United States v. Chas. Pfizer & Co.

• Decision Date: 16 April 1970
• Docket Number: Dockets 32493-95.,No. 636-38,636-38
• Citation: 426 F.2d 32
• Parties: UNITED STATES of America, Appellee, v. CHAS. PFIZER & CO., Inc., American Cyanamid Company and Bristol-Myers Company, Appellants.
• Court: U.S. Court of Appeals — Second Circuit

426 F.2d 32 (1970)

UNITED STATES of America, Appellee, v. CHAS. PFIZER & CO., Inc., American Cyanamid Company and Bristol-Myers Company, Appellants.

Nos. 636-38, Dockets 32493-95.

United States Court of Appeals, Second Circuit.

Argued May 7, 1969.

Decided April 16, 1970.

John E. F. Wood, New York City (Charles E. Stewart, Jr., Judson A. Parsons, Jr., David D. Griffin, J. Paul McGrath, Neal Johnston, Robert S. Wolf, Catherine A. Rein and Joseph Korff, Dewey, Ballantine, Bushby, Palmer & Wood, New York City, Arthur G. Connolly, F. L. Peter Stone and Arthur G. Connolly, Jr., Connolly, Bove & Lodge, Wilmington, Del., of counsel), for appellant Chas. Pfizer & Co., Inc.

Roy W. McDonald, New York City (Ralstone R. Irvine, Breck P. McAllister, Richard Y. Holcomb, Kenneth N. Hart and Edward C. Mengel, Jr., Donovan, Leisure, Newton & Irvine, New York City, of counsel), for appellant American Cyanamid Co.

Merrell E. Clark, Jr., New York City (Henry J. Zafian, Terence H. Benbow, Edward A. Miller, William M. Dreyer and Robert W. Gray, Winthrop, Stimson, Putnam & Roberts, New York City, of counsel), for appellant Bristol-Myers Co.

Harry G. Sklarsky, Atty., Dept. of Justice, Washington, D. C. (Richard W. McLaren, Asst. Atty. Gen., Howard E. Shapiro, Herman G. Gelfand, George Edelstein, Robert E. Easton and William R. Weissman, Attys., Dept. of Justice, Washington, D. C., of counsel), for appellee.

Before MOORE, FRIENDLY and HAYS, Circuit Judges.

MOORE, Circuit Judge.

Chas. Pfizer & Co., Inc. (Pfizer), American Cyanamid Company (Cyanamid) and Bristol-Myers Company (Bristol) appeal from convictions after a jury trial for violations of the Sherman Act (15 U.S.C. §§ 1, 2). The indictment contained three counts, (I) "Combination and Conspiracy in Restraint of Trade"; (II) "Combination and Conspiracy to Monopolize"; and (III) "Monopolization." The defendants were found guilty on all three counts.

Two co-conspirators were named in the indictment, Olin Mathieson Chemical Corporation (Squibb) and The Upjohn Company (Upjohn). The chief executive officer of Pfizer, Cyanamid and Bristol respectively was also named as a defendant. Before trial the indictment was dismissed as to these individual defendants.

The indictment charged a conspiracy by defendants and co-conspirators to restrain trade in the broad spectrum antibiotic drug market. These drugs are enumerated more specifically later. In substance the alleged conspiratorial agreements were that:

(a) The manufacture of tetracycline be confined to Pfizer, Cyanamid and Bristol.

(b) The sale of tetracycline products be confined to Pfizer, Cyanamid, Bristol, Upjohn and Squibb.

(c) The sale of bulk tetracycline be confined to Bristol and bulk tetracycline be sold by Bristol only to Upjohn and Squibb.

(d) The sale of broad spectrum antibiotic products by the defendant companies and the co-conspirator companies be at substantially identical and non-competitive prices.

The government's bill of particulars provides the frame of reference for its claims. As to Pfizer and Cyanamid, the conspiracy to violate antitrust laws began in November 1953 and as to Bristol, Squibb and Upjohn in December 1955 (BP ¶2, 16). The alleged illegal acts were (a) in November 1953 "the illegal cross-license and bulk sales arrangement between Pfizer and Cyanamid which initiated the conspiracy in November 1953" (BP ¶ 27(a)); (b) Pfizer's confining the tetracycline market to Pfizer and Cyanamid in January 1954; (c) an allegedly illegal agreement in November 1955 whereby Bristol deprived Squibb and Upjohn of their right to manufacture tetracycline; and (d) illegal arrangements between Pfizer and Bristol in December 1955 settling the Bristol-Pfizer patent litigation and depriving Squibb and Upjohn of the right to manufacture tetracycline. Squibb and Upjohn were named as co-conspirators — not defendants. McKeen (Pfizer), Malcolm (Cyanamid) and Schwartz (Bristol) fixed pricing policies (e). These three individuals authorized the illegal acts (f).

The government's case, except for minor details, was constructed in large measure:

(1) upon the testimony of John E. McKeen, President and Chairman of the Board of Directors of Pfizer, Wilbur G. Malcolm, Vice-President (to September 1, 1957), President (to April 25, 1961), and Chairman of the Board of Cyanamid and Frederic N. Schwartz, President of Bristol (and prior to January 1, 1958, President of Bristol Laboratories).

(2) upon written agreements entered into between some or all of the corporate defendants, many of which agreements related to the disposition of the patent controversies which had arisen inter sese;

(3) upon a mass of statistical information relating to production costs, gross profits, prices, etc., of the antibiotics here involved, designed to show that the defendants were reaping unusually high profits from their antibiotic drugs; and

(4) upon some eight days of testimony and exhibits related thereto dealing with the obtaining of the Pfizer tetracycline patent.

These officials testified at length as to the business situations which confronted them during the indictment period and the reasons for the actions taken in the exercise of their judgments to meet each situation as it arose and which called for solution in the light of the facts then confronting them.

Thus the government's case, insofar as actual proof is concerned, rests almost entirely upon oral and written statements from defendants themselves. Because of this circumstance, the facts may be said to be virtually undisputed.

The indictment, as limited by the bill of particulars, constituted the mold which formed the pattern of the government's case, namely, that a conspiracy was formed by Pfizer (McKeen) and Cyanamid (Malcolm) at meetings between them in November 1953 and that Bristol (Schwartz) joined that conspiracy at meetings between McKeen and Schwartz in December 1955. Since the facts as to the happenings of these two series of meetings are critical to the government's case, they must be kept under a spotlight.

It is impossible to condense the trial (the transcript of testimony and exhibits consists of some 12,000 printed pages) except in a highly selective manner, and then only by concentrating on the determinative facts.

The subject matter of the suit was the production and marketing by Pfizer, Cyanamid and Bristol of a board spectrum antibiotic drug, tetracycline. Prior to 1952 there were three effective drugs in this field. In September 1949 Cyanamid had obtained a patent on aureomycin which it had first marketed in September 1948. In July 1950 Pfizer had secured a patent on terramycin which it introduced on the market in March 1950. Parke, Davis (a pharmaceutical company not involved in this case either as a defendant or as a co-conspirator) in October 1949 had received a patent for chloromycetin which it had put on the market in January 1949.

In 1952 a new drug, tetracycline, was developed. The activities of the three defendants with respect to this drug create the basis of the indictment's charges.

The Pre-November 1953 Situation

Aureomycin (Cyanamid) was produced and sold exclusively by Cyanamid, was covered by patents (Duggar and Niedercorn-fermentation process) and was available to the public from December 1948.

Chloromycetin (Parke, Davis patent) was manufactured and sold to the public from 1949.

Terramycin (Pfizer) was produced and sold by Pfizer from 1950 as the sole manufacturer.

No licenses or cross-licenses were granted by any of these companies to each other or to other drug manufacturers.

Each of these drugs was a prescription drug, namely, available only on a doctor's prescription and although somewhat interchangeable their sales were dependent upon the doctor's views as to their respective effectiveness in the treatment of the particular ailment of the patient. To this extent they were competitive. Each company, taking advantage of its patents and believing in the efficacy of its product but with full knowledge of the similarity in medical usefulness of its competitors' drugs, kept a competitive eye on the prices of the others and refrained from the issuance of licenses. There had been price stability between aureomycin, terramycin and chloromycetin for several years prior to the alleged conspiracy.

Into this somewhat stable situation in the early 1950s came tetracycline, considered by many as superior to the other three.

Tetracycline

Pfizer claimed that in June 1952 one of its scientists, Dr. Conover, had discovered tetracycline which was obtainable by subjecting aureomycin (patent held by Cyanamid) to a dechlorination process. Application was made in October 1952 for a patent on product and process claims. As a result of publicity of the Pfizer discovery, Cyanamid in March 1953 applied for a product and process patent for tetracycline. Thus there were two pending applications for patents for the same drug. To resolve the conflict, the Patent Office declared an interference.

Briefly stated Pfizer believed that it had priority (Dr. Conover — June 1952) over Cyanamid (March 1953), but the outcome was uncertain. However, Pfizer, even were it to win, was completely dependent for production, upon Cyanamid's aureomycin either by purchase or license to manufacture. In an attempt to resolve these business problems, McKeen of Pfizer and Malcolm of Cyanamid met in November 1953. There is no contention by the government that at the time of this meeting and for the years preceding it there was any conspiracy or agreement despite the similarity of the price structure of the three drugs and despite the companies' policies of not licensing others. Prior to October 1951 price reductions by one were met by the others.

The November 1953 Meetings

None of the business practices of Pfizer or Cyanamid which occurred prior to the November 1953 meetings by the government's own specification were a part of the alleged conspiracy in issue here. If there were...