IN RE COORDINATED PRETRIAL PROCEEDINGS, ETC.

• Decision Date: 18 August 1980
• Docket Number: 78-1156.,Civ. A. No. 78-1155
• Court: U.S. District Court — Eastern District of Pennsylvania
• Parties: In re COORDINATED PRETRIAL PROCEEDINGS IN ANTIBIOTIC ANTITRUST ACTIONS. UNITED STATES of America v. PFIZER INC., American Cyanamid Co., Bristol-Myers Co., Olin Mathieson Chemical Corp., Squibb Beechnut, Inc., E. R. Squibb & Sons Inc., Upjohn Co.

498 F. Supp. 28

In re COORDINATED PRETRIAL PROCEEDINGS IN ANTIBIOTIC ANTITRUST ACTIONS.

UNITED STATES of America v. PFIZER INC., American Cyanamid Co., Bristol-Myers Co., Olin Mathieson Chemical Corp., Squibb Beechnut, Inc., E. R. Squibb & Sons Inc., Upjohn Co.

Civ. A. Nos. 78-1155, 78-1156.

United States District Court, E. D. Pennsylvania.

August 18, 1980.

Paul A. Owens and Edward S. Panek, U. S. Dept. of Justice, Antitrust Division, Philadelphia, Pa., for the United States of America.

Robert E. Cooper, Gibson, Dunn & Crutcher, Los Angeles, Cal., Joseph A. Tate, Philadelphia, Pa., for defendant Pfizer Inc.

Samuel W. Murphy, Jr., Donovan, Leisure, Newton & Irvine, New York City, F. Hastings Griffin, Jr., Dechert, Price & Rhoads, Philadelphia, Pa., for defendant, American Cyanamid Co.

Richard A. Horgan, Winthrop, Stimson, Putnam & Roberts, New York City, for defendant, Bristol-Myers Co.

MEMORANDUM OPINION AND ORDER

WEINER, District Judge.

This action was brought by the plaintiff, United States of America, on a three count complaint against the defendants, Pfizer Inc., American Cyanamid Company, Bristol-Myers Company, Olin Mathieson Chemical Co., Squibb Beechnut, Inc., E. R. Squibb & Sons, Inc., and Upjohn Company. Count I seeks cancellation of the Conover patent¹ on the broad spectrum antibiotic tetracycline, alleging that its issuance on January 11, 1955 was the result of a fraud perpetrated on the Patent Office by defendant Pfizer Inc. by intentionally making false and misleading statements to the Patent Office while suppressing and withholding material and relevant information. The government alleges that the Patent Office would not have issued the patent but for the fraudulent and deceitful conduct of Pfizer. Count II² is a common law action of deceit, alleging that each of Pfizer, Cyanamid, and Bristol had separately committed fraud on the Patent Office but for which no patent would have issued on tetracycline. The government seeks to hold Pfizer, Cyanamid and Bristol jointly and severally liable for overcharges in excess of $203,000,000 sustained by the government on direct and federally financed purchases of broad spectrum antibiotics. Count III³ is an antitrust civil damage action pursuant to Section 4A of the Clayton Act⁴ against Pfizer, Cyanamid, Bristol, Squibb, and Upjohn, alleging that they conspired to monopolize and restrain trade in the manufacture and sale of broad spectrum antibiotics, in violation of the Sherman Act, and that the government, as a purchaser of drugs and as a financer or reimburser of purchases by others, was damaged in excess of $109,000,000, because prices were higher than they would have been in a freely competitive market. The parties agreed to reserve trial of Count III until the Court made its decision as to Count I. Count I of the case was tried to the Court without a jury.

The defendants have each filed an answer denying the material allegations of the complaint.

One of the earliest antibiotics⁵ was penicillin which was first discovered about 1929, and further developed about ten years later. Penicillin is limited as to what organisms are affected by it. Its limited range of activity is good for inhibiting organisms called gram positive microorganisms, but it does not affect other bacteria which cause serious infections. It is called a narrow spectrum antibiotic because it is effective only against a relatively small number of organisms.

In contrast to the narrow spectrum antibiotic, there are broad spectrum antibiotics which have a wide range of attack on many different kinds of microorganisms.

The first broad spectrum antibiotic available to the public was chlortetracycline. It was discovered by Cyanamid scientist Dr. Duggar and introduced for sale on December 1, 1948 by Cyanamid under the brand name Aureomycin. The product Chlortetracycline, and the fermentation processes for its production were covered by the Duggar patent⁶ which was issued to Cyanamid on September 13, 1949. On September 2, 1952, the Niedercorn patent⁷ was issued to Cyanamid on improved fermentation processes. Aureomycin was a successful product until 1953 when its sales declined due to side effects problems attributable to the antibiotic.

Another broad spectrum antibiotic, oxytetracycline, was discovered by Pfizer scientist Dr. Sobin, and introduced by Pfizer in March 1950 under the brand name Terramycin. This drug was covered by the Sobin patent⁸ issued to Pfizer in July 1950.

The next of the broad spectrums, tetracycline, was discovered by Pfizer's Dr. Conover in June 1952. He removed the Chlorine atom from chlortetracycline (Aureomycin) and replaced it with a hydrogen atom, a process called "dischlorination". On October 23, 1952 Pfizer filed Conover's application for a patent on tetracycline and the dischlorination process.

Shortly thereafter, Cyanamid's scientists also discovered that tetracycline could be produced by dischlorination of Aureomycin. On March 16, 1953, Cyanamid filed its Boothe-Morton application for a patent on tetracycline and the dischlorination process. On October 19, 1953 Bristol filed its Heinemann application for a product and process patent on tetracycline. Because of the conflicting applications of Pfizer and Cyanamid, the Patent Office declared an "interference".⁹ In November 1953, Pfizer and Cyanamid entered into an oral agreement, later formalized in writing on January 11, 1954, by which Cyanamid would license Pfizer under the Duggar and Niedercorn patents. They agreed to exchange proofs of priority on tetracycline, and that the party found not having priority, would concede priority to the other. The party who received the tetracycline patent would license the other. Cyanamid conceded priority to Pfizer in February 1954, and the interference proceeding between the competing applications was ended by the Patent Office.

On March 2, 1954, an interference was declared by the Patent Office involving Pfizer's Conover application, Cyanamid's Minieri application and Bristol's Heinemann application. On October 14, 1954, Examiner Lidoff dissolved the interference, ruling that tetracycline hydrochloride was not patentable to any parties to the interference because it appeared that tetracycline and tetracycline hydrochloride were inherently produced by the prior art fermentation processes described in the Duggar and Niedercorn patents. The patent was eventually issued to Pfizer in January 1955.

Prior to this, on November 16, 1953, Cyanamid marketed the first tetracycline under the brand name "Achromycin". The introductory price was identical with the prices of Aureomycin and Terramycin, other broad spectrum antibiotics then on the market.

On November 25, 1953 Cyanamid began shipping bulk tetracycline to Pfizer in accordance with the oral agreement entered into earlier that month. Beginning in January 1954, Pfizer marketed this bulk tetracycline under the trade name "Tetracyn". The price was identical with the prices of Cyanamid's Achromycin, and of the other broad spectrum antibiotics then on the market.

Bristol, meanwhile, was producing tetracycline through a direct fermentation process. On May 1, 1954 Bristol began to market this tetracycline under the trade name "Polycycline". The published price was identical to the market tetracycline prices of Cyanamid and Pfizer.

Bristol then began selling bulk tetracycline to Squibb and Upjohn. Squibb marketed tetracycline under the trade name "Steclin". Upjohn marketed tetracycline under the trade name "Panmycin". The published prices for these products were identical to those of the tetracycline products of Cyanamid, Pfizer and Bristol.

On the date the Conover patent for tetracycline was issued (January 11, 1955), Pfizer sued Bristol, Squibb and Upjohn for infringement of its Conover patent. Bristol, Squibb and Upjohn alleged as a defense that the Conover patent was invalid and unenforceable because of Pfizer's misconduct before the Patent Office. In December 1955, Bristol, Squibb and Upjohn dropped their challenge to the validity of the Conover patent. Bristol received a license to make, use and sell tetracycline while Squibb and Upjohn each received a license to use and sell tetracycline.

The government contends that Pfizer perpetrated a fraud on the Patent Office to obtain the patent on tetracycline. The government claims that Pfizer accomplished the fraud by concealing from Examiner Lidoff the fact that small amounts of tetracycline were coproduced¹⁰ during the preparation of the earlier antibiotic Aureomycin according to the prior art¹¹ Duggar and Niedercorn fermentation processes. The government claims that Lidoff would have rejected the Pfizer (Conover) patent application if any tiny amount of tetracycline was coproduced in the processes of the prior art, the Duggar and Niedercorn patents. The government further claims that Pfizer understood that fact and deliberately misled Lidoff into thinking that no tetracycline was coproduced in those processes. Another claim of the government is that by 1953 Cyanamid knew that tetracycline was present in samples of commercial Aureomycin, and it failed to bring this information to the attention of the Patent Office. A further government claim is that Bristol conducted experiments in late 1953 or early 1954 with the prior art Duggar and Niedercorn patents and found that tetracycline was inherently produced, and it failed to disclose this information to the patent examiner and made material misrepresentations of fact concerning it.

The complaint alleges that but for the separate frauds committed by Pfizer, Cyanamid and Bristol, the Conover patent would not have been issued. The complaint further alleges that Pfizer, Cyanamid and Bristol continuously utilized the fraudulently procured Conover patent to foreclose competition from the tetracycline and broad spectrum antibiotic market and that competition in the manufacture and sale of broad spectrum antibiotic...