United States v. Glaxo Group Limited

• Decision Date: 17 June 1971
• Docket Number: Civ. A. No. 558-68.
• Citation: 328 F. Supp. 709
• Parties: UNITED STATES of America, Plaintiff, v. GLAXO GROUP LIMITED and Imperial Chemical Industries Limited, Defendants.
• Court: U.S. District Court — District of Columbia

328 F. Supp. 709

UNITED STATES of America, Plaintiff, v. GLAXO GROUP LIMITED and Imperial Chemical Industries Limited, Defendants.

Civ. A. No. 558-68.

United States District Court, District of Columbia.

June 17, 1971.

Robert H. Stern, William B. Bohling, Antitrust Div., Dept. of Justice, for United States.

Henry P. Sailer, Washington, D. C., for defendant Glaxo Group Ltd.

Sigmund Timberg, Washington, D. C., for defendant Imperial Chemical Industries Ltd.

MEMORANDUM

GASCH, District Judge.

In this action the Government seeks declaratory and injunctive¹ relief against two British corporations for violations of section one of the Sherman Act.² Defendant Imperial Chemical Industries, Limited (ICI) manufactures the antibiotic griseofulvin. The drug is marketed in the United States by Ayerst Laboratories Division of American Home Products Corporation (Ayerst) under an exclusive distributorship agreement with ICI.³ Included in this agreement was a provision prohibiting Ayerst from reselling bulk supplies of griseofulvin without ICI's consent. On plaintiff's motion for partial summary judgment this Court ruled that ICI's restriction of its vendee's freedom to resell purchased goods was a per se violation of section one of the Sherman Act.⁴ Similar agreements between defendant Glaxo Group Limited (Glaxo) and its United States distributors Johnson and Johnson, Inc., and Schering Corporation were subsequently held to be per se violations of the Sherman Act.⁵ Finally, an agreement between Glaxo and ICI that ICI would not permit its vendees to resell bulk form griseofulvin purchased from ICI was declared a per se violation of the antitrust laws insofar as it applied to United States vendees of ICI.⁶ These grants of partial summary judgments in favor of plaintiff amount to full adjudication on the merits and the case is now before the Court for entry of final judgment.⁷

Plaintiff and defendants have each submitted proposed final judgments; extensive briefs and affidavits were filed in support of the parties' positions with respect to the scope of relief to be granted and a hearing was held in open Court concerning the form of final judgment. Defendants contend in the first instance that no injunctive relief is warranted under the circumstances of this case. The principal area of contention, however, concerns that portion of the Government's proposed decree which would require defendants to (1) sell griseofulvin in bulk on reasonable and nondiscriminatory terms and prices to all bona fide applicants, and (2) grant reasonable royalty-licenses under their United States patents relating to the manufacture and processing of griseofulvin⁸ together with technical data usable in the manufacture or processing of griseofulvin.

Defendants' contention in opposing any injunctive relief is based on the voluntary abandonment of the bulk resale restrictions by Glaxo and ICI prior to litigation in this case. They rely on the rule that even where there has been an adjudicated violation of the antitrust laws injunctive relief is appropriate only where there is a significant threat of future violation. United States v. W. T. Grant Co.⁹ The Court concludes, however, that on the evidence presented in this record and on the statement by defendants that it has been their regular policy in the past to include such restrictive covenants in their contracts, that the threat of future violations is sufficient to warrant enjoining repetition of the illegal activity.¹⁰

The relief proposed by the Government goes beyond mere restraint of the conduct found to be illegal. It seeks positive relief in the form of compulsory sales and compulsory patent-licensing provisions. As authority for this relief, plaintiff relies primarily on International Salt Co. v. United States,¹¹ Besser Manufacturing Co. v. United States,¹² and United States v. United Shoe Machinery Corp.¹³

The Government characterizes the holding in International Salt as authorizing the ordering of compulsory, nondiscriminatory sales to "effectively pry open to competition a market that has been closed by defendants' illegal restraints."¹⁴ The decree in International Salt, however, did not compel sale of defendant's machines but rather compelled nondiscriminatory lease or sale or license.¹⁵ The illegality found in International Salt was a tying clause employed by defendant in leasing patented sale dispensing machines which required the lessee to purchase all salt for use in the machines from International. Thus the requirement that International distribute its machines on a nondiscriminatory basis so as not to give more favorable terms to customers who purchased all or substantially all of their salt from International was closely related to the principal illegal activity adjudicated in the case. The decreeing of compulsory sales by ICI and Glaxo to all applicants cannot logically or factually be related to the continuance of the illegality found in this case—the restraint of their vendees' freedom to resell in bulk.

In Besser the defendants had eliminated competition in the concrete block industry through outright purchase of competitors and strict patent-licensing arrangements.¹⁶ After first sustaining the trial court's conclusion that defendants had conspired to monopolize and had monopolized and attempted to monopolize interstate commerce in concrete block making machinery in violation of sections one and two of the Sherman Act, the Court ratified the decree which ordered defendants to offer for sale the machines which they had previously only leased. The Court stated that "compulsory licensing and sale of patented devices are recognized remedies. They would seem particularly appropriate where, as here, a penchant for abuse of patent rights is demonstrated."¹⁷ In the present case there was no showing that ICI or Glaxo had a "penchant for abuse of patent rights" nor were they convicted, as was Besser, of using their patent rights to monopolize an industry.¹⁸ The direction to offer to sell as well as lease patented machinery in Besser went directly to the machanics used to monopolize. The restraint on alienation in the present case, although declared a per se violation of section one of the Sherman Act, has not been shown to have had the effect of monopolizing the market nor have ICI's and Glaxo's exclusive distributorship arrangements, which the compulsory sale provision would defeat, been shown to be illegal restraints on competition. The circumstances of the cases and the relationship of the violations to conduct sought to be restrained differ so greatly that Besser cannot be held controlling here.

The circumstances and holding in United Shoe are quite similar to Besser. The court decreed compulsory sales of patented machines after finding that United Shoe's lease-only policy of distributing its machines was the base of its illegal monopolization of the shoe machine industry.¹⁹ We are not here dealing with a lease versus sale situation nor have ICI's and Glaxo's exclusive distributorship methods of marketing their products been found to be the basis for an acquisition of illegal monopoly power.

In fashioning a remedy in an antitrust case the Court is not "limited to prohibition of the proven means by which the evil was accomplished, but may range broadly through practices connected with acts actually found to be illegal."²⁰ But the principal function of an antitrust injunction is to prevent future violations.²¹ In determining the scope of relief the "essential consideration is that the remedy shall be as effective and fair as possible in preventing continued or future violations of the Anti-trust Act in the light of the facts of the particular case."²² Thus while the cases cited by plaintiff and discussed above are authority for the proposition that the Court has the power to grant relief which goes beyond prohibition of the specific conduct found illegal, it is clear that that power is to be exercised only in appropriate circumstances. The circumstances under which otherwise legitimate conduct will be enjoined are where that conduct is so inextricably intertwined with the illegal conduct that effective relief cannot be afforded without its elimination or where the legitimate activity would be a cover for pursuing the forbidden activity.²³

In the present case there has been no determination that the exclusive distributorship arrangements between ICI and Glaxo and their United States distributors were violations of the antitrust laws. Nor have any instances where such agreements were adjudged illegal been brought to the attention of the Court. The compulsory sales and patent-licensing provisions sought by the Government would, of course, destroy these business arrangements. Furthermore, this case was presented on motion for summary judgment and the restraint on alienation was found to be a per se violation of the anti-trust laws—that is, the conduct was declared illegal as a matter of law without requiring the Government to show the effects of the conduct on the market. The Government, in its briefs and affidavits filed in support of its proposed judgment, has attempted to show that market conditions necessitate the broad scale relief requested. The evidence offered, however, shows only that there are other drug companies²⁴ in the United States that would endeavor to enter the griseofulvin market if they could purchase bulk supplies from Glaxo or ICI on the same terms as their present vendees. The evidence did not show that a current monopoly condition exists as a result of the bulk resale restriction²⁵ nor did it show that the exclusive distributorship arrangements are covers for the continuation of bulk resale restrictions.²⁶ Therefore, the Court concludes that to decree compulsory sales would be inappropriate in the circumstances of this case.²⁷

The Government contends that the decree of compulsory patent-licensing which it requests stands on a separate and equal...