STERLING V. THE FARBEN

Every U.S. corporation that has commercial ties with Germany studied an announcement by the Department of Justice last week. It was a consent decree signed with No. 1 U.S. drugmaker Sterling Products Inc. (Bayer Aspirin, Phillips Milk of Magnesia, Fletcher's Castoria, many another branded & unbranded drug).

To those who recalled Thurman Arnold's highly seasoned attacks on sinister Nazi influences on U.S. business, the wording of Justice's victorious announcement tasted like milk toast. It went out of its way to pat Sterling on the back. It was nonetheless a victory, for the Department of Justice, for the vigorous anti-Nazi elements in Sterling's management, and for their mentor, Thomas Gardiner Corcoran, who (as Sterling's counsel) worked out the deal. It also patterned one method by which U.S. corporations can cancel German contracts without subjecting themselves to stockholders' suits.

Sterling, three of its subsidiaries* and its two top officers signed the decree. They plead nolo contendere to charges of restricting markets by agreement with I. G. Farbenindustrie, the German Dye Trust. They agreed to pay fines totaling $26,000 and to break all contractual relations with the Farben. They also agreed never again to promise any other drug manufacturer not to compete in foreign markets.

Sterling's agreements with I. G. Farben date back to the early '20s, after its predecessor had bought the Bayer patents (which belonged to a Farben predecessor) from the U.S. Alien Property Custodian, but failed in a legal fight to extend them to Latin America. The agreement let Sterling make Farben products and sell them in Latin America, but only on commission (25%). Sterling processed these drugs (usually from German raw materials), had $10,000,000 worth of plant in Latin America, but the drugs bore Farben's names. The agreements, until last week, still had 30-35 years to run.

If the U.S. were at war with Germany, Sterling could have canceled this contract, ceased being Farben's sales stooge in Latin America. But without a state of war, Sterling officers would be liable to lawsuits, unable to plead "legal impossibility." The value of the contract has been estimated as high as $100,000,000. Since both Sterling Chairman William Weiss and President Albert Diebold are multimillionaires, they were in no position to cancel the contract.

The consent decree, being a court order, gives Sterling's officers a Government-underwritten legal out. Meanwhile, to rid the company of any pro-Nazi stigma, the directors last fortnight got Sterling a new president and chairman. (Messrs. Weiss and Diebold moved upstairs to head newly created Board committees.) The new chairman: Edward Sidney Rogers, international patent lawyer and adviser to the State Department. The new president: ex-Sterling treasurer, ex-U.S. Internal Revenue Bureau official, James Hill Jr. Mr. Rogers' knowledge of international law will be especially useful. For although Sterling is relatively safe in the U.S., it can expect trouble from 20 different legal codes if it enters Farben's Latin American market on its own.

That is exactly what Sterling will do. Longtime head of Sterling's foreign sales organization was Earl Irvine McClintock, intimate of Robert Jackson, Thurman Arnold, many another New Dealer. His general manager and ballcarrier in Latin America: Tommy the Cork's brother David (who is now heavily involved in aid-to-China too). Having staffed their end of Sterling with young anti-Nazis like themselves, they are set to fight I. G. Farben in its most entrenched market. It will be an expensive, uphill job. Two things they need: 1) more and better original U.S. laboratory research, which dependence on German skill has hampered (McClintock is to run Sterling's new laboratory program); 2) continued backing by the State Department on the Good Neighbor front.

The Justice announcement last week gave Sterling a clean bill of health as far as further Nazi influence is concerned. This, it hoped, might undo some of the damage done by Arnold's previous blasts.

Since those blasts, the President has frozen all German assets in the U.S., and the Justice Department has attached I. G. Farben's U.S. bank accounts. Hence it is virtually impossible for the Nazis to make any effective use of their U.S. royalty and dividend income anyway.

The Sterling deal was Tommy Corcoran's fourth big job since he left RFC last year. His other three: helping Henry Kaiser get his magnesium plant (TIME, March 3), helping him get steel for his West Coast shipyards (TIME, April 28), organizing T. V. Soong's China Defense Supplies, Inc.

*Bayer Inc. (100% owned by Sterling), Winthrop Chemical and Alba Pharmaceutical Co. (50% owned by Sterling, 50% by General Aniline & Film Corp.).

This file is automatically generated by a robot program, so reader's discretion is required.