United States v. Articles of Drug

• Decision Date: 11 December 1984
• Docket Number: CV. 84-0-323.,No. CV. 84-0-206,CV. 84-0-206
• Citation: 601 F. Supp. 392
• Parties: UNITED STATES of America, Plaintiff, v. ARTICLES OF DRUG, et al., Defendants, Midwest Pharmaceuticals, Inc., Claimant. UNITED STATES of America, Plaintiff, v. MIDWEST PHARMACEUTICALS, INC., et al., Defendants.
• Court: U.S. District Court — District of Nebraska

601 F. Supp. 392

UNITED STATES of America, Plaintiff, v. ARTICLES OF DRUG, et al., Defendants, Midwest Pharmaceuticals, Inc., Claimant.

UNITED STATES of America, Plaintiff, v. MIDWEST PHARMACEUTICALS, INC., et al., Defendants.

Nos. CV. 84-0-206, CV. 84-0-323.

United States District Court, D. Nebraska.

December 11, 1984.

Paul J. Johns, Asst. U.S. Atty., Omaha, Neb., for plaintiff.

John M. O'Connor, DeForest & Duer, New York City, Anthony M. Troia, Omaha, Neb., for defendants.

ORDER

SCHATZ, District Judge.

This matter coming on for determination with reference to the findings and recommendations of the magistrate as to the government's motion for summary judgment upon counterclaims made by the claimant (Filing No. 28 in CV. 84-0-206), the claimant's motion for partial summary judgment as to some seized items (Filing No. 37 in CV. 84-0-206), and defendants' motions to dismiss (Filing Nos. 24 and 25 in CV. 84-0-323), and the Court having carefully reviewed said findings and recommendations and having reviewed the briefs filed in support of and in opposition to said motions, and having noted defendants' objections have been filed with reference to said findings and recommendations, and being fully advised in the premises, the Court hereby adopts said findings and recommendations of the magistrate.

With reference to defendants' Objections to Magistrate's Findings and Recommendations, the Court rejects defendants' argument that a distributor may not be enjoined for the alleged improper actions of persons over whom the distributor has no control. In Inwood Laboratories, Inc. v. Ives Laboratories, Inc., 456 U.S. 844, 853-56, 102 S.Ct. 2182, 2187-89, 72 L.Ed.2d 606 (1982), a trademark infringement case, the United States Supreme Court held that liability will extend beyond those who actually do the wrongful act under certain circumstances:

Even if a manufacturer does not directly control others in the chain of distribution, it can be held responsible for their infringing activities under certain circumstances. Thus if a manufacturer or distributor intentionally induces another to infringe a trademark, or if it continues to supply its product to one whom it knows or has reason to know is engaging in trademark infringement, the manufacturer or distributor is contributorily responsible for any harm done as a result of the deceit.

Inwood, 456 U.S. at 853-54, 102 S.Ct. at 2187-88.

In Sony Corp. v. Universal City Studios, ___ U.S. ___, 104 S.Ct. 774, 789, 793, 78 L.Ed.2d 574 (1984), a copyright infringement case, the Supreme Court also referred to the doctrine of extended or contributory liability, stating that such liability will not be extended unless there is a showing by a preponderance of the evidence that the alleged wrongful use is substantial and harmful, or that some meaningful likelihood of future harm exists. These cases point out that the doctrine of extended or contributory liability is alive and well today.

This Court concludes that the doctrine of extended or contributory liability is applicable in an action alleging violations of the Federal Food, Drug and Cosmetic Act, 21 U.S.C. § 301, et seq. In light of the Act's broad purpose of protecting the public's health and safety, the Court further concludes that manufacturers and distributors may be held contributorily liable for the alleged violations of 21 U.S.C. § 352(i)(2) if they intentionally induced another to commit any such violation, or if they knew, had reason to know or reasonably could have anticipated that a substantial portion of their products would be passed off as controlled substances by others in the chain of distribution. Accordingly,

IT IS HEREBY ORDERED that the said findings and recommendations of the magistrate be and the same are hereby confirmed and adopted by this Court in all respects; and

IT IS FURTHER ORDERED:

1) That the government's motion for summary judgment upon counterclaims made by the claimant (Filing No. 28 in CV. 84-0-206) be and the same is hereby granted;

2) That the claimant's motion for partial summary judgment (Filing No. 37 in CV. 84-0-206) be and the same is hereby denied;

3) That defendant Midwest Pharmaceutical's motion to dismiss (Filing No. 24 in CV. 84-0-323) be and the same is hereby denied; and

4) That defendant Steven F. Sommers' motion to dismiss (Filing No. 25 in CV. 84-0-323) be and the same is hereby denied.

MAGISTRATE'S FINDINGS AND RECOMMENDATIONS

October 19, 1984.

RICHARD C. PECK, United States Magistrate.

Pursuant to the provisions of 28 U.S.C. § 636, findings and recommendations are herewith made upon the Government's motion (filing 28 in CV84-0-206) for summary judgment upon counterclaims made by the claimant, the claimant's motion (filing 37 in CV84-0-206) for partial summary judgment as to some seized items, and motions by two of the defendants (filings 24 and 25 in CV84-0-323) to dismiss.

Midwest Pharmaceuticals, Inc., a/k/a B & S Distributors (hereinafter "Midwest") has been engaged in distribution of drug products from locations in the Omaha, Nebraska metropolitan area. Steven F. Sommers is now president and principal owner of the corporation. Robert S. Liebert, until recently, was its president.

These two cases, consolidated for trial by previously entered order, are: first, an in rem seizure and condemnation action against the drug products described in the caption of CV84-0-206, with allegations that they are imitation drugs, thus misbranded within the meaning of 21 U.S.C. § 352(i)(2), and subject to seizure under the provisions of 21 U.S.C. § 334, and in which Midwest, as claimant of the products, has filed an answer and three stated counterclaims; and second, an action (CV84-0-323) for injunctive relief, under the provisions of 21 U.S.C. § 332(a), against Midwest and its present and former president.

The overriding issue in both cases is whether the Federal Food, Drug, and Cosmetic Act makes a distinction between "counterfeit" drugs and "imitation" drugs; and, if so, whether the evidence upon which the government relies will establish that the products involved are imitations of controlled substances. If the answer to both questions is "yes", the Government wins.

Included in the acts prohibited by provisions of 21 U.S.C. § 331 is misbranding of drugs or their introduction, delivery or receipt in interstate commerce. Misbranded drugs are by 21 U.S.C. § 334 made subject to seizure proceedings.

By the provisions of 21 U.S.C. § 352(i)(2), a drug is misbranded "... if it is an imitation of another drug...." The word "imitation" is nowhere further defined in the provisions of the Act.

In the section confined to definitions of terms there is included at 21 U.S.C. § 321(g)(2):

The term `counterfeit drug' means a drug which, or the container or labeling of which, without authorization, bears the trademark, trade name, or other identifying mark, imprint, or device, or any likeness thereof, of a drug manufacturer, processor, packer, or distributor other than the person or persons who in fact manufactured, processed, packed, or distributed such drug and which thereby falsely purports or is represented to be the product of, or to have been packed or distributed by, such other drug manufacturer, processor, packer, or distributor.

The provisions of 21 U.S.C. § 332(a) empower district courts of the United States to enjoin acts prohibited by the provisions of 21 U.S.C. § 331 but exclude from availability of that remedy, among other things, an act which causes a drug to be a "counterfeit drug" or the sale of a "counterfeit drug". The remedy which may be invoked by the Government in instances of counterfeit drugs distribution is that incorporated in the provisions of 21 U.S.C. § 334(a)(2) for seizure of:

(A) Any drug that is a counterfeit drug,

(B) Any container of a counterfeit drug, and

(C) Any punch, die, plate, stone, labeling, container, or other thing used or designed for use in making a counterfeit drug or drugs.

The essence of Midwest's position is that the term "imitation" as used in § 352(1)(2) must be equated with the term "counterfeit drug" as defined in § 321(g)(2), which means one bearing without authorization the identifying marks of another manufacturer or distributor; that since the drug products in question admittedly did not bear identifying marks belonging to another manufacturer or distributor, they are not "counterfeit" and, therefore, not subject to seizure; and that no statutory authority for invocation of the remedy of injunction exists.

The essence of the Government's position is that the descriptive words "counterfeit" and "imitation" are not treated in the Food, Drug, and Cosmetic Act as being synonymous; that while a counterfeit drug is one using identifying markings of another manufacturer or distributor as defined in the Act, an imitation drug is one "passed off" to the consumer as being a specific substance which in fact it is not; and that the Act in question authorizes both the remedies of seizure and of injunction for the contradiction of traffic in imitation drugs.

The evidence upon which the Government represents it will rely at trial to sustain its position encompasses a history and pattern of operations followed by Midwest and its officers in its distribution of the drug products in question. Included are alleged facts that Midwest's distribution of products is not to buyers for drug stores or similar retail outlets; its business is largely of the mail order type; advertisements are not carried in retail trade journals but in magazines such as High Times and Hustler with emphasis upon the appearance of the products; distribution of capsules and pills of its products are largely in bottles containing 1000 units; the bottles are labeled "This product does not contain amphetamines, narcotics or barbituates", but the first purchaser discards that packaging and repackages the contents into "baggies" for street sales, largely to elementary...