and Mobil broke the Red Line Agreement, Gulbenkian filed a lawsuit
against them in London for breaking the agreement. And the French
government filed an official protest with the United States
government, which meant to me that the French knew that the United
States government was secretly encouraging Jersey and Mobil to
break the Red Line Agreement and join Aramco, which is what they
did.
We sold Mobil a 10 percent interest, and Jersey a 30 percent
interest: that made Aramco 30, 30, 30, and 10 deal. I'm sure
that's true. I'm dead sure that that's exactly what happened. But
now, along comes the cartel case, and they are attacking Aramco as
being an instrument of this worldwide conspiracy in the
international oil cartel. Which just shows you what a slippery
bunch the politicians really are.
117
Hicke: Did you begin to feel like a baseball being batted around?
O'Brien: No. I began to feel a certain skepticism and cynicism about the
way we conduct our domestic politics - and even our international
politics.
Hicke: Yes.
O'Brien: And that was the inception of the civil cartel case. It began
about April 1953 and didn't really end until about 1968. I had
gone to Standard by the time the case was over, but in the
meantime, we had written this Mootness Study. 1 e appeared twice
before the crowned heads of the antitrust [division], and we
updated the Mootness Study twice to show that there was no
conceivable way that the allegations that related to 1928 could
have any truth or any bearing on the world international oil scene
in the 1950s and '60s.
In the first place, the case charged that we controlled
exploration and production and refining and distribution and
marketing worldwide. And this study traced the entry of two or
three hundred companies in the international exploration and
production business in the Middle East and elsewhere.
Hicke: During that period?
O'Brien: Yes. So the notion that we were controlling exploration-production
was ridiculous. The Mootness Study discusses every aspect and
actually charts the acreage that these other independent companies
owned. We did that sort of study with refining capacity, and so
on. Now in the antitrust law, there are matters of elementary
economics. There are so-called concentration ratios - the amount
of a particular aspect of a business which is controlled by the top
three, the top four, the top five, the top six, so on - and we
took those classic measures of concentration, and we developed
concentration ratios - this was Neil Jacoby's genius - for every
aspect of the international oil industry. And we showed that in
exploration acreage we were going downhill abruptly in relation to
the number of new companies owning acreage around the world. Ditto
on production, ditto on refining. So the Mootness Study was really
written around this thesis.
1. So-called because I argued that whatever the truth of the
complaint's allegations in 1928 and 1932, such profound changes had
taken place in the international oil industry post war that the
case was moot.
118
While Socal was never part of any agreement like Achnacarry or
any of the other so-called "As Is" Agreements, we assumed for the
purpose of this study that those allegations were true in 1928, and
that even though we weren't even in the international oil business,
we assumed we were. Then we said: "Now let's take a look at the
postwar changes in the foreign oil industry and see how those
allegations measure up against the realities of the world today."
And the consequence of the study was that it showed that it was
total absurdity to suggest that this huge, dynamic industry could
conceivably be controlled by four or five companies. It was
ridiculous, but it took sixteen years for the USG to give up.
They took consent decrees against Jersey, Gulf, which had been
participants in IPC; Texaco got on a kick of its own and finally
took a consent decree, but that did not affect the legality of
Caltex or Aramco. We hung tough. We wrote this study. The head
of the antitrust division, an eminent federal judge, now retired in
San Francisco, was head of the antitrust division when we first
presented this study to them.
Hicke: Who was that?
O'Brien: [William H.] Bill Orrick. I said to him at the conclusion of the
first session in which this study was tabled with them that it was
a perfectly absurd case, that they were fighting the Punic Wars.
Their contentions and allegations had about as much relevance as
the Punic Wars. When the meeting was over, he got me aside and
said, "I guess that's the first time anybody ever accused the
antitrust division of fighting the Punic Wars." And I said, "Well,
Bill, that's the way it really is." "Well, you'll hear from us."
And they got the additional copies. Then a year went by. They
called us back again, and this time he said in effect, "Well, we
don't disagree with this." Years afterwards, I used to see it on
the desk of every head of the antitrust division.
Hicke: Oh, really. Oh, very good.
O'Brien: They said: "We don't disagree with it, but we've got big problems.
You know, we don't want to get into some big hassle with Congress
and so on. So why don't you take some kind of an innocuous consent
decree, so we can get rid of the case?" No wayl
Hicke: This must have been about '64?
O'Brien: Meanwhile we had had months and months and months and months of
discussions with them about this earlier on. Kirk led those
discussions for many, many months, and I was with him, and a fellow
from the Cahill office by the name of Bill Sayre, and a couple of
Texaco lawyers. We had months of discussion about a consent
decree. They had these ridiculous ideas that you should put on the
119
handcuffs for twenty years when nobody knew what would happen the
next time the earth took a turn, and nobody could predict whether a
decree like that would come close to fitting. Nobody knew what the
Saudi government might do next, in effect, to expropriate the
concession in a few years, all that kind of business. There was no
way that you could advise your client to accept a pig in a poke
like that.
Anyway, in the end they came back at the end of the year and
said, "Why don't you take a consent decree?" And we said, "No
way." Bill Orrick said to me, "Well, Jim, I guess we'll just have
to bite the bullet some day." Well, he went out of office without
biting any bullets.
Hicke: This was Mr. Orrick?
O'Brien: Yes. Two succeeding assistant attorney generals made all sorts of
threatening noises about it. They were going to set the case for
trial, and they were going to do this and that, and so on. Along
came a Harvard professor, who was the head of the antitrust
division, and he called us up one day and said, "Would you mind if
I dismissed the case?"
Hicke:
O'Brien:
He ' s a man I knew well, too - well, not well. I can't think
of his last name; his first name was Don [Turner]. He was a
visiting professor at Stanford for a while. He used to teach in
the mornings, and I was interested in antitrust stuff and had done
a lot of antitrust, and I lived in Palo Alto, and I met him there.
So occasionally I'd invite him to lunch. This was in an earlier
incarnation, before he ever joined the antitrust division.
But he was the most threatening of all, and he was just going
to eat us alive when he became head of the antitrust division, and
set the case for trial and take steps that would astonish us and
all that. But he was the one that finally had the courage to
dismiss the case. And so that's the end of the saga. Fifteen or
sixteen years with a lot of heavy lifting.
Well, clearly it was the Mootness Study which convinced them.
Well, it was the lapse of time, the lapse of time. Well, Jacoby
did a brilliant job. And Jerry Doppelt, who worked with me in
PM&S, and whom I persuaded to leave the firm to become my assistant
when I took the job as the legal honcho for the company, did a
magnificant job, too, working on the Mootness Study. He and I used
to fly down to see Jacoby, and Jacoby would fly up here, and we
would draft and write and redraft, and we had a team of Standard
economists who were very skillful, sophisticated, and so on. But
it was a brutal thing. If I'd ever known what a monster it was
120
Hicke:
O'Brien:
going to turn into, I don't think I ever would have had the courage
to suggest that we could do it.
Jacoby got so involved, he gave up his whole sabbatical year,
really, to help write this, and then it wasn't finished by the time
the year was up, so he didn't quit at all on it; we blazed away at
it until it was done. It was such a hot paper, it was such a
pumpkin paper. It is really the only objective economic study
that's ever been done on the international oil industry. And I
thought it was so important, and that it was in a way such an
important policy paper for the United States government, that
without waiting to get it printed up in the usual fashion, we had
it bound in these rings. [gestures to book]
It's kind of a spiral binding.
Spiral binding. We numbered some copies, and took it back to get
it in the hands of the United States government, because they were
just looking through the wrong end of the telescope. And to have
them subsequently say a year or so later that they didn't disagree
with anything that was said was gratifying. It went the rounds,
not only of the antitrust division, but of State, Defense, and the
White House.
Some of the subsequent antitrust cases, government cases,
probably have been bigger, but none was more important to the
position of the United States in the world international scene than
the cartel case. None was more important to our national security,
in the sense that even now, we have American warships in the
Persian Gulf, and we're flagging Kuwaiti tankers to maintain our
presence in the Persian Gulf. Seventy to seventy-five percent of
the world's oil reserves are in the Persian Gulf, and our national
security still depends upon access to that oil, and that of our
allies as well. So it was a good thing we won the case.
Hicke: Yes, I should say so. Well, is it your sense that this was really
just a political football from beginning to end?
O'Brien: Well, you know, these things get to have a life of their own. It
was a political shenanigan to begin with, but once it started, it
turned out to be something nobody could stop.
[tape interruption] ti
O'Brien: Look at what the government did to the telephone company.
Hicke: Yes.
121
O'Brien: Look at what we almost did to IBM [International Business Machines
Corporation] before somebody finally intervened. Here we are, our
great weapon is our capacity for computers and communications, and
we wanted to perform major surgery on IBM, cut it in half, and then
cut it in quarters - absolute bunk. And we almost did that with
the international oil industry, so far as the American companies
were concerned.
Impact of Iranian Crisis on Cartel Case
O'Brien: Veil, I'll tell you another thing that happened in this case that
broke its back. I should have mentioned this earlier because it
was a very important factor. The civil case was commenced in 1953;
in 1954 came the Iranian oil crisis. The Shah fled, Mossadegh took
power, the Iranian government confiscated the oil concessions of
the Anglo-Persian Oil Company, the World Court refused to accept
jurisdiction under the arbitration provisions of the Concession
Agreement to hear Anglo-Persian's complaint that their concession
had been confiscated in violation of international law. The
International Court of Justice held that it was not the judicial
successor of the World Court.
That concession went back to World War I. Mr. [Winston]
Churchill was the one who turned the British navy from a coal-
burning into an oil-burning navy on the basis of his access to the
Persian Gulf oil.
Iran was very quickly slipping into the hands of the Russians.
Most people have forgotten that the first resolution that went to
the United Nations Security Council was a resolution by the United
States to compel the Russians to get out of Northern Iran, out of
Azerbaijan, which they had occupied during World War II.
Now the Tudeh party, the Communist party of Iran, was becoming
dominant, and the United States government came to the American oil
companies and said, "Look, BP is down the tubes. Iran is rapidly
disappearing in a Red revolution, and you must do something to get
the economy of Iran going again. We want you to take over the oil
concessions in Iran and run them, generate revenue to reestablish
the government of the country." And we said, "No way. We've got
our hands full of problems in Saudi Arabia, Kuwait, and all the
rest of the area." They said, "No way. You get out there and do
something about it." So these reluctant dragons did something
about it.
Hicke: Well, we want to get into that in more detail.
122
O'Brien: Yes. But what I'm saying to you is that suddenly they found
themselves in the position where they said, "Now you oil companies
get together with BP, Shell, and CFP, and everybody else, and you
sit down in London and get your heads together and figure out how
to rescue Iran." And the attorney general of the United States
gave an opinion that what we were doing was okay, that if we were
violating the law, what we were doing to rescue Iran didn't make it
any worse. That's the kind of an opinion he wrote.
Hicke: Oh, that's amazing.
O'Brien: But you can see that kind of pulled the rug on the antitrust
division. Reality overtook the political abstractions of the
cartel case. The events were out of their control, the
international crisis. The government was restored. We now learn
the coup that toppled Mossadegh was engineered by the CIA. The
Shah came back, and the agreement that we executed in 1954 with the
Iranian government, which became the law of the country, was passed
by the Iranian Parliament. Turner McBaine, down the hall here, was
a part of the team that went out to negotiate the so-called
Government Agreement with the Iranians. 1 I sat in London working
on the participants' agreement: what kind of a deal we would make
among the many companies to run the thing, if we could make an
agreement with the Iranian government.
But you can see what an impact that had on the cartel case.
In the Church hearings, Senator [Frank] Church's hearings, years
later, I got access to the internal correspondence of the
Department of Justice, courtesy of some of Senator Church's staff
who didn't like what he was doing. I read what the Department of
Justice had to say about the cartel case against the remaining two
defendants, Socal and Mobil (Mobil just rode our coattails). The
trial staff of the Department of Justice said, in effect, to the
chief of the litigation section and the assistant attorney general
in charge of the antitrust division that they had a very weak case,
that if they brought it to trial, we'd probably beat them, and
they'd get all sorts of flak and adverse publicity; that they
should select some suitable time to get rid of the case where they
wouldn't catch all this adverse publicity. So that's what
happened.
Hicke: That's truly an amazing story.
O'Brien: Well, it occupied a lot of my time for a good many years.
Hicke: Well, it was a worthwhile cause.
1. See Turner H. McBaine, "A Career in the Law at Home and
Abroad," an oral history, conducted in 1986 as part of this series.
123
O'Brien: I was pretty dedicated.
Caltex Breakup
Hicke: Did the Caltex breakup have any effect on this particular case?
O'Brien: Well, it was kind of the other way around. Did the case have any
effect, and did it bring about the partial break-up of Caltex? I
think it did, yes. I was conducting the so-called negotiations
with the consent judgment division of the antitrust division. A
fellow by the name of Bill Kilgore was the head of the Justice
Department. It became evident that Texaco, for commercial reasons,
wanted out of Caltex. And they, therefore, discovered a new legal
principle which said inspired by the pendency of the cartel
case - I may have to seal this.
Hicke: Okay.
O'Brien: They discovered a new legal principle, which was that in order to
be safe under the antitrust proceeding and to comply with the
antitrust laws as they read them, they had to compete with Caltex 1
That led to some major ruckus ses.
Hicke: What was the year that they actually broke up? Or about when? I
can get the actual year. It was after this was settled?
O'Brien: No, no. They took a consent decree in the case.
Hicke: Oh, yes. That's right.
O'Brien: So, let's see, the case was dismissed about 1968. I would think
about 1964 or '65 they took a decree. It's in the law books -
their consent decree. But they did that because, in fact, they
wanted to compete with Caltex. So they adopted this air of great
piety arguing that it was essential to the antitrust position of
their company that they compete with the creature that they had
created - Caltex.
Hicke: Okay.
O'Brien: That did not fly in San Francisco. Neither with the chairman of
the board, or the board of directors, or their lawyers.
Hicke: You put your foot down?
124
O'Brien: Yes, we got ready to sue them. Sure. There are, you know, lots of
episodes in that war that went on for a number of years. Turner
handled some of them, and Kirk handled some of them, and I handled
some of them. We had a complaint prepared. Those were stirring
days.
Hicke: Yes. Is there anything else about the oil cartel case that we
haven't covered?
O'Brien: Oh, you know, there a million things about the cartel case. There
were some fascinating international legal problems involved in the
case.
For example, we produced experts from the Netherlands to prove
that if we complied with the U.S. court's order for the production
of documents from the Netherlands, we'd all go to jail; the Dutch
had a criminal statute against the production of papers in response
to a subpoena from an American court.
I was just reading last week that there are something like
twenty nations now that have adopted such laws: Britain, France, a
lot of the Western European nations deeply resent the efforts of
the United States to apply its antitrust laws on an international
basis. They think it's an intrusion into their national
sovereignty for the United States courts to be giving directions to
British subsidiaries of American companies as to how they should
perform.
Hicke: What's the United States 's position?
O'Brien: Well, I don't know. I think, if I read the tea leaves right,
they're gradually understanding that we no longer are like the
Roman Empire; we have neither the power nor the influence to compel
people to dance to our tune all the time; that we are a little more
willing to listen to some of the concerns that are expressed,
notably by our allies. I mean, the Brits have statutes on this
subj ect .
We had a number of lawsuits in this country where we had an
absolutely violent collision with the British courts. In the Nylon
Spinners case, an American court directed an American parent
defendant to order its British subsidiary to reassign British
patents which its British subsidiary had already licensed to some
British companies. The High Court in England held that those
licenses were valid. It issued an injunction against this British
subsidiary transferring the patents to its American parent.
So, you'd have courts on both sides of the Atlantic reaching
opposite results, with the hapless defendant in the middle of it.
That's a ridiculous thing. And it was perceived by many people as
125
an effort by the United States to give extra-territorial effect
to its antitrust laws. Other civilized nations have different
ways of doing things.
We've modified our views about some of the antitrust
strictures, as witness the mergers that are going on now. So we
were not the sole embodiment of wisdom in the field of
competition in international trade. I think that the passage of
these laws in many, many nations now has kind of sobered us up a
little. And also the fact that we no longer have the commanding
position in the world. Everybody danced to our tune after World
War I. We gave the Germans an antitrust law, we gave the
Japanese an antitrust law, even though it was totally foreign to
their culture and their heritage and tradition. We fastened one
on them like a can on a dog's tail.
Hicke: Do we agree to produce documents and so forth according to other
nation's directives?
O'Brien: Well, I don't think the other nations have tried that very much.
There are international techniques for the discovery of foreign
documents, and ways of taking the depositions of witnesses in
foreign countries, but they don't cotton to the way we've tried
to force our way into the international arena. And now, on the
other hand, we've got to deal with their antitrust provisions in
the European Community, you know, the Treaty of Rome, and they
have a commission that has rather Draconian views about
antitrust.
The funny thing was that when it started, some of the
European countries didn't even have antitrust laws. The one
which had the model antitrust law was the Germans , which we
forced on them at the end of the war. But they had such a swift
economic revival that they became great devotees of antitrust law
and competition, because they didn't want anybody in the rest of
Europe to get in their way while they were making great economic
headway. I may sound kind of skeptical.
I'm a great believer in the antitrust laws and competition.
I'm a great disbeliever in all of the foolish economic nonsense
that passes for economic theory in the enforcement of our
antitrust laws. I'm against price -fixing agreements, boycotts,
and so on. But a lot of the malarkey about potential competition
and a lot of stuff like that is just nonsense. And in the last
four or five years, it's been pretty largely discarded. They've
repealed most of the stuff I spent so many years trying to learn.
Okay.
126
Hicke: Well, I want to go on to the history of the Iranian consortium
next time.
O'Brien: Yes.
127
VI FORMATION OF THE IRANIAN CONSORTIUM: 1954
[Interview 9: September 22, 1987]//
Hicke: Maybe we could start this morning on the Iranian consortium, in
which I know you had a very instrumental part,
where to start with that.
It 1 s hard to know
O'Brien: Yes. It all happened in 1954 and I sort of backed into the problem
of the Iranian consortium. In one or more of our earlier sessions,
I've talked about the cartel case. That case was filed in 1953 -
I think in April or May - shortly after Eisenhower took office.
Up until that time, I had done very little work for Standard
Oil Company after World War II.
I had done quite a lot of things for Standard when Mr. Smith
was alive before the war, but in 1952 I was supposed to be an
antitrust lawyer. I had my own practice, acting as counsel for
various corporations and private clients. When the cartel case
grand jury began, I was drafted to work on that. The consequence
was that nearly every foreign problem that the company had
ultimately passed over my desk after 1952 to make sure the
company's actions overseas were consistent with our defense in the
cartel case.
Hicke: Because it was all connected with this cartel thing?
O'Brien: Because we were all concerned that what they might do or were doing
abroad would have some impact on the cartel case or at least was
relevant in respect to one or more of the charges in the case. As
a consequence, I was drawn more regularly and more deeply into the
company's international problems. When the United States
government turned to the American oil companies to rescue Iran from
communist clutches, and when the government became insistent that
128
Hicke:
O'Brien:
the American oil companies do something to get Iran's oil industry
going again so that revenues would be produced in Iran and the
situation would be stabilized and the threat of a communist
takeover might be avoided, Mr. [Gwin] Follis and the other chairmen
of the American oil companies were absolutely dragooned into taking
some major steps to help in the effort to keep Iran from going
behind the Iron Curtain.
As I mentioned before, most people don't even remember that
the first resolution that came to the Security Council after the
United Nations was formed was one by the United States to compel
the U.S.S.R. to get out of Northern Iran, which they had occupied
during World War II. In any event, the Tudeh Party - the