Hell's Cartel

by Diarmuid Jeffreys

  Appalled and humiliated but determined to try to make something of a stand, the Germans issued their counterproposals on May 29 with a plea that in future the talks take place face-to-face: “This peace is to be the greatest treaty in history. It is without precedent to carry on such vast negotiations by means of written notes.” Two weeks later, their request completely ignored, they received a second draft of the Allied version, with only a few minor amendments inked into the margin and an order that it should be signed by June 28. Twenty-four hours before the deadline, after agonizing debate, the German parliament agreed to ratify everything except for clauses that acknowledged responsibility for the war and provided for the extradition of the kaiser and his former advisers. The Allies insisted the conditions be reinserted and threatened to renew hostilities if they weren’t. On the final day, with only two hours to go before the deadline expired, Germany agreed to all the terms.

  The headline provisions of the Versailles Treaty are well known. Germany lost about 13 percent of its territory, including Alsace-Lorraine and all its overseas colonies. Its army was reduced from its wartime height of around three million to a rump of a hundred thousand men, its officer corps was decimated, its navy’s ships were to be scuttled and most of its heavy weapons confiscated. The Rhineland was to be temporarily occupied and permanently demilitarized and the industrially rich Saarland, a small region to the west of the Rhine, was to be placed under a French mandate with a promise that its people would eventually be able to decide whether they wanted it to become a permanent part of France. Perhaps worst of all, Germany would now have to meet massive reparations demands—far in excess of its capacity to pay.*

  For the companies of the Interessen Gemeinschaft the most dreadful news was buried in the small print. The treaty required Germany to immediately surrender 50 percent of its stocks of dye, pharmaceutical, and other chemical products to its former enemies. Until January 1, 1925, the Allies would have the right to buy up to a quarter of the industry’s output of those products at prices well below market rates.* None of the confiscated patents or assets would be returned and there would be no retroactive compensation for their loss. Moreover, the dreadful French-inspired demand that German chemical plants be destroyed was still extant.

  Carl Bosch had one last ace up his sleeve. After the main terms had been signed he participated in supplementary negotiations at Versailles to iron out the fine details of the settlement. One night, he sneaked out of the German delegation’s quarters and scaled a wall for a secret meeting with Joseph Frossard, a civil servant in charge of the German chemical industry’s prewar factories in France, which the French government had confiscated in 1914 and subsequently consolidated into a state-owned corporation.† Bosch had a dramatic proposal to make. If the French dropped their demand that the Interessen Gemeinschaft’s major plants in Germany—Ludwigshafen, Oppau, Leverkusen, Hoechst, Leuna—be demolished, the IG companies would share with them the technology behind the Haber-Bosch process. This would allow the French to begin making synthetic nitrates for themselves. Frossard agreed to relay the offer to his masters. Two days later Bosch was allowed out (this time through the front gates) to attend more detailed talks with ministers in the center of Paris. He spoke passionately about the essential role that the main German nitrogen plants (especially BASF’s facilities at Oppau and Leuna) played in manufacturing fertilizer, crucial to the production of food for Germany’s desperately hungry population. If they were destroyed, the country faced famine. Saving them would be an act of humanity.

  The French government was probably moved less by this plea than by the notion that it could get its hands on the strategically important technology that had allowed Germany to sustain the war for so long. But it agreed to the deal, on condition that BASF hold back no secrets, build new nitrate plants on French soil, and provide all the necessary training for the scientists who would run them. It even unbent sufficiently to accede to Bosch’s request that Germans be given back a 50 percent share of the factories that France had confiscated in 1914.

  It was a measure of Bosch’s utter desperation that he even thought of striking such a bargain. Sharing profitable technology had always been abhorrent to his industry and he would never have considered it had he not been absolutely certain that the IG factories faced destruction. Oppau, his own particular glory, was of immeasurable value to him and he knew that his colleagues, particularly Duisberg, felt the same about their own prize facilities; the plants symbolized the very best of German science and technology and protecting them from harm was worth a high degree of sacrifice. However, securing the factories’ immediate physical safety was one thing; securing the German chemical industry’s long-term future was something else entirely. The draconian rules laid down by Versailles jeopardized everything he and his industry had worked for, and he wasn’t looking forward to explaining the conditions to his colleagues back home. As he began the dismal return journey he probably sensed that his gleeful foreign competitors were already rubbing their hands over the plight of the Rhineland concerns. At last the Interessen Gemeinschaft companies seemed vulnerable, their previously invincible status as masters of the industry in peril. Perhaps now their long domination could be overturned.

  In those bleak days after Versailles, Bosch’s peers were very worried about this threat. While they’d accepted that some postwar bitterness was inevitable, they had hoped that it would be short-lived and that after a brief hiatus for the peace negotiations they’d be able to pick up their profitable export businesses just where they had left them in 1914. Instead, they now faced a torrent of aggressive new competitors, many of them equipped with confiscated German products and patents and protected by a new range of tariffs that were expressly designed to keep the Germans out—by making their goods more costly than those manufactured by domestic producers (by 1920, for example, tariffs in Belgium had made some imported German dyes 15 percent more expensive than equivalent goods made locally). Getting back into those markets and recovering some of their assets would take ingenuity, patience, money, monotonous and expensive legal proceedings, lobbying, and ceaseless negotiation. Even worse, as Bosch’s example had shown, it would mean coming to terms with some of those foreign rivals, striking deals and forging partnerships—by sleight of hand, if necessary—which in turn would mean sharing profits, technology, and science. To men whose pride in their achievements was matched only by their disdain for the competence of their foreign counterparts, this was a deeply galling prospect. Nonetheless, it had to be faced.

  * * *

  CARL DUISBERG WAS one of the first to bite the bullet. Bayer had lost many of its most significant overseas assets, among them trademark rights to its crown jewel, aspirin, which was even then proving its worth as the key palliative treatment for influenza. In Britain, where the wartime authorities had declared open season on the drug, numerous suppliers were now beginning to make it and call it by the famous name that consumers were used to.* The situation was the same in France, Belgium, Italy, and Poland—even in those parts of Bolshevik Russia where an industrial economy still functioned. In short, Bayer had lost one of its most important prewar monopolies; where it still had access to European markets or could hope to force its way back in, it was now having to compete as just one among many.

  Things were even worse in the United States. There, Bayer and Company was now the property of Sterling Products Inc., a patent medicine business run by one William E. Weiss, a carpetbagging opportunist from Wheeling, West Virginia. Sterling was best known for Neuralgine, a quack analgesic marketed through newspaper advertisements of questionable veracity, but by paying $3.5 million to the Office of the Alien Property Custodian, Weiss had been able to get his hands on the U.S. rights to sixty-four best-selling Bayer drugs, including aspirin, Phenacetin, and Sulfonal, and at Rensselaer, New York, the sophisticated production plant to manufacture them.* He knew he’d hit upon something big and was determined to use all his patent medicine seller’s panache to exploit it to t
he full. As he told his board, “The field has merely been scratched on the surface and there are tremendous possibilities ahead.” Indeed, it wasn’t long before he came round to the view that, having got hold of all these tremendous Bayer properties in America, Sterling should try to exploit them overseas as well.

  Weiss had a major problem, however. He no more idea of how to run a state-of-the-art pharmaceutical plant than he had of how to speak a foreign language. Indeed, linguistic deficiencies were a significant part of his predicament, because the U.S. government, when it seized the property, had fired, deported, or interned most of its managers and overseers as enemy aliens. Reasonably enough, these men hadn’t been disposed to leave a set of instructions behind them and the few technical blueprints and patents that did remain were written in German and couched, as usual, in the most arcane scientific terms. Much as Weiss wanted to swing into action, to mass-produce aspirin and the other drugs, he simply couldn’t get more than a fraction of the vast modern Rensselaer plant going. There was still a large stockpile of completed product on-site, but it wouldn’t last forever. Unless Sterling Products found a way to operate the factory, its $3.5 million purchase could turn out to be one of the worst bargains in history. Weiss would have to get some expert help—and the only logical source for that was at Bayer Leverkusen.

  Help was very difficult to obtain. Although Weiss was able to call on the services of an intermediary, Ernst Möller (one of the few former Bayer and Company managers to hang on to a job with the firm after the war), their joint letters to Leverkusen asking for assistance were met with only the curtest acknowledgments. Exasperated, Möller wrote independently to Rudolf Mann, Bayer’s pharmaceuticals chief, warning that if Sterling wasn’t able to reach an agreement, then two companies with the same name and the same products might soon be competing in the same markets around the world. Surely, that was in no one’s interest. Once again, only a brief, noncommittal reply came back. Eventually, fed up with waiting for a positive response to these approaches, Möller and Weiss decided to force the issue. They booked a passage to Europe and cabled Leverkusen to say they were on their way. The gambit worked: in late September 1919, at a small hotel in Baden-Baden, William Weiss and Carl Duisberg finally met.

  It was not a happy meeting. Duisberg was a very angry man. A few weeks earlier the German chemical industry, under the terms of the Versailles Treaty, had been forced to surrender half its stock of drugs, dyes, and other chemicals to the Allies. Now this arriviste, this upstart, this nonchemist had the temerity to come to Germany to ask for help. Duisberg was prepared to listen, but Weiss had to understand that Bayer wanted him to return all its property—but especially aspirin—forthwith. This, of course, Weiss refused to do. Wiry and dynamic and streetwise, his plainspoken manner in stark contrast to Duisberg’s bombast, the American knew the value of what he had bought and he wasn’t going to relinquish any of it on the say-so of an arrogant German technocrat. On the contrary, as the discussion continued, he saw how Duisberg’s anguish over Bayer’s lost U.S. assets could be turned to Sterling’s advantage. Bayer was obviously desperate to regain a foothold in America and Weiss realized he could probably satisfy some of that desire by giving the Germans a share in the profits that Sterling Products was going to make from its ownership of Bayer’s U.S. name and goods. However, the price for this could be set very high, certainly far higher than just the provision of some technical advice on how to run a factory. Weiss was convinced that if he handled the situation carefully he could extract from Bayer the rights to sell its drugs in many more parts of the world than just the United States.

  Thus began three years of bitter transatlantic bargaining. Meeting followed meeting, sometimes making progress, at other times collapsing back into bad-tempered stalemate. On one such occasion, Sterling Products tried to bluff the Germans into a deal by threatening to export its U.S. Bayer medicines to Europe and Asia, putting them in head-on competition with the output of Bayer Leverkusen in those markets. Of course, with its Rensselaer plant barely operational, Sterling could not yet make enough Bayer drugs to service the American market, let alone produce any for overseas, but Weiss knew that the Germans would be worried that this situation might change. The threat provoked Duisberg into a tirade. He stood up, banged on the table, and shouted: “Everywhere in the whole world, except in the United States, people will know that we are the true Bayer. Laws can say what they want, but this situation contradicts global morality. They can’t use our prestige for their advantage.… No money is good enough!”

  It says a great deal about William Weiss’s character and negotiating skills that he refused to be cowed by such outbursts, particularly as, privately, he was very impressed by Bayer’s German operation. His first visit to Leverkusen, in April 1920, had been a revelation. Everywhere he looked, Weiss saw signs of his opponent’s power and accomplishments. The factory was enormous—ten times the size of the plant at Rensselaer—and even though it wasn’t yet back up to full production it still bustled with all the energy of a small city. Huge barges came and went from Bayer’s riverside wharves, and steam engines shunted between vast sheds and laboratories where dyes and medicines were made and tested, while thousands of workers and scientists and technicians moved purposively about, engaged in tasks that Weiss could only guess at. Even the company’s library was on a jaw-dropping scale, housing tens of thousands of books, journals, and papers on chemical procedures gathered from around the world. There was also Duisberg’s own extraordinary house to take in, with its reflecting pools, manicured lawns, formal Japanese-style gardens, and battalion of servants and gardeners.* And if all that wasn’t remarkable enough, there was the Great Hall where the meetings between the two sides took place, a vast, echoing neoclassical structure with carved marble columns and two massive front doors with brass handles bearing the Bayer logo. New visitors sometimes likened the experience of walking through those doors to that of a slave being brought to ancient Rome for the first time. Here was the seat of power, the heart of the empire, where decisions were made and the Untermenschen did as they were told.

  But Weiss was made of sterner stuff. Impressed though he was, he was a consummate salesman, well able to hide his feelings. In his view, Duisberg’s anger merely underlined Bayer’s impotence. The Germans could bluster all they liked, but to reestablish an American business they would have to make a deal with Sterling. Help with running Rensselaer was only a start. For that Weiss was prepared to relinquish some of Sterling’s lesser holdings, perhaps by sharing rights on the Latin American aspirin trademarks that had been among the subsidiary acquisitions of his North American purchase. If Duisberg and Bayer wanted something more, they would have to offer more in return, to collaborate in other territories and in other fields.

  Eventually, of course, they came to terms. In reality, neither side had much choice: Bayer’s bosses couldn’t envisage a future without a strong presence in the United States and Sterling’s board knew its investments didn’t have much of a future without Leverkusen’s technical assistance. On April 9, 1923, they agreed to divide the world between them. Sterling (through a subsidiary called the Winthrop Chemical Company) would manufacture all of Bayer’s products in North America and would get all the help it needed to put Rensselaer back into full production. It would have the exclusive rights to sell those products in the United States, Canada, Britain, Australia, and South Africa but 50 percent of the profits would be handed back to Leverkusen. Sterling could also continue to sell aspirin in Latin America, with Bayer getting the lion’s share of a 75–25 profit split. In return Sterling would refrain from using the Bayer trademark on any of its own products (Weiss had successfully played on Duisberg’s fear that Bayer’s proud name might be used to legitimize some of Sterling’s dodgier merchandise) and would stay out of Bayer’s markets in the rest of the world.

  Unquestionably, Weiss got the better of the deal. He had parlayed an initial outlay of $3.5 million into rights to sell some of the finest chemical and ph
armaceutical products in some of the most profitable markets of the world, a spectacular return on a relatively modest investment. But there was some compensation for Leverkusen, too: an aggressive new competitor had been kept at bay and a foothold (albeit through a share in profits rather than ownership) had been reestablished in the United States. To Duisberg’s great chagrin, however, he hadn’t been able to get back the thing he’d most set his heart on, his company’s American aspirin business. Weiss, resisting all attempts to pin him down, had managed to keep that particular cherry out of the pie, denying Leverkusen even the 50 percent profit share he had conceded on other products. The failure would haunt Duisberg for the rest of his life.

  Of course, Sterling had been able to push the deal through only because it had something to offer the Germans. Other American companies found it harder to twist the IG companies’ arms—particularly once the Allies had withdrawn their demand that key German installations be destroyed. The DuPont Corporation, for example, had bought up dozens of confiscated dyestuff patents from the alien property custodian in the belief that they contained the secrets of Germany’s success. After spending a great deal of money in futile attempts to follow the specifications laid out in the patents, DuPont realized how devilishly complicated the whole process was—and how deliberately vague the Germans had been when drawing up technical documents for overseas publication. So, taking a leaf out of Weiss’s book, the company’s executives arranged a meeting with Carl Bosch—whom DuPont’s executives thought would be more amenable than Duisberg—to see if he would facilitate a joint venture between the American firm and some of its German counterparts. Unsurprisingly, Bosch refused to help.