United States v. Carter Products, Inc.

• Decision Date: 30 October 1962
• Citation: 211 F. Supp. 144
• Parties: UNITED STATES of America, Plaintiff, v. CARTER PRODUCTS, INC. and American Home Products Corporation, Defendants.
• Court: U.S. District Court — Southern District of New York

211 F. Supp. 144

UNITED STATES of America, Plaintiff, v. CARTER PRODUCTS, INC. and American Home Products Corporation, Defendants.

United States District Court S. D. New York.

October 30, 1962.

Harry G. Sklarsky, John J. Galgay, Dept. of Justice, for plaintiff, United States, Bernard Wehrmann, J. Paul McQueen, Gerald R. Dicker, New York City, Bertram M. Kantor, of counsel.

Breed, Abbott & Morgan, New York City, for defendant, Carter Products, Inc., Edward J. Ross, Stephen R. Lang, New York City, of counsel.

Cravath, Swaine & Moore, New York City, for defendant, American Home Products Corp., George B. Turner, Oliver C. Biddle, Harry H. Voigt, New York City, of counsel.

WEINFELD, District Judge.

In this antitrust suit the Government and the defendant Carter Products, Inc. have stipulated to a proposed final judgment and seek the Court's approval. The Government urges approval as in the public interest since it would forthwith end an alleged existing monopolistic control of a widely distributed drug and open up the avenues of competition. The defendant American Home Products Corporation opposes entry of the proposed decree on the ground that it would abrogate American's rights under an existing contract with Carter Products, the codefendant, without any judicial determination of its validity and asks that consideration of any decree be deferred until after a trial on the merits. The parties have submitted briefs and affidavits and the Court has heard counsel on oral argument in support of their respective positions.

The action was commenced against both defendants, charging a conspiracy to restrain and to monopolize, and further an unlawful attempt to monopolize, interstate and foreign trade and commerce of the United States in meprobamate tranquilizing drugs and combination meprobamate drugs, in violation of sections 1 and 2 of the Sherman Act.¹

Meprobamate compound is a chemical product covered by a patent issued in 1955 and owned by Carter. It is an ethical drug, that is, it may be sold only on a physician's prescription. The compound is the sole active ingredient in meprobamate tranquilizing drugs. They are prescribed in mild cases of neurosis, anxiety and tension. Meprobamate is also combined with one or more active ingredients having additional therapeutic qualities. These are known as combination drugs and prescribed for treatment of arthritis, gastrointestinal, cardiac and other ailments.

The essence of the charges is that the defendants, by concert of action, have excluded all others from the manufacture, sale and distribution in the United States of meprobamate tranquilizing drugs; that they fix and maintain prices, terms and conditions for their sale; and further that they determine who will manufacture, use and sell combination drugs. The Government alleges that the result of the defendants' conduct has been the foreclosure of actual and potential domestic and foreign competition from others; that competition has been eliminated between the defendants themselves; and that in consequence the public has had to pay artificially high and noncompetitive prices for drugs containing meprobamate.

The charges center about an agreement between Carter and American made shortly after the patent was issued. Under its terms Carter granted American, for the life of the patent, the exclusive (except as to Carter) right to use and sell the drug. American was not granted the right to manufacture the drug; Carter continued as the sole manufacturer. American's total requirements for meprobamate are bought from Carter "at prices as may be mutually agreed upon." Carter retained the right to sell the compound to other pharmaceutical houses for use in combination with other drugs, but under the restriction that it first notify and discuss the same with American.

The two defendants are the only companies which sell the meprobamate tranquilizer drugs. Carter sells the drug in tablet form under the trade name Miltown and American under the trade name Equanil. In addition they, as well as other pharmaceutical companies, sell combination drugs in the United States under various trademarks, but no pharmaceutical house sells those combination drugs in the United States which are sold here by Carter or American.

The drugs have gained wide acceptance by physicians and their patients as is evident from the total dollar sales volume. The domestic and foreign commerce of the meprobamate tranquilizing drugs and combination drugs for the year 1961 was in excess of $75,000,000. The total domestic sales of meprobamate tranquilizing drugs was $48,493,000, of which American sold $34,295,000 and Carter $14,198,000. The total domestic sales volume of combination drugs was $16,928,100, of which Carter sold $7,622,100 and American $4,784,000, the balance being sold by other pharmaceutical concerns. Foreign sales of both drugs by the defendants alone in that year amounted to almost $10,000,000.

The provisions of the agreement which the Government contends have achieved monopolistic control of the meprobamate compound market, in substance, are Carter's undertaking—

(1) not to grant to other qualified pharmaceutical houses the same rights granted to American with respect to sale and distribution of the single drug;

(2) not to permit others than American to make and sell combination drugs without notifying American and discussing the same with American; and

(3) to exclude others than American from selling in the United States combination drugs as defined in the agreement;

and American's undertaking (among others)—

(1) not to sell meprobamate compound "in bulk" to others;

(2) not to use or sell any combination product without first notifying Carter and discussing the same with Carter;

(3) to use and sell certain combination drugs only; and

(4) not to publish the results of its own research in the meprobamate field without Carter's consent.

The papers presented on this application and the oral argument of counsel indicate that attorneys for the Department of Justice and those representing both defendants sought to reach an accord on a proposed consent decree; however, during the course of intensive negotiations which extended over an eight-month period, the defendants who originally acted jointly came to the parting of the ways as to provisions to be incorporated therein. Finally, the Government and Carter agreed upon the stipulation now presented to the Court for its consideration.

The terms of the proposed decree which draw the opposition of American relate essentially to its contract with Carter. Under one provision, Carter is required to offer to sell and to sell meprobamate compound on an unrestricted and nondiscriminatory basis as to price, terms and conditions to every qualified pharmaceutical house. A maximum price of twenty dollars per pound is fixed as the sale price with a protective provision for increase based on the Consumer Price Index. Another section would compel Carter to sell the drug to pharmaceutical houses in quantities sufficient for experimental purposes.

Other provisions would enjoin Carter from imposing restrictions upon purchases of the meprobamate compound such as: the uses to which the drug may be put; its resale to others; the prices at which it may be resold; the persons to whom, the areas in which, the prices, terms or conditions at which the compound and combination drugs may be sold; the publication or dissemination by any pharmaceutical house of the results of research conducted by it. The thrust of these injunctive clauses is to prevent Carter from imposing post sales restrictions similar to those now contained in Carter's agreement with American, which the Government assails as going beyond the legitimate rights of a patentee.²

Finally, the proposed decree would enjoin Carter from adhering to any provision of its contract with American or any other person which is inconsistent with any provision of the proposed final judgment, and further would require Carter forthwith to terminate and cancel any such inconsistent provision.

While the proposed decree does not abrogate the contract, there can be no question that for all practical purposes it would vitiate the substance of the Carter-American agreement and deprive American of the exclusivity of the meprobamate compound it has enjoyed thereunder. The Government readily acknowledges that such is its intent and effect and that the provision requiring Carter affirmatively to cancel the exclusivity provision is a necessary incident of the decree in order to end the monopolistic position which it asserts has been and is now held by Carter and American and to enable others to compete freely in the sale and distribution of meprobamate and combination drugs.

In opposing the entry of the decree, American perforce asserts the validity of the agreement. It emphasizes that not only will it be deprived of the exclusivity provision—"the heart of the contract for which it bargained"—but that with an authorized maximum price of twenty dollars per pound for the meprobamate compound, as against thirteen dollars which it is presently paying, it will be compelled to pay any differential if Carter should increase the price. Thus, it contends that by the proposed decree Carter unfairly gains an economic advantage at its expense without any judicial...