Saturday, November 12, 2005

Standard Oil and I.G. Farben: patents and antitrust

Following up on a post I made on Bergius-Pier synfuel technology, there is a significant underlying patent story not frequently discussed.

In the period after World War I, there were massive mergers in the chemical industry. In America, Allied Chemical was formed, and in Britain, ICI. The biggest cartel was I.G. Farbenindustrie in Germany, headed by Nobel laureate Carl Bosch. These chemical companies did business deals with one another, based largely on patent rights. For example, ICI and DuPont shared patent rights, with each getting exclusive rights in their home area.

Standard Oil of New Jersey (Esso, later Exxon) did a deal with I.G. Farben covering petrochemicals. The deal comprised two parts.

Part 1. High pressure hydrogenation.
In the 1920's, I.G. Farben did extensive research on high pressure hydrogenation of coal to make liquid fuels. This is known as Bergius-Pier technology. However, it was not economically viable because of continued discovery of new oil fields (as those in Oklahoma and Texas). Standard Oil of New Jersey was interested in the high pressure hydrogen technology not for coal, but to increase yields of distillable products from petroleum. Thus, in 1929, Standard Oil of New Jersey and I.G. Farben did a deal. For a block of Standard Oil stock worth $35 million, I.G. Farben transferred rights to the hydrogenation process outside of Germany to a jointly-owned Standard Oil/I.G. Farben company.
Part 2. Petrochemicals
Part 1 did not expressly allocate rights as to petrochemicals. A second agreement in 1930 set up JASCO, the Joint American Study Company. In this agreement, Farben retained rights to its discoveries in Germany. Otherwise, each company would have a 5/8 interest in discoveries. I. G. Farben contributed all the initial patents to JASCO. By 1939, JASCO owned the rights to many technologies, including the Buna process for making synthetic rubber.

The advent of World War II created a problem. In an agreement at The Hague in 1939, I.G. Farben sold its interests in the joint company to Standard Oil, and put its JASCO stock in trust. Although nominally divorced from JASCO, Farben, through an agreement, retained a financial interest of sorts in JASCO. The Hague agreement covered about 2,000 patents.

There were many cartel agreements, resting primarily on patents, between German companies and companies within the United States prior to 1941. Neither the American companies themselves, nor the US government, forced an end to these agreements.

The New York Times would write of the patent agreements: "The government has a right to scrutinize these international patent licenses. They are in effect private treaties which have world-wide economic effects."

In Dec 1941, Standard Oil put the rights on buna rubber into a patent pool. In early 1942, the Justice Department announced plans to file suit against Standard Oil concerning the agreement with IG Farben. On March 25, 1942, Standard Oil signed a consent decree. The day after the consent decree was signed, Thurman Arnold appeared before a Senate committee chaired by Harry S. Truman and asserted that the shortage of synthetic rubber arose because of the agreement between Standard Oil and Farben. The JASCO agreement had given Farben the right to refuse to license the buna rubber patents in the United States, and they had refused. By 1939, they had allowed licensing (in principle) but only under onerous terms. The final report of the Truman committee did conclude that Standard Oil "did hamper the development of synthetic rubber in the United States."

Post 974.

UPDATE. 20 June 2009.

IPBiz ran across a post on , which included the text:

1927, Standard Oil and IG Farben founded the company „Standard IG Farben“; president was the oil dealer William Farish from Texas . Standard passed to IG Farben the patents about the coal hydrogenation processes and the Germans gave them the patents how to manufacture synthetic rubber. This alliance wasn't well regarded by the US-government, above all after the entered into the war after Pearl Harbour , on December 7 th , 1941. Officials remembered an old law, "Trading with the Enemy“, and opened a formal investigation against Standard Oil. The accusation was that the company hid patents from the US -Navy and supplied fuel to German submarines. John D. Rockefeller said that he wasn't aware of that and Farish pled "no contest" to charges of criminal conspiracy with the Nazis. In March 1942, the Pentagon begged President Roosevelt to stop the investigation, to protect war production and oil supply. Roosevelt agreed. The Company paid a fine of 5000 dollars and promised to stop fuel supply for the enemies.

But Farish was forced to appear in front of a Special Committee of the US Senate investigating the National Defence Program, headed by Senator Harry Truman, who called behaviour of Standard Oil „treason“. Farish answered in the hearing: "Our contracts of 1929 (with IG Farben) were to run until 1947. As you gentlemen doubtless know, contracts such as these are not, in law, abrogated, but merely suspended when the party's nations are at war. The parties to such contracts must therefore find some way of getting along with their own business“.

The labournet post is INCORRECT in saying Standard passed to IG Farben the patents about the coal hydrogenation processes . The coal hydrogenation patents related to the work of Bergius and Pier went TO Standard Oil (now Exxon).

Thus, the text later in the article: The main problem for Germany 's attack on the Soviet Union was the need for fuel for tanks and airplanes. Thanks to the patents of Standard Oil, the Germans could produce fuel from their own coal, but this was not enough. is nonsense, [The text was related to the Oil of Baku.]

***Update on 9 August 2009, from

On October 12, 1939, the Standard official in charge of the negotiations with IG Farben wrote a letter stating:

“They [IG Farben] delivered to me assignments of some 2,000 foreign patents, and we did our best to work out complete plans for a modus vivendi arrangement for working together which would operate through the terms of the war, whether or not the US came in.” (Our emphasis.)

Four months after Pearl Harbor, and after Standard had already agreed, because of a government suit, to release its butyl patents, Parish and Howard, heads of Standard Oil of New Jersey, still sought to mislead the government as to the true value of butyl rubber. They argued that it was still in the “experimental” stage, even though the committee had before it Standard’s own documentary evidence to show that butyl is superior in many respects to natural rubber. The Standard officials also claimed that butyl was “too costly” to produce, although documents taken from Standard’s files showed that it cost only 6.6 cents a pound as compared to the 21 cents a pound being charged by the British and Dutch interests for crude rubber.

IPBiz notes that (synthetic) butyl rubber was technically inferior to natural rubber, at the time. Further, company engineers always project favorable cost figures, to justify their own existence. This thinking produced the waggish line:
Synfuels are the fuel of the future, and always will be.


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