Jefferson County Pharmaceutical Ass'n, Inc. v. Abbott Laboratories

Decision Date31 August 1981
Docket NumberNo. 79-1150,79-1150
Citation656 F.2d 92
Parties1981-2 Trade Cases 64,265 JEFFERSON COUNTY PHARMACEUTICAL ASSOCIATION, INC., Plaintiff-Appellant, v. ABBOTT LABORATORIES, et al., Defendants-Appellees.
CourtU.S. Court of Appeals — Fifth Circuit

Joe L. Tucker, Jr., Bessemer, Ala., Allen W. Howell, Montgomery, Ala., for plaintiff-appellant.

M. Roland Nachman, Jr., Montgomery, Ala., L. Murry Alley, Michael Atchison, Robert M. Collins, Birmingham, Ala., for Bristol-Myers.

Duncan Y. Manley, Birmingham, Ala., Robert F. Ward, Richard S. Rhodes, Chicago, Ill., for Abbott Lab.

Betsy Kimball, R. Lee Walthall, Birmingham, Ala., David Klingsberg, New York City, for Pfizer.

James L. North, E. Alston Ray, Edwin A. Strickland, William H. Mills, John J. Coleman, Jr., E. Mabry Rogers, Linda A. Friedman, Birmingham, Ala., Joseph H. Spain, New York City, William G. Somerville, Jr., Birmingham, Ala., for G. D. Searle.

A. J. Noble, Jr., Birmingham, Ala., for Squibb, Ciba-Geigy, Upjohn and Pfizer.

James C. Barton, Gilbert E. Johnston, Jr., Birmingham, Ala., for American Cynamid Co.

Appeal from the United States District Court For the Northern District of Alabama.

Before VANCE, FRANK M. JOHNSON, Jr. and THOMAS A. CLARK, Circuit Judges.


AFFIRMED on the basis of the district court's Memorandum of Opinion dated December 1, 1978, a copy of which appears as an appendix hereto.


THOMAS A. CLARK, Circuit Judge, dissenting:

I respectfully dissent. The majority sanctions the defendant wholesale drug companies' violations of the Robinson-Patman Act, 15 U.S.C. § 13. 1 Further, the decision permits the six states of this circuit and their agencies to unfairly compete with private enterprises operated by their citizens in the retail sale of goods. A state's size gives it great purchasing power and thus an awesome competitive advantage over private business. To this the court adds the advantage of a license to make use of price discrimination in its wholesale purchases.

The majority admits that this is a close case. It reaches its conclusion by creating an exemption not contained in the statute. This is contrary to the congressional scheme which was a response to economic conditions existing when the Act was passed. Further, the result contradicts the congressional intent clearly reflected at hearings when the Act was under consideration. Lastly, the decision does not follow the only guiding precedent of the Supreme Court, Abbott Laboratories v. Portland Retail Druggists Assn., Inc., 425 U.S. 1, 96 S.Ct. 1305, 47 L.Ed.2d 537 (1976).

Instead of creating an exemption to the statute, I would follow the policy underlying the antitrust laws. I would hold that, for the purposes of the Robinson-Patman Act, when a state moves outside its traditional sphere of activity and into retail competition with private enterprise, it should be treated in precisely the same manner as its competitors. Today's decision subverts the policy behind the Robinson-Patman Act. It subjects businessmen, who suddenly have found themselves in competition with pharmacies owned by the State of Alabama, to the unfortunate effects of unfair competition without affording them a remedy. This result is not only inequitable, it is in direct conflict with the language and major thrust of the Act.

The statute makes it unlawful for the defendant wholesale drug companies "to discriminate in price between different purchasers of commodities ... where such commodities are sold for use, consumption or resale ..., and where the effect of such discrimination may be substantially to lessen competition or tend to create a monopoly in any line of commerce ...". 2 The district court dismissed the complaint filed by the Jefferson County Pharmaceutical Association, which alleged that the defendant drug companies were selling to the state hospital at lower wholesale prices than to them, that such commodities were resold by the state hospital pharmacies at retail, and that these sales substantially lessened competition among the retail drug businesses in the county. As will be discussed subsequently, the federal and state governments are not covered by the statute when purchasing for consumption. The majority has taken this non-coverage of governments in the Act and has called it an exemption. It then reasons that the exemption permits resale and consequently, a lessening of competition. To me this reasoning is unfathomable. Even if this argument were valid, the Supreme Court in Portland Retail Druggists has clearly announced that such permitted purchases for consumption may not be extended to the sale at retail to consumers in competition with private enterprises.

When Congress had under consideration the Robinson-Patman Act, some members raised the question of the effect of such legislation upon purchases by governments. Congressional members at the hearings wanted to make certain that the federal government would not be limited by the act when purchasing goods. Congress assumed, as evidenced at the hearings on the Act, that the government is not in competition when it is purchasing goods for its own consumption. 3 Any similar construction to be inferred in favor of state-supported activities therefore, would hold true only so long as the state is functioning as a consumer rather than as a competitor. 4

Thus, Congress construed the Act as not covering purchases for government consumption. However, a purchase for retail resale is a completely different animal from a purchase for consumption. In the instant case, the state government is in competition with private enterprise. Therefore the rationale behind the majority's "governmental exemption" is inapplicable. 5 The Nonprofit Institutions Act, an amendment to the Robinson-Patman Act, 6 provides an exemption from the Robinson-Patman Act for non-profit organizations making purchases for their own use. Recently, the Supreme Court has interpreted the Nonprofit Institutions Act as not applying to privately-owned hospitals when operating outside their "intended institutional operation." Portland Retail Druggists, 425 U.S. at 14, 96 S.Ct. at 1314 (1976). The present case is indistinguishable from Portland Retail Druggists except for the fact that the hospitals in question are owned by the State of Alabama. In Portland Retail Druggists the Supreme Court looked to the policy behind the antitrust laws. When the hospitals in question acted as competitors instead of consumers, the Court ruled that no Nonprofit Institutions Act exemption applied. Since Congress did not intend an exemption for states acting as competitors, the majority should have concentrated on the role the state hospitals were playing and not merely on their status as agencies of the state.

Generally, "the anti-trust laws, and Robinson-Patman in particular are to be construed liberally, and the exceptions are to be construed strictly," 7 Since "the Act is remedial, it is to be construed broadly to effectuate its purposes," therefore "implied anti-trust immunity is not favored." 8 Only "some overriding public policy," City of Lafayette v. Louisiana Power & Light Co., 435 U.S. 389, 397, 98 S.Ct. 1123, 1128, 55 L.Ed.2d 364 (1978) (plurality opinion), is sufficient to overrule the presumption against state immunity from the application of the antitrust laws, 9 and in the instant case the majority has shown no such policy. 10 Therefore the majority, in its unconvincing reasoning, has ignored not only a clear legislative history but also the policy behind the Act and the basic principles of antitrust law interpretation.

A brief comment should be made regarding the federalism argument used by the majority partially to support its opinion. Any reliance on National League of Cities v. Usery, 426 U.S. 833, 96 S.Ct. 2465, 49 L.Ed.2d 245 (1976), is completely misplaced. Whatever state operations may be implicated by this action, what is complained of can in no way be characterized as a traditional government function or as an incident of state sovereignty. The complaint alleges that these state hospitals have ventured beyond their institutional function (and whatever state operations that might be incident thereto), and have begun instead to compete in the retail sale of drugs. This effectively distinguishes the present case from Usery, which concerned federal regulation of essential attributes of state sovereignty. 11 Thus, there is no substance to the Tenth Amendment argument that has been advanced.

Therefore, I disagree with both the conclusion of the majority to affirm the district court and with the reasons used by the majority in reaching its conclusion. The majority takes the fact that governments as consumers are excluded by the Act, calls such an exclusion an exemption, and then concludes that the exemption permits a government to sell in competition at retail with established businesses. Instead, I would look to the unambiguous language of the Act and at the clear policies behind the antitrust laws. I would look at the role of the state when it makes a purchase: if it is that of a consumer, the Act does not apply; but if, as in the instant case, it is that of a competitor, the state should be subjected to the Robinson-Patman regime. One need only look at the result today to see how blatantly the policies behind the Act have been disregarded. Therefore, I dissent.

                           UNITED STATES DISTRICT COURT
                           NORTHERN DISTRICT OF ALABAMA
                                 Southern Division
                JEFFERSON COUNTY              )
                PHARMACEUTICAL                )
                ASSOCIATION, INC.,            )
                                  Plaintiff,  )
                    -vs.-                     )  NO. CA 78-P-0870-S
                ABBOTT LABORATORIES, et al.,  )

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