit of I.G. or its patents. The American government could not be expected to allow itself to be strangled by its own patent system.

   Ter Meer apparently convinced the German government representatives of the merits of his reasonable approach to the problem. Muelert endorsed Ter Meer's "cooperative" stall and General Loeb even indicated that he might agree to Ter Meer's proposal to consider initiation of negotiations in the United States for the fall of 1938.

   In line with the decision reached at this conference, Ter Meer wrote on April 9, 1938, to Howard. After thanking him for "the detailed information" about Butyl, he reported on his meeting with Loeb and Muelert.

In accordance with our arrangements in Berlin, I have meanwhile taken up negotiations with the competent authorities in order to obtain the necessary freedom of action in the U.S.A. with regard to rubber-like products. As anticipated, those negotiations have proved to be rather difficult and the respective discussions are expected to take several months before the desired result is obtained. I will not fail to inform you about the result in due course. 12

   Howard replied on April 20, wishing Ter Meer "early success in your negotiations" with the German government. Howard hoped, however, that

without waiting for final conclusions on all the questions involved, you may be able to grant us the authority to proceed in a preliminary way with the rather lengthy discussions here which must be had with the various interested rubber companies preparatory to organizing them into a cooperative group. . . . My view is that we cannot safely delay the definite steps looking toward the organization of our business in the United States . . . beyond next fall--and even to obtain this much delay may not be too easy. 13

   In the spring of 1938, the Goodyear Rubber Company and the Dow Chemical Company, intent on developing a synthetic rubber capacity, pressed Standard for licenses under I.G.'s Buna patents. Standard, unable to get I.G.'s permission, resorted to the same stalling technique with the American rubber companies that I.G. was using with Standard. Standard was not yet in a position to give licenses but at the same time did not want to force the companies to strike out on their own. As Howard wrote to Friedrich H. Bedford, Jr., an important, long-time Standard Oil director and the president of a Standard subsidiary that sold rubber products, "Our primary objective in our talk with the Goodyear and Dow people was to convince them of our good faith and our willingness to cooperate with them in order to avoid having them proceed prematurely with an independent development [emphasis in original]." At the bottom of Standard's rubber problems, of course, was I.G.'s failure to act: "The thing that is really holding us up," explained Howard, "is . . . the inability of our partners [I.G.] to obtain permission of their government to proceed with the development in the United States. Until they obtain this permission, it is not possible for us to make any commitment at all." 14 A few days later Howard wrote to Bedford assuring him that he would continue to press I.G. for permission at least to hold informal talks with the rubber industry about synthetic rubber.

Until we have this permission, however, there is absolutely nothing we can do, and we must be especially careful not to make any move whatever, even on a purely informal, personal, or friendly basis, without the consent of our friends. We know some of the difficulties they have, both from business complications and interrelations with the rubber and chemical trades in the United States, and from a national standpoint in Germany, but we do not know the whole situation--and since under the agreement they have full control over the exploitation of this process, the only thing we can do is to continue to press for authority to act, but in the meantime loyally preserve the restrictions they have put on us [emphasis added]. 15

   The first week in October 1938, immediately after Germany invaded the Sudetenland and war was another step closer, Howard was again in Berlin to negotiate with Ter Meer about synthetic rubber. Ter Meer promised to proceed to the United States as soon as he was free; first, however, he would have to finish several important matters concerning "the expansion" of I.G., a reference to the newly acquired Sudeten properties. A few days later he wrote Carl Duisberg's son Walter in New York that it would probably be the middle of November before he could get to the United States.

The annexation of the Sudetenland brings up certain new problems for us. . . . If you explain it to [Standard] in the right manner, I am convinced that our American friends who are counting on my coming to the United States will understand the situation, especially if you mention that I am even prepared to sacrifice Christmas in Germany in order to place a Buna tire under the American Christmas tree. 16

   At last, on Thanksgiving Day of 1938, Ter Meer arrived in the United States. At a high level conference, he and Howard met with the executive committee of Standard. Since Ter Meer had not yet obtained permission from his government to resolve the Buna problem, it was agreed that Ter Meer, rather than Standard, would deal with the five leading American tire companies (U.S. Rubber, Firestone, Goodyear, Goodrich, and General). According to the committee memorandum on the meeting, "The Committee felt that [Ter Meer] should contact the tire companies on Jersey's behalf as sponsor for the process, it being intimated to the tire companies that negotiations between I.G. and Jersey Company have not yet been crystallized, but that they are in process of development." 17 Nothing would be said about the Nazi government's refusal to grant permission. Ter Meer then made his tour of the five rubber companies and advised them that negotiations between I.G. and Standard would soon be completed although he could not give a specific date. The stall continued.

   By August 1939 it was obvious that war in Europe could not be averted. Should the conflict lead to war between the United States and Germany, the consequences to Standard and I.G. could be serious. The I.G. interest in both the Standard-I.G. Company and in Jasco would surely be seized by the U.S. alien property custodian as enemy owned assets. With this concern in mind Walter Duisberg, after returning from conferences with I.G. in Germany, suggested to Walter Teagle that action be taken to dispose of I.G.'s ownership in both of the jointly owned companies to American citizens. 18 Teagle agreed and suggested to some of Standard's top officials that "in view of the unsettled conditions" it might be desirable for Standard itself to acquire the I.G. interest. Negotiations, he added, would have to be conducted with Duisberg since he was now "the German I.G.'s sole representative in the country." 19

   The pressure of events in Europe moved negotiations to a swift conclusion. Within days, Standard agreed to purchase I.G.'s twenty percent interest in the Standard-I.G. Company for $20,000 and Duisberg himself, now a naturalized American citizen, acquired I.G.'s fifty percent share of Jasco for a mere $4000. The Standard negotiators expressed no concern that Duisberg, the son of the founder of I.G., was a peculiar choice to immunize I.G.'s property from possible seizure by an alien property custodian. To the contrary, they pointed out naively that Duisberg's purchase of I.G.'s Jasco shares would "prevent their being seized by an Alien Property Custodian because [Duisberg] is an American citizen and prepared to purchase the shares with his own funds." They noted further that when Duisberg bought the stock, it was planned that he would execute an option in favor of Jasco "so as to insure that these shares will not fall into unfriendly hands in the event of his death." 20

   The next day, September 1, just as Germany was invading Poland and World War II had officially begun, the executive committee of Standard met hurriedly to approve the action of its negotiators. The negotiators, in their report to the committee, were quite candid: "Of course, what we have in mind is protecting this minority interest in the event of war between ourselves and Germany, as it would certainly be very undesirable to have this twenty percent in Standard-I.G. pass to an Alien Property Custodian who might sell it to an unfriendly interest." 21 As soon as the executive committee voted approval, a cable was sent to the I.G. Berlin office offering to buy I.G.'s stock interest in Standard-I.G. for $20,000. 22 I.G. immediately cabled its acceptance.

   Two unresolved questions still remained in the relationship between Standard and I.G. The first concerned the critical problem of how to protect the worldwide patent holdings of I.G. to which the Standard-I.G. Company and Jasco had rights but which remained in I.G.'s name. The second was Standard's repeated and almost desperate request to I.G. for the rights to the Buna rubber patents and the know-how to use them. The outbreak of war seriously complicated the possibility of an affirmative answer.

   When war erupted on September 1, Howard was in France. This would probably be the last opportunity to work out a solution to the problem of transferring I.G.'s foreign patents to the Standard-I.G. Company and Jasco and to get the Buna know-how. Howard cabled William Farish, Teagle's successor as president of Standard, suggesting that he be permitted to delay his return to the United States in order to meet with I.G. officials. 23 Since the state of war between France and Germany prevented Howard from communicating directly with I.G., he arranged for the New York Standard office to set up a meeting in neutral Holland. 24

   Knieriem assigned Fritz Ringer, a young engineer familiar with the patent problem, to confer with Howard at The Hague. Before Ringer could negotiate such a matter, however, permission had to be obtained from the proper German authorities, in this case the High Command because military products were involved.

   Buetefisch conferred on the matter with the officials of the High Command on September 13. He advised them of Standard's proposal by which I.G. would transfer its foreign patents to the Standard-I.G. Company and Jasco. These patents, he warned, were in imminent danger of being seized by enemy governments if ownership remained in I.G.'s name. I.G., he explained, anticipated "substantial advantages from a speedy transfer" and he assured the High Command that "German interests would not be prejudiced." Finally, Buetefisch gave assurances that I.G. "would be able to resume at any time, without hindrance, the relationships existing now." 25 For these reasons Buetefisch urged that I.G. be granted permission to proceed with these transactions. It was simply a matter of camouflaging I.G.'s interest for the duration of the war.

   At the close of the conference, the High Command officials present gave I.G. the go-ahead for the proposed meeting at The Hague. Relying on this verbal assurance, I.G. got word to Howard, who was waiting in England, that Ringer would meet him at The Hague on September 22, bringing the patent assignments.

   While waiting in England, Howard had second thoughts and called at the American Embassy to inquire about the legality of meeting with an I.G. represenative in Holland. Herschel V. Johnson, then counselor at the American Embassy, expressed serious doubts as to the propriety or wisdom of an American citizen's going to Holland from England to talk to England's enemies. 26 Howard tried to convince Johnson that the English and the Americans had much to gain if the patent rights to valuable processes that had originated in Germany could be transferred to Standard. As matters stood, only the Germans could derive any military benefit from this situation. A doubtful Johnson referred Howard to the Ambassador, Joseph P. Kennedy. Unlike his counselor, Ambassador Kennedy saw nothing questionable in Howard's proposal, nor any reason for the British to object. He promptly secured for Howard the necessary clearance from the British Foreign Office. 27

   The meeting having been cleared by their respective governments, the two men met at The Hague on September 22. Almost three weeks had passed since the outbreak of war, an uncomfortable fact that dominated the conference. Ringer arrived at the meeting with blank assignments for approximately 2000 patents that I.G. was prepared to turn over to Jasco and the Standard-I.G. Company, presumably all the foreign patents covering the products and processes within the fields of operation of each of these concerns. There was one significant omission. Howard noted with disappointment that the Buna patents were not included. With the war now under way in Europe, it would only be a matter of time before the United States became aware that the spread of the conflict to the Pacific would make its supply of natural rubber vulnerable. Without the Buna patents or know-how, Standard was being placed in a very uncomfortable position. It is understandable that Howard pressed Ringer hard on the subject of Buna. The United States government at any moment might take a jaundiced view of the I.G.-Standard arrangement. Ringer replied that although he did not have the Buna patents with him, he could assure Howard that I.G. fully intended to adhere to its unwritten commitment to include the Buna patents in the new Jasco arrangement.

   In discussing the change with regard to I.G.'s interest in Jasco, both men were appalled by the sale to Duisberg, agreeing that the transfer was a first-class blunder. Ringer assured Howard that this would be rectified and that Duisberg would follow whatever course I.G. asked him to take. 28 Duisberg did exactly as I.G. wished. He sold the fifty percent interest in Jasco to Standard at the same price he paid I.G. 29

   At their meeting Howard and Ringer then got down to the business of accommodating the relations of Standard and I.G. to the new circumstances caused by the war. Broadly stated, they agreed that Standard would receive U.S. and Allied countries as exclusive territory for the exploitation of the products and processes covered by the Jasco patents, with the rest of the world reserved for I.G. 30 Iraq was included in the territory assigned to Standard on the mistaken assumption that it had declared war on Germany. 31 To keep matters flexible, if the workings of the agreement should result in an unfair financial distribution, the basic division of territory could be recast at any time in the future.

   To Howard's partial satisfaction, the new agreement gave Jasco rights to I.G.'s Buna patents. But the patents were only part of the story. The know-how, which I.G. did not include, was even more important to Standard. Just as the final meeting between the two men was coming to a close, Howard brought up the subject of Buna again. Was there any chance, he asked, that I.G. would provide Standard with the know-how for making Buna? Without this technical information, Standard would be at a great disadvantage. Ringer, of course, did not have the authority to give an answer. In his report back to I.G., however, Ringer noted that Howard anticipated a refusal "since in the event of war, the United States would be dependent on the importation of crude rubber." 32 Therefore, Ringer concluded, Howard did not condition Standard's approval of the revised Jasco agreement on I.G.'s furnishing the know-how. In Ringer's view, Howard did not expect the German government to permit the know-how on Buna to be made available to a potential enemy who might need it in case it lost access to natural rubber, such as might happen in a war with Japan, Germany's Axis partner.

   On September 25, Ringer and Howard finished their business and departed for home, each carrying a copy of the "Hague memorandum," a draft agreement for the consideration and approval of their respective companies. I.G.'s problem now was to get the approval of the German government. Ter Meer and Buetefisch paid a visit to General Thomas of the High Command and Ministerial Director Muelert of the Ministry of Economics to present I.G.'s application for government permission to sign the Jasco readjustment agreement. Ter Meer again stressed the compelling need to get the foreign Buna patents out of I.G.'s name as quickly as possible in order to avoid possible enemy seizure. With the assignment to Jasco, they would be under the control of Standard, a concern that I.G. could trust to resume friendly relations after the war.

   Thomas and Muelert were agreeable but made it plain that they would grant permission to I.G. to make the transfer only on the condition that there would be no transmission of Buna know-how. Ter Meer and Buetefisch assured them that this prohibition would be respected absolutely. 33

   By October 12 both the German High Command and the Ministry of Economics had given I.G. written permission for the assignment of the Buna patents to Standard. With all the necessary government permits in order, I.G. cabled the Standard Oil Development Company on October 16 that it agreed in principle with the Jasco arrangement outlined in the Hague memorandum. The wording of the cable was identical with that in the draft tentatively prepared three weeks before except for one additional sentence: "Re article two of the Hague Memorandum we ask that Jasco assign also Iraq to I.G." 34 This was designed to correct the mistake Ringer had made when he allocated Iraq to Standard under the incorrect assumption that Iraq was at war with Germany. Obviously, I.G. did not intend to relinquish any territory it did not have to.

   I.G. also sent a second cable to Standard Development, settling the Buna question: "As agreed we will assign Buna patents for Jasco field. Documents are being prepared. . . . Referring to your question with respect to technical information about Buna we have to inform you that under present conditions we will not be able to give such information." 35

   Upon receipt of the two cables from I.G., Howard immediately wrote a memorandum for the executive committee of the Standard board explaining the reason for the Jasco arrangement. After noting the basic outlines of the Hague agreement, he commented:

I believe this arrangement, when coupled with the provision for future readjustments, is entirely equitable, and that without regard to the possibility of legally enforcing the readjustment provision, it should be satisfactory in substance to us, as it is to the I.G. An attempt to put this provision in a form which would be fully legally enforceable might result in many difficulties, and (speaking for myself and the I.G. negotiators) it was not our intention to provide any legally enforceable clause of this character in our arrangements.

   He added one note of caution.

We will probably have some legal difficulties in both England and France in connection with establishing our right to these I.G. inventions, but since we believe we can establish an equitable title antedating the war (and in any case we certainly have all the technical information, without which it would be difficult to proceed), this situation is not too bad. 36

   On the morning of October 18, the executive committee, with Howard present, approved the Jasco readjustment and Howard then cabled I.G. in Berlin agreeing "in principle to arrangement outlined in your cable October 16."

   In December an afterthought struck Howard. He proposed to I.G. that the Jasco agreement be dated retroactively to September 1, 1939, 37 two days before Great Britain and France officially declared war on Germany. Technically, the new date made the Hague memorandum into a prewar document.

   By the summer of 1940, the last of the Buna patents, about fifty assignments, were officially transferred by I.G. to Jasco. However, as understood by the parties, the know-how was not turned over. And by the end of 1941 this lack proved a personal tragedy for Howard, Teagle, and Farish and a corporate disaster for Standard. Worst of all, it was a major military setback for the United States.

   On December 7, 1941, Japan attacked Pearl Harbor, and the United States was suddenly faced with a monumental rubber crisis. It was blocked from its main source of natural rubber in Southeast Asia--just as Germany had been blocked from its source of saltpeter in Chile during World War I. Desperate measures were called for, and rubber was soon tightly rationed. A campaign was started by patriotic citizens to collect rubber goods of all kinds for possible recycling into tires. It was a futile if laudable enterprise. These enthusiasts learned, to their dismay, that rubber bathmats could generally be turned into new rubber bathmats but not into tires. The United States would have to rely on synthetic rubber for tires. However, the American rubber and chemical companies were completely unprepared to mass-produce a synthetic.

   While feverish work was going on among the rubber and chemical companies to develop a synthetic rubber out of which to make tires, there seemed to be no prospect for immediate success as far as Buna was concerned. I.G. had successfully kept the know-how for its production from reaching the United States. For the United States and for Standard the results were calamitous.

   Since early 1941, the Antitrust Division of the Department of Justice had been investigating the I.G.-Standard cartel, and by the end of the year, spurred by the attack at Pearl Harbor, the government was getting ready to indict the Standard Oil companies, I.G. Farben, and their principal officers for a conspiracy to restrain trade and commerce in the oil and chemical industries throughout the world, including synthetic rubber and synthetic gasoline.

   Standard protested to the War Department that the defense of such a lawsuit would divert the energies of many of its executives from the war effort. The War Department, more concerned with war production than prosecution under the antitrust laws, agreed. However, the Department of Justice, with the backing of several powerful senators and administration officials, insisted that the only effective way to eliminate the restrictions of the I.G.-Standard cartel and open up the development and manufacture of synthetic rubber was by enforcement of the antitrust laws. On March 20, 1942 Assistant Attorney General Thurman Arnold, Attorney General Biddle, Secretary of War Stimson, and Secretary of the Navy Knox signed a memorandum to President Roosevelt recommending suspension of pending antitrust investigations and lawsuits that might interfere with the war effort. They argued that lengthy court actions would "unavoidably consume the time of executives and employees of those corporations which are engaged in war work." 38 Roosevelt approved this policy, but as a concession to Arnold and his Antitrust Division staff he agreed to ask for congressional action to extend the statute of limitations on the antitrust cases affected so that postwar prosecution would be possible. 39

   It was generally recognized that the I.G.-Standard antitrust case precipitated the change of policy. However, Standard did not elect to postpone resolution of the case until after the war. Instead, the parties agreed that Antitrust would file criminal charges against Standard and its principal officers and that all the Standard defendants would plead nolo contendere (no contest). It was also agreed that the Justice Department would file a civil complaint, to which Standard would enter a consent decree agreeing to abandon all contracts and practices to which the government objected.

   When the parties met on March 24 in Assistant Attorney General Arnold's office to forge a formal agreement, one problem remained. Arnold wanted the court to assess fines totaling over $1.5 million, one of the largest financial penalties in the history of antitrust actions. The fine would be divided among a large number of defendants--Standard Oil (New Jersey), several Standard subsidiaries, and all the directors of the parent company. John W. Davis, counsel for Standard, rejected this suggestion as absolutely unacceptable. Such a huge fine would call into question the patriotism of Standard. Instead, he made a counteroffer: fines totaling $50,000 to be divided among the defendants any way Arnold chose. Arnold retorted that equal division of a fine that small would mean individual fines of only $600 to $700, an absurd figure in view of the serious nature of the charges. With the papers due to be filed in court the next day--and it was already approaching midnight--Arnold finally capitulated, at least for the time being. The number of defendants was reduced to ten so that the individual fines amounted to $5000.

   As the meeting was breaking up, Arnold made a brief statement to the opposing counsel and some of the proposed defendants who were present: "Of course, you understand that I am under subpoena to appear the day after tomorrow before the Truman Committee [the U.S. Senate War Investigating Committee] to tell them all the facts about the case." Davis replied wearily, "Mr. Arnold, that is a matter of utter indifference to us."

   The next day, March 25, 1942, was a black one for Standard Oil. What Standard and I.G. had been frantically trying to avoid since they first realized that war was inevitable had happened. The new U.S. alien property custodian, Leo T. Crowley, issued his first vesting order, seizing the interests of I.G. Farben, "an enemy corporation," in the stock, patents, and contracts of Jasco and Standard Catalytic Company. (In the fall of 1940, the Standard-I.G. Company had been changed to the Standard pany whose name bore the I.G. initials.) [NOTE: there seems to be a typo in the original; Soil and Health Library.]

   Two hours after Crowley had vested the alleged interest of I.G. Farben in Jasco and Standard Catalytic, the Department of Justice filed a massive action against the Standard Oil Company (New Jersey), six subsidiaries, and Walter C. Teagle, William S. Farish, and Frank A. Howard. I.G. Farbenindustrie was named an unindicted co-conspirator. 40 According to the compromise worked out two nights earlier, the ten defendants in the criminal action pleaded no contest and were fined $5,000 each.

   The antitrust complaint detailed the history of Standard's relations with I.G. Farben. The section that gained the most careful attention by the press, quite naturally, concerned synthetic rubber. The complaint implied that the current rubber crisis could be traced, at least in part, to the I.G.-Standard cartel.

   To remedy matters, the consent decree required Standard to sever all relations with I.G. and to make available to all United States applicants all patents by which Standard and I.G. had monopolized trade in the chemical and petroleum fields, furnishing technical know-how as well.

   As an interesting sidelight, the alien property custodian joined in the case as the legal representative of I.G.'s interests. His primary role was to provide Standard with a defense in case I.G. Farben brought suit in the future for nonperformance under the agreements.

   Arnold, who traditionally issued lively public statements, put out a brief and uninformative press release: "Because members of the Antitrust Division have been subpoenaed to appear before the Truman Committee tomorrow to present a detailed explanation of both the complaint and the decree, such details are omitted from this announcement." 41 Standard Oil also issued a press release, mainly to explain why it chose not to contest the case.

The company realizes that to obtain a vindication by trying the issues in the courts would involve months of time and energy of most of its officers and many of its employees. Its war work is more important than court vindication. Nor has the company any desire to remain in a position which the Department of Justice considers in any way questionable. 42

   The release pointed out that agreements between Standard and I.G. had actually advanced the progress of American industry and its ability to meet the war emergency.

   The next day Thurman Arnold appeared before the Senate Special Committee to Investigate the National Defense Program, headed by Harry S. Truman. Arnold set forth in full detail the history of Standard Oil's relations with I.G. Farben before and during Hitler's regime. All the facts were supported by documents from Standard Oil's own files. The effect on the senators and press was electrifying.

   Scripps-Howard's Thomas L. Stokes, a Pulitzer Prize-winning reporter, described the atmosphere in the committee room.

Members of the Senate Defense Committee sat grim and visibly shocked as Thurman Arnold . . . testified. . . . [Truman] was particularly indignant about a memorandum by Frank Howard . . . made at The Hague, Netherlands, October 12, 1939, after the outbreak of war, in which Mr. Howard said "representatives of I.G. Farbenindustrie delivered to me assignments of some 2,000 foreign patents and we did our best to work out complete plans for a modus vivendi which would operate through the term of the war whether or not the U.S. came in." . . . That last phrase sent a shudder through the committee room.

   Stokes went on to discuss the evidence on which Arnold's testimony was based: 40,000 documents reviewed by the Department of Justice investigators.

Thurman Arnold dumped exhibit after exhibit on the committee table as he went through his prepared statement of twenty-seven pages to prove his underlying contention that the use of buna rubber was delayed in this country "because the Hitler government did not wish to have this rubber exploited here for military reasons." 43

   Farish and Howard testified before the committee a few days later. Farish told the committee,

I wish to assert with conviction that whether the several contracts made with I.G. did or did not fall within the borders set by the Sherman Act, they did inure greatly to the advance of American industry and more than any other thing they have made possible our present war activities in aviation gasoline, toluol and explosives and in synthetic rubber itself. 44

He then presented letters from the War and Navy departments confirming Standard's contribution to the war effort.

   Standard's ordeal in Congress did not end with the Truman committee hearings on the rubber crisis. On April 13, the Senate Committee on Patents, under the chairmanship of Senator Homer T. Bone, began hearings on the role of patents in the national defense program. Hardly had the committee convened when Senator Robert M. La Follette of Wisconsin embarked on an attack on international cartels generally and the I.G.-Standard arrangement specifically.

Recently, Standard Oil of New Jersey was found by the Antitrust Division of the Department of Justice to be conspiring with I.G. Farben ... of Germany. I.G. Farben, through its maze of international patent agreements, is the spear-head of Nazi economic warfare. By its cartel agreements with Standard Oil of New Jersey, the United States was effectively prevented from developing or producing any substantial amount of synthetic rubber.

   The penalty administered on Standard Oil for its part in this obstructionist arrangement was a court "consent decree" which provided a $50,000 fine and a temporary--strictly temporary--and only partial suspension of the monopoly patent privileges which estopped full United States use of granted patents. . . .

   It seems to me that the Standard Oil of New Jersey consent decree is a real victory for Standard Oil Co. . . . All the consent decree does ... is to guarantee that Standard Oil will hold those patents for I.G. Farben . . . until the day when Standard Oil can render an accounting to I.G. Farben, and return the patents. 45

   The adverse effect of congressional inquiries and the escalation of bad publicity convinced the Standard board that the situation was critical. The matter soon reached such serious proportions that it engaged the attention of John D. Rockefeller, Jr., the largest stockholder in Standard. Rockefeller was particularly disturbed by a series of open letters addressed to him by I. F. Stone in the newspaper PM. The letters called for Rockefeller to use his influence in forcing the dismissal of Teagle, Farish, and Howard.

After the teapot dome scandal, you stepped in and forced the resignation of Col. Robert Stewart as Chairman of the Board of Standard Oil Company of Indiana. . . . We think you owe it to your good name and your company and your country to take similar action at the scandal which has broken around the parent Standard Oil Company itself. You bear an inescapable personal responsibility for Standard Oil policies. . . . Whatever the intentions which lay behind these policies, the effect was to make Standard Oil an ally of Hitler, an economic enemy agent within the U.S.A. . . . We think it your duty to remove Walter C. Teagle as Chairman of the Board and William S. Farish as President and Frank A. Howard as Vice President of the Standard Oil Company and radically to change the policies which put them in the position of acting as international economic collaborators of the Third Reich. 46

   After the appearance of these letters, Rockefeller emphatically challenged the board of directors to improve Standard's image with the public. 47

   Robert T. Haslam was chosen by the board to seek a solution to the problem. He had been serving as general manager of the ESSO Marketeers and had recently warned the board that his organization could not deliver a satisfactory sales performance unless something were done to improve Standard's public image. Standard hired Elmo Roper's organization to survey public opinion. Roper's conclusion was that the company was currently suffering from the effects of an acute attack of Arnolditis and that the public believed that Standard had let Germany best it in business. 48

   The board of directors decided to assert tighter control over Standard's affairs. They declared that too often in the past critical decisions had been made and acted upon without the board's being informed. For example, in the many years during which Frank Howard had conducted negotiations with I.G. Farben, he had frequently informed the Standard board only after action had been taken. In the future the board was determined to take charge itself.

   Howard remained with the Standard Oil Development Company for two more years, but the board's action left him with only a shadow of his former influence and authority. In November 1942, the two other Standard officials named as defendants in the antitrust case, Teagle and Farish, disappeared from the Standard picture. Teagle resigned from the board, and less than a week later Farish died of a heart attack.

 

SEE FOOTNOTES

HOME   SOCIAL CRITICISM LIBRARY CATALOGUE   GO TO NEXT CHAPTER