United States v. Chas. Pfizer & Co., Inc.

• Decision Date: 30 November 1973
• Docket Number: No. 61 Cr. 772.,61 Cr. 772.
• Citation: 367 F. Supp. 91
• Parties: UNITED STATES of America, v. CHAS. PFIZER & CO., INC., et al., Defendants.
• Court: U.S. District Court — Southern District of New York

367 F. Supp. 91

UNITED STATES of America, v. CHAS. PFIZER & CO., INC., et al., Defendants.

No. 61 Cr. 772.

United States District Court, S. D. New York.

November 30, 1973.

Harry G. Sklarsky, Atty., Dept. of Justice, Washington, D. C. (Herman G. Gelfand and Norman H. Seidler, Attys., Dept. of Justice, Washington, D. C., of counsel), for the United States.

John E. F. Wood, New York City (J. Paul McGrath and Catherine A. Rein, Dewey, Ballantine, Bushby, Palmer & Wood, New York City, Julian O. von Kalinowski, Robert E. Cooper and James R. Martin, Gibson, Dunn & Crutcher, Los Angeles, Cal., of counsel), for defendant Chas. Pfizer & Co., Inc.

Samuel W. Murphy, Jr., New York City (Kenneth N. Hart and Richard Y. Holcomb, Donovan, Leisure, Newton & Irvine, New York City, of counsel), for defendant American Cyanamid Co.

Merrell E. Clark, Jr., New York City (Richard A. Horgan and Stuart M. Reynolds, Jr., Winthrop, Stimson, Putnam & Roberts, New York City, of counsel), for defendant Bristol-Myers Co.

CANNELLA, District Judge.

The motion for acquittal made by each defendant as to each count of the indictment, pursuant to Rule 29 of the Federal Rules of Criminal Procedure, is granted. Each defendant is acquitted on each count of the indictment in all respects.

This criminal antitrust prosecution was commenced by the filing of an indictment on August 17, 1961. The indictment charges that the defendants, Chas. Pfizer & Co., Inc. (Pfizer), American Cyanamid Company (Cyanamid) and Bristol-Myers Company (Bristol) and the co-conspirators, Olin Mathieson Chemical Corporation (Squibb) and the Upjohn Company (Upjohn) violated sections one and two of the Sherman Act, 15 U.S.C. §§ 1 and 2,¹ by virtue of their manufacture, use and sale of the broad spectrum antibiotic drug tetracycline.²

PROCEDURAL HISTORY

These defendants were first tried before a jury in October-December 1967. The jury found each defendant guilty under every applicable count of the indictment on December 29, 1967.³ The Court of Appeals reversed their convictions and remanded the case for a new trial. United States v. Chas. Pfizer & Co., 426 F.2d 32 (2 Cir. 1970), modified and petition for rehearing en banc denied, 437 F.2d 957 (2 Cir. 1970). An equally divided Supreme Court affirmed the Court of Appeals, 404 U.S. 548 (1972) (three justices not participating). The case was, thereafter, remanded to this court for all purposes by the Court of Appeals. The parties stipulated to a nonjury trial before the court.⁴

THE CHARGES

Each defendant is charged in three counts with having violated the Sherman Act during the years 1953-1961 by: (1) count one — conspiring to exclude competitors and fix and maintain prices in the broad spectrum antibiotic market in violation of section 1 of the Act; (2) count two — conspiring to monopolize; and (3) count three — monopolization of the broad spectrum antibiotic market, both in violation of section 2 of the Act. The terms of the conspiracy charged in counts one and two of the indictment are as follows:

(a) The manufacture of tetracycline be confined to Pfizer, Cyanamid and Bristol;

(b) The sale of tetracyline products be confined to Pfizer, Cyanamid, Bristol, Upjohn and Squibb;

(c) The sale of bulk tetracycline be confined to Bristol and bulk tetracycline be sold by Bristol only to Uphohn and Squibb, and

(d) The sale of broad spectrum antibiotic products by the defendant companies and the co-conspirator companies be at substantially identical and non-competitive prices.⁵

The Indictment sets forth twelve "means and methods" by which the defendants are alleged to have accomplished the illegal acts specified:

(a) Cyanamid licensed Pfizer and Bristol to use its Aureomycin patent in the manufacture of Tetracycline and refused to license all other applicants.

(b) Pfizer licensed Cyanimid and Bristol under its Tetracyline patent and refused to license all other applicants.

(c) Cyanamid assisted and cooperated with Pfizer in obtaining for Pfizer a patent on Tetracycline.

(d) Pfizer, Cyanamid and Bristol suppressed litigation involving the validity of Pfizer's Tetracycline patent.

(e) Pfizer and Cyanamid and Bristol withheld pertinent and material information from the Patent Office and otherwise misled the Patent Office prior to the issuance of Pfizer's Tetracycline patent.

(f) Cyanamid acquired the competing Heyden patent application on Tetracycline and abandoned the product claims therein.

(g) Bristol sold bulk Tetracycline only to Upjohn and Squibb. Each of the defendant companies refused to sell bulk Tetracycline to all others except that Cyanamid sold a large amount of bulk Tetracycline to Pfizer in early 1954 in assisting Pfizer to make a prompt entry into the Tetracycline product market.

(h) Bristol entered into agreements with Upjohn and Squibb respectively which required Upjohn and Squibb to purchase all their requirement of bulk Tetracycline from Bristol.

(i) Pfizer issued licenses to Upjohn and Squibb, respectively, limited, however, at Bristol's request, to the sale of Tetracycline products.

(j) Pfizer and Cyanamid maintained substantially identical, noncompetitive and unreasonably high prices on Terramycin products and Aureomycin products, respectively.

(k) Pfizer, Cyanamid, Bristol, Upjohn and Squibb each introduced its Tetracycline products on the market at prices which were substantially identical with each other and which conformed to the non-competitive prices of Terramycin Products and Aureomycin products in effect as of November 1953, and all these companies maintained such substantially identical, non-competitive and unreasonably high prices until at least July 1960.

(l) Pfizer, Cyanamid, Bristol, Upjohn and Squibb each introduced its Tetracycline products on the market in dosage forms and customer classifications substantially identical with the Terramycin product and Aureomycin product dosage forms and customer classifications in effect as of November 1953, and have continued to use such substantially identical dosage forms and classifications to date.⁶

These "means and methods" form the essence of the government's case and outline its position at trial.

FACTUAL FRAMEWORK AND CONTENTIONS OF THE PARTIES

Although the court is not required to make specific findings of fact and conclusions of law it will do so to the extent indicated below.⁷ The historical and factual framework surrounding the government charges against these defendants is deemed necessary to place the court's decision in proper perspective. In so doing, the court is mindful, as was the Court of Appeals,⁸ that the twelve thousand page record in this case "is impossible to condense . . . except in a highly selective manner, and then, only by concentrating on the determinative facts." Pfizer, supra, 426 F.2d at 34. The court is in complete agreement with Judge Moore's statement and will proceed in like fashion.

These criminal charges arise out of the defendants' and co-conspirators' production and marketing of the broad spectrum antibiotic drug (or "wonder drug") tetracycline, from 1953 until August, 1961.

Pre-tetracycline

Three effective, patented broad spectrum antibiotics were produced and marketed prior to the discovery of tetracycline in 1952: aureomycin, terramycin and chloromycetin. Aureomycin was first made available to the public in September 1948 by Cyanamid, who later obtained a patent for the drug in September 1949. Terramycin, the Pfizer product, was first marketed in March 1950 and was patented in July of that year. Chloromycetin was released in January 1949 and was patented in October 1949 by Parke-Davis, a pharmaceutical manufacturer not charged herein. During the pre-tetracycline period none of these manufacturers granted licenses or cross-licenses for these patented drugs. (No licenses or cross-licenses for these drugs have been subsequently granted, except to the extent indicated herein.)

Each of these antibiotics are prescription drugs, available only on a doctor's prescription and their sales, therefore, are largely dependent upon the physician's opinion of their effectiveness in treating the specific patient involved, despite their interchangeability due to chemical and functional similarities. Each manufacturer, cognizant of this, sought to price his drug, at a level which was competitive with the price fixed by the other two producers, thereby creating a stable and parallel price structure in the broad spectrum antibiotic market during the pre-tetracycline period. Price reductions by one manufacturer were met by all others during these years. Neither this price parallelism nor the companies' refusal to grant licenses for these earlier drugs is relied on by the government to support the charges of the indictment.

Tetracycline

In June 1952, a Pfizer scientist, Dr. Conover, discovered tetracycline through the application of a deschlorination process to aureomycin. Tetracycline was considered by some to be a product superior to the earlier broad spectrum antibiotics and Pfizer filed an application for a product and process patent in October 1952. The publicity surrounding the Pfizer discovery led Cyanamid to apply for a similar patent in March 1953. The entry of these competing claims caused the Patent Office to declare an interference (the first interference) on December 23, 1953.

This turn of events placed Pfizer in a difficult position. On the one hand, Pfizer believed that it possessed priority of invention (June 1952, as opposed to March 1953). On the other hand, if it were awarded the tetracycline patent, Pfizer's sole method of tetracycline production would be through the application of a deschlorination process to Cyanamid's patented aureomycin, thereby making it wholly dependent upon Cyanamid for bulk aureomycin, either by purchase or license to manufacture. In an attempt to resolve both the pending interference and the potential patent block, Pfizer's President, McKeen, met with Malcolm, President of...