McKesson and Robbins, Inc. v. Charles Pfizer & Co.

• Decision Date: 05 November 1964
• Docket Number: Civ. A. No. 36342.
• Citation: 235 F. Supp. 743
• Parties: McKESSON AND ROBBINS, INC. v. CHARLES PFIZER & CO. Inc. and American Cyanamid Co.
• Court: U.S. District Court — Eastern District of Pennsylvania

235 F. Supp. 743

McKESSON AND ROBBINS, INC. v. CHARLES PFIZER & CO. Inc. and American Cyanamid Co.

Civ. A. No. 36342.

United States District Court E. D. Pennsylvania.

November 4, 1964.

Order November 5, 1964.

Fox, Rothschild, O'Brien & Frankel, Nochem S. Winnet, Philadelphia, Pa., Arnold, Fortas & Porter, Paul A. Porter, William L. McGovern, Abe Krash, Robert E. Herzstein, John D. Hawke, Jr., Daniel A. Rezneck, Washington, D. C., Morgan, Finnegan, Durham & Pine, George B. Finnegan, Jr., Jerome G. Lee, David H. Pfeffer, New York City, Laurence C. Ehrhardt, New York City, of counsel, for plaintiff, McKesson & Robbins, Inc.

Drinker, Biddle & Reath, Philadelphia, Pa., Donovan, Leisure, Newton & Irvine, New York City (Lewis H. Van Dusen, Jr., Philadelphia, Pa., Walter R. Mansfield, Richard Y. Holcomb, New York City, Patrick T. Ryan, Philadelphia, Pa., of counsel), for defendant American Cyanamid Co.

DAVIS, District Judge.

This action was instituted on August 11, 1964 by the filing of a complaint for declaratory judgment by McKesson and Robbins, Inc. (McKesson) against Charles Pfizer & Co., Inc. (Pfizer) to have Pfizer's tetracycline patent declared invalid. On August 14, 1964 McKesson amended its complaint to allege a cause of action against Pfizer and American Cyanamid Co. (Cyanamid) for treble damages and injunctive relief under the authority of Sections 4 and 16 of the Clayton Act (15 U.S.C. §§ 15, 26) as a result of violations by the defendants of Sections 1 and 2 of the Sherman Act (15 U.S.C. §§ 1, 2). At the time McKesson filed its amended complaint, it moved for a temporary restraining order against Cyanamid only, which was denied by this Court, after argument, on August 17, 1964. A hearing was set on McKesson's motion for a preliminary injunction against Cyanamid which was held on August 26, 27, 28 and 31, 1964. Thereafter, briefs were submitted on McKesson's motion which is before this Court for disposition.

STATEMENT OF FACTS

McKesson is "full-line, full-service"¹ wholesaler in pharmaceutical products with locations throughout the United States. For more than thirty (30) years McKesson has been distributing the Cyanamid pharmaceutical products manufactured by Cyanamid's Lederle Laboratories Division (Lederle) pursuant to a "Wholesale Distributor Agreement."

Lederle manufactures approximately 400 different drugs and sells these directly to retail druggists, to wholesalers for resale to druggists and hospitals, and to hospitals directly. Lederle's sales in 1963 totaled some $112 million, of which only 15% or $16.8 million, were to wholesalers. Lederle sales to McKesson in 1963 totaled $2.78 million of which approximately 50%, or $1.4 million, were for the sale of broad spectrum antibiotics.

McKesson buys from some 6,000 suppliers and sells to approximately 38,000 retail pharmacists and more than 85% of all the hospitals in the country. Ranked by dollar sales, Lederle was the twenty first largest supplier for McKesson.

At the core of the instant action is Lederle's broad spectrum antibiotic drug known generically as tetracycline but which is normally sold by its brand name, Achromycin.² This drug is colloquially known to the layman as a "wonder drug". It is one of the major broad spectrum antibiotics available to the medical profession today for the treatment of various infectious diseases. This drug, Achromycin, has been marketed by Cyanamid through its Lederle division since 1953 and accounted for approximately 40% of the 1963 sales of tetracycline in this country.

The patent for the production of tetracycline is held by Pfizer who has licensed Cyanamid to make and sell tetracycline.³ Cyanamid has licensed Pfizer to use Aureomycin⁴ in the production of tetracycline. A license from the other is necessary for both Pfizer and Cyanamid to produce tetracycline. These licensing agreements are non-exclusive, but since 1956 neither defendant has issued a license⁵ for the manufacture or sale of tetracycline.

Tetracycline is sold on a physician's prescription only, and in approximately 80% of the sales, the physician prescribes the drug by a brand name. The remaining 20% of the sales by druggists is on a generic prescription. By law in some jurisdictions, and by custom in all areas, a pharmacist may not substitute one brand of tetracycline for the one called for by the physician's prescription. Where the drug is prescribed generically, the pharmacist may use any brand to fill that particular prescription.

In June, 1964, Cyanamid learned that McKesson intended to market its own brand of tetracycline by purchasing bulk tetracycline from Rachel Laboratories, Inc. of California (Rachel).⁶ On July 31, 1964, McKesson publicly announced that it was commencing the marketing of tetracycline under its own brand name, "McKesson Tetracycline". The following Monday, August 3, 1964, Cyanamid, through Lederle, cancelled the Wholesaler Agreements with McKesson effective immediately.⁷ This cancellation terminated the sale of all the products in the Lederle line and was not confined to the antibiotic field.⁸

McKesson now requests this Court to grant an injunction pendente lite requiring Lederle to continue to sell to McKesson under the same terms and conditions as existed prior to the cut-off of the Lederle line.

DISCUSSION

Preliminarily, the request for a preliminary injunction, at the very outset of the litigation, is addressed to the sound discretion of the Court. Joseph Bancroft and Sons Co. v. Shelley Knitting Mills, Inc., 268 F.2d 569 (3rd Cir. 1959). The plaintiff must show: (1) that the conduct to be enjoined is in furtherance of the alleged violations of the Sherman Act; (2) that there is a substantial likelihood the allegations of the complaint will be sustained at the trial of the cause; (3) that irreparable harm to the plaintiff will result if the injunction pendente lite is denied; (4) and that there is no conduct by McKesson which would bar the granting of equitable relief.⁹

Cyanamid urges that the cut-off by Lederle was a unilateral action on its part and the decision was reached without consultation with anyone outside of the defendant company. Thus, Cyanamid would try to come within the rule laid down in United States v. Colgate & Co., 250 U.S. 300, 39 S.Ct. 465, 63 L.Ed. 992 (1919), and the cases following this decision. However, this Court feels that Colgate and its holdings are not applicable to the instant case. Colgate dealt with a refusal to deal by a supplier in order to enforce its resale price policy.¹⁰ In the present case there is no claim of price-cutting by McKesson of Cyanamid's product nor that the cut-off was merely the result of the enforcement of Cyanamid's resale price policy.¹¹

Since McKesson has entered the tetracycline market, the granting of an injunction will force Cyanamid to act as a supplier to a wholesaler which has become a competitor in the same field. Relying on Deltown Foods, Inc. v. Tropicana Products Inc., 219 F.Supp. 887 (S. D.N.Y.1963), Cyanamid argues that a supplier is not required to deal under such circumstances. We agree with the holding of Deltown but find the facts of this case compel a contrary result. We are here concerned with an important pharmaceutical product which may be purchased only when prescribed by a physician and such prescriptions are written by brand name 80% of the time. As a result, in the vast majority of sales of tetracycline, there is no independent choice of brand by either the seller (pharmacist) or the buyer (patient). In Deltown, the Court recognized the defendants' position that the refusal to deal "* * * was justified because of the damage plaintiffs could do to defendants' product by treating it as second best * * *." 219 F.Supp. at 890. In this case, McKesson is not in a position to represent their brand of tetracycline as superior to Cyanamid's where a pharmacist is compelled to furnish his customers with the specific brand of tetracycline prescribed by the physician.

This court also rejects Cyanamid's claim that the cut-off was the result of a business policy, inaugurated four years ago, to reduce the number of wholesalers handling the Lederle line.¹² During this period, only four wholesalers were terminated and each for sound business reasons.¹³ On the other hand, Cyanamid indicated¹⁴ that the entrance of McKesson into the tetracycline market was the reason for the termination of McKesson's Wholesaler Agreements.

A more perplexing problem is whether McKesson has shown a probability that it can prevail on the merits. That the plaintiff show to a certainty that it will prevail after the trial, is not necessary. Hamilton Watch Co. v. Benrus Watch Co., 206 F.2d 738 (1953). In Railroad Yardmasters of America v. Pennsylvania Railroad Co., 224 F.2d 226 (3rd Cir. 1955), the Court of Appeals for this Circuit, in reviewing the propriety of the granting of an injunction pendente lite, was concerned whether or not the plaintiff in that case had "`* * * raised questions going to the merits so serious, substantial, difficult and doubtful, as to make them a fair ground for litigation and thus for more deliberate investigation'", citing Hamilton Watch Co. v. Benrus Watch Co., supra.

That the plaintiff will not ultimately prevail in its quest for permanent relief is always a possibility, but this does not preclude this Court from granting temporary relief pending a final adjudication. Bergen Drug Co. v. Parke, Davis & Co., 307 F.2d 725 (3rd Cir. 1962).

The amended complaint charges Cyanamid and Pfizer with a conspiracy to fix prices and to monopolize the manufacture and sale of tetracycline. McKesson need not prove these allegations at this stage of the proceedings, but, paraphrasing the above quotation from Hamilton, McKesson must raise questions going to the merits of these allegations which are substantial and serious.

The Federal Trade Commission instituted proceedings against Cyanamid, Pfizer and three other pharmaceutical...