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Sterling Products, Inc. (IV.1) – Farbenfabriken Bayer of Elberfeld

Sterling Products, Inc., Manufacturer

Chapter 4.1 – Farbenfabriken Bayer of Elberfeld, Manufacturer

TYPES OF BAYER CANCELS

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Box

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           When Sterling Products, Inc. purchased the assets of the American assets of the German company, Farbenfabriken Bayer of Elberfeld, it was the equivalent of a minnow swallowing a whale, for Bayer was already a complex, multi-layered, multi-national chemical and dye business while Sterling Products, Inc. was a brash peddler of nostrums, albeit a rich and resourceful one.

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1902 BAYER U.S. COVER

          As set out in the discussion of the VapoCresoline Co., the modern petrochemical industry grew out of the commercialization of coal as fuel.  Controlled burning of coal produced coal gas, which became the earliest commercial gas supplied for street and house illumination, but also produced a residue of coal-tar, at first considered dirty, useless glop.  When chemists all around the world began to analyze coal tar, it was found to be composed of hundreds of different substances some of which could be utilized by other industries.  In particular, the substance aniline, first isolated from coal tar in 1826 by Otto Unverdorben in Germany, could be turned into synthetic fabric dyes.  This discovery was significant news for the dyeing industry, which has existed from the beginning of recorded history, but had changed remarkably little over thousands of years because dye sources were extremely limited by known natural substances and sources.  For example, Tyrian purple, the lushest purple dye reserved for the garments of Roman emperors and senators, could be produced only by crushing huge amounts of the shells of certain sea-snail species found mainly near the Eastern Coast of the Mediterranean Sea, and so remained extremely costly through the ages.

FREIDRICH BAYER & J. F. WESTCOTT

          In 1863, Friedrich Bayer and Johann Friedrich Westcott organized Frederich Bayer & Co to exploit the possibilities of these new artificial, aniline dyes. They were in a good position to enter this burgeoning field because Bayer was a dealer in natural dyes who had a network of sales agents and Westcott operated a factory for the extraction of natural dyes.  They located their plant in their hometown, Barmen, a small village approximately twenty miles east of Düsseldorf in the northwest corner of Germany. Bayer soon brought Carl Rumpff into the business as his agent in New York City.  Rumpff had emigrated from Germany to the United States and worked there in the coal-tar business before accepting employment as Bayer’s U.S. agent.  Rumpff soon became Bayer’s most trusted assistant.  In 1876, he moved back to Germany and married Bayer’s eldest daughter, Clara.  Westcott died in 1876, and Rumpff took over the entire business when Bayer died in 1880.  By then, because of problems associated with disposal of toxic waste generated from the dyeing business, the company had moved a short distance to the town of Elberfeld.  The next year, Rumpff took the company public under the name Farbenfabriken vormals Frederich Bayer & Co, which means the Dye Factory formerly known as Friedrich Bayer & Company (“Bayer”).

PORTRAITS OF BAYER & CARL RUMPFF

          By this time, however, Bayer was struggling because it was too dependent on the sales of a single dye, alizarin, an orange-red dye. In the process of searching for new dyes to boost Bayer’s faltering product line, Rumpff hired a young graduate student in chemistry named Carl Duisberg.  Under German patent law, it was then permissible to market a patented product that someone else was manufacturing, provided the second production method was completely independent of the first and, therefore, did not infringe the underlying patent.1   Joining the firm in 1884, Duisberg quickly struck gold by finding an alternate method for Bayer to produce a competitor’s dye known as Congo Red.  Duisberg’s discovery put Bayer’s finances on a firm footing.  He subsequently perfected two other dyes, and Rumpff installed him as the head of Bayer’s research and patent department.

PORTRAIT OF RUMPFF & PHOTO OF CARL DUISBERG AS A YOUNG MAN

          As well as working with dyes, Duisberg was sensitive to the growing possibilities for other kinds of chemicals derived from coal-tar.  In the field of medicine, he observed Cahn and Hepp’s discovery of acetanilid in 1886 and watched them propel it into a market success by allowing it to be prescribed by doctors and sold only under the specific brand name “Antifebrin” rather than permitting it to be identified simply by its generic chemical name, acetanilid.  He also realized that acetanilid was chemically similar to para-nitrophenol, a waste product of Bayer’s dye manufacturing process stored in a vast quantity of barrels piled all around the company’s factory yard. Recognizing that he might be able to create from the para-nitrophenol a compound to compete with Antifebrin, he put his research department to work.  His chemists found a compound called acetophenetidin, which Duisberg then had Bayer market under the brand name Phenacetin.  It was first sold in 1888. Although it cost more than Antifebrin, and still had the same potential lethal side effects of acetanilid, doctors quickly judged it to be the safer of the two drugs.  An influenza epidemic that struck the Northern hemisphere in 1889 popularized the Phenacetin outside of Germany and spectacularly boosted Bayer’s sales.

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1891 PHENACETIN TRADE AD BY BAYER U.S. DISTRIBUTOR

          By 1890, when Rumpff died and Duisberg became the head of Bayer, Duisberg had married Rumpff’s niece and merged his administrative prestige with family ownership. The next year, Bayer, having outgrown its plant at Elberfeld, moved its main headquarters about fifteen miles to the southeast to a campus in a town called Leverkusen, just north of Cologne on the east bank of the Rhine river.  That plant is still there and operating today.  Duisberg had the old plant at Elberfeld reconditioned purely as the company’s research facility for new drugs.  It was split into two departments: the first to develop new products and the second to test their efficacy prior to bringing them to market.  One of the first projects Duisberg assigned to his new laboratory was to find an even better and safer pain relief compound, since Phenacetin still carried the potential for lethal harm if misused.

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BAYER FAMILY VAULT INCLUDING RUMPFF

         Before Cahn and Hepp derived acetanilid, there were only two natural compounds that acted as analgesics, that is, they successfully relieved pain.  Each had its drawbacks. The first was salicylic acid derived from the bark of the white willow tree.  Its basic chemical, a bitter-tasting substance called salicin, had been isolated as the bark’s active ingredient in 1828, and first synthesized as an acid in 1838.  Its side effects were nausea and ringing in the ears.  The second was quinine, which was compounded made from the bark of the Peruvian cinchona tree.  It too caused unpleasant side effects, and, moreover, was extremely difficult to obtain in quantities sufficient to use for experiments, since scientists could not yet synthesize the active compound and the tree resisted all cultivation attempts outside of Peru.

COMPETITOR KNORR’S ANTIPYRINE

           One synthetic pain-killer existed already. In 1883, a German chemist named Ludwig Knorr had created a compound which was marketed under the name Antipyrine.  He patented it and assigned its manufacture to another chemical company, now known as Hoechst (which will also be profiled in this column bye and bye). However, Antipyrine suffered under some drawbacks as well.  First as a patented medicine, its manufacture and sale was limited solely to the patent holder, Hoechst, which exercised its legal monopoly to make it expensive.  Second, as a medicine whose chemical formula was protected by a legal patent – and therefore not truly a “patent medicine” at all – it was advertised and marketed – as all such “ethical” drugs were – only to doctors, not directly to the public.  The doctors created a demand for an “ethical” drug by prescribing it to their patients, who then purchased it from them or from pharmacies. In the case of Antipyrine, its name, however – which doctors took to mean limited its use to fever reduction – did not really describe its chemical formula sufficiently enough for doctors to be entirely comfortable prescribing it, and, moreover, doctors considered pain merely a symptom of the underlying disease that warranted treatment, rather than a condition in itself to be alleviated.  While the public might have disagreed with that professional assessment – and Antipyrine was quite popular briefly where it became available in certain countries without a prescription – because doctors did not adopt it broadly, its appeal was soon eclipsed by subsequent events.  Even with its possibly lethal consequences, acetanilid – never protected by a patent because it had been synthesized before its medicinal properties were recognized – was always cheaper than Antipyrine. Phenacetin, as expensive as Antipyrine, but judged safer than acetanilid, soon cut into its sales. Meanwhile, Duisberg was already working on a better product.

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FELIX HOFFMAN

          Duisberg’s new laboratory at Elberfeld responded to his challenge to develop an analgesic without potential fatal side effects by producing Aspirin.  The legend that surrounds its discovery begins with a young chemist named Felix Hoffman, who had drawn the assignment to develop Bayer’s next pain reliever.  From among the choices of existing analgesics, Hoffman chose to work with salicylic acid.  The reason Hoffman chose that compound was that his father was crippled by chronic rheumatism, and took sodium salicylate, the available form of salicylic acid, to relieve the pain.  Because that treatment caused him severe stomach pains, he begged his son to find him a more effective treatment.  On October 10, 1897, Hoffman noted in his laboratory workbook a method for converting salicylic acid into acetylsalicylic acid.   He reportedly gave his father the resulting compound and discovered that his father experienced a complete remission.  The new compound was immediately denominated Aspirin, and the rest is history.

ARTHUR EICHENGRÜN & HEINRICH DRESER

          In actuality, Hoffman was not the first to produce acetylsalicylic acid, but did find a better method for synthesizing it.  However, when the compound was sent to Duisberg’s other laboratory department for testing, it was summarily rejected because, in the doses originally utilized it caused heart palpitations.  In addition, the testing laboratory was busy trumpeting another new discovery, a cough medicine called Heroin, which was much more effective than codeine and promised to be completely non-addictive. Acetylsalicylic acid remained neglected for approximately a year until Hoffman’s boss in the drug developing department, Arthur Eichengrün, circumvented the testing department by placing samples with some of his practicing colleagues.  Their favorable reports prompted the testing laboratory to conduct its own tests which were glowing. The head of the testing laboratory, Heinrich Dreser, then published the first paper on Aspirin, omitting to mention either Hoffman or Eichengrün.  Once placed on the market, Aspirin’s success was immediate.  Ironically, because of his contract with Bayer as head of the testing laboratory, Dreser received royalties on the sales of Aspirin that were so immense that he was able to retire early from Bayer.  Hoffman and Eichengrün received no special compensation for their contribution to the development of Aspirin and only belated credit for its development.

1898 TRADE ANNOUNCEMENT CHANGING DISTRIBUTORS TOGETHER WITH 1898 SCHIEFFELIN AD  AND 1899 BAYER U.S. AD FEATURING HEROIN

          The largest potential market for Aspirin was the United States.  Bayer already had a sales history in the United States.  As noted above, Frederich Bayer had immediately set up a sales agency in the United States and Carl Rumpff had initially been employed in New York City before moving back to Germany.  By the late 1890s, the United States had already emerged as the biggest market for Bayer’s dyes, accounting for greater sales even than Germany.  Bayer had employed Schieffelin & Co. (previously mentioned in the article on John D. Park & Sons) as its distributor in the United States, but Rumpff’s successor in Bayer’s New York office never felt that it featured Bayer’s products, such as Phenacetin, prominently enough, so in 1898 Duisberg discharged Schieffelin & Co. and made Bayer U.S. its own sales and distribution center.  Dr. Hugo Schweitzer, a chemist who had emigrated to America in 1889 and become an American citizen was a consultant to Bayer U.S. and was both a prominent spokesman on behalf of the company and a primary channel of communication between Bayer U.S. and the head office in Leverkusen, Germany.  Meanwhile,  Duisberg who had protected Bayer by patenting Phenacetin in the United States, immediately patented Aspirin in the United States as well.  However, because Hoffman had actually not been the first to produce acetylsalicylic acid, Bayer was only able to win patents for Aspirin in the United States and in England.

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1903 LETTER FROM SCHWEITZER AT BAYER U.S. OFFICE TO DUISBERG IN GERMANY

             Still, even with patent protection for the formula for Aspirin and, initially, trademark protection for its name, Bayer felt it was at a marketing disadvantage in the United States.  High U.S. tariffs, as well as the certain prospect of the patent’s eventual expiration, persuaded Duisberg that he ought to have a production plant in the United States to maximize Aspirin’s sales prospects. Bayer finally determined that its best course of action would be to expand its presence in the United States. In 1881, Bayer had purchased a one-quarter interest in the Hudson River Aniline & Color Works located in Rensselaer, N.Y. across the Hudson River from Albany. Duisberg visited this property in 1903 and decided to create a plant on the Hudson along the same design parameters as he had developed on the Rhine at Leverkusen. He had the machinery from another dye plant transferred to this location and erected new buildings to accommodate the production of Aspirin, which included two large crucibles made of pure silver needed to hold the acetic acid required to acetylate salicylic acid.

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1900c BAYER U.S. TRADE AD

           Aspirin’s success in the United States, combined with its relatively high price guaranteed by its patent-protected monopoly, immediately led competitors to emulate it. One Edward Kuehmsted, a somewhat shady drug dealer in Chicago, some of whose exploits are recounted in a book entitled Twenty Years in the Wickedest City in the World by Detective Clifford Rodman Woolridge, began to import large quantities of acetylsalicylic acid from Canada, where Bayer did not hold a patent.  Bayer responded in 1905 with a patent infringement suit.  No sooner had it filed its suit, than a similar suit in England that Bayer had filed against a German competitor was decided against Bayer invalidating its English patent, precisely because Hoffman had not been the first to create acetylsalicylic acid, and the English court – drawing the opposite conclusion from German law – could not grasp the fine distinctions Bayer tried to articulate between Hoffman’s process, which it claimed yielded a purer form of acetylsalicylic acid, and the earlier process utilized by that other German company.  Bayer’s American attorney then delayed the proceeding for roughly the next four years. When the American court rendered its opinion, much to everyone’s surprise, it ignored the English precedent and upheld the legitimacy of Bayer’s patent, finding sufficient novelty in Hoffman’s process to warrant a separate patent.  When the plaintiff Kuehmsted complained that Bayer was unable to patent Hoffman’s process anywhere else in the world, the judge merely remarked that the United States was different from any other country.  In 1910, an appellate decision confirming the lower court’s reasoning sealed Bayer’s patent victory.

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1912 BAYER U.S. TRADE AD

          World War I began in Europe in 1914.  At first the United States attempted to remain neutral and avoid favoring either England, the principal power among the Allies or Germany, the principal anchor of the Central Powers.  However, as a German company operating in the United States, Bayer found itself in a number of harrowing scrapes before the United States entered World War I on the side of the Allies and seized its American assets.

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AUGUST 15, 1915 NEW YORK WORLD FRONT PAGE

          One of the stories is now told as the Great Phenol Plot of 1915.  An essential ingredient for the manufacture of Aspirin was a substance called phenol, another organic chemical originally derived from coal-tar.  Phenol, however, was also a building block for many, many other substances, including a potent explosive trinitrophenol. Before the war, England provided most of the phenol Bayer needed, although not to Bayer directly, but rather to its suppliers.  They, in turn, used the phenol to produce salicylic acid, which Bayer then purchased and turned into Aspirin.

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DR. HUGO SCHWEITZER & HEINRICH ALBERT

         As soon as the war began, England stopped all foreign export of phenol.  Bayer’s suppliers were starved and Bayer also faced closure because it could not obtain salicylic acid to convert into Aspirin in its pure silver cauldrons.  Many other companies in the United States were also facing a shortage of phenol, and one man who immediately took action was Thomas Edison, who required phenol to produce his best quality phonograph records.  He set up two new plants to synthesize phenol.  No sooner were the plants in operation than Edison was approached by none other than Hugo Schweitzer, still operating as a consulting chemist for Bayer, to purchase all of Edison’s excess production of phenol for use by Schweitzer’s company, the Chemical Exchange Association.  Unbeknownst to Edison, Schweitzer had been employed by the German Embassy to act as an agent on behalf of the German government and it supplied the money Schweitzer used to pay Edison.  As well as trying to tip public opinion toward Germany, the German Embassy in the United States was charged with preventing – in any way possible, as best it could – the United States from exporting chemicals to the Allies which they could use to harm Germany.  Schweitzer took the phenol he had purchased from Edison and entered into a contract to have it turned into salicylic acid by the American branch of Chemische Fabrick von Heyden (the very same German firm whom Bayer had sued in England that had led to the invalidation of its Aspirin patent in England).  Heyden’s American branch had been supplying Bayer’s American plant with salicylic acid under a contract between the two companies made before the war and it was natural for it to resume its contract with Bayer when it again had salicylic acid to sell. Schweitzer exported the balance of the salicylic acid himself. As well as turning a profit on all of the phases of the transaction, Schweitzer managed to divert all of Edison’s excess production of phenol from being turned into the explosive trinitrophenol by the Allies. Estimates were that four and a half million pounds of explosives could have been produced from the phenol that Schweitzer managed to divert.

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BAYER PRODUCTS 1915c

          The scheme did not last too long.  Schweitzer’s paymaster, a German Embassy official, Heinrich Albert, fell asleep on the Sixth Avenue elevated railway in New York City.  Awaking suddenly to find he was missing his stop, he jumped up and departed so hurriedly that he left his briefcase in the subway car.  It was immediately seized by a sharp-eyed Secret Service agent who had been assigned to watch his movements.  While the briefcase did not contain enough material for the United States to indict any specific German Embassy official for acts of sabotage, when its contents became public after a highly placed member of the U.S. government leaked the papers to an anti-German newspaper, there was an enormous public hue and cry and the entire press charged the Germans with theft of American chemicals.  However, in 1915 the United States was not prepared to end its neutrality, although the subsequent public outrage was strong enough to persuade the Germans to cease funding Schweitzer’s contract with Edison. Schweitzer simply then made other arrangements and continued to purchase Edison’s excess phenol for another several months until growing sentiment in favor of the Allies finally pressured Edison to start selling his excess phenol to the United States government.  By that time there was enough of a supply of phenol to assure that Bayer would stay in operation, but its reputation as an honorable chemical company was severely impaired by its involvement in the Great Phenol Plot.

BAYER U.S. MEDICINE BOTTLE 1915c

          As the prospect of America’s entry into World War I on the side of the Allies loomed larger and larger, Bayer engaged in one more complex intrigue to protect itself.  The German owners and managers of Bayer’s American operations realized that seizure of enemy property would follow a declaration of war by the United States.  At the beginning of the war, the European combatants mutually had seized enemy property for their own use for the duration of the war intending to return such property in tact following hostilities.  As the intensity of the war increased, that prospect became unlikely. While Bayer’s management could not avoid seizure of the physical assets, it realized it was were even more vulnerable because in 1913 Bayer’s German headquarters had also transferred to a newly formed American subsidiary ownership of the intangible assets, not only of the expiring patents, but, most importantly, the American trademark rights. These managers, therefore, schemed to cushion themselves against the possible impact of seizure by channeling Bayer’s profits to their own benefit as well as setting up a genuine American corporation which they would control to act as its dummy to bid for these assets in the unfortunate event of a sale.

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1918 BAYER U.S. TRADE AD

          Cynically recognizing that the American army would need uniforms if it went to war, Bayer purchased another dyeing company in Providence, RI, Williams & Crowell (“W & C RI”), to provide dye for such uniforms.  However, instead of Bayer’s appearing as owner of W & C RI, an American attorney advised Bayer’s officials to set up another American company, Williams & Crowell Color Co. of New York (“W & C New York”), to actually take title.  Management and ownership of W & C New York was nominally placed in the names of Americans (such as the advising attorney), but the real owners were Bayer’s owners and managers.  They, in turn, provided the money from Bayer’s profits for W & C New York to purchase W & C RI.  Moreover, since, in their capacity as Bayer’s managers, they bought all of W & C RI’s output at inflated prices for resale to the American army, they re-cycled the money to themselves, and had those inflated profits stored and available in an American company for any other eventuality which might arise.  Bayer’s management also ensured that a friendly American, properly bribed, was installed as manager of Bayer the U.S. Alien Property Custodian actually seized control of its operation in January, 1918.  Through friendly administration of Bayer’s assets while under American control and storage of Bayer’s profits in a certified American corporation, Bayer’s management felt it could navigate through any eventuality that arose, even the ultimate unfortunate event of a sale by the Custodian.

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A. MITCHELL PALMER

          Eventualities, however, did not evolve in the manner Bayer’s management anticipated. An anonymous crackpot letter, claiming that W & C RI was poisoning the military uniform fabric it was dyeing, led A. Mitchell Palmer, the U.S. Attorney-General, acting in his capacity as the Alien Property Custodian, to examine its operations. When the Custodian investigated, he quickly discovered the shell nature of its ownership. The American attorney to whom Bayer’s management had entrusted leadership of W & C RI quickly bailed on Bayer, and announced he would instead purchase the company himself from the Custodian when it was put up for sale.  When the Custodian revealed all of the plotting by Bayer’s managers, their machinations led to further public condemnation and ultimately to their arrest on charges of trading with the enemy.  By the time the Custodian was ready to auction Bayer’s assets, its prior management had effectively disappeared.  The way was clear for Sterling Products, Inc. to make its audacious bid to buy Bayer’s remarkably valuable assets for its own future development.

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¹     A similar ruling emerged in the United States in the 2009 Abbott v. Sandoz case discussed in the column concerning Abbott Alkaloidal Co.

©   Malcolm A. Goldstein 2018

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