483 F.Supp. 712 (E.D.Pa. 1980), Civ. A. 75-499, SmithKline Corp. v. Staats

Docket Nº:Civ. A. 75-499
Citation:483 F.Supp. 712
Party Name:SmithKline Corp. v. Staats
Case Date:January 24, 1980
Court:United States District Courts, 3th Circuit, Eastern District of Pennsylvania

Page 712

483 F.Supp. 712 (E.D.Pa. 1980)



Elmer B. STAATS, Comptroller General of the United States, Defendant,


The United States of America, Intervenor-Defendant.

Civ. A. No. 75-499.

United States District Court, E.D. Pennsylvania.

Jan. 24, 1980.

Page 713

[Copyrighted Material Omitted]

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William S. Rawls, Philadelphia, Pa., for plaintiff.

Peter F. Vaira, U.S. Atty., Philadelphia, Pa., for defendant.

J. Roger Edgar, Dept. of Justice, Civil Division, Washington, D. C., for intervenor-defendant.



This action arises from a demand asserted by the General Accounting Office ("GAO") for access to books and records maintained by the plaintiff SmithKline Corporation ("SmithKline"). Plaintiff filed a complaint seeking declaratory and injunctive relief to bar GAO from access to the documents. The Court granted the motion of the United States to intervene as a party defendant for the purpose of asserting a counterclaim seeking declaratory and injunctive relief to compel SmithKline to comply with GAO's demand for documents. Now before the Court are plaintiff's motion for summary judgment and the government's motion for

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summary judgment on its counterclaim. For the reasons hereinafter set forth, the Court will grant the government's motion for summary judgment on its counterclaim and deny the plaintiff's motion for summary judgment.

In determining the propriety of granting a motion for summary judgment, the Court must consider whether there exists a genuine issue as to any material fact. Hicks v. ABT Associates, Inc., 572 F.2d 960, 967 (3d Cir. 1978); Abdallah v. Caribbean Security Agency, 557 F.2d 61, 63 (3d Cir. 1977); Scott v. Plante, 532 F.2d 939, 945 (3d Cir. 1976). On the basis of uncontroverted depositions and affidavits filed by the parties in connection with the motions for summary judgment, the Court finds that there is no genuine issue of material fact. The uncontroverted record may be summarized as follows:

The Veterans Administration ("VA") and Defense Supply Agency ("DSA") awarded certain negotiated fixed-price contracts for pharmaceutical products to SmithKline, and, in one instance, to SK&F Co., its wholly owned subsidiary. Those contracts are summarized as follows:

Veterans Administration

Contract Number Date of Award Contract Price Payment Made

------------- -------------- ------------
V797P-5835b 7/31/73 Est. $1,599,042.50 ----
V797P-5892b 10/2/73 $137,148.00 ----
Defense Supply Agency

DSA120-74-C-0519 8/1/73 $105,431.74 12/26/73
DSA120-73-D-2968 4/16/73 $1,436,510.30 8/22/74
DSA120-74-C-2518 3/6/74 $12,058.20 8/13/74

Pursuant to 41 U.S.C. s 254(c), 1 the contracts with the VA incorporated the following clause: EXAMINATION OF RECORDS BY COMPTROLLER GENERAL

(a) This clause is applicable if the amount of this contract exceeds $2,500 and was entered into by means of negotiations, including small business restricted advertising, but is not applicable if this contract was entered into by means of formal advertising.

(b) The Contractor agrees that the Comptroller General of the United States or any of his duly authorized representatives shall, until the expiration of 3 years after final payment under this contract or such lesser time specified in either Appendix M of the Armed Services Procurement Regulation or the Procurement Regulations Part 1-20, as appropriate, have access to and the right to examine any directly pertinent books, documents, papers, and records, of the contractor involving transactions related to this contract.

(c) The Contractor further agrees to include in all his subcontracts hereunder a provision to the effect that the subcontractor agrees that the Comptroller General of the United States or any of his duly authorized representatives shall, until the expiration of 3 years after final payment under the subcontract or such lesser time specified in either Appendix

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M of the Armed Services Procurement Regulation or the Federal Procurement Regulation Part 1-20, as appropriate, have access to and the right to examine any directly pertinent books, documents, papers and records of such subcontractor, involving transactions related to the subcontract. The term "subcontract" as used in this clause excludes (1) purchase orders not exceeding $2,500 and (2) subcontracts or purchase orders for public utility services at rates established for uniform applicability to the general public.

(d) The periods of access and examination described in (b) and (c), above, for records which relate to (1) appeals under the 'Disputes' clause of this contract, (2) litigation or the settlement of claims arising out of the performance of this contract, (3) costs and expenses of this contract, as to which exception has been taken by the Comptroller General or any of his duly authorized representatives, shall continue until such appeals, litigation, claims or exceptions have been disposed of.

The same clause was included in the Defense Supply Agency contracts, pursuant to 10 U.S.C. s 2313(b), which provides:

(b) Except as provided in subsection (c), each contract negotiated under this chapter shall provide that the Comptroller General and his representatives are entitled, until the expiration of three years after final payment, to examine any books, documents, papers, or records of the contractor, or any of his subcontractors, that directly pertain to, and involve transactions relating to, the contract or subcontract.

On January 19, 1971, Comptroller General Elmer B. Staats and other GAO representatives appeared before the Subcommittee on Monopoly of the Senate Select Committee on Small Business at hearings concerning the status of competition in the pharmaceutical industry. Mr. Paul Shnitzer of the GAO General Counsel's Office testified that

. . . there is a statute which was enacted in 1951 which says in effect that any negotiated contract awarded pursuant to either the Federal Property Act or the Armed Services Procurement Act, which would cover the two major acts, has to contain a provision which gives the General Accounting Office access to the books, documents, papers and records of the contractor or his subcontractors which relate to the contract. 2

Mr. Gregory Ahart, Deputy Director of GAO's Civil Division, testified that

. . . we are continuing our work in examining drug procurement systems and as part of that work we will be giving consideration to utilizing the authority which we have under the provision of the 1951 act which Mr. Shnitzer mentioned, and actually examine the costs of certain of the drug manufacturers.

We have not decided how far we are going to go on this and the final plans are indefinite, but this will be given consideration as part of this continuing work and I am sure some of it will be done. 3

Senator Gaylord Nelson then stated:

I realize it may be a very complicated matter, but it would seem to me that all companies ought to be served notice and the GAO is going to utilize this statute. I think that we ought to take a look at some of those costs. 4

After the hearings, Senator Nelson and his staff pursued their efforts to have GAO obtain documents from the pharmaceutical companies. On August 9, 1971, the Comptroller General asked Senator Nelson and his staff assistant, Ben Gordon, if their objectives would be served by composite, industry-wide cost data that would be representative of several companies and products, but not identifiable as to any particular company or product. Gordon responded that they preferred individual product and Page 717 company data, which "should be made public." 5 Gordon continued to press GAO to obtain documentation of costs from the pharmaceutical companies. (Ahart Dep., Exhibits PA-14 through PA-22). Gordon demanded on behalf of Senator Nelson that GAO seek data "through the courts, if necessary." (Id., Exhibits PA-16, PA-17). Gordon told GAO that Senator Nelson believed that GAO should seek data "without any strings attached" so that the information "could be used as needed." (Id., Exhibit PA-19). A staff assistant to Senator Edward Kennedy told GAO that individual company and product data were essential, since the "only way" that Senator Kennedy's objectives could be achieved was to "publicize specific price and cost data for individual products." (Id., Exhibit PA-27). As a result of these communications, GAO eventually concluded that ". . . there is no viable alternative than to press the companies for access to their cost data." (Id., Exhibit PA-18). Subsequent to a second appearance by the Comptroller General before Senator Nelson's Subcommittee on May 10, 1972, GAO began to implement a two-phase study of the economics and operations of the pharmaceutical industry. As a first step, GAO representatives met with representatives of the Pharmaceutical Manufacturers Association and its member firms. 6 The first phase of the study consisted of two or three day visits to the facilities of six drug manufacturers, including SmithKline. Phase I of the study, in which the drug manufacturers voluntarily agreed to participate, was "designed to obtain for GAO an understanding of the drug manufacturing industry and to enable GAO to develop a meaningful approach for the second phase of the study."...

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