The Marriage of I.G. and Standard Oil under Hitler
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.
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:
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.
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,
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.
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 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.
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:
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.
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,
At the bottom of Standard’s rubber problems, of course, was I.G.’s failure to act:
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.
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.
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 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.
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.
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
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.
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.
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.
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:
He added one note of caution.
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.
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 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.
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.
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.
Standard Oil also issued a press release, mainly to explain why it chose not to contest the case.
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.
That last phrase sent a shudder through the committee room.
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.
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.