United States v. Chas. Pfizer & Co.

• Decision Date: 09 September 1965
• Citation: 245 F. Supp. 801
• Parties: UNITED STATES of America, Plaintiff, v. CHAS. PFIZER & CO., Inc., John E. McKeen, American Cyanamid Company, Wilbur G. Malcolm, Bristol-Myers Company, Frederic N. Schwartz, Defendants.
• Court: U.S. District Court — Southern District of New York

245 F. Supp. 801

UNITED STATES of America, Plaintiff, v. CHAS. PFIZER & CO., Inc., John E. McKeen, American Cyanamid Company, Wilbur G. Malcolm, Bristol-Myers Company, Frederic N. Schwartz, Defendants.

United States District Court S. D. New York.

September 9, 1965.

Harry G. Sklarsky, Herman G. Gelfand, Gerald R. Dicker, Stanley W. Nathanson, John L. Butler, Attys., Dept. of Justice, New York City, for plaintiff; Donald F. Turner, John J. Galgay, John D. Swartz, Attys., Dept. of Justice, of counsel.

Dewey, Ballantine, Bushby, Palmer & Wood, New York City, for defendant John E. McKeen; John E. F. Wood, Charles E. Stewart, Jr., Judson A. Parsons, Jr., New York City, of counsel

Donovan Leisure Newton & Irvine, New York City, for defendant Wilbur G. Malcolm; Ralstone R. Irvine, Walter R. Mansfield, Richard Y. Holcomb, New York City, of counsel.

Winthrop, Stimson, Putnam & Roberts, New York City, for defendant Frederic N. Schwartz; Merrell E. Clark, Jr., Terence H. Benbow, James T. Boorsch. New York City, of counsel.

RYAN, Chief Judge.

Defendants, John E. McKeen, Wilbur G. Malcolm and Frederic N. Schwartz move to dismiss the indictment as to them on the ground that they are immune from further prosecution pursuant to the anti-trust immunity act of February 25, 1903, 32 Stat. 903-904, as amended, 15 U.S.C. §§ 32, 33.

McKeen is president and chairman of the board of Chas. Pfizer & Co., Inc.; Malcolm has served as chairman of the board of directors, vice-president and president of the American Cyanamid Company; Schwartz has been president of Bristol-Myers Company and of Bristol Laboratories, Inc., a wholly owned subsidiary of Bristol-Myers.

On August 17, 1961, movants and their companies were indicted in the Southern District of New York for violations of Sections 1 and 2 of the Sherman Act, 15 U.S.C. §§ 1 and 2. Defendants are charged with conspiracy to restrain trade and commerce, conspiracy to monopolize trade and commerce, and monopolization of trade and commerce in the manufacture, distribution and sale of broad spectrum antibiotics and broad spectrum antibiotic products. Olin Mathieson Chemical Corporation (hereinafter referred to as "Squibb"), the Upjohn Company, and various other individuals were named as co-conspirators.

The alleged conspiracy concerned the issuance of a patent to Pfizer for the broad spectrum antibiotic tetracycline. The indictment alleges that Pfizer, Cyanamid, and Bristol misled the Patent Office so as to enable Pfizer to obtain this patent, and that subsequently, defendants and co-conspirators conspired and effectuated through licensing agreements a system whereby the manufacture and sale of tetracycline products and bulk tetracycline were confined to defendants and co-conspirators and these products were sold at substantially identical and non-competitive prices by the companies involved. It is charged also that the alleged conspiracy included price fixing of broad spectrum antibiotics.

Subsequent to the return of this indictment, movants were subpoenaed to appear before a grand jury impanelled in the District of Columbia and testified under subpoena before that jury in May and June, 1962. It is this testimony which movants rely upon as the basis of their contention that they now are immune from further prosecution under the indictment returned in this district.¹

Defendants have been given access to their testimony before the Grand Jury, and we have a transcript of this testimony.

Prior to the May-June 1962 hearings of the District of Columbia Grand Jury, there was a Federal Trade Commission proceeding and a Senate Subcommittee investigation dealing with alleged antitrust violations in the production and marketing of antibiotics. When interpreting the relevancy of the grand jury testimony of these defendants to the instant indictment, the background and facts of this industry's activity as revealed in this Federal Trade Commission proceeding and Senate investigation are important.

On July 28, 1958, the Federal Trade Commission issued a complaint against the five drug companies named herein as defendants and co-conspirators charging them with unfair methods of competition, and acts and practices in commerce in violation of section 5 of the Federal Trade Commission Act, 15 U.S.C. § 41 et seq. The complaint alleged that Pfizer unilaterally attempted to monopolize the antibiotic industry, attempted to and did monopolize the tetracycline industry, by fraud and misrepresentation caused a patent on tetracycline to be issued by the United States Patent Office, and issued invalid licenses under said patent. The complaint further alleged that all defendants by conspiracy fixed the prices of tetracycline, chlortetracycline and oxytetracycline; foreclosed and prevented competition in tetracycline and chlortetracycline by licenses and cross-licenses; attempted to and did monopolize tetracycline and that Pfizer, Bristol and Cyanamid (the instant defendant companies) withheld material information from the Patent Office as a result of which Pfizer was enabled to secure the tetracycline patent; and that Pfizer issued and Cyanamid, Bristol, Squibb and Upjohn accepted licenses under the tetracycline patent with knowledge of such withholding and misrepresentation, and, independently thereof, with knowledge that the invention was unpatentable. Hearings were held at various times from January 5, 1959 to February 4, 1960 before a Hearing Examiner. On October 30, 1961 the Examiner submitted an initial decision in which he found that the charges had not been sustained by the evidence and ordered the complaint dismissed. An administrative appeal was taken and on August 8, 1963, the Commission issued an opinion vacating the initial decision, making its own findings of facts and conclusions of law. The Commission found that Pfizer and Cyanamid did make certain misrepresentations and withheld other information in connection with Pfizer's application for a patent on tetracycline, which prevented the patent examiner from making an accurate appraisal of the patentability of tetracyclines; that the conspiracy charge before the patent office between Pfizer and Cyanamid was "not proven", that Bristol, Squibb and Upjohn did not engage in any unfair methods of competition before the Patent Office; and that Pfizer, Cyanamid, Bristol, Squibb and Upjohn engaged in a conspiracy to fix, maintain and stabilize the price of tetracycline.

The Commission made the following factual findings:

The two principal antibiotics, prior to tetracycline, were chlortetracycline and oxytetracycline. Cyanamid and Pfizer owned the patents on chlortetracycline and oxytetracycline, respectively, and sold this product under the brand names of aureomycin and terramycin. Until the discovery of tetracycline, neither of these companies had granted a license under its patent or had sold its product in bulk to any other drug producer or distributor. The prices of these two antibiotics had been virtually identical since 1951, and in 1953, Cyanamid and Pfizer accounted for over 90% of the total volume of sales of broad spectrum antibiotics.

During the Autumn of 1952 and the greater part of 1953, six applications for a patent on tetracycline were filed. Two of these applications claimed the process of producing tetracycline by the deschlorination of chlortetracycline (aureomycin), while four applications claimed a production process of direct fermentation. By the end of 1953, Cyanamid had three tetracycline applications pending — The Boothe-Morton application, for the deschlorination process, and the Martin-Bohonos and Minieri (purchased from the Heyden Corporation) for a fermentation process; Pfizer had two applications pending — the Conover application, for the deschlorination process and the Tanner application, for a fermentation process; and Bristol had one application pending, the Heinemann application, for a fermentation process.

Cyanamid had already determined by the autumn of 1953 that tetracycline possessed many properties which in some specific conditions were superior to and more effective than aureomycin. Pfizer knew of this determination. Both Cyanamid and Pfizer knew that tetracycline, if produced and sold commercially, would be fully competitive with aureomycin and terramycin. They both knew or had reason to believe that the value of their respective patents and their dominant positions in the broad spectrum antibiotic market would be impaired by the unrestricted production and sale of tetracycline. Moreover, they knew or had reason to believe that if tetracycline could be sold by other firms in free and open competition, the price of this product and other broad spectrum antibiotics would be forced downward as the price of penicillin had been during and subsequent to World War II.

On December 28, 1953, the Patent Examiner declared interference on tetracycline and the deschlorination process between Pfizer's "Conover" application filed on October 23, 1952, and Cyanamid's "Boothe-Morton" application filed on March 16, 1953. Pfizer and Cyanamid agreed to cross-license all patents covering tetracycline. Cyanamid licensed Pfizer to produce aureomycin for the manufacture of tetracycline and Cyanamid conceded priority to Pfizer. The interference was terminated.

Shortly after, on March 2, 1954, the Patent Examiner declared a second interference, this time on tetracycline hydrochloride, between Cyanamid's "Minieri" application filed on September 28, 1953, Bristol's "Heinemann" application filed on October 19, 1953 and Pfizer's "Conover" application.

In January 1954, Bristol had claimed tetracycline hydrochloride, and had persuaded the Patent Examiner that tetracycline hydrochloride was patentably distinguishable from tetracycline. On October 14, 1954, it was ruled that tetracycline hydrochloride was not patentably distinct from tetracycline and that, in any case, tetracycline was unpatentable as to all parties, because...