Fed. Prescription Serv. v. Am. Pharmaceutical Ass'n

• Decision Date: 14 February 1980
• Docket Number: Civ. A. No. 77-1163.
• Citation: 484 F. Supp. 1195
• Parties: FEDERAL PRESCRIPTION SERVICE, INC., et al., Plaintiffs, v. AMERICAN PHARMACEUTICAL ASSOCIATION, Defendant.
• Court: U.S. District Court — District of Columbia

484 F. Supp. 1195

FEDERAL PRESCRIPTION SERVICE, INC., et al., Plaintiffs, v. AMERICAN PHARMACEUTICAL ASSOCIATION, Defendant.

Civ. A. No. 77-1163.

United States District Court, District of Columbia.

February 14, 1980.

COPYRIGHT MATERIAL OMITTED

George S. Leonard, Alexandria, Va., for plaintiffs.

Arthur B. Hanson, Michael H. McConihe, Washington, D. C., Joel E. Hoffman, C. Coleman Bird, Washington, D. C., for defendant American Pharmaceutical Ass'n.

Richard M. Rindler, Washington, D. C., for former defendant National Ass'n of Retail Druggists (summary judgment granted for this defendant 3/27/79).

Jerry D. Voight, Washington, D. C., James L. Siekmann, Chicago, Ill., for former defendant National Ass'n of Boards of Pharmacy (dismissed as a defendant 6/6/79).

FINDINGS OF FACT AND CONCLUSIONS OF LAW

GESELL, District Judge.

Federal Prescription Service, Inc. ("Federal"), a mail order pharmacy, and certain of its officers, sue American Pharmaceutical Association ("APhA"), a national organization of pharmacists, claiming damages resulting from alleged violations of Section 1 of the Sherman Act, 15 U.S.C. § 1 ("the Act"). Plaintiffs charge that APhA, acting alone or in combination with various named co-conspirators pursuant to anti-competitive policies established by its House of Delegates, restrained and depressed Federal's interstate sales of prescription drugs by mail. After extensive pretrial proceedings, the case was tried to the Court without a jury. Following submissions of proposed findings, briefs, and oral argument, the Court enters its findings of fact and conclusions of law based on the voluminous trial record developed.

I. Trade and Commerce in Prescription Drugs

Prescription drugs are those drugs which according to federal or state law may be dispensed to the buyer only upon presentation of a valid prescription. Prescription drugs are commodities sold in the course of interstate commerce. These drugs have an annual sales volume of approximately 10 billion dollars. Valid prescriptions are issued primarily by medical doctors and also by veterinarians and dentists. In normal course, prescriptions are filled by licensed pharmacists. There are approximately 125,000 such pharmacists in the United States.

Pharmacists usually operate or are employed by stores serving local communities. These stores compete among themselves in a given area. Some such stores specialize in drug sales, others include pharmacies as part of a more diversified retail service that includes non-drug items. Competition is also provided by labor or other organizations providing drug services for their members, hospital outpatient services, and mail order pharmacies such as Federal. Local pharmacies are principally independents and chain stores. The independents comprise about 60 percent of the total. The balance are mostly chain stores and some hospital pharmacies.

II. Federal and the Mail Order Business

Federal is primarily a mail order pharmacy that does business throughout the United States operating from its plant and offices in Madrid, Iowa. It is incorporated under the laws of Iowa and commenced its mail order pharmacy business in approximately August, 1963.

The mail order pharmacy is a relatively recent method developed for prescription drug distribution. Although licensed to operate as a pharmacy only by the state or states in which it is located, a mail order pharmacy solicits persons to send it prescriptions by mail from anywhere in the United States and returns the drugs by mail to the buyers. This form of drug distribution became of competitive consequence to the established independents in the late 1950's and early 1960's. The number of mail order pharmacies was never large. Many had a brief existence and few survived for any appreciable period. As far as the record shows there were no new entrants in the 1970's.

Because mail order pharmacies are subject to the delays inherent in the use of the mails, they primarily serve older people who often require long-term medication by what are known as maintenance drugs. Most prescription drugs, including maintenance drugs, are compounded in advance by the manufacturer and accordingly a large number of mail ordered prescriptions can be filled each day by a single pharmacist.

In order to maintain a sufficient volume of prescriptions a mail order pharmacy necessarily seeks to reach customers by advertising and offers discounted prices — at least on some items. The fact that mail order pharmacies rely of necessity on advertising and discounting was well known at all relevant times to APhA and pharmacists generally. A wide variety of choices exists for placing such advertising in national publications, local newspapers and in-house organs of specialized membership organizations, notably organizations willing to sponsor the mail order seller. Customers requiring maintenance drugs are particularly attracted by lower prices.

III. APhA

APhA, the sole defendant in this action,¹ is the national professional society of pharmacists in the United States. It is a non-profit corporation incorporated and operating under the laws of the District of Columbia. The Association was founded in 1852 and its membership is now approximately 60,000 members from all states and territories, consisting primarily of practicing pharmacists, and including pharmaceutical scientists, pharmacy educators and government-employed pharmacists. Associate membership in APhA is open to any individual not eligible for active membership. Student membership in APhA is open to any undergraduate student enrolled in an accredited school or college of pharmacy. Approximately 15,000 individuals hold student membership in APhA. Approximately one-third of all practicing pharmacists in the United States are APhA members.

APhA encouraged and supported local associations in every state. In seventeen states affiliation agreements with the local associations promoted joint membership in both the local and national association and tended to establish APhA's policies as the standards followed at the local level.

From as early as 1960, APhA's Constitution has outlined in broad general terms its undertaking to promote the interests of pharmacists in the areas of health, education, interprofessional relations, regulations, etc., including the development and maintenance of a Code of Ethics.

APhA policies are established by its House of Delegates. Delegates are appointed by recognized or affiliated state pharmaceutical associations and national associations, and by other divisions of APhA. APhA Trustees, Past-Presidents and Judicial Board members also are delegates. In the interim between House of Delegates meetings, the Board of Trustees is authorized to act for the House of Delegates.

Policy recommendations considered by the House of Delegates are formally initiated by Policy Committees on Public, Organizational and Professional Affairs, consisting of eleven members each. Each Policy Committee's recommendations are subjected to a public hearing before a reference committee, which then submits its own recommendation to the House of Delegates as to whether each policy recommendation should be adopted, rejected or referred back to the Policy Committee by the House of Delegates.

As will be developed in more detail, APhA established a policy of consistent and vigorous opposition to mail order pharmacies. During the relevant period, APhA broadly publicized its concerns regarding mail order pharmacies in speeches by its officers and staff, in its official statements and responses to inquiries, and in its publications.

APhA's publications are used as a means of constantly communicating with APhA's members regarding its policies and activities. Both the Journal and newsletter are provided to all APhA members. The Journal is distributed also to state pharmaceutical associations.

IV. The Alleged Violations of Antitrust Laws

Federal's claims have been clarified and refined in the normal course of pretrial and trial. Several violations of the antitrust laws are urged in support of Federal's claims for substantial damages. Generally the antitrust violations alleged fall under two broad headings. It is contended that APhA alone and in conjunction with certain co-conspirators

(1) conducted a far-reaching campaign in the nature of a boycott directed to the public, its pharmacist members and health groups generally, specifically designed to discredit mail order pharmacies, including Federal, for the purpose and with the effect of preventing mail order competition with established pharmacy outlets (2) encouraged pharmacists, acting through state regulatory boards and other organizations, to bring civil and criminal actions against Federal and its pharmacist Rasmusen, an individual plaintiff, and to implement state laws and regulations designed to hamper or prevent mail order pharmacy sales.

These claims must be further identified and particularized in the light of the proof to determine their legal significance under the antitrust laws and the nature of their effect on the business of Federal.

V. APhA's Campaign to Discredit and Restrain Mail Order Pharmacies

From as early as 1960, APhA as a matter of its established policy opposed the distribution of prescription drugs by mail. It coordinated its efforts in this regard with other groups, including its own local associations in every state. Although this opposition was usually couched in terms of a concern that mail order pharmacies undermined the pharmacist-patient-physician relationship and thus threatened patient safety or public health, in fact APhA throughout was motivated primarily by its concerns for the economic well-being of its members. The validity of the health concerns, repeatedly expressed, was never satisfactorily supported at trial. Moreover, these concerns in no way justified the generalized indiscriminate attack on all mail order pharmacies which occurred. See...