363 F.2d 757 (6th Cir. 1966), 15805, American Cyanamid Co. v. F. T. C.

Docket Nº:15805, 15797, 15801, 15806, 15788.
Citation:363 F.2d 757, 150 U.S.P.Q. 135
Party Name:AMERICAN CYANAMID COMPANY, Petitioner, v. FEDERAL TRADE COMMISSION, Respondent. BRISTOL-MYERS COMPANY and Bristol Laboratories Inc., Petitioners, v. FEDERAL TRADE COMMISSION, Respondent. CHAS. PFIZER & CO., Inc., Petitioner, v. FEDERAL TRADE COMMISSION, Respondent. OLIN MATHIESON CHEMICAL CORPORATION, Petitioner, v. FEDERAL TRADE COMMISSION, Respon
Case Date:June 16, 1966
Court:United States Courts of Appeals, Court of Appeals for the Sixth Circuit
 
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Page 757

363 F.2d 757 (6th Cir. 1966)

150 U.S.P.Q. 135

AMERICAN CYANAMID COMPANY, Petitioner,

v.

FEDERAL TRADE COMMISSION, Respondent.

BRISTOL-MYERS COMPANY and Bristol Laboratories Inc., Petitioners,

v.

FEDERAL TRADE COMMISSION, Respondent.

CHAS. PFIZER & CO., Inc., Petitioner,

v.

FEDERAL TRADE COMMISSION, Respondent.

OLIN MATHIESON CHEMICAL CORPORATION, Petitioner,

v.

FEDERAL TRADE COMMISSION, Respondent.

The UPJOHN COMPANY, Petitioner,

v.

FEDERAL TRADE COMMISSION, Respondent.

Nos. 15805, 15797, 15801, 15806, 15788.

United States Court of Appeals, Sixth Circuit.

June 16, 1966

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[Copyrighted Material Omitted]

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Merrell E. Clark, Jr., New York City, Winthrop, Stimson, Putnam & Roberts, New York City, on brief; Peter H. Kaminer, Terence H. Benbow, Harry A. Garfield, New York City, Taft, Stettinius & Hollister, Cincinnati, Ohio, Robert T. Keeler, Paul R. Moran, Cincinnati, Ohio, of counsel, for petitioners Bristol-Myers Co. and Bristol Laboratories, Inc.

John E. F. Wood, New York City, and Arthur G. Connolly, Wilmington, Del., Dewey, Ballantine, Bushby, Palmer & Wood, New York City, Thomas S. Lodge, Connolly, Bove & Lodge, Wilmington, Del., Frost & Jacobs, Cincinnati, Ohio, on brief; Charles E. Stewart, Jr., Judson A. Parsons, Jr., and Robert M. Shea, New York City, of counsel, for petitioner Chas. Pfizer & Co., Inc.

Richard Y. Holcomb and Walter R. Mansfield, New York City, Ralstone R. Irvine, and Kenneth N. Hart, Donovan, Leisure, Newton & Irvine, New York City, Powell McHenry, Dinsmore, Shohl, Barrett, Costes & Deupree, Cincinnati, Ohio, on brief, for petitioner American Cyanamid Co.

Allen F. Maulsby, New York City, Cravath, Swaine & Moore, New York City, on brief; Alan J. Hruska, W. Frazier Scott and John F. Bradley, New York City, of counsel, for petitioner Olin Mathieson Chemical Corporation.

Frederick H. Mayer, Federal Trade Commission, Washington, D.C., James McI. Henderson, General Counsel, J. B. Truly, Asst. Generla Counsel, Jerold D. Cummins, Attorneys, Federal Trade Commission, Washington, D.C., on brief, for respondent.

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Arnold & Porter, Paul A. Proter, Abe Krash, John D. Hawke, Jr., Daniel A. Rezneck, Washington, D.C., Morgan, Finnegan, Durham & Pine, George B. Finnegan, Jr., Hobart N. Durham, Jerome G. Lee, David H. Pfeffer, New York City, for McKesson & Robbins, Inc., amici curiae.

Before O'SULLIVAN, PHILLIPS and CELEBREZZE, Circuit Judges.

HARRY PHILLIPS, Circuit Judge.

This case presents for review an order of the Federal Trade Commission holding that petitioners violated Section 5 of the Federal Trade Commission Act, 1 in connection with the production and sale of tetracycline, which is described as 'currently the best selling wonder drug in the United States.' 2

The Antibiotics Industry

Tetracycline, a broad-spectrum antibiotic, is sold and distributed under various trade names by all five petitioners: Chas. Pfizer & Co., Inc. ('Pfizer'), American Cyanamid Company ('Cyanamid'), Bristol-Myers Company and Bristol Laboratories ('Bristol'), Olin Mathieson Chemical Corporation through its E. R. Squibb & Sons Division ('Squibb') and the Upjohn Company ('Upjohn'). Pfizer owns the patent on tetracycline and produces it in addition to selling and distributing.

Under licenses granted by Pfizer, Cyanamid and Bristol also produce this antibiotic as well as selling and distributing it. Squibb and Upjohn sell and distribute by authority of licenses granted by Pfizer.

Also involved are two older antibiotics: (1) chlortetracycline, which is produced and sold by Cyanamid, owner of its patents, as aureomycin; and (2) oxtetracycline, which is produced and sold by Pfizer, owner of its patent, as terramycin.

Antibiotics are chemical substances produced by certain microorganisms. They have the capacity to counteract and cure a broad variety of diseases. At the end of World War II, penicillin was the principal antibiotic. It was a 'narrow-spectrum' drug with more limited effectiveness than the later 'broad-spectrum' antibiotics. Penicillin was not patented. Its production and sale proved to be fiercely competitive and profits were marginal.

The antibiotics involved in this case were described by the Commission as follows:

'The earlier antibiotics such as penicillin and streptomycin are known as narrow spectrum antibiotics because they are normally effective against either gram-positive or gram-negative bacteria but not both. The antibiotics with which this case is concerned are known, beginning with the discovery of Aureomycin, as broad spectrum antibiotics because they are effective against a far wider range of bacteria, including both gram-positive and gram-negative bacteria. Because of their wide-range of efficacy against practically all infectious diseases, the broad spectrum antibiotics have become known popularly as 'wonder drugs'. Their use results in a marked decrease in the cost of treating those diseases, and they presently are prescribed in substantially all instances in which they are effective. Antibiotics are also employed to prevent infection or disease as, for example, prior to surgery, and to prevent recurrences of infection and disease. Antibiotics are, therefore, of vital and unique importance to the health and welfare of the general public.

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'Antibiotics, including tetracycline, Aureomycin and Terramycin, as all ethical drugs, are products which can be obtained by the ultimate consumer or patient only under the authority of a doctor's prescription. Each is customarily prescribed by the physician under the respective brand name of the manufacturer, rather than its generic or chemical name. It is the physician's prescription which determines the amount and brand of drug which the pharmacist will sell. Consequently, respondents direct a major portion of their sales and promotional efforts at physicians, emphasizing their respective trade names. By law and custom pharmacists are prohibited from substituting one brand of an ethical drug for another without permission of the physician.'

Proceedings before Patent Office

When Cyanamid obtained a patent on aureomycin in 1949, the molecular structure of that drug was not known. The patent application described it in terms of certain secondary chemical properties. In 1952 the molecular structure was discovered, and a Pfizer scientist speculated that an antibiotic of at least equal strength could be produced by altering only slightly the structure of aureomycin. The result was a vastly improved antibiotic, tetracycline, which first was produced by Pfizer scientists in 1952.

Within six months of the discovery of tetracycline, both Pfizer and Cyanamid filed applications for patents. 3 The Patent Office declared an interference, which was settled as a result of a private cross-licensing agreement between Pfizer and Cyanamid to the effect that the party found to have priority would license the other. Thereafter Cyanamid conceded priority to Pfizer and withdrew its application.

Bristol then filed a patent application. A second interference was declared. The patent examiner filed an opinion which concluded that tetracycline was unpatentable. Pfizer thereupon submitted affidavits to the effect that tetracycline could not be recovered from broths representative of those described in the Cyanamid patent application on aureomycin. Shortly afterwards a product patent was issued to Pfizer.

The proceedings before the Commission primarily were concerned with the events leading up to the issuance of the tetracycline patent to Pfizer, which are described in some detail later in this opinion, the subsequent conduct of Pfizer and Cyanamid in exploiting the patent and the conduct by the five petitioners which the Commission found to constitute a conspiracy to fix the price of this drug.

The Complaint

The Commission's complaint, filed July 28, 1958, charged that Pfizer made false, misleading and incorrect statements to, and withheld material information from, the Patent Office for the purpose and with the effect of inducing the issuance of a patent on tetracycline; and that Cyanamid and Bristol withheld from the Patent Office material information in the course of the prosecution of the patent applications, as a result of which Pfizer was aided in obtaining its tetacycline patent.

It was further charged that, while both of their patent applications were pending, Pfizer and Cyanamid agreed that they would settle privately between themselves the question of which had priority on the invention of tetracycline, after which they would cooperate in securing the awarding of a patent to the winner; that the owner of the patent then would license the unsuccessful party; and that the two would exchange information concerning the production of this drug.

The complaint avers that, pursuant to the terms of this prior agreement, Pfizer issued a license to Cyanamid to manufacture and sell the newly patented antibiotic. Cyanamid agreed to license Pfizer to use the process covered by the aureomycin patents in the production of

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tetracycline,4 to furnish cultures and procedures for this purpose and to provide to Pfizer a quantity of bulk tetracycline so as to cut down the lead time that Cyanamid then had in the commercial marketing of the drug.

The complaint further charges that in March 1956, as a part of a settlement of an infringement suit brought by Pfizer, the latter also granted a license to Bristol to manufacture and sell tetracycline and, at the same time, licensed Squibb and Upjohn to sell this drug. It is further averred that all five petitioners fixed and maintained arbitrary and rigid prices...

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