United States v. Glaxo Group Limited, Civ. A. No. 558-68.

• Decision Date: 04 June 1969
• Docket Number: Civ. A. No. 558-68.
• Parties: UNITED STATES of America, Plaintiff, v. GLAXO GROUP LIMITED and Imperial Chemical Industries Limited, Defendants.
• Court: U.S. District Court — District of Columbia

302 F. Supp. 1

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 4, 1969.

James H. Wallace, Jr., Richard H. Stern and William B. Bohling, Antitrust Div., Dept. of Justice, Washington, D. C., for the Government.

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

Sigmund Timberg and George Mobille, Washington, D. C., for defendant Imperial Chemical Industries Limited.

William Glendon, Washington, D. C., for Johnson & Johnson.

Kevin Carroll, New York City, for Shering Chemical Co.

MEMORANDUM OPINION

GASCH, District Judge.

This antitrust suit, brought pursuant to section four of the Sherman Act,¹ by the Department of Justice, seeks declaratory and injunctive relief against two British corporations for alleged violations of section one of the Sherman Act.² The Court heard the matter on the several motions of both the plaintiff and defendants and pursuant to this opinion, by order, will: (1) grant the motion of the United States for a partial summary judgment on the restraint on alienation issue, and deny the motion of defendant ICI for a partial summary judgment that the United States has failed to establish a Sherman Act violation or that the case is moot; (2) grant the motion of defendant ICI for a partial judgment under Rule 12(c); (3) deny the motion of the United States for leave to amend the complaint; (4) sustain Glaxo's objection to the ruling of the Pretrial Examiner dated November 25, 1968, and overrule the Government's objections to the rulings of the Pretrial Examiner dated November 6 and 15, 1968.

The following background is noted from the complaint and memoranda. It is not found as fact.

I. BACKGROUND

Defendants Glaxo Group Limited (hereinafter "Glaxo") and Imperial Chemical Industries Limited (hereinafter "ICI") are British corporations³ which own United States patents.⁴

Bulk form griseofulvin is an antibiotic, antifungal agent which may be cut with inert ingredients and administered orally for the treatment of external fungus infections. The Glaxo and ICI patents purport to relate to this dosage form. Griseofulvin is not the subject of a United States patent in its common, bulk form.

A. COMPLAINT

The Government first asserts that a Glaxo-ICI patent interchange⁵ is an illegal combination (horizontal) to pool patents and to license them in a manner which unreasonably restrains trade in griseofulvin in violation of section one of the Sherman Act. It then alleges that pursuant to this combination, Glaxo entered into license agreements with Johnson and Johnson, Inc. (hereinafter "Johnson") and Schering, Inc. (hereinafter "Schering"), and ICI with American Home Products Corp. (hereinafter "AMHO"), under which Glaxo and ICI agreed to sell bulk griseofulvin to the licensees and the licensees were authorized to make, sell and use griseofulvin in dosage form. Each agreement provided that the licensee would not resell griseofulvin in bulk form to any independent third party without the licensor's express written consent. Additionally, the Government alleges that the ICI patent is invalid under 35 U.S.C. §§ 100, 101 and 112.

The Government asserts that the effects of the alleged combinations and agreements are: "to prevent competition between the defendants and the licensees in the sale of griseofulvin in bulk form; to prevent competition among the licensees in the sale of griseofulvin in bulk form; to guarantee each licensee freedom from competition from others resulting from the sale of bulk form griseofulvin by licensees to such others; to control and restrain the licensees in respect to the manner in which, and the persons through whom, they market griseofulvin; to prevent access by third persons to sources of griseofulvin in bulk form; to prevent third persons from packaging bulk form griseofulvin into dosage form and selling it for use by consumers; to place restrictions on, or to subject to conditions, the resale of griseofulvin which the licensees purchase from defendants; to deprive the public, and particular consumers of drugs, of the benefits of free and open competition in griseofulvin."⁶

B. SERVICE OF PROCESS

Neither Glaxo nor ICI is alleged to have transacted any business in the United States. Service of process was attempted on both by mailing copies of the complaint to their respective home offices in London, England, pursuant to 35 U.S.C. § 293 and Federal Rule 4 (i). Glaxo's motion to quash this service was denied by the Chief Judge of this Court on April 30, 1968; and, accordingly, the matters presently before the Court were heard on the several motions of plaintiff and both defendants.⁷

C. MOTIONS

Those motions include: plaintiff's motion for summary judgment against ICI on a restraint on alienation theory; ICI's motion for partial summary judgment on the grounds of mootness and failure to establish a violation of the Sherman Act; ICI's motion for judgment under Rule 12(c); plaintiff's motion for leave to amend the complaint; Glaxo's objection to the ruling of the Pretrial Examiner dated November 25, 1968; plaintiff's objection to the ruling of the Pretrial Examiner of November 6, 1968; and, plaintiff's objection to the Pretrial Examiner's ruling dated November 15, 1968. Plaintiff's motion for a partial summary judgment that ICI's patent is invalid has been postponed by stipulation pending the Court's decision on the above-described motions. For purposes of oral argument, and by the agreement of all parties, these motions were divided into and argued as four "packages."

II. RESTRAINT ON ALIENATION PACKAGE

The United States has moved for a partial summary judgment declaring the ICI-AMHO bulk sale restriction to be a per se violation of the Sherman Act under the Schwinn doctrine.⁸ ICI has cross moved for a summary judgment that the Government has failed to establish a Sherman Act violation. The following are undisputed facts for purposes of this motion.⁹

A. UNDISPUTED PRIMARY FACTS

1. Glaxo is a British corporation organized and existing under the laws of Great Britain. Its principal place of business is London, England. Glaxo owns four United States patents.¹⁰ (Complaint, ¶¶ 1, 3; Cross Motion of ICI for Summary Judgment 11/14/68 hereinafter ICI Cross Motion).

2. ICI is a British corporation organized and existing under the laws of Great Britain. Its principal place of business is London, England. ICI owns a United States patent.¹¹ (Complaint, ¶¶ 1, 3; ICI Cross Motion).

3. Bulk form griseofulvin is an antibiotic compound which may be cut with inert ingredients and administered orally in the form of capsules or tablets to humans or animals for the treatment of external fungus infections. There is no substitute for dosage form griseofulvin in combatting certain infections. The Glaxo and ICI patents purport to relate to this dosage form. Common, bulk form griseofulvin is not the subject of any United States patent. (Complaint, ¶¶ 11, 12; ICI answer to U. S. interrogatory ##1, 36, ICI Cross Motion).

4. On September 12, 1958, ICI and AMHO executed a contract constituting AMHO an exclusive distributor of ICI pharmaceutical products in the United States. (Appendix to ICI Memo, 11/12/68).

5. On April 26, 1960, Glaxo and ICI entered into an agreement which provided inter alia:

(a) ICI would purchase supplies of bulk form griseofulvin from Glaxo;

(b) "ICI undertakes not to sell and to use its best endeavours to prevent its Subsidiaries and Associate from selling any griseofulvin in bulk to any Independent Third Party without GLAXO's express consent in writing;"

(c) ICI acquired the right to manufacture bulk form griseofulvin in the United Kingdom under Glaxo's United Kingdom patents;

(d) ICI was entitled to sell bulk form griseofulvin and preparations containing it in the United States;

(e) ICI was authorized to sublicense under Glaxo's United States griseofulvin patents;

(f) Glaxo was authorized to manufacture dosage form griseofulvin in the United Kingdom and to sub-license Johnson and Schering in the United States to make, use and sell griseofulvin preparations. (Government Exhibit #3).

6. On October 4, 1962, ICI entered into an agreement with AMHO. That agreement provided inter alia:

(a) ICI agreed to sell bulk form griseofulvin to AMHO;

(b) The sale purported to be subject to the conditions of the Glaxo-ICI agreement of 1960;

(c) In regard to bulk sales the agreement stated: "You AMHO will not, without first obtaining our ICI's consent, resell, or re-deliver in bulk supplies of griseofulvin;"

(d) AMHO was authorized to process the bulk form griseofulvin into tablets or capsules — its dosage form — and to sell it in that dosage form. (Government Exhibit #4).

7. There is a provision, identical to the above-quoted bulk sale provision (#6(c), supra) in each of eight other agreements between ICI and AMHO. (ICI answer to U. S. interrogatory #49).

8. Since 1962 and up until the filing of the complaint, ICI has sold griseofulvin in bulk form to AMHO in amounts exceeding $200,000. (See #10, infra).

9. ICI licensed AMHO under ICI's dosage patent to process bulk griseofulvin into pills. (Government Exhibit 4, ¶ 10).

10. Since 1962 and up until the filing of the complaint, AMHO has sold griseofulvin in dosage form only to third parties in amounts exceeding $200,000. (Wallace affidavit of 11/14/68 and sources cited therein; ICI answer to U. S. interrogatory ##40, 42).

11. AMHO has declined to sell bulk form griseofulvin to third parties without first receiving ICI's permission. (Interrogatories 67 and 74, and answers, and see #10, supra).

12. In September, 1967, T. W. M. Bland, of ICI, received a letter from an official at AMHO, Maurice E. Silverstein, indicating that the United States Department of Justice was investigating the bulk sale agreement. (ICI answer to U. S. interrogatory #53; Bland affidavit, 11/6/...