State of North Carolina v. Chas. Pfizer & Co., Inc.
| Decision Date | 25 June 1974 |
| Docket Number | Civ. No. 2287. |
| Citation | 384 F. Supp. 265 |
| Court | U.S. District Court — Eastern District of North Carolina |
| Parties | The STATE OF NORTH CAROLINA, Plaintiff, v. CHAS. PFIZER & CO., INC., et al., Defendants. |
COPYRIGHT MATERIAL OMITTED
Jean A. Benoy, Deputy Atty. Gen., Raleigh, N. C., for plaintiff, State of North Carolina.
Gibson, Dunn & Crutcher, Los Angeles, Cal., Poyner, Geraghty, Hartsfield & Townsend, Raleigh, N. C., for defendant, Chas, Pfizer & Co., Inc.
Donovan, Leisure, Newton & Irvine, New York City, Manning, Fulton & Skinner, Raleigh, N. C., for defendant, American Cyanamid Co.
Winthrop, Stimson, Putnam & Roberts, New York City, Young, Moore & Henderson, Raleigh, N. C., for defendant, Bristol-Myers Co.
Cravath, Swaine & Moore, New York City, Young, Moore & Henderson, Raleigh, N. C., for defendant, Olin Mathieson Chemical Corp.
Covington & Burling, Washington, D. C., Young, Moore & Henderson, Raleigh, N. C., for defendant, The Upjohn Co.
This is an antitrust treble damage action brought by the State of North Carolina (plaintiff) on behalf of itself, all state, county and local governmental agencies and all citizen consumers who purchased broad-spectrum antibiotic drugs manufactured and sold by the defendants in North Carolina during the period 1953 to 1966. The defendants are Chas. Pfizer & Co., Inc. (Pfizer), American Cyanamid Company (Cyanamid), Bristol-Myers Company (Bristol), Olin Mathieson Chemical Corporation (Squibb), and The Upjohn Company (Upjohn).1 The case has been tried to the court without a jury on the issues of the alleged violations of the antitrust laws of the United States by the defendants, the issues of the fact and measure of compensable injury (damages) being reserved for trial at a later time in the event of a finding of liability on the part of any or all of the defendants. In this memorandum of decision the court will record its findings of fact and conclusions of law in conformity with Rule 52, F.R.C.P.2
The United States District Courts have exclusive jurisdiction of actions for damages for violations of the federal antritrust laws, and the venue for this action is properly laid in the United States District Court for the Eastern District of North Carolina. 15 U.S.C. §§ 15 and 22. Neither jurisdiction nor venue is at issue in this case.
Plaintiff charges that defendants at varying times during the period commencing about November, 1953 through the winter of 1955 entered into contracts, combinations, agreements, understandings and conspiracies to unreasonably restrain trade and commerce in the broad-spectrum antibiotic market generally and the tetracycline market particularly, all in violations of Sections 1 and 2 of the Sherman Act.4
Plaintiff alleges the gist of the understandings reached between the defendants, among other things, was:
A. As to Price Fixing — Pfizer and Cyanamid agreed that the new broad-spectrum antibiotic, tetracycline, whether patentable or not, was to be priced and marketed by each of them in such a manner as to maintain the then existing prices and price structure of their BSA products, i.e., Aureomycin and terramycin. Subsequently Bristol, Squibb and Upjohn agreed to price and market tetracycline in accordance with the structure established by Pfizer and Cyanamid. It was understood and agreed to at varying times between two or more, but ultimately all defendants, that sales were to be at substantially identical prices to the same class of trade and sales were to be on substantially identical terms in identical package sizes; and
B. As to Limitations on the Number of Manufacturers and Conditions on Sellers:
(1) In addition to the foregoing understandings, initially the Pfizer and Cyanamid understandings were that the manufacture, distribution and sale of tetracycline was to be limited to Pfizer and Cyanamid.
(2) Subsequently, however, on or about December, 1955 (through the joint efforts of Bristol, Squibb and Upjohn resulting from unlawful contracts, combinations, and conspiracies entered into between these latter defendants on or about September, 1954), Bristol, Squibb and Upjohn joined the continuing combination and conspiracy of Pfizer and Cyanamid of November, 1953.
(3) The gist of the understandings reached between Pfizer, Bristol, Squibb and Upjohn during or about the winter of 1955 was that Bristol was to remain in the market as a third manufacturer, distributor and seller of tetracycline to the trade, while Squibb and Upjohn would continue to refrain from the manufacture of tetracycline; they would continue to purchase their entire requirement of tetracycline in bulk from Bristol; they would refrain from resale of the bulk to any other party; and they would limit their resale of tetracycline to finished dosage forms to the trade only.
C. Understandings Re the Patent:
(1) Each of the defendants understood at all of the times in controversy that the issuance of a patent and its continued existence as an enforceable instrument on the broad claims to the chemical compound tetracycline were essential to maintain the prices then prevailing in the BSA market generally; and in particular for the therapeutic product tetracycline (vis-a-vis the chemical compound).
(2) Plaintiff avers that Pfizer and Cyanamid took concerted steps to assure the issuance of a patent covering the broad claims to the chemical compound tetracycline; and toward that end, each made material misrepresentations of fact to, and withheld material information from, the United States Patent Office, thereby causing the issuance of the Conover patent covering the broad claims to the chemical compound tetracycline which otherwise would not have been issued.
(3) Plaintiff avers that Cyanamid, Bristol, Squibb and Upjohn knew of the manner in which Pfizer had caused the Conover patent to issue, and notwithstanding such knowledge, actively sought, acquired and enforced licenses thereunder.
Each of the defendants filed answer denying generally the material allegations of the complaint in which violations of the antitrust laws were charged. Other defenses raised included the statute of limitations, laches, failure of the complaint to state a claim, standing and the propriety of maintenance of the case as a class action, but these defenses have all been disposed of adversely to the defendants leaving only for determination the question of defendants' liability under the antitrust statutes.
In its brief the plaintiff has correctly framed the two principal issues raised by the pleadings and litigated during the trial as follows:
The first major antibiotic discovered and introduced was penicillin which was used extensively during World War II and thereafter. Subsequent to the introduction of penicillin, additional antibiotics were discovered and marketed. Four of these were effective against a wider group of disease-causing microorganisms than was penicillin, and they became known as "broad-spectrum" antibiotics. The first of these, chlortetracycline, was covered by the Duggar Patent which issued to Cyanamid in September, 1949. Cyanamid first marketed this drug under the trade name "Aureomycin" on December 1, 1948.
On January 25, 1949, Parke, Davis & Company introduced the second broad-spectrum antibiotic, chloramphenicol, under the trade name, "Chloromycetin". It was covered by a patent issued to Parke, Davis in October, 1949.
The third broad-spectrum antibiotic, oxytetracycline, was introduced in March, 1950, by Pfizer under the trade name, "Terramycin". This drug was covered by the Sobin Patent issued to Pfizer in July 1950.
The fourth of the broad-spectrums, tetracycline, was discovered by Pfizer's Dr. Conover in June, 1952. He had speculated that it might be possible to develop a new and superior antibiotic by removing the chlorine atom from chlortetracycline (Aureomycin), and he was finally able to accomplish this by hydrogenating Aureomycin so as to replace the chlorine atom with a hydrogen atom — a process called "deschlorination". On October 23, 1952, Pfizer filed Conover's application for a patent on tetracycline and the deschlorination process.
Shortly thereafter scientists at Cyanamid also discovered that tetracycline could be produced by deschlorination of Aueromycin, and on March 16, 1953, Cyanamid filed its Boothe-Morton application for...
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