# Appendix — Abbott Laboratories v. Portland Retail Druggists Assn., Inc.

> Briefs, arguments, decisions, and more.

URL: https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385003_0326%3A02

## Record

- **Collection:** Supreme Court brief
- **Document type:** Appendix
- **Published:** January 1, 1976
- **Citation:** 425 U.S. 1

## Text

| Supreme Court, U. $
FILED

OCT 1 1975

APPENDIX |
OO ee®, CLERK

In the Supreme Cowt

of the Anited States

OcTOBER TERM, 1975
No. 74-1274

ABBOTT LABORATORIES, et al.,
Petitioners,
v.

PORTLAND RETAIL DRUGGISTS
ASSOCIATION, INC., etc.,
Respondent.

TT

ON WRIT OF CERTIORARI TO THE UNITED STATES
COURT OF APPEALS FOR THE NINTH CIRCUIT

PETITION FOR CERTIORARI FILED APRIL 10, 1975
CERTIORARI GRANTED JUNE 23, 1975

STEVENS. NESS LAW PUB. CO., PORTLAND, ORE.

Iu the Supreme Court

of the United States

— A

OCTOBER TERM, 1975
No. 74-1274

ABBOTT LABORATORIES, et al.,

Petitioners,
v.
PORTLAND RETAIL DRUGGISTS
ASSOCIATION, INC., ete.,
Respondent.
On Writ of Certiorari to the United States Court
of Appeals for the Ninth Circuit
INDEX
“Relevant Docket Entries l
Supplemental Order 15
*“Amended Complaint | 16
Plaintiff’s Certificate and Statement 29
Exhibit D 36
Exhibit G 39
Exhibit A to Plaintiff’s Supplement to Certifi-
cate and Statement 42
“Affirmative Defenses in Defendants’ Answers
Based on 15 U.S.C. § 13¢ 49

* Starred items are those designated by petitioners. The bal-
ance were designated by respondent.

INDEX (Cont.)

Order of October 30,.1972 58
Plaintiff’s Second Suppenentes Certificate as

Statement _.___ 58
Plaintiff’s Motion re Limited Discovery ont Brief

in Support of Motion he .. 59
Affidavit of Raymond L. Montee re Hospital

Drug Purchases ; 61
Plaintiff’s Notice, Under Protest, re eel

Cause of Action “Discovery” - _ 65
*Motion for Summary J yume on Seed Chen

of Action 68

Plaintiff’s Rule 56 Affidavit i in Opposition t to o De-
fendants’ Motion for Summary ae on
the Second Cause of Action __. _ 69

Exhibit A | — 138

Rule 56 Affidavit of Logan Wien ‘Fentiet
of Plaintiff, in Opposition to Defendants’ Mo-
tion for Partial ummary rns on the
Second Cause of Action —.. 143

Rule 56 Affidavit of Howard Steinbach i in pay
sition to Defendants’ Motion for Summary
Judgment on the Second Cause of Action 146

Plaintiff’s Rule 56 Affidavit re Audit Documents
of Alleged “Nonprofit” Hospitals tical

Plaintiff’s Objection to “Use” or “Destination”
Testimony re Defendants’ Motion for Sum-
mary Judgment on Second Cause of Action,
and Brief in Support of Objection enna

Exhibit C ian EPS Cee ES oS NEI ee 207

Rule 56 Affidavit of Senden E. Hartman in Op-
sition to Defendants’ Motion for Summary
udgment on the Second Cause of Action _..212

iii
INDEX (Cont.)

Plaintiff’s Rule 56 Affidavit of Raymond L. Mon-
tee re “Charitable” Nature of Bess Kaiser
Hospital, Portland, Ore. . 229

Plaintiff’s Brief in Opposition to Defendants’
Motion for Summary Judgment on the Second
Cause of Action 231

Exhibit A 240

Second Rule 56 Affidavit of Stanley Hartman in
Opposition to Defendants’ Motion for Sum-
mary Judgment on the Second Cause of Ac-
tion, re Preferential Drug Prices of Listed

Defendants acataatindthh 253
Order of May 4, 1973 “ 261
Affidavit of any Hartman filed wand 18,

ee Wadena, "263

Third Rule 56 Affidavit of 1 etned Steinbach in
Opposition to Defendants’ Motion for Sum-

mary eae on the Second Cause of Ac-
tion 266

Fourth Rule 56 Affidavit of Stanley Hartman in
Opposition to Defendants’ Motion for Sum-
my Judgment on Plaintiff’s Second Cause

ction, re ts Price Overchar .s by
Bess Kaiser Hospital, an Alleged “Non ..ofit”
Hospital _._. 268

Plaintiff’s Objection to Hospital Witness “Esti-
mates” of “Walk-in” Drug Sales to Members
of Public, and Brief in Support of Objection 273

*Oral Opinion of the District Court, wand 25,
1973 | 278

*Order and Partial eseeey Suhenen 290

Affidavit of Henry Kane re William H. Rorer,
Inc. “In-Hospital Use Only” Drug Container
and Notice of De = of Said xhibit with
the Clerk of the scetlcieliliariaadiip 293

iv
INDEX (Cont.)
Patricia Neuberger Affidavit re Emanuel Hos-

pital Drug Prescription 296
Stanley Hartman Affidavit re Diversion of
Drug 298

Fifth Rule 56 Affidavit of Stanley Hartman in
Opposition to Defendants’ Motion for Sum-
mary Judgment on the Second Cause of Ac-
tion, re Evidence of Drug Sales to Non-Hos-
pitalized Purchasers, and Notice of Deposit
of Prescription Drug Containers Exhibit with

Clerk of the Court 300
“Opinion of the Court of Appeals for the Ninth

Circuit 305
“Order Denying Rehearing 316

“Order Granting Petition for Writ of Certiorari 318

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF OREGON

Civ. No. 71-543

PORTLAND RETAIL DRUGGISTS
ASSOCIATION, INC., an Oregon non-profit
corporation, on behalf of its assignors and al! others
similarly situated in the State of Oregon,

Plaintiff,

Vv.

ABBOTT LABORATORIES, an Illinois corporation;
AMERICAN HOME PRODUCTS
CORPORATION, a Delaware corporation ;
BRISTOL-MYERS COMPANY, a Delaware
corporation; CARTER-WALLACE, INC., a
Delaware corporation; ELI LILLY AND
COMPANY, an Indiana co ration; ENDO
LABORATORIES, INC., a Delaware corporation:
ORTHO PHARMACEUTICAL CORPORATION.
a New Jersey corporation; SQUIBB CORPORATION .
a Delaware corporation; E. R. SQUIBB & SONS,
INC., a Delaware corporation; A. H. ROBINS
COMPANY, INC., a Virginia co ration;
WILLIAM H. RORER, INC., a Pennsylvania
corporation; and WARNER-LAMBER
PHARMACEUTICAL COMPANY,
a Delaware corporation,

Defendants.

RELEVANT DOCKET ENTRIES

August 6, 1971 Filed ciass action complaint for
damages and injunctive relief
under the antitrust laws; jury
trial requested.

August 6, 1971

August 9, 1971
October 28, 1971

November 22, 1971

November 23, 1971

December 22, 1971
December 22, 1971

January 10, 1972

January 12, 1972

January 28, 1972

February 18, 1972

2

Filed plaintiff’s interrogatories
to defendants (first set).

Issued summons to marshal.

Filed return of service of sum-
mons on all defendants.

Filed amended complaint for
damages and injunctive relief
under the antitrust laws; jury
trial requested.

Filed plaintiff's amended inter-
rogatories to defendants (first
set).

Filed request for admissions.

Filed defendants’ motions (1)
to dismiss third and fourth
causes of action; (2) to limit
discovery and for summary
judgment as to the second cause
of action; (3) to limit discovery
and for summary judgment as
to the fifth cause of action.

Filed notice of deposition of
Warren Kobelin.

Filed motion to defer deposition
of Warren Kobelin with memo-
randum in support of motion at-
tached.

Filed plaintiff's certificate and
statement.

Filed plaintiff’s supplement to
certificate and statement.

3

September 11, 1972 Filed plaintiff’s brief in support

September 13, 1972

October 3, 1972

October 4, 1972

October 4, 1972

October 4, 1972

October 4, 1972

October 4, 1972

October 5, 1972

October 5, 1972

October 5, 1972

of plaintiff’s certificates and
statements.

Filed plaintiff’s designation of
hospital pharmacies.
Filed affidavit of Stanley Hart-

man re Emanuel Hospital drug
distribution.

Filed answer of defendant Endo
Laboratories, Inc. to amended
complaint.

Filed answer of defendant
American Home Products Cor-
poration to amended complaint.

Filed answer of defendant E. R.
Squibb & Sons, Inc. to amended
complaint.

Filed answer of defendant
Squibb Corporation to amended
complaint.

Filed answer of defendant Eli
Lilly and Company to amended
complaint.

Filed answer of defendant Bris-
tol-Myers Company to amended
complaint.

Filed answer of defendant A. H.
Robins Co., Inc. to plaintiff’s
amended complaint.

Filed answer of defendant Ab-
bott Laboratories.

October 5, 1972

October 5, 1972

October 5, 1972

October 5, 1972

October 5, 1972

October 6, 1972

October 26, 1972

October 30, 1972

November 13, 1972

November 16, 1972

4

Filed answer of defendant Wil-
liam H. Rorer, Inc. to amended

complaint.
Filed answer of Carter-Wallace,
Inc. to amended complaint.

Filed answer of Warner-Lam-
bert Company to amended com-
plaint.

Filed answer of Ortho Pharma-
ceutical Co. to amended com-
plaint.

Record of hearing on question
of further discovery re second
cause of action.

Filed plaintiff's motion to pro-
hibit destruction of documents
and brief in support.

Filed plaintiff’s motion for leave
to file and serve Rule 34 request
for documents and brief and af-
fidavit in support of motion.

Filed order that plaintiff’s mo-
tion to prohibit destruction of
documents by defendants is de-
nied.

Filed plaintiff’s notice of filing
of sealed exhibits.

Filed plaintiff’s exhibits—certi-
fied copies of judgment granting
preemptory writ of mandamus
and findings of fact and conclu-
sions of law, A. H. Robins Com-

November 27, 1972

November 27, 1972

November 27, 1972

December 4, 1972

December 29, 1972

January 2, 1973

February 5, 1973

February 5, 1973

5

pany, Inc. v. Human Relations
Agency of the State of Califor-
nia.

Filed consent order that plain-
tiff’s assignors and defendants
shall exercise good faith and
their best efforts to preserve
certain described documents.

Filed affidavit of Henry Kane
re Kaiser Hospital, an alleged
“non-profit hospital.”

Hearing on motion for leave to
file and serve Rule 34 request

for documents; order denying
motion.

Filed plaintiff’s second supple-
mental certificate and state-
ment.

Filed plaintiff’s motion for dis-

covery and brief in support of
motion.

Filed affidavit of Logan Wal-
lace re refilling of private doc-
tor’s office prescription by
Emanuel Hospital pharmacy.

Filed affidavit of Raymond L.
Montee re hospital drug pur-
chases.

Filed plaintiff's motion re lim-
ited discovery and brief in sup-
port of motion.

February 8, 1973

February 8, 1973

February 15, 1973

February 26, 1973

February 27, 1973

February 27, 1973

March 12, 1973

6

Filed plaintiff’s motion for sec-
ond cause of action discovery
and brief in support of motion.

Filed affidavit of Logan Wal-
lace re refilling of private doc-
tor’s office prescription by Port-
land Adventist Hospital.

Filed plaintiff’s motion for or-
der requiring answers to inter-
rogatories or in the alternative
for an order striking defendants’
pleadings and for default, and
memorandum.

Filed Eileen Cummins affidavit
re Retail Clerks Union, Local
1092, prescription drug pur-
chases from Kaiser Hospital and
related clinic pharmacies and
Willamette Community Hospital.

Filed plaintiff's excerpts from
defendant A. H. Robins Com-
pany, Inc. testimony re drug
price and practice discrimina-
tion against community phar-
macies.

Filed motion and brief in sup-
port of motion re taking deposi-
tions of officers, employees, etc.
of defendants concerning drug
distribution practices.

Filed plaintiff's notice under
protest re second cause of action
“discovery.”

March 12, 1973

March 12, 1973

March 13, 1973

March 13, 1973

March 20, 1973

March 20, 1973

March 21, 1973

7

Filed defendants’ motion for

summary judgment on second
cause of action.

Filed defendants’ memorandum
of points and authorities in sup-
port of motion for summary
judgment on plaintiff’s second
cause of action.

Filed Rule 56 affidavit of
Henry Kane disputing accuracy
of charts defendants submitted
to court.

Filed exhibit to defendants’
memorandum of points and au-
thorities in support of motion
for summary judgment on
plaintiff’s second cause of ac-
tion.

Filed plaintiff’s Rule 56 affi-
davit in opposition to defend-
ants’ motion for summary judg-
ment on the second cause of ac-
tion.

Filed plaintiff’s memorandum re
plaintiff’s Rule 56 affidavit in
opposition to defendants’ motion

for summary judgment on the
second cause of action.

Filed Rule 56 affidavit of Roger
Tilbury in opposition to defend-
ants’ motion for summary judg-

ment on the second cause of ac-
tion.

March 21, 1973

March 22, 1973

March 22, 1973

March 22, 1973

March 28, 1973

April 3, 1973

April 6, 1973

8

Filed exhibit to defendants’ mo-
tion for summary judgment on
second cause of action.

Filed defendant A. H. Robins
Company, Inc. documents per-
taining to second cause of ac-
tion.

Filed plaintiff’s Rule 56 affi-
davit disputing accuracy of ex-
hibit to defendants’ motion for

summary judgment on the sec-
ond cause of action.

Filed Rule 56 affidavit of Lo-
gan Wallace, president of plain-
tiff, in opposition to defendants
motion for partial summary
judgment on the second cause of
action.

Filed Rule 56 affidavit of How-
ard Steinbach in opposition to
defendants’ motion for summary
judgment on the second cause of

action.

Filed plaintiff’s Rule 56 affi-
davit re audit documents of al-
leged “nonprofit” hospitals.

Filed plaintiff’s objection to use
or destination testimony re de-
fendants’ motion for summary
judgment on second cause of ac-
tion and brief in support of ob-
jection.

April 6, 1973

April 10, 1973

April 10, 1973

April 10, 1973

April 10, 1973

Apri! 10, 1973

Filed defendants’ motion to
strike plaintiff’s Rule 56 affi-
davits in opposition to defend-
ants’ motion for summary judg-
ment on the second cause of ac-
tion.

Filed Rule 56 affidavit of Stan-
ley E. Hartman in opposition to
defendants’ motion for sum-
mary judgment on the second
cause of action.

Filed plaintiff’s brief in oppo-
sition to defendants’ motion to
strike plaintiff’s Rule 56 affi-
davit in opposition to defend-
ants’ motion for summary judg-
ment on the second cause of ac-
tion.

Filed Rule 56 affidavit of
Henry Kane re “personal knowl-

edge” of matters in prior Rule
56 affidavits.

Filed second Rule 56 affidavit
of Logan Wallace, president of
plaintiff, in opposition to de-
fendants’ motion for summary
judgment on the second cause of
action.

Filed second Rule 56 affidavit
of Howard Steinbach in opposi-
tion to defendants’ motion for

summary judgment on the sec-
ond cause of action.

April 16, 1973

April 16, 1973

April 18, 1973

April 23, 1973

April 24, 1973

April 25, 1973

May 18, 1973

10

Filed plaintiff’s brief in opposi-
tion to defendants’ motion for
summary judgment on the sec-
ond cause of action.

Filed plaintiff's Rule 56 affi-
davit of Raymond L. Montee re
“charitable” nature of Bess Kai-
ser Hospital, Portland, Oregon.

Filed transcript of proceedings,
dated January 8, 1973.

Filed second Rule 56 affidavit
of Stanley Hartman in opposi-
tion to defendants’ motion for
summary judgment on the sec-
ond cause of action, re preferen-
tial drug prices of listed defend-
ants.

Filed affidavit of Henry Kane
re Bess Kaiser Hospital, an al-
leged “nonprofit” hospital.

Filed Rule 56 affidavit of Henry
Kane in opposition to defend-
ants’ motion for summary judg-
ment on second cause of action,
re drug sales to public and
others by 14 alleged “nonprofit”
hospitals.

Filed third Rule 56 affidavit of
Stanley Hartman in opposition
to defendants’ motion for sum-
mary judgment on the second
cause of action, re evidence of
drug sales to non-hospitalized

May 18, 1973

May 18, 1973

May 22, 1973

May 23, 1973

May 23, 1973

May 24, 1973

May 25, 1973

11

purchasers, and notice of deposi
: eposit
of prescription drug containers
exhibit with clerk of the court.

Filed prescription dru i
g contain-
ers exhibit identified in abov
affidavit. . :
Filed defendants’ reply memo-

randum in support of moti
; on f
summary judgment. 7

Filed third Rule 56 affidavi
avit of

Howard Steinbach in opposition

to defendants’ motion for sum-

mary judgment on the
cause of action. —

Filed plaintiff’s objection to
hospital witness “estimates” of
walk-in” drug sales to mem-
bers of public, and brief in sup-
port of objection.

Filed fourth Rule 56 affidavit of
Stanley Hartman in opposition
to defendants’ motion for sum-
mary judgment on plaintiff's
second cause of action, re drug
ing ar apr by Bess Kai-
ser Hospital, an 5

profit” hospital —

Filed plaintiff's second brief in
opposition to defendants’ motion

for summary jud
gment on th
second cause of action. 4

Hearing on defendants’ motion
for summary judgment; order

June 5, 1973

June 8, 1973

June 11, 1973

June 22, 1973

12

admitting all physical exhibits
tendered with affidavits; order
granting defendants’ motion for
summary judgment on second
cause of action; plaintiff’s ob-
jections to summary judgment
denied; defendants’ motion to
strike certain affidavits—order
granting and denying in part.
Order denying plaintiff’s mo-
tions for additional discovery
previously filed.

Filed plaintiff’s motion for re-
consideration, brief in support
of motion, and Rule 56 affidavit
of Stanley Hartman in support
of motion.

Filed defendants’ response to
plaintiff’s motion for discovery.

Filed plaintiff’s reply brief in
support of motion for order per-
mitting commencement of dis-
covery.

Filed order and partial sum-
mary judgment: (1) third and
fourth causes of action of
amended complaint are dis-
missed for failure to state claims
upon which relief can be grant-
ed; (2) summary judgment is
hereby entered in favor of de-
fendants on the second cause of
action of amended complaint;
(3) court is of opinion that this

June 22, 1973

June 27, 1978
June 27, 1973

June 27, 1973

July 2, 1973

July 23, 1973

13

order involves controlling ques-
tions of law as to which there
is substantial ground for differ-
ence of opinion and that an im-
mediate appeal from this order
may materially advance the ul-
timate termination of the litiga-
tion.

Filed order re stipulation as to
certain evidence, affidavits, ete.
accepted for purposes of consid-
eration of defendants’ motion
for summary judgment.

Filed transcript of proceedings
dated October 24, 1972.

Filed transcript of proceedings
dated October 5, 1972.

Filed transcript of proceedings
dated September 11, 1972; Oc-
tober 5, 1972; October 11, 1972;
October 24, 1972; November 27,
1972; and February 5, 1973.

Plaintiff's application for per-
mission to appeal pursuant to 28
U.S.C. § 1292(b) received by
Court of Appeals.

Order entered granting plaintiff
permisison to take interlocutory
appeal from the order of district
court granting summary judg-
ment on second cause of action.

July 31, 1973

August 3, 1973
August 9, 1973
September 10, 1973
October 2, 1973
October 4, 1973
October 4, 1973
October 9, 1973
December 26, 1974
March 11, 1975

June 23, 1975

14

Filed affidavit of Henry Kane
re William H. Rorer, Inc. “In-
Hospital Use Only” drug con-
tainer and notice of deposit of
said exhibit with court clerk.

Plaintiff’s designation of record
filed.

Defendants’ cross-designation of
record filed.

Plaintiff’s supplemental desig-
nation of record filed.

Excerpt of October 5, 1972 pro-
ceedings filed.

Excerpt of May 25, 1972 pro-
ceedings filed.

Filed transcript of proceedings
dated May 25, 1973.

Record on appeal filed.

Opinion and judgment of the
Court of Appeals for the Ninth
Circuit.

Order entered denying petition
for rehearing.

Order entered granting writ of
certiorari.

15
[R. 49]
United States District Court for the District of Oregon
SUPPLEMENTAL ORDER
(Filed September 29, 1971; caption
omitted in printing)

This order supplements the order dated September
24, 1971. After reviewing the transcript of the pro-

ceedings, I find that the September 24th order does
not include two items.

IT IS ORDERED:

1. Until the court has determined that this case
may proceed as a class action, answers to plaintiff's
first set of interrogatories are deferred except those

interrogatories which are directed to the class action
issue.

2. The defendants will not be required to file an
answer to the complaint until November 15, 1971.

Dated this 29th day of September, 1971.
(Subscription omitted in printing)

16
[R. 52]
United States District Court for the District of Oregon

AMENDED COMPLAINT FOR DAMAGES AND INJUNCTIVE
RELIEF UNDER THE ANTITRUST LAWS;
JURY TRIAL REQUESTED

(Filed November 21, 1971; caption
omitted in printing)

FIRST CAUSE OF ACTION

Plaintiff files this amended complaint on behalf of
its assignors and, requesting trial by jury, alleges as
follows:

JURISDICTION AND VENUE

1. Jurisdiction and venue are founded upon the
Clayton Act (38 Stat. 730, Oct. 15, 1914, Ch. 323, Title
15 U.S.C. § 13 et seq.) as amended by the Robinson-
Patman Act (June 19, 1936, Ch. 592, 49 Stat. 1526)
and other amendments, and upon the Sherman Act
(July 2, 1890,

[R. 53]

Ch 647, 26 Stat. 209), 15 U.S. C. § 1 et seq., and sub-
sequent amendments, and on 15 U.S.C. §§ 1, 2, 8, 9,
13, 15, 22 and 26, and related sections.

2. Venue is founded on 15 U.S.C. §§ 15 and 22,
and 28 U.S.C. § 1391. Plaintiff and its assignors are
residents of the State of Oregon. Defendants, and each

17

of them, are now and at all times herein mentioned
have been transacting business and are found within
this District.

3. “Plaintiff’s assignors” are present and former
owners of community pharmacies who have assigned
to the plaintiff, for a valuable consideration, their
causes of action under the antitrust laws, Plaintiff’s

assignors are set forth in Exhibit “A” to this com-
plaint.

PLAINTIFF

4. Plaintiff is, and at all times herein mentioned
has been, a non-profit corporation incorporated and
in good standing under the laws of the State of Ore-
gon, with its offices in Portland, Oregon. Plaintiff is
composed of members who own and operate com-
munity pharmacies in the State of Oregon. One of its
purposes is to secure and preserve equitable trade
conditions for the practice of pharmacy and the bene-
fit of its members and the public.

DEFENDANTS

5. Defendant Abbott Laboratories is an Illinois
corporation with its principal office in North Chicago,
Illinois, and transacts business in Oregon.

It is also a leading prescription drug producer
which manufactures primarily hospital and pediatric,
diagnostics, laboratory and hospital equipment, animal
health, agricultural and chemical products. Some of

18

its better known products are Erythromycin antibi-
otic, Compocillin antibiotic, Nembutal, Placidyl seda-
tive, vitamins, anoretics, cardiovascular agents, Sim-
ilac (an infant formula), Murine eye care, golf balls
and Sucary]l. Its sales

[R. 54]

exceeded $450 million in 1970.

6. Defendant American Home Products Corpora-
tion, a Delaware corporation with its principal office
in New York City, is admitted to do business in Ore-
gon, and transacts business in Oregon. Wyeth Lab-
oratories, a division of American Home Products Cor-
poration, transacts business in Oregon. It is a diversi-
fied producer of prescription drugs, goods and house-
hold products. Its sales during 1970 exceeded $1 bil-
lion. Some of its better known products are Ovral (an
oral contraceptive), Equanil (a tranquilizer), Phen-
ergan (anti-histamine), Premarin (estrogen), Omni-
pen (ampicillin), Atromid-S ( anti-cholesterol), Ana-
cin, Preparation H, Dristan, Kolynos (toothpaste) ,
BiSoDol, Infrarub, Dondril (cold tablets), Griffin
shoe polishes, Wizard (deodorizers), 3-in-1 Oil, Aero
Shave, Aerosol Sani-Flush, Black Flag (insecticide) ,
Easy-Off oven cleaner, Woolite soap, Chef Boy-Ar-
Dee (food specialties), Frankly Dry Toasted Nuts,
Jiffy Pop Popeorn, Dennison’s Hot Chili, Teflon
coated pots and pans, and E. J. Brach (candies).

7. Defendant Bristol-Myers Company is a Dela-

19

ware corporation with its principal office in New
York City, and transacts business in Oregon. Bristol
Laboratories, a division of Bristol-Myers Company,
transacts business in Oregon. It is a leading domestic
producer of toiletries and prescription and propri-
etary drugs, household goods and nutritional formu-
lations. Key preducts include Bufferin, Excedrin, Vi-
talis, Ban, Vote, Sal Hepatica, Clairol, Windex, Drano,
Endust and Metrecal. Its net sales exceeded $980 mil-
lion during 1970.

8. Defendant Carter-Wallace, Inc., a Delaware cor-
poration with its principal office in New York City,
transacts business in Oregon. It is engaged in making
consumer products and prescription drugs. Its net
sales exceeded $125 million in 1969. Some of its prod-
ucts are Arrid, Nair, Carter’s Pills laxative, Miltown
(meprobamate), Rondomycin, Frenchette (salad
dressing) and pet food.

[R. 55]

9. Defendant Eli Lilly and Company, an Indiana
corporation with its principal office in Indianapolis,
Indiana, is admitted to do business in Oregon, main-
tains an office in Portland, Oregon, and transacts bus-
iness in Oregon. It is one of the leading producers of
pharmaceuticals with about 800 medicinal products
for use and approximately 200 other items. Its net
sales exceeded $590 million in 1970, and it has a net
working capital in excess of $150 million, making it
the largest U. S. ethical drug company with about

20

10% of the industry’s volume. Its product line in-
cludes agricultural chemicals, analgesics, animal
health products, animal nutrients and growth stimu-
lants, antiviotics, anti-depressants, anti - diabetic
agents, biologicals, bulk antibiotics, bulk chemicals,
empty gelatin capsules, hematinics, hormones, lawn
and garden products, sedatives, veterinary products,
vitamins and beauty products (the last through its
subsidiary, Elizabeth Arden Sales Corporation). Lilly
owns 13 plants and facilities in the United States and
Puerto Rico, maintains warehouse space in eight
cities, and sales offices in 43 cities in the U. S. and
Puerto Rico. In addition, its subsidiaries and affiliates
own or lease plants and facilities in 23 foreign coun-
tries. It also owns a stockyard in Indianapolis and
produces injection-molded plastic containers.

10. Defendant Endo Laboratories, Inc., a Dela-
ware corporation with its principal office in Garden
City, New York, transacts business in Oregon and is
a subsidiary of E. I. DuPont de Nemours and Co., Inc.,
a Delaware corporation admitted to do business in
Oregon, and transacts business in Oregon. DuPont de
Nemours & Co. is the world’s largest chemical com-
pany. It is engaged in manufacturing a vast array of
products including those related to textiles, rubber,
plastics, chemicals and allied products, transporta-
tion, petroleum refining, machinery, electrical, paper,
printing, agriculture, metals and metal fabricating,
construction,

21
[R. 56]

sporting goods, explosives, film, industrial and bio-
chemicals, pigments and many other products. It em-
ploys more than 100,000 persons and had net sales in
1970 exceeding $3 billion. Until recently DuPont was

also the largest single stockholder in General Motors
Corp.

11. Defendant Ortho Pharmaceutical Corporation,
a New Jersey corporation with its principal office in
New Brunswick, New Jersey, is a division of Johnson
& Johnson, and transacts business in Oregon. Johnson
& Johnson is a major producer of health care products.
Its products include surgical dressings and consum-
able hospital products, drugs, textiles, industrial tapes,
ligatures and sutures, surgical instruments, toi-
letries and hygenic products, baby care items, contra-
ceptives, veterinary products, industrial tapes, paper
products, sanitary napkins, Micrin mouthwash, dis-
posable diapers, sedatives, muscle relaxants, anti-
fungal drugs, sedatives, birth control pills, vaccines,
needles and veterinary products. It maintains 61
manufacturing plants in 33 countries. Its net sales in
1970 exceeded $1 billion.

12. Defendant Squibb Corporation, a Delaware
corporation with its principal office in New York
City, transacts business in Oregon. Defendant was
formed by the 1968 merger of Beech-Nut Life Savers
and E. R. Squibb & Sons, Inc. Its operations encom-
pass prescription drugs, food and confectionary items
(through Beech-Nut and Dobbs House), cosmetics

22

(through La:.vin-Charles of the Ritz), surgical in-
struments (through Edward Weck & Co.), confec-
tions, and household products. Its net sales exceeded
$700 million in 1970.

13. Defendant E. R. Squibb & Sons, Inc., a Dela-
ware corporation with its principal office in New
York City, transacts business in Oregon and is a sub-
sidiary of defendant Squibb Corporation.

14. Defendant A. H. Robins Company, Inc., a Vir-
ginia corporation with its principal office in Rich-
mond, Virginia, transacts business in Oregon. It is
engaged in the manufacture and/or sale of

[R. 57]

pharmaceutical specialties, pet care products, cough
and cold preparations, snack foods, French perfumes,
lip balms, hand creams, potato chips, crackers, cookies,
packaged nu.s, tranquilizers, anti-rheumatics, and also
operates pet departments. It net sales in 1970 were in
excess of $130 million.

15. Defendant William H. Rorer, Inc., a Pennsyl-
vania corporation with its principal office in Fort
Washington, Pa., transacts business in Oregon. De-
fendant is a subsidiary of Rorer-Amchem, Inc., a
Pennsylvania corporation. It deals primarily in phar-
maceutical and agricultrual chemicals. Its most im-
portant products are Maalox, an antacid, and Aniban,
a herbicide used largely in the growth of soy beans.
It also makes surgical products, metalworking chem-

23

icals, plant growth regulators, preparations for skin
disorders, sleep inducing drugs, weed killers, coatings
for aluminum, copper and steel, and adhesive and

sealing compounds. Its sales exceeded $130 million in
1970.

16. Defendant Warner-Lambert Pharmaceutical
Company, a Delaware corporation with its principal
office in Morris Plains, New Jersey, transacts busi-
ness in Oregon. Warner-Chilcott Laboratories, a di-
vision of Warner-Lambert Pharmaceutical Company,
transacts business in Oregon. It acquired (through
merger), Parke, Davis & Co., an important drug pro-
ducer, in 1970, as well as portions of Eversharp. It is
an important factor in the production of drugs, chew-
ing gum, opthalmie and optical products, shaving
products and medical-scientific instruments. It manu-
factures Bromo-Seltzer, Anahist, Efferdent, Lister-
ine, Pristeen, Schick, Dentyne, Chiclets, Clorets, Tri-
dents, Certs, Rolaids, Smith Brothers Cough Drops,
Richard Hudnut and DuBarry (cosmetics), Lactona
(dental products), chemicals and many others. Its
net sales in 1970 exceeded $1.2 billion.

[R. 58]

TRADE AND COMMERCE

17. The drug industry is a large and expanding
one. The value of shipments by pharmaceutical manu-
facturers in the United States rose from about $900
million in 1947 to $4.7 billion in, 1968, and to approx-

24

imately $7 billion in 1970. Defendants are among the
largest manufacturers of drug products in the United
States.

18. Defendants’ operations have for some years
involved the constant transmittal across state lines
and in interstate commerce into Oregon of drugs and
of advertisements, inducements, communications and
other business transactions. Defendants and plaintiff's
assignors obtain much of their product supply from
defendant manufacturers within the normal course
of business. Such purchases and deliveries directly
affect the total volume of drug products shipped into
Oregon, and affect, alter and modify the total volume
shipped in interstate commerce.

19. Direct drug sales by manufacturers in 1969 in
the United States totaled $4 billion. Of that total,
$158.8 million, or 3.9 percent, were sold to the federal
government and its hospitals. Direct sales to all types
of hospitals totaled $764 million, up eight percent
from 1968, and were approximately 20 percent of all
1969 drug sales.

20. Plaintiff’s assignors are in direct competition
with the favored customers of defendants for the
patronage of ultimate consumers of defendants’ drugs
except enrolled patients hospitalized in the purchasing
institution.

UNLAWFUL DISCRIMINATION

21. More than four years ago and continuing to

25

and including the date of the filing of this amended
complaint, defendants and each of them unlawfully in
the course of interstate commerce, in the sale of drugs
of like grade and quality, by granting discounts, al-
lowances, compensation, payments, services, broker-
age, terms, facilities, rebates and lower

[R. 59]

prices than said commodities were sold to plaintiff’s
assignors, and such favorable discounts, allowances,
compensation, payments, services, brokerage, terms,
facilities, rebates and lower prices were not made
available to plaintiff's assignors on equal terms.

22. Defendants’ drugs were sold in interstate com-
merce for use, consumption, resale or distribution
within the United States and multiple sales took
place in interstate commerce.

23. The unjust and unlawful differentials set
forth in paragraph 21 of this amended complaint are
not attributable to differences in the cost of manu-
facture, sales or delivery resulting from the differing
methods or quantities in which such commodities are
to such purchasers sold or delivered.

. 24. The exemption given sales to schools, colleges,
universities, public libraries, churches, hospitals and
charitable institutions not operated for profit by 52
Stat. 446, c. 283, 15 U.S.C. § 13c, where the drugs are
employed for their own use, is limited to drugs used
exclusively within the confines of the purchasing in-

26

stitution for enrolled patients of the institutions while
such patients are so confined and for no other purpose.

25. Sale or distribution of any drug purchased at
a discriminatory discount, allowance, compensation,
payment, service, brokerage, term, facility, rebate or
lower price by a non-profit institution to any person
other than an enrolled patient in the purchasing insti-
tution is a violation of Section 2 of the Clayton Act
as amended by the Robinson-Patman Act, 15 U.S.C.

§ 13.

26. The exemption granted by 15 U.S.C. § 138c
does not include cities, counties, states and the federal
government other than in their capacities as opera-
tors of hospitals and charitable institutions not oper-
ated for profit when they administer drugs to en-

rolled patients.

27. Said acts of discrimination by defendants
against plaintiff’s assignors enable the favored com-
petitors to offer drugs at no cost or nominal cost to
their consumers and for sale at prices substantially

[R. 60]

below the retail prices that must be charged by plain-
tiff’s assignors if they are to remain in business.
Thus, plaintiff’s assignors have been and are rendered
less able to compete, and competition in said line of
commerce has been, and is, substantially lessened and
impaired.

28. The unlawful discrimination of the defendants

27

set forth herein compels plaintiff’s assignors to pay
a higher discriminatory unit cost for drugs of the
same type.

29. The unlawful discrimination of the defend-
ants set forth herein subsidizes defendants’ favored
purchasers with unearned and unjustified lower
prices at the expense of plaintiff’s assignors.

30. The unlawful discrimination of the defend-
ants set forth herein compels plaintiff’s assignors to
contribute all or a disproportionate share of defend-
ants’ profits on drugs.

31. Said acts of discrimination by defendants
against plaintiff’s assignors constitute subsidized or
below-cost sales to the favored purchasers at the ex-
pense of the retail customers of plaintiff’s assignors,
with resultant injury of said assignors and to the gen-
eral public.

82. Said acts of discrimination by defendants
against plaintiff’s assignors preclude said assignors
from competing successfully and threaten to, and if
continued, will, terminate said assignors as competi-
tors in drugs and cause them irreparable damage and
reduce the number of competitors and thereby tend
to create a monopoly, and to injure, destroy or pre-
vent competition.

83. Said acts of discrimination by defendants
against plaintiff’s assignors have, to date, resulted in
the failure of numerous community pharmacies in the
State of Oregon, and unless said acts of discrimina-

28

tion are permanently enjoined, will result in the fail-
ure of an additional and substantial number of com-
munity pharmacies in the State of Oregon, including
at least some of plaintiff’s assignors.

[R. 61]

34. Defendants, directly and indirectly, sell drugs
to proprietary nursing homes, hospitals and other
institutions at more favorable discounts, allowances,
compensation, payments, services, brokerage, terms,
facilities, rebates and lower prices than are made
available to plaintiff’s assignors.

35. Said proprietary nursing homes, hospitals and
other investor-owned institutions resell said drugs to
staff personnel and to members of the public.

36. The defendants and each of them were and
are aware that hospitals and other purchasers favored
by defendants resell drugs to persons not confined to
the hospital or other favored institution.

SECOND CAUSE OF ACTION

87. Plaintiff incorporates paragraphs 1 through
36 by reference.

88. Defendants, directly and indirectly, sell drugs
to hospitals and other institutions not operated for
profit on more favorable discounts, allowances, com-
pensation, payments, services, brokerage, terms, fa-
cilities, rebates or lower prices than are available to
plaintiff’s assignors. Such hospitals and other institu-
tions not operated for profit subsequently resell such

drugs to staff personnel and to members of the public
who are not patients enrolled in said hospitals and
other non-profit institutions.

(Subscription and certificate of service
omitted in printing)

[R. 103]
United States District Court for the District of Oregon

| PLAINTIFF'S CERTIFICATE AND STATEMENT
(Filed January 28, 1972; caption omitted in printing)

TO THE HONORABLE ROBERT ©. BELLONI, CHIEF

JUDGE, UNITED STATES DISTRICT CO
URT FOR TH
TRICT OF OREGON ebay

Plaintiff submits this certificate and statement

pursuant to the Court’s January 12, 1972 letter. The
letter states in part:

ie Plaintiff's counsel will provide the Court
with a certificate showing that they currently
have information from which the Court can con-
clude that it is reasonably probable that discovery
on the merits will produce evidence sufficient to
establish each cause of action of the complaint.
This statement should set forth facts now known
to plaintiffs showing what each defendant did in
its alleged practice of unlawful price discrimina-
tion. It would then tell the Court what it expects
that discovery will reveal. Upon receipt of the
certificate the Court will be able to determine
whether plaintiff has more than surmise or sus-
picion and whether there is a reasonable likeli-

30

hood that discovery will produce relevant evi-
dence. * * *”

This is a Robinson-Patman price discrimination
and antitrust combination case on a matter of na-
tional importance to retail pharmacists

[R. 104]

and their customers. Customers of retail pharmacists
are compelled to pay excessive prices for drugs be-
cause of discriminatory pricing practices engaged in
by the defendants.

Not all drug manufacturers engage in the price
discrimination alleged in the complaint and the trend
is to charge retail pharmacies and other purchasers
the same price and to treat everyone equally. Thus,
Merck Sharp & Dohme announced on January 13,
1971 that “The prices listed for our products now ap-
ply to all customer classes: wholesalers, hospitals, re-
tailers, chain retailers and physicians.”

A harbinger of the complaint at bar is the stipu-
lation of dismissal in Contra Costa F’harmaceutical
Association v. Ciba Corporation, USDC ND Calif,
No. 46218, filed November 3, 1967, which reads in

part:

“Ciba represents, subject to all defenses avail-
able to it under state or federal laws, that no free
goods offers or price discounts will be made, after
the date hereof, to any profit hospital or profit-
making clinic which sells those goods to other
than in-patients or out-patients being treated at

31

such institutions unless such offers and discou
nts
ma ome: samy 3 — to all plaintiff retail phar-
selling Ciba products in competiti
such hospital or clinic.” ee

Plaintiff incorporates by this reference its an-
swers to defendants’ numerous interrogatories.

It cannot be emphasized too strongly tha
plaintiff has had no discovery while at poe meglinr
the defendants have had and continue to have the
benefits of massive discovery. The latest example of
this one-sided state of affairs is the compilation, infra,
of hospital pharmacies that sell prescription drugs to
persons other than in-patients.

Plaintiff's certificate and statement is voluminous
because the defendants have declined to answer the
complaint, filed six months ago, or the amended com-
plaint filed in November of 1971. No defendant has

answered the interrogatories filed and served on Au-
gust 6, 1971.

Accordingly, plaintiff has been compelled to docu-
ment matters that it expects to be admitted when the
defendants finally answer the amended complaint and
to be established, e.g., discriminatory pricing, when
the August 6, 1971, interrogatories are answered.

[R. 105]

In addition to the materials presented in this
statement, counsel has Hickman vy. Taylor-type attor-
ney trial-preparation materials. These trial prepara-

32

tion materials are available for in camera examination
by the Court.

Plaintiff and plaintiff’s counsel expect and certify
that the promised discovery will confirm what is set
forth in this document and is known to plaintiff's of-
ficers and members, massive and damaging price
discrimination in violation of the Robinson-Patman

Act.

Plaintiff’s counsel certify that they expect dis-
covery, when allowed, to establish that the defend-
ants engage in activities that constitute a combina-
tion and concert of action prohibited by the antitrust
laws, e.g., discriminatory pricing and trade practices,
use of cross-licensing to violate the antitrust laws,
and more than conscious price parallelism.

Each of the defendants engage in illegal price dis-
crimination and discriminatory trade practices. Dis-
covery will establish, for example, which of the de-
fendants that sell directly to retail pharmacists in-
sist on a minimum dollar amount order while at the
same time not imposing a similar requirement on
hospitals.

One of the more entertaining proofs of price dis-
crimination is defendant Endo Laboratories, Inc. in-
voice LA 7180 dated 8/4/71, account no. 84883, to:

“BODINE CLINIC
LOGAN WALLACE PRESCRIPTIONS

1735 N. Wheeler
Portland, Oregon 97227”

33

: Mr. Logan Wallace of Logan Wallace Prescrip-
tions, is president of the plaintiff.

Because Endo Laboratories, Inc. considers Logan
Wallace Prescriptions a “clinic,” the exact word on
invoice, Logan Wallace Prescriptions received two
benefits given favored purchasers that are denied
other retail pharmacists: the opportunity to make
purchases directly from Endo Laboratories, Inc., and
the opportunity to receive a discount denied

[R. 106]

other retail pharmacies, The non-favored retail phar-
macies which do not receive the status of “clinic”
must purchase Endo products from a wholesaler.

Invoice La 7180 lists various products ( Percodan
Coumadin, Valpin and Percogestic tablets) for a total
price of $424.72, less a one-sixth or 16-2/3 percent
discount of $70.78 and a net billing price of $353.94.
In addition, Logan Wallace Prescriptions was allowed
a two percent discount for prompt payment. Endo
Laboratories, Inc, accepted Logan Wallace Prescrip-
tions check no. 1741, dated 8/16/71, in the amount of
$346.86 for Invoice LA 7180.

. Defendant William H. Rorer, Inc. published a re-
tail price list for its drugs. One of the items listed
is Maalox, 12 fl. oz. with a suggested list price from
the wholesaler to the retailer of $1.25 and a “SUG-
GESTED RESALE PRICE” of $1.69. However, a
Portland area discount store, “K-Mart,” has been

34

selling Maalox, 12 fl. oz. at forty-seven cents ($.47)
while the drug wholesaler’s price is about $1.17.

The Warner-Chilcott Laboratories of defendant
Warner-Lambert Pharmaceutical Company require a
minimum order of $250 from a community pharmacy,
but will sell any quantity to a non-profit hospital and
require a minimum purchase of but $20 from a profit-
making hospital.

Price sheets of the Bristo] Laboratories Division
of Bristol-Myers Company reproduced on pages A12
through A16 of volume 1 of the House Small Business
Committee hearings on “Small Business Problems in
the Drug Industry” reflect higher prices to retail
pharmacists than to favored hospitals, e.g., the retail
price for Polycyllin-N 250mg. is $1.74 to the com-
munity pharmacist but only $1.48 to hospitals. Simi-
larly, the retail pharmacy price for Bristalin syrup
4 oz. is 60 cents; the hospital price is 50 cents.

[R. 107]

The House Small Business Committee hearings
confirm that defendant Bristol-Myers Company
grants hospitals substantially lower prices. Page A12
of the hearing record discloses that effective August
2, 1965, retail pharmacists were charged $8.94 for 48
capsules of Prostaphlin 250 mg, Page A30 of the
hearing record reveals a December 22, 1965, Bristol-
Myers hospital contract for 48 capsules of Prostaphlin
250 mg. at $4.80. The contract also listed one dose

35

of Staphcillin 1.00 gm. at $1.00 while retail pharma-
cists paid $1.91 for the same drug, according to the
price list on page A12.

Various of the defendants sell druzs in Canada.
It is significant, therefore, that discriminatory drug
pricing in Canada was noted in “Pharmacy in a New
Age,” (1971), the report of the Commission on
Pharmaceutical Services published by the Canadian
Pharmaceutical Association.

The report said at pages 29-30:

“Another area which seriously affects phar-
macy practice is the discriminatory pricing meth-
ods which have forced community pharmacists
to pay a higher price for drugs than hospitals or
government, even for similar quantities. * * * In
Prince Edward Island a change was made in the
policy of providing anti-diebetic drugs through
pharmacies to direct distribution by the govern-
ment because the drugs ‘were purchased from
the manufacturers at greatly reduced prices.’

(no paragraph)

One firm in giving testimony to the Harley Com-
mittee explained its system of preferential prices
in that it:
‘sells some of its products to hospitals at a
lower price than that charged to pharmacists.
* * * We compete for the hospital business at
prices which are sometimes below cost and
consider this activity as part of the promotion
of our products to the professional staff.
** *” (footnote omitted)

36
[R. 108]
Plaintiff incorporates by this reference exhibits
“A” through “M” inclusive to this certificate and
statement.

CONCLUSION

Plaintiff submits that this certificate and state-
ment demonstrates that the plaintiff has ample docu-
mentary and other information from which the Court
ean conclude that it is reasonably probable that dis-
covery on the merits will produce evidence sufficient
to establish each cause of action of the complaint.

DATED: January 28, 1972.
(Subscription omitted in printing)

[R. 117]

EXHIBIT D TO PLAINTIFF'S CERTIFICATE
AND STATEMENT

DRUG INDUSTRY RESTRICTIONS ON DRUGS

Drug industry restrictions on prescription drugs,
drug industry practices and conscious price parallel-
ism are among t. factors upon which the plaintiff
bases its antitrust combination count.

Several restrictive practices are set forth in Her-
bert D. Miller, Jr., “Patent License Restrictions in
the Prescription Drug Industry,” 53 Virginia L.R.
1283 (1967).

37

The a states at 53 Va. L.R. 1285-1286:

% a result one might ex the pri
ethical drugs to be established seh erp
ufacturers largely on the basis of their cost func-
tions, and without reference to the prices charged
by competitors. Since the production and promo-
tional costs of sellers are quite likely different,
their prices should reflect this difference. How-
ever, where major producers are concerned, this
is frequently not the case.

(no paragraph)

Erythromycin, a broad spectrum antibiotic
ented by Abbott Laboratories in 1958, will Bo
as an example. In 1959 Abbott produced thirty-
five per cent of the total supply, and Lilly pro-
duced sixty-five per cent. Upjohn sold, but did
not produce, the compound. The prices set by
these companies during the period 1959-1965 are
shown beiow:

TABLE Il

“Erythromycin, wholesale pri 100-
nq. tablets price per 250

as Famer 1960 1962 1963 1964 1965
.60 $30.60 $26.01 $21.99 $21.99 $21.99

(Erythrocin ,

Stearate )

Upjohn 35.70 35.70 26.01 21.99 21.99 21.99

(Erythromycin)

Lilly 30.60 30.60 26.01 21.99 21.99 21

(Ilotycin)

38

“The prices of other patented antibiotics anc
tranquilizers have behaved similarly. Since the
normal oligopoly explanation for this price be-
havior is logically inapposite, it is clear that other
factors determine the price at which drugs will
be sold.” (footnotes omitted )

[R. 118]

The article states at 53 Va. L.R. 1290-1291:
“* * * Since production costs tend to be
constant regardless of the size of the manu-

facturer’s operation, drug patents appear to con-
stitute the only serious obstacle to competition by

small firms in this market. * * *

The patented tranquilizers purchased by
the Military Supply Agency — meprobamate,
promazine and chlorpromazine — have been
offered at rigid prices only 25 to 35 per cent
below the price to the retail druggist.

(no paragraph)

Reserpine, on the other hand, although devel-
oped by CIBA Pharmaceutical Co., has been
widely licensed. * * * MMSA’s first reported
procurement, February 1956, was won by Eli
Lilly with a bid of $1.39 per bottle of 1000,
which is one twenty-fifth of Lilly’s price to

39

= a of $39.40). And by the date of
omg» reported procurement, April 1960,
price had dropped to 51 cents a bottle.

MMSA was buying 1000 table
ts at abo
cost of 15 tablets to the civilian Prantaoreny ~

(no paragraph)

On one or more occasio
ns, each of
mee sellers of this protast-CIBA” un,
Squ bb and Merck—made bids which were
one-twentieth of their price to the
retail druggists.

“The ethical drug industry has
_ “TI taken steps to
ee this type of competition. Since te

e protection is ineffective in this submarket,

the large scale manufacturers have utilized pat.

[R. 121]

EXHIBIT G TO PLAINTIFF’s CERTIFICATE
AND STATEMENT

the druggist.
(no paragraph) The July 5, 1971 National Observer contains an
gi ; ' article titled “Foreigners Pay Less for U.S.

ince that time MMSA’s reserpine price has Study Says,” and an overline that “Com . _Drugs,
steadily fallen. In February 1959, CIBA won pute Findings,” which said in part: panies Dis-

a contract with a bid of 60 cents a bottle r
(only 1.5 per cent of CIBA’s price to the re- A new study of drug-industry pricing prac-

40

tice makes melancholy reading for consumers—
who annually spend $7 billion on drugs.

“The study of prices for 20 of the most wide-
ly prescribed medicines reveals that U. S. drug
producers often charge more for drugs here than
they do abroad—up to four times as much for
identical amounts. It says that ‘price discrimina-
tion’ probably is the reason.

“The report contrasts average prices paid by
U.S. pharmacists with the prices paid by retailers
in eight other countries.

(no paragraph)

It relates, for example, that Eli Lilly & Co., ex-
clusive distributor here of the pain killer Darvon,
sells a unit of the drug to U.S. buyers for $7.02,
while charging retailers in Ireland $1.66 and
those in the United Kingdom $1.92 for the same
unit.

3s.

“According to reports of a Senate subeommit-
tee on monopoly, however, drug producers do not
make overseas all the drugs they sell there. The
manufacturers do export, often charging less for
exported products than for the same medicine
sold at home. Moreover, subcommittee data indi-
cates that labor costs constitute a relatively small
part of drug-making expenses even in the United
States. * * #99

A chart printed with the above-quoted article lists
the price findings.

Erythrocin antibiotic, manufactured by Abbott
Laboratories, a defendant herein, was listed as hav-

41

ing a United States price of $26.12, the highest of

the nations surveyed, with
for Ireland. ved, with the lowest price, of $8.56,

7 Polycillin antibiotic, manufactured by defendant
ristol-Myers Co., was listed at a U.S. price of $21.84,

a Brazil price of $49.95 and '
the United Kingdom, a low price of $8.23 in

Wyeth’s U.S. price for Equanil
P t was $7.06 and its
lowest price was $1.67 for Sweden. ;

Lilly’s V-Cillin-K price was $8.95 in the and
. . 5
$2.40 in the United Kingdom. a haa doa:

(Certificate of service omitted in printing)

;

;

{SIO H 3873900 3Sys00]] uoyf
eseuLiO uounsey uounsey eseuLC) (Bar 09¢)
wes -- e8Z Aq aprureyngjo 1
PI9K ol3 - Hequipnuy
jowe;d4z] ponitin yo
were IMelg “(3a ez) 10H
oe9 1952 eee on
. uy
s[seig quesssidepy
2129p] pues: mee) re
poe — =e PES IO eupedéveney
SUNDA TOA WAd —- agp
169°0I 199°8 Irs $68 -Axoueyd umissyj}0q
upAUTBLIe “id dade ee | Jez
L BUTIWIBLIe y ursAureiiay urofure.ie ‘(3a 992) IOH
2691 9° 6L'6 over 19
uposmine ywoqdy py 9
; Tt Ig FI ZI (Ba 9¢z)}
i Fe os
Vv 893835 pezup

a tepe] = ‘(3a OST) IOH
prareueA) a[tepe] a[1epe]
upAmopeg = BUTDTULIepe] uToAULIEpy] npeuio(od __ euTadoeye}
60°91 86°F LYII —s
jowstig joystag jo3sLg jowstg sz)
pom a * ees f8'IZ : SOMOIqnUy
ATIrI
AUT AUT AUT not idee iah hie
auexo euez0j0g \
ees 188 e128 2018 oueydAxodold
epeue) Teg wypeasny sageyg peg cutie as
+ Seen ee ~~

(seTnsd¥d 10 $}2/Ge} OOT 10} SIBTIOP 'S — tv)
{ Arenues ‘seltjUNOD UsTeI0:
pus S238}S pests) oq ut seotid jeorpnesvuseyd pese[es FO uosyivdmoj—T TIEVL

[ozi a)

(ZL6T ‘Qt Arenagey peti)

Udu3>Xa) LNIWSLVLS ONV
3LVDIULYID OL LNIW3IddNS S.ASLLNIVId OL V LISIHXG

UOBILC) JO JLIISIC] OY} 1OJ 7.ANO| Jort}sIC $e78IS PedtUl)

0NS

SABQ-eyeG sABg-~eysegG ssBq-oxied
Tepeug = “(Bur 08) oil H
18 109°T roar sururespAusydya

‘(Ba OT) severe
eulzeseds0[yooig
‘(3a AL
‘(Bu g) wedezeiq
Ixus
ouIzesoyL ‘(3am 02) 1IOH
09°9
eyo"
umLuqry ‘(3a 01) IOH
1009 eprxodezetps0[y)

> (S9ZT]INDUvI}) SOrXBIEY

se7g Peuyen

penunuoj)—JeInjoeueM pue sueU puBig GsSBnIp 0 eid

tinued

Sweden

Price to
Ireland

United Kingdom

Ovulen 21
Searle

4.10

Ovulen 21
Searle

4.51

Official price
Official price

3.71

brand name, and man
New Zealand

Italy

(500 mg.).

(Footnotes and certificate of service omitted in printing)

49

AFFIRMATIVE DEFENSES IN DEFENDANTS’ ANSWERS
BASED ON 15 U.S.C. § 13¢

[R. 182]
United States District Court for the District of Oregon

Answer of Defendant Endo Laboratories, Inc.,
to Plaintiff's Amendec! Complaint

(Filed October 4, 1972; caption omitted in printing)

* * * * *

[R. 184]

THIRD DEFENSE TO FIRST CAUSE OF ACTION

All sales of defendant’s products to hospitals and
charitable institutions not operated for profit are ex-
empt from the Robinson-Patman Act under the pro-
visions of 15 USC § 13(c).

[R. 185]

THIRD, FOURTH, FIFTH, SIXTH, SEVENTH AND EIGHTH
DEFENSES TO SECOND CAUSE OF ACTION

Defendant incorporates herein by reference its
third, fourth, fifth, sixth, seventh and eighth defenses

to plaintiff’s first cause of action, as though fully
set forth herein.

—

50
[R. 188]
United States District Court for the District of Oregon

Answer of Defendant American Home Products
Corporation to Plaintiff's Amended Complaint

(Filed October 4, 1972; caption omitted in printing)

[R. 191]

* * * * *

FIRST AFFIRMATIVE DEFENSE TO FIRST CAUSE OF ACTION

All sales of defendant’s products to hospitals, and
to institutions not operated for profit are exempt
fron: the Robinson-Patman Act under the provisions
of 15 USC See. 13c.

[R. 192]

* * * * *
SECOND CAUSE OF ACTION
I

Defendant realleges and incorporates herein its
answers and affirmative defenses to plaintiff’s first

cause of action.
- 7 : - *

51
[R. 196]
United States District Court for the District of Oregon

Answer of Defendant E. R. Squibb & Sons, Inc.,
to Amended Complaint
(Filed October 4, 1972; caption omitted in printing)

FIRST CAUSE OF ACTION

ae oS. ! aa
THIRD DEFENSE

All sales of this defendant’s products to schools,
colleges, universities, public libraries, churches, hos-
pitals, and charitable institutions not operated for
profit are exempt from the Robinson-Patman Act
under the provisions of 15 U.S.C., Sec. 13c.

[R. 198]
* * * * *
SECOND CAUSE OF ACTION
* . * * *
SECOND, THIRD, FOURTH AND FIFTH DEFENSES

This defendant incorporates its second, third,
pers and fifth defenses to plaintiff’s first cause of
on.

e * *. * °

52

[R. 201]
United States District Court for the District of Oregon

Answer of Defendant Squibb Corporation
to Amended Complaint

(Filed October 4, 1972; caption omitted in printing)

First CAUSE OF ACTION
a - + * *

[R. 202]

FouRTH DEFENSE

All sales of E. R. Squibb & Sons, Inc.’s products
to schools, colleges, universities, public libraries,
churches, hospitals and charitable institutions not op-
erated for profit are exempt from the Robinson-Pat-
man Act under the provisions of 15 U.S.C., See. 18e.

* * * * *

[R. 203]

SEcoND CAUSE OF ACTION

SECOND, THIRD, FOURTH, FIFTH AND
SixTH DEFENSES

This defendant incorporates its second, third,
fourth and fifth defenses to plaintiff’s first cause

of action.
ae of = a

53
[R. 205]

United States District Court for the District of Oregon

Answer of Defendant Eli and Company
to Plaintiff's ahaa Bead

(Filed October 4, 1972; caption omitted in printing)
* * * * *

[R. 208]

THIRD DEFENSE TO SECOND CAUSE OF ACTION

Purchases of Lilly products by hospitals, and
charitable institutions not operated for profit are
exempt from the Robinson-Patman Act under 15
U.S.C. § 18¢ (May 26, 1938, c. 288, 52 Stat, 446).

[R. 212]

United States District Court for the District of Oregon

Answer of Defendant Bristol-Myers Company
to Plaintiff's Amended Complaint
(Filed October 4, 1972; caption omitted in printing)
* * * 7 >
[R. 216]
> * * * *

THIRD DEFENSE TO SECOND CAUSE OF ACTION

All sales of defendant’s products to hospitals and

~ yoy not operated for profit are exempt
rom inson-Patman Act under th isi

of 15 U.S.C. § 13¢. i meio

54
[R. 220]
United States District Court for the District of Oregon
Answer of Defendant A. H. Robins Company, Incorporated
to Plaintiff's Amended Complaint
(Filed October 5, 1972; caption omitted in printing)
* + * * *
[R. 222]
” * o . *
ANSWER TO SECOND CAUSE OF ACTION

[R. 223]

Fifth Defense
18. Sales of defendant Robins’ pharmaceutical
products to hospitals and charitable institutions not
operated for profit for their own use are exempt
from the Robinson-Patman Act under the provisions

of 15 U.S.C. Section 13c.

55
[R. 228]
United States District Court for the District of Oregon

Answer of Defendant Abbott Laboratories
(Filed October 5, 1972; caption omitted in printing)

* * * * *

[R. 233]

For Its THIRD AFFIRMATI
VE ANSWER
FENSE, Abbott alleges as follows: oe

I
Asa matter of law, all sales by Abbott to proprie-
0 aya hepa hospitals and other institutions,
: pitals and other institutions not operated
or profit, as those terms are used in plaintiff’s sec
ond cause of action, are within the exemption

[R. 234]

we rye Non-Profit Institutions Act, 15 U.S.C § 13(c)
are, accordingly, not i ; ;
raatg rosie cognizable under the Rob-

56
[R. 237]
United States District Court for the District of Oregon
William H. Rorer, Inc. Answer to Amended Complaint
(Filed October 5, 1972; caption omitted in printing)

[R. 240]

* * * * *

SixTH DEFENSE

Any price differential accorded by this defendant
to the alleged favored purchasers of its products was
with respect to transactions exempt from coverage
of the Robinson-Patman Act pursuant to 15 USC
§ 18¢ as a sale to a hospital or charitable institution
not operated for profit.

* * * * a7
[R. 243]
United States District Court for the District of Oregon

Answer of Defendant Carter-Wallace, Inc.
(Filed October 5, 1972; caption omitted in printing)

Fourth Defense

Sales by defendant Carter-Wallace, Inc. to non-
profit institutions are exempt from the Robinson-Pat-
man Act by reason of the provisions of 15 USC § 13

(c).

57
[R. 246]
United States District Court for the District of Oregon

Answer of Defendant Warner-Lambert
to Amended Compl”

(Filed October 5, 1972; caption omitted in printing)

[R. 253]

FIFTH AFFIRMATIVE DEFENSE

The claims of plaintiff are barred. ;
15 USC § 13¢. , in part, by

* > + ¢ 7
[R. 255]

United States District Court for the District of Oregon
Answer of Defendant Ortho Pharmaceutical Company
to Amended Complaint
(Filed October 25, 1972; caption omitted in printing)
* * + + *

[R. 263]

FIFTH AFFIRMATIVE DEFENSE

53. The claims of plaintiff are barred, in part, by

15 USC § 13¢.

(Subscriptions and certificates of service
omitted throughout in printing)

ee

58
[R. 289]

United States District Court for the District of Oregon
ORDER

(Filed October 30, 1972; caption omitted in printing)
Plaintiff’s motion to prohibit destruction of
documents by the defendants having been heard on
October 24, 1972, and counsel appearing for all par-
ties, it is hereby
CONSIDERED AND ORDERED that the motion
be denied in its entirety.

(Subscription omitted in printing)

[R. 323]

United States District Court for the District of Oregon

PLAINTIFF'S SECOND SUPPLEMENTAL CERTIFICATE
AND STATEMENT
(Filed December 4, 1972; caption omitted in printing)
To: THE HONORABLE JAMES M. BURNS,
UNITED STATES DISTRICT JUDGE:

Pursuant to Judge Belloni’s January 12, 1972,
letter Order that the plaintiff submit a certificate
and statement, the plaintiff herewith supplements its
January 28, 1972 certificate of evidence and its Feb-
ruary 18, 1972, supplement.

Exhibit A is a reprint of Senator Gaylord Nel-
son’s documented remarks on drug price discrimina-
tion printed in the September 29, 1972 Congressional
Record. References to various of the defendants here-

in are underlined in red. Senator Nelson concluded:

origi * Under the present system the Amer-
Tan People who are paying higher prices for
rugs anyone else in the world, are being
subjected to monopolistic exploitation. * * *”

DATED: December 4, 1972.

(Subscription and certificate of service omitted
in printing)
| [R. 339]
United States District Court for the District of Oregon

PLAINTIFF'S MOTION RE LIMITED
BRIEF IN SUPPORT OF MOTION

(Filed February 5, 1973; caption omitted in printing)

Pursuant to prior orders of the Court and Rule
md whos and without waiving its objections to
Ye Ps to oe Plaintiff moves the Court for

(1) Within 15 days of the date of thi
defendant shall notify plaintiff of bry rg ys
manager, salesman or other representative residing
in Oregon most knowledgeable concerning sale of the
defendant's drugs to alleged “non-profit” hospitals
in Multnomah, Clackamas and Washington counties;

(2) Plaintiff may take the depositions of the
persons identified in response to Paragraph (1) of
this Order and serve upon them the EXHIBIT A TO
SUBPOENA attached to plaintiff’s motion.

Pp
DATED: February 5, 1973.
(Subscription omitted in printing)

60
[R. 340]
BRIEF IN SUPPORT OF MOTION

Plaintiff’s limited discovery to date has established
that there are many unknown and disputed facts con-
cerning the issue of drug distribution practices of
alleged “non-profit” hospitals.

It is submitted that these unknown and disputed
facts preclude partial summary judgment on the
pending summary judgment motion.

Plaintiff’s limited discovery establishes, it is sub-
mitted, that defendants have relevant evidence con-
cerning the drug distribution practices of alleged
non-profit hospitals that plaintiff has been unable to
obtain from the hospital officials deposed by plaintiff.

The Exhibit A to Subpoena accompanying the mo-
tion is limited to some documents relevant to the pend-

ing motion for partial summary judgment, although
the exhibit does not call for all of the documents the

plaintiff considers should be produced, e.g., in defer-
ence to the Court’s prior ruling plaintiff does not call

for price information.

Defendants and their representatives resident in
Oregon have evidence relevant to their pending mo-
tion, therefore, the motion should be granted.

DATED: February 5, 1973.

(Subscription and certificate of service omitted
in printing)

61
[R. 343]
United States District Court for the District of Oregon

AFFIDAVIT OF RAYMOND L. MONTEE
RE HOSPITAL DRUG PURCHASES

(Filed February 5, 1973; caption omitted in printing)

STATE OF OREGON )
County of Multnomah ) ™

I, RAYMOND L. MONTEE, bei
| . | » being first duly

I

I am the President of R. L. Montee & Associates,
Incorporated, an Oregon corporation that provides
specialized investigation services for the professional
man, and that I have been retained by the law firm
of Tilbury & Kane, counsel for plaintiff in the above-
titled case.

II

Pursuant to direction I made purchases of pre-
scription and over-the-counter drugs as a member of
the public from various hospital pharmacies in Mult-
nomah, Clackamas and Washington counties.

II

At no time in offering prescriptions to be filled
or in purchasing non-prescription drugs did I repre-
sent that I was (a) an inpatient, or (2) an outpatient,
or (3) a hospital employe, or (4) a physician.

62
[R. 344]
IV

I purchased prescriptior drugs from 11 hospital
pharmacies.

V

Listed below are the names and addresses of said
hospital pharmacies, the prescription number, date of
purchase, and name of the prescription drug pur-
chased. Also listed are purchases of over-the-counter
drugs that do not require a prescription.

(1)

(2)

(3)

Kaiser Foundation Hospital Pharmacy
5055 N. Greeley Avenue
Portland, Oregon 97217

No. 138964, 10/04/72 Stilbestrol 0.5 mg. #30
Dermaplast Spray — Small

St. Vincent Hospital and Medical Center

Pharmacy
9205 S. W. Barnes Road
Portland, Oregon

No. 162827, 10/09/72 (drug not identified )
No. 162828, 10/09/72 (drug not identified)

Dwyer Memorial Hospital Pharmacy
420 - 32nd Street
Milwaukie, Oregon

No. 13472, 10/05/72, Benadryl 25 m
No. 13473, 10/05/72, Tetracycline 250 mg

(4) Forest Grove Community Pharmacy

1809 Maple Street
Forest Grove, Oregon

No. 67502, 10/04/72, Prednisone 5 mg
No. 67503, 10/04/72, (drug not identified)

(5) City of Roses Hospital Pharmacy

1329 S. E. Harney Street
Portland, Oregon 97202

No. 38826, 10/05/72, Hydrodiuril 50 mg.
No. 33827, 10/05/72, Coumadin 5 mg

(6) Gresham Community Hospital

5th and Beech
Gresham, Oregon 97030

No. 55458, 10/11/72, Indocin 25 mg

[R. 345]

(7) Holladay Park Hospital Pharmacy

220 N. E, Multnomah
Portland, Oregon

No. 102-202, 10/05/72, Penicillin VK 250 mg.
No. 102-203, 10/05/72, Chlortrimeton 4 mg.

(8) Portland Adventist Hospital

6040 S. E. Belmont
Portland, Oregon

No. 59798, 10/05/72, V-Cillin K 250 mg

Neosporin Ointment, NDC-81-730-88,
Net wt % oz

(9) Willamette Falls Community Hospital

Pharmacy
15th and Division
Oregon City, Oregon 97045

64

No. 2538, 10/16/72, (drug not identified)
Ecotrin aspirin-analgesic, bottle, 100 tablets

(10) Willamette Methodist Convalescent Center
13021 S. E. River Road
Milwaukie, Oregon

No. 25251, 10/16/72, 30 Serpasil .1
Neoloid Castor Oil, 4 fl. oz.

(11) Woodland Park Hospital Pharmacy
10300 N. E. Hancock

Portland, Oregon
No, 56257, 10/05/72, Erythrocin 250 mg
(ABBOTT LABORATORIES)

Quelidrine cough syrup 4 fl. oz.

VI

In addition, I directed a female operative to pur-
chase prescription drugs from four Permanente Clinic
pharmacies associated with the Bess Kaiser Hospital,
Portland, Oregon.

VII

Listed below are the names and addresses of said
Permanente clinic pharmacies, the prescription num-
ber, date of purchase, and name of the prescription
drug purchased. Also listed are purchases of over-the-
counter drugs that do not require a prescription.

* * * * *

(Subscription, jurat and certificate of service
omitted in printing)

65
[R. 425]
United States District Court for the District of Oregon

PLAINTIFF'S NOTICE, UNDER PROTEST, RE SECOND
CAUSE OF ACTION “DISCOVERY”

(Filed March 12, 1973; caption omitted in printing)

TO DEFENDANTS AND THEIR LOCAL
COUNSEL OF RECoRD:

PLEASE TAKE NOTICE:

Pursuant to the restrictive and other orders of
the Court, and under repeated protest that said re-
strictions on plaintiff’s discovery concerning plain-
tiff’s Second Cause of Action were and are prejudi-
cial to plaintiff, plaintiff has taken limited deposi-
tions concerning the drug distribution practices of
14 alleged “non-profit” hospitals in Multnomah,
Clackamas and Washington counties, State of Oregon.

Said limited discovery is materially incomplete,
inadequate and misleading because of the limitations
imposed by the Court:

(1) Plaintiff was forbidden to inquire concern-
ing the drug prices, terms and conditions the defend-
ants granted to the 14 alleged “non-profit” hospitals
In competition with plaintiff’s assignors and other
community pharmacies in the tri-county area, but
which the defendants did not grant to said assignors
and other community pharmacies.

“>

66
[R. 426]

(2) The Court repeatedly rejected plaintiff's ef-
forts under the Federal Rules of Civil Procedure to
place in the trial court file documents in the sole and
exclusive possession of defendants relevant and ma-
terial to the Second Cause of Action herein and the
drug distribution practices of the 14 alleged “non-
profit” hospitals in competition with plaintiff’s as-
signors and other community pharmacies for the trade
and custom of retail drug purchasers in Multnomah,
Clackamas and Washington counties, Oregon;

(3) The Court repeatedly rejected plaintiff's ef.
forts under the Federal Rules of Civil Procedure to
take the depositions of officers, employees and agents
of defendants in sole and exclusive possession of rele-
vant and material personal knowledge concerning the
drug distribution practices of the 14 alleged “non-
profit” hospitals in competition with plaintiff’s as-
signors and other community pharmacies for the
trade and custom of retail drug purchasers in Mult-
nomah, Clackamas and Washington counties, Ore-

gon.

Had plaintiff been allowed to obtain such evidence,
said evidence would have, in all likelihood:

(1) contradicted much of the “den’t know” and
other self-serving denials of knowledge, including but
not limited to low “estimates” of the number of drug
sales to the general public, in the testimony of various
hospital officials deposed by plaintiff;

67

| (2) contained substantial relevant and material
evidence proving that the 14 alleged “non-profit” hos-
pitals regularly and consistently sell prescription and
other drugs in competition with plaintiff’s assignors
and other community pharmacies for the trade and
custom of retail drug purchasers in Multnomah, Clack-
amas and Washington counties, Oregon;

(3) disclosed that various of the defendants here-
in were long aware, prior to filing of the complaint
herein in 1971, that they were selling drugs at pref-
erentially low prices to alleged “non-profit” hospitals
which, in turn, resold said drugs in violation of the

[R. 427]

15 U.S.C. 18¢ limitation that said drugs were ex-
clusively “for their own use ;”

(4) supported the allegations of the AFFI-
DAVIT OF RAYMOND L. MONTEE RE HOS.
PITAL DRUG PURCHASES, executed November 10,
1972, and filed February 5, 1973 as part of the open
trial court file.

This Notice is not to be construed as an admission
by plaintiff that plaintiff's discovery as to drug dis-
tribution practices of the 14 alleged “non-profit”
hospitals is complete or adequate or that the “evi-
dence” is “undisputed” for purposes of defendants’
pending motion for partial summary judgment or any
other purpose.

Plaintiff’s discovery is incomplete and inadequate

68

and therefore what is in the trial court file to date
is misleading and in dispute.

NOW, THEREFORE, under protest, but pursuant
to orders of the Court, plaintiff herewith notifies the
Court and defendants that plaintiff has taken all of
the depositions it is allowed to take concerning the
drug distribution practices of the 14 alleged “non-
profit” hospitals, and that this Notice does not consti-
tute waiver of any of plaintiff’s rights of discovery
or any other rights under the applicable statutes and
the Federal Rules of Civil Procedure.

DATED: March 12, 1973.

(Subscription and certificate of service omitted

in printing)
[R. 384]

United States Disurict Court for the District of Oregon
DEFENDANTS’ MOTION FOR SUMMARY JUDGMENT
ON SECOND CAUSE OF ACTION
(Filed March 12, 1973; caption omitted in printing)
[R. 385]

Pursuant to Rule 56(b) of the Federal Rules of
Civil Procedure, defendants move for summary judg-
ment in their favor on plaintiff’s second cause of action
on the ground that all transactions referred to therein
are exempt from the Robinson-Patman Act under 15
U.S.C. § 13¢, there is no genuine issue as to any
material fact, and defendants are entitled to judg-
ment as a matter of law.

(Subscription and certificate of service omitted
in printing)

69
[R. 438]
United States District Court for the District of Oregon

PLAINTIFF'S RULE 56 AFFIDAVIT IN OPPOSITION
DEFENDANTS’ MOTION FOR SUMMARY JUDGMENT
ON THE SECOND CAUSE OF ACTION

(Filed March 20, 1973; caption omitted in printing)

STATE OF OREGON )
County of Multnomah _

ce I, Henry Kane, being first duly sworn, depose and
. 1. I am one of the attorneys for plaintiff, am fa-
miliar with the records of this case, conducted all of
plaintiff’s depositions concerning what defendants
term the “threshold” issue of drug distribution prac-
tices of alleged “nonprofit” hospitals, cross-examined
the three witnesses whose depositions were taken by
defendants, thoroughly examined the trial court file
to determine whether the record to date is “ripe” for
the Court to rule on defendants’ motion for summary
judgment on the Second Cause of Action herein, and
pursuant to Rule 56(c), F.R.Civ.P., relating to serv-
ice of opposing affidavits by the party in opposition
on behalf of plaintiff herewith by affidavit oppose éo-
fendants’ motion for partial summary judgment on
the Second Cause of Action, and base said opposition
on the incomplete, inadequate and disputed trial court
-. upen which defendants purport to base their mo-
on.

=

70 -
[R. 439]

2. In the interest of brevity your affiant incorpo-
rates by this reference all of plaintiff’s motions, mem-
oranda, affidavits and certificates relating to discov-
ery and the Second Cause of Action, the Court’s or-
ders in response to plaintiff’s attempts to make discov-
ery, plaintiff’s affidavits concerning drug distribu-
tion practices of the 14 alleged “nonprofit” hospitals,
depositions taken by the parties and their accompany-
ing exhibits, PLAINTIFF’S NOTICE, UNDER PRO-
TEST, RE SECOND CAUSE OF ACTION “DIS-
COVERY,” dated and filed March 12, 1973, and
plaintiff’s RULE 56 AFFIDAVIT OF HENRY
KANE DISPUTING ACCURACY OF “CHARTS”
DEFENDANTS SUBMITTED TO THE COURT, ex-

ecuted and filed on March 13, 1973.

3. In the light of:

(a) the huge gaps in the record concerning the
Second Cause of Action;

(b) the Court’s limitations on Second Cause
of Action discovery and the consequences
thereof ;

(c) the fact that this is a Seventh Amendment
jury case;

(d) the opposing inferences that may be drawn
from the incomplete, disputed record to
date ;

(e) the hostile hospital witnesses deposed by

71

plaintiff whose economic interests and the
economic interests of their hospital employ-

ers are adverse to plaintiff and the
Cause of Action; - aaa

(f) the numerous disputes between plaintiff
and defendants concerning what are the
relevant and material facts, and

(g) lack of many of the as yet unknown rel
evant and material facts, granting of defendants’ sum-
mary judgment motion would be untimely and im-
proper, conflict with numerous decisions of the Su-
preme Court and the United States Court of Appeals

yr om Ninth Circuit, and would constitute reversible

4. There is no resolutio i
n, agreement or stipulation
between plaintiff and defendants concerning the Sec-
ond Cause of Action, which incorporates

[R. 440]

the allegations of the First Cause of Action. Defend-
a rpc rage answers to the amended com-
or example, deny the i
mas: te y following relevant and
“38. Defendants directly and indi
. directly, sell
a to hospitals and other institutions not op-
= for profit on more favorable discounts, al-
a compensation, payments, services, brok-
— terms, facilities, rebates or lower prices
an are available to pla’ tiff’s assignors. * * *”
(Am.Comp. 10, lines 15-19)

72

5. There is no resolution, agreement or stipula-
tion between plaintiff and defendants concerning the
following relevant and material allegation:

“24. The exemption given sales to schools, col-
leges, universities, public libraries, churches, hos-
pitals and charitable institutions not operated for
profit by 52 Stat. 446, c. 283, 15 U.S.C. § 13¢,
where the drugs are employed for their own use,
is limited to drugs used exclusively within the
confines of the purchasing institution for enrolled
patients of the institutions while such patients
are so confined and for no other purpose.” (Am.
Comp. 8, lines 13-19)

6. Defendants have not filed any F.R.Civ.P. 56
affidavit alleging lack of dispute concerning any
relevant and material fact. The closest to complying
with the spirit of Rule 56 is an affidavit concerning
a summary of some, but not all, of the depositions
taken by the parties. Not summarized for purposes
of the limited affidavit were the depositions of Kaiser
organization representatives. For obvious reasons the
deposition summaries submitted under affidavit by
defendants do not include the depositions of the two
persons who testified to forced drug sales and the de-
postion of RALPH G. SESSLER taken on December
22, 1972. Mr. Sessler, the former chief pharmacist
at Portland Osteopathic Hospital, testified in part:

“Q Did these drug sales, during the period
that you were Chief Pharmacist at Portland Os-
teopathic Hospital include sale of drugs to a phy-
sician for use in his office?

“A Yes.” (Sessler dep. 8, lines 20-23)

73

7. Various of the hospital representative wit-
nesses deposed by your affiant were obviously hostile
to plaintiff, and such hostility

tals. It would appear that tnesses
some of i
aware that 15 U.S.C. § 13 (f) nto % ris

“(f) It shall be unlawful f
or an -
med in commerce, in the course of aah ta
merce, knowingly to induce or receive a discrim-
net ™ pre which is prohibited by this sec-
n.” (emphasis supplied)

8. In addition, witnesses
employed Good Sa-
maritan and St. Vincent Hospitals ach Pn Raton
Pe ae ape were represented by separate law firms
a same time represent defendants herein.

a ha Bs Bw of this double representation was
oy rney representing two defendants here-

a, W firm also represented Good Samaritan Hos-
pital, asked questions concerning documents that had

not been placed in the record pri
; hc Be prior to defendants’

74

hibit so we know what is being testified to?
“Whereupon the Reporter marked a 1 page
document entitled Medications to Patients
DEPOSITION EXHIBIT NO. 16 for
identification.
“THE WITNESS: Would you repeat the ques-
tion.
“Q (By MR. TRIPLETT:) I am referring to
the brackets and will you read the question back?

“THE WITNESS: Yes, this particular policy
on the dispensing of medications to patients,
which is also from my green policy book and /
had forgotten that item No. 9 refers to “Inpa-
tients leaving the hospital: * * *.” (emphasis sup-
plied) (Good Samaritan Alma A. Kaeser deposi-
tion, p. 47, lines 17-25; p. 48, lines 1-9)

10. Based on my familiarity with the deposition
record, your affiant is of the considered belief that
plaintiff would be able to, similarly,

[R. 442]

obtain “I had forgotten” answers from various hos-
tile and evasive witnesses that would qualify, if not
contradict, testimony on which defendants rely, were
plaintiff allowed to depose defendants’ employees con-
cerning the Second Cause of Action and to obtain de-
fendants’ documents relevant to the Second Cause of
Action. Even without such discovery, plaintiff was
able to obtain amendments of prior testimony of
David H. Fawkes, Emanuel Hospital Chief Pharma-
cist, concerning the sums the hospital charged the

75

State Public Welfare Division f.
depositi or drugs. See Fawkes
tion dated December 21, 1972, pp. 32-33.

11. This affidavit could be further
recitals of the daputestntween the partie ase en
a soe. concerning relevant and material facts and
nferences and conclusions to be drawn therefrom
It is sufficient, it is submitted, to defeat defendants’
motion for summary judgment on the Second Cause of
Action simply to refer to the Raymond Montee affi-
davit, which contains evidence that Mr. Montee as a
“walk-in” member of the public purchased drugs from
apy op — “nonprofit” hospitals that sell
ya gene public, but whose representatives
deni such sales or testified that such sales were lim-
ited or discouraged. Mr. Montee was not discouraged
te ol attempted to, and succeeded in his attempts
rehase prescri i
reir ~- on os drugs from the following
Kaiser Foundation Hospital Pharmacy
St. Vincent Hospital and Medical Center Pharm
Dwyer Memorial Hospital Pharmacy
Gresham Community Hospital Pharmacy
Holladay Park Hospital Pharmacy
Portland Adventist Hospital Pharmacy
Willamette Falls Community Hospital Pharmacy
Willamette Methodist Convalescent Center
Woodland Park Hospital Pharmacy

12. Plaintiff filed the Montee affidavi
vit on Febru-
ary 5, 1973, giving the defendants and each of them
ample opportunity to depose Mr. Montee in an effort

76

to qualify or discredit his affidavit and the exhibits
to his affidavit, and to take depositions of represen-
tatives of the above-listed hospital pharmacies in or-
der to qualify or discredit the Montee affidavit and
exhibits to said affidavit.

[R. 443]

13. Despite such opportunity, the defendants and
each of them deliberately elected to allow the Montee
affidavit and exhibits in all of their significance to
become part of the trial court file without any attempt
at challenge. In other words, the truth of the facts
set forth in the Montee affidavit are accepted as true
by the defendants and each of them.

14. For purposes of ruling on whether the Court
has power to consider defendants’ summary judgment
motion, the Court must accept as established that the
alleged “nonprofit” hospitals listed in the Montee
affidavit:

(a) sell drugs to the general public—persons
having no outpatient or other connection
with the hospitals;

(b) sell drugs to the general public without
any of the defensive, self-serving restric-
tions claimed for the listed hospitals by
the deposition witnesses ;

(c) have, through the testimony of their rep-
resentatives, created numerous questions
of disputed and relevant fact concerning

77

whether there are, in fact, any restric-
tions at all on drug sales to the publie in
competition with plaintiff’s assignors and
other community pharmacies,

15. Mr. Montee’s affidavit related purchase of two
prescriptions from the Holladay Park Hospital Phar-
macy. Copies of the actual prescription labels and the
Holladay Park Hospital Pharmacy cash receipt are
Xerox-copied at page 11 of the Montee affidavit.

16. The two Holladay Park Hospital Pharmacy
purchases alone create a disputed issue of material
fact, for Mr. James Zeazas, Holladay Park Hospital
Chief Pharmacist, testified as follows under oath on
December 12, 1972:

“Q Do you have any written instructions or
policies concerning who may receive drugs from
your pharmacy?

“A No.

“Q Do you have any oral instructions?

[R. 444]

uA Yes, we have an oral policy.

M hat is that, sir?

. ell, primarily we sell only to inpatients
and outpatients, employees and staff physicians,
only walk-ins, as you have referred to patients off
the street, on an emergency basis.”
it haen you personally ever refused to fill

mate prescription
eh p presented to you by a
“A Yes.

78

“Q When was the last such occasion?

“A Yesterday.

“Q) What was the reason?

“A The reason?

“Q Yes.

“A Well, the reason primarily we don’t have
time. We cannot, between the three pharmacists
routinely employed by the hospital, we just don’t
have time to fill anything but inpatient and out-
patient prescriptions.” (emphasis supplied) (Zea-
zas dep. 6, lines 5-25; p. 7, line 1)

17. Only Kaiser admits sales to the general public
without any restriction, and this policy is admitted
by defendants in their memorandum at page 21.

18. The numerous evidentiary conflicts between
the Montee affidavit and the deposition testimony, of
which the above-quoted Zeazas excerpt is a typical ex-
ample, are evidentiary questions for the jury after
study of the demeanor of the witnesses under exam-
ination and cross-examination and, perhaps, examina-
tion by the Court, taking into account evidence of the
financial incentive of the hospitals listed in the Mon-
tee affidavit to sell drugs, at a huge profit, to the gen-
eral public.

19. Defendants have not seen fit in their incom-
plete “charts submitted to the Court on February 28,
1973, to total the drug sales and profits of the alleged
“nonprofit” hospitals. Defendants have in their pos-
session plaintiff’s statistical data drawn from the de-
positions and exhibits that reflect the following, in-

complete data:

79
[R. 445]
Total Drug Sales $32,792,997
Drug Net Income $10,155,165

20. In addition, plaintiff's computation of the
percentage of profit per hospital on total reported
drug sales for the periods for which data was pro-
duced disclose the following percentages:

Dwyer Memorial Hospital 42.84
. reent
Emanuel Hospital 41.24 amas
pa Samaritan Hospital 44.49 percent
resham Hospital 60.53 percent
0 Kaiser and related
ermanente clinics 35.78 percent
Holladay Park Hospital 40.78 Salih

Physicians & Surgeons Hospital 37.04

° reent
Portland Adventist Hospital 38.73 ete
Portland Osteopathic Hospital 28.80 percent

Providence Hospital 36.89 perce

’ t
St. Vincent Hospital 43.00 a ee
Tuality Hospital 44.22 percent
Willamette Falls Hospital not given

Willamette Methodist Center 9.85 percent

21. The above-noted huge profits were achieved
despite the fact that the hospitals sold drugs at very
favorable subsidized levels to employees and _physi-
cians and the charging of “overhead” such as pro rata
shares of losses from charity and cafeteria operation
to drug sales.

22. Defendants’ memorandum at page 18 attempts
to leave the impression with the Court that Kaiser’s
drug prices are low, without, of course, making such
a claim.

80
23. Any such impression is contradicted by Green-

lick deposition exhibit no. 2, dated November 7, 1972:

[R. 446]

“A reassessment of the dispensing fee may
be in order, particularly in view of changes in

i ici ture. The
the community pharmacy pricing struc
initiation of Phase II of President Nixon's wage

and price controls resulted in the publie disclos-
ure of prescription prices, * * *

(no paragraph)
As a result, the Kaiser claim of ‘reduced pre-
scription prices to Health Plan members has less

validity.
(no paragraph)
When compared to independent community phar-

macies, Kaiser prescription charges still appear
to be substantially lower.

(no paragraph)
ble
But Kaiser rates appear to be very compara
and sometimes higher than those charged by the
‘discount’ type pharmacies * * *.
(no paragraph) ,
These changes would appear to have a detrimen-

tal effect on the Kaiser pharmacy capture rate.
* * *” (emphasis supplied) (Greenlick ex. 2-11)

24. And any such impression is further contra-

81

“However, it was reported in the Kaiser Med-
toal Entities Regional Economic Analysis Report
that pharmacy net revenue as a per cent of sales
for the Oregon Region in 1968 was slightly over
20 per cent. This would indicate that more than
$0.60 per prescription was net profit. Both the
percentage and amount are substantially higher

when compared to general community drug dis-
tribution systems.

(no paragraph)

Independent retail pharmacies of similar size
whose prescription income was over 75 per cent
of sales reported that net profits were 7.7 per
cent of sales. The average net revenue per pre-
scription dispensed was $0.36, which was 60 per
cent of that reported by Kaiser pharmacies.” (em-
phasis supplied) (footnotes omitted)

[R. 447]

25. No citation of authority is required for the
principle that long-standing interpretation of a stat-
ute by an administrative agency, although not bind-
ing on the courts, is persuasive, It is therefore sig-
nificant for purposes of defendants’ motion that Scott
Deposition Exhibit No. 17E ruled that Kaiser’s phar-
macy income was considered taxable:

“During 1966 the Internal Revenue Service
filed notices of proposed assessments of additional

federal taxes on income aggregating approxi-
mately $1,400,000 for the three years ended De-

dicted by Greenlick deposition exhibit no. 4-55, which cember 31, 1965, against three unconsolidated

service subsidiaries which are 50% owned by the
confirmed profits much greater than those earned by Kaiser Foundation Health Plan.
community pharmacies:

(no paragraph)
The proposed assessments, which involve determ-

ination of net income from pharmacy operations,
are being contested by the service subsidiaries on

advice of legal counsel. * * *”

26. Defendants’ lengthy but irrelevant apologia
for Kaiser does not cancel out the fact that Kaiser,
after conferences with the U. S. Internal Revenue
Service and on the advice of its counsel, agreed to pay,
and has continued to pay federal income taxes on
millions of dollars in drug sales. Scott Deposition Ex-
hibit numbers 27 through 27D reflects the calculation
of taxable income on $309,585.33 in Oregon drug sales
classified as “Member outpatient and casual pharmacy
services.” Defendants also have not referred to the
evidence that Willamette Methodist Convalescent Cen-
ter pays federal income taxes on certain drug sales
despite its “nonprofit” status.

27. Defendants attempt to downgrade the signifi-
cance of the fact that Permanente Services of Oregon,
Inc., a private, for profit corporation under Oregon
law, obtains drugs from Bess Kaiser Hospital and pays
income taxes on its revenue.

28. The October 20, 1972 Scott deposition dis-
closes that Bess Kaiser Hospital Pharmacy provides
drugs for the office use of physicians in private prac-
tice as partners and employees of Permanente Clinic,
a private, for profit, partnership:

83
[R. 448]

“Q Well, is Permanente Services of Oregon,

Inc. providing any goods or services or faciliti
t
to the Permanente Clinic? ess

“A Yes.
“Q What would that be?

“A To the extent that an individual physi-
cian, his practice requires maintaining a supply
of pharmaceuticals for his office purposes, those
drugs would be provided at locations other than
Bess Kaiser Hospital by Permanente Services.”
(Scott dep. 27, lines 1-10) (emphasis supplied )

28. Permanente Services of Oregon, Inc., a private
for profit corporation, purchases its drugs from Kai-
ser Foundation Hospitals, operator of the Bess Kaiser
Hospital Pharmacy:

“Q Does Permanente Services of Oregon, Inc.
purchase drugs to be distributed—from manufac-
turers to be distributed in the Kaiser Hospital
Pharmacy?

“A Permanente Service does not purchase
drugs from manufacturers.

“Q Who does?

“A Kaiser Foundation Hospitals.

“Q And then does Kaiser Foundation Hospi-
tals transfer those drugs in some manner of book-
reerne entry to Permanente Services of Oregon,
ne.

“A To reflect a purchase by Permanente Serv-

ices of Oregon, Inc. from hospitals.” (emphasis

supplied) (Scott dep. p. 16, lines 21-25; p. 17

lines 1-7)

84

29, Scott Deposition No. 17B, under “Notes to
Financial Statements,” implies that net profits are
paid to private corporations such as Permanente Serv-
ices of Oregon, Inc., and, in addition, to physicians
as providers of medical services:

“Health Plan contracts with groups of physi-
cians and Kaiser Foundation Hospitals to provide
medical and hospital care to its members. ">

“The balance of its income is distributed to
the providers of medical and hospital services in
accordance with the terms of the contracts be-
tween Health Plan and the providers of such
services.” (emphasis supplied)

[R. 449]

80. Plaintiff’s subpoena called for the articles of
incorporation, inter alia, of the Permanente Clinic,
but what was described as the articles of partnership
were not produced:

“Q (BY MR. KANE:) Now, what is, accord-
ing to my notes, Permanente Clinic?

“A The Permanente Clinic is a partnership of
physicians doing business in the states of Oregon

and Washington.
“Q Do you have the Articles of Incorporation

of that?
“A The Articles of Partnership, I do not have

those with me at the moment, Mr. Kane.” (Scott
dep. 6, lines 19-23)

21. Defendants’ memorandum, at page 7, by its
quotation of the articles of incorporation of a Kaiser

subsidiary, implies that Kaiser does not dive

The prohibition quoted at page 7 of the 2» arate
significantly, is not found in the Articles of inser
poration of Kaiser Foundation Hospitals or the Ar-
ticles of Incorporation of Kaiser Foundation Health
Plan of Oregon. The quotation is misleading.

32. Scott Deposition Exhibit No. 17E discloses
that Kaiser revenue is used to finance, from member-
ship and other foundation revenue, what appear to be
generous pensions for Permanente Clinic physicians

in the practice of medicine for personal gain:”
“In 1959 Kaiser Foundation Health Plan, Inc.
adopted retirement plans for the benefit of phy-

sicians serving Health Plan members. * * *

“Retirement plan ex f
$1,952,000. * * *” ee wee

83. Scott Deposition Exhibit No. 17 discloses that
pension costs for physicians and presumably others
affiliated with the Kaiser organization have increased:

“The organizations have pension plans cover-
ing certain employees. The total pension expense
for 1971 and 1970 was $2,340,700 and $1,795

** o” [sic]
[R. 450]

34. Defendants piace undue reliance on the ar-
ticles of incorporation they have made an exhibit to
their memorandum, implying that the Court must ac-
cept their recitals as true and may not look behind
the recitals to determine whether the provisions were
followed.

35. Defendants therefore err in claiming that
“these exhibits establish as a matter of law that the
hospitals are not operating for profit within the mean-
ing of Section 13c” because any such allegation is re-
buttable. Numerous “nonprofit” corporations have
been found to be commercial, not “nonprofit.” Defend-
ants also ignore the fact that under the federal tax
exemption laws an organization may have a tax ex-
emption as a “nonprofit” organization and still be
required, as was Kaiser, to pay federal income taxes
on income from activities—outpatient and walk in
drug sales—outside the scope of the “nonprofit” tax
exemption.

36. Your affiant, therefore, denies that the ar-
ticles of incorporation made an exhibit to defendants’
memorandum are adhered to or are conclusive in and
of themselves. In support of this all zation of a dis-
puted, relevant and material issue of fact your affiant
cites the following passage from the December 14,
1972 Scott deposition:

“Q Now Exhibit 8, the Articles of Incorpora-
tion of Permanente Services of Oregon, Inc., iden-
tified at your prior deposition, states at page 3,
and I quote, ‘In keeping with the primary objec-
tives of this corporation, the net earnings of this
corporation shall be limited to and shall not exceed
a reasonable return, in no event exceeding 10 per-
cent per annum on the capital invested in the con-
duct of the business of this corporation.’

Has this been amended to allow for the 17.5
percent figure set forth in Exhibit No. 19?

87

of this corporation, which is P i
pr an on, is Permanente Services

[R. 451]

This Exhibit No. 19, refers, if I read it cor-
rectly, 17.5 percent. Now, has No. 8 been amended
to We return of that 17.5 percent?

am not involved in developing or main
taining the Articles of Incorporati ;
aware of that. rere se

“Q All right. Has the return actually paid
to that maximum of 17.5 percent? wast

“A It has been paying it,
: | yes, for the years
since this Service Agreement has been entered
ry (Seott dep. p. 41, lines 10-25; p. 42, lines

In other words, despite the provision limiting the
return to 10 percent, Kaiser consistently ignored the
limitation and returned 17.5 percent.

; 37. Because of the Court’s refusal to allow plain-
tiff to make discovery of evidence in the sole pos-
session of defendants concerning the drug distribu-
tion practices of the 14 alleged “nonprofit” hospitals,
plaintiff has been unable to determine whether there
have been other violations of the Articles of Incorpo-
ration relied upon by defendants.

38. There is an issue of relevant and material fact
concerning defendants’ claim at page 6 of their mem-

orandum that the status of Permanente Services of
Oregon, Inc., an Oregon for profit corporation, “has
no independent significance to the present motion,”
because the private corporation is a separate legal en-
tity as a matter of law and fact and pays federal in-
come tax returns on its income.

39. There is an issue of relevant and material fact
concerning defendants’ claim at page 6 of their mem-
orandum that the receipts of Permanente Services of
Oregon, Inc., an Oregon for profit corporation, “are
the property of Health Plan” for the following rea-
sons: the private corporation is a separate legal entity
as a matter of law and fact, its records are main-
tained separately and Mr. Scott, the Controller, used
the term purchases in describing transfers of drugs
to the clinics.

[R. 452]

See paragraph 28 of this affidavit, supra, at page 11,
lines 9-22. In addition, if net profits include “re-
ceipts,” the evidence is that Permanente Services of
Oregon, Inc., the for profit corporation, retains the
profits:

“Q What happens to your profits after taxes

for Permanente Services of Oregon, Inc.?

“MR. ELLIS: You are referring to the net in-
come figure?

“MR. KANE: Yes, after taxes.

“THE WITNESS: It is reflected in the net
worth section of the Balance Sheet of Permanente
Services.

89
—— Well, are any dividends distributed to any-
“A No.
. -_ .

“Q Have any dividends ever been distri
uA No, not to my knowledge. eee
' ‘Q What is the total paid in capital, accord-
ng to your records now then for Permanente
Services of Oregon, Inc.?
e. i
. DUNN: What is the Fifty?
“THE WITNESS: Common stock.
MR. PHELAN: That is the invested capital.
Do a ge the total capital?
“ KANE: Yes, the total capi
by ae records. smarter
“ WITNESS: Which i
tained earnings and stock? a
“Q Everything.
“A Combination of the tw
Dosamber 31, 1971. sitcom aaah
“Q What was the initial paid in capital?
“A Common stock of $50,000.

[R. 453]
“Q So, the diffe
$205,000 is the — rence between $50,000 and

“A (Interposing) Retained earnings of $1

” 4
227.” (October 20, 1972 Scott dep., p. 22, ines 9-
25, p. 23, lines 1-21)

If the receipts did, in fact, belong to another organiza-
tion, Permanente Services of Oregon, Inc., would have
no taxable income. The above excerpt, however, estab-

90

lishes substantial retained earnings, and the same de-
position, at pages 11-12, establishes that Permanente
Services of Oregon, Inc. had income of $1,062,539 in
calendar 1971, net income of $31,220 before taxes, and
paid $8,485 federal taxes, $1,600 State of Oregon
taxes and a $100 franchise tax to the State of Cali-
fornia. Despite the defendants’ efforts to obscure the
facts, the two corporations are separate and are treat-
ed separately and therefore Kaiser and the defendants
are bound by the deliberate choice of Kaiser to do bus-
iness as it has done.

As noted in Perma Life Mufflers, Inc. v. Interna-
tional Parts Corp., 392 U.S. 134, 141-142 (1968) :
“There remains for consideration only the
Court of Appeals’ alternative holding that the
Sherman Act claim should be dismissed because
respondents were all part of a single business en-
tity and were therefore entitled to cooperate with-
out creating an illegal conspiracy.
(no paragraph)
But since respondents Midas and International
availed themselves of the privilege of doing busi-
ness through separate corporations, the fact of
common ownership could not save them from any
of the obligations that the law imposes on separate
entities.” (emphasis added)

40. There is an issue of relevant and material fact
concerning defendants’ claim at page 6 of their mem-
orandum that “PSO’s operation of the pharmacies in
the satellite clinics is nominal, and it is no more than
a department of the Kaiser program.” That allegation

91

is contradicted by the followi
ng excerpt fro
October 20, 1972 Seott deposition : “7 ——

[R. 454]

“Q * * * Is Permanente Se
Inc. an administrative body of ane ~ pst
“A No, it is not.
Ss _ is it then?
ermanente Services of Oregon, Inc. -
vides pharmacy and optical — wth .
members of the Kaiser Foundation Health Plan
"Q Does it provide any other services?
@ Docs
7 it opera i
eae Hospital? te the pharmacy in the Bess
9 a it does not.
. it operate any of the Kaiser Clinics?
Pt. It operates what you refer to as Kaiser
rmaces—those in the State of Oregon, other
than those located at Bess Kaiser Hospital.
‘ Q In other words, the various clinics that
ave been testified to by Mr. Pirtle as being under

his supervision are operated by th
Serviems of Ovensn. foe? by the Permanente

“A That is correct.” (emphasis li
Scott dep. 7, lines 6-25; p. 8, line 1) sia

41. There is an issue of relevant and material fact
concerning defendants’ claim at page 10 of their
memorandum that the volume of purely retail drug
sales to members of the public—the casual or “walk-
in” customers is de minimus [sic], occurring primar-
ily in cases, they allege, of “emergency” and “hard-

92

ship.” Tle witnesses, for reasons previously related,
kept their “estimates” as low as possible, but such “es-
timates” are doubtful in view of their personal inter-
est in the outcome of this phase of the litigation and
are further doubtful because of the ease with which
plaintiff’s investigator, purchased prescription and
other drugs as a casual customer without any claim of
“hardship,” “emergency” or other representation that
would have changed the status of his purchase. As-
suming, but not conceding, that

[R. 455]

that [sic] the “estimates” are relatively accurate, such
continuous and regular sales are substantial as a mat-
ter of fact and as a matter of law. The issue is wheth-
er sales are made, not the number of such sales. And
defendants pointedly ignore the fact that the sales are
made in competition with plaintiff’s assignors and
other community pharmacies. Defendants also ignore
the fact that the Kaiser organization makes such sales
without any restriction and those sales are substantial.
Scott Deposition Exhibit No. 30 states at page 3 of
the “Accounting Policy” manual pertaining to phar-
macy:
“On the advice of our Legal Department, the
corporation is filing both State and Federal un-
related business income tax returns. * * *”

The October 20, 1972 Scott deposition, which was
not summarized by defendants and filed as an exhibit,
established that Kaiser reports an ever increasing

amount of drug revenue from drug sales not covered
by its “nonprofit” exemption.

bio 1971 Kaiser reported gross receipts of $10,561,-

wer 1970 Kaiser reported gross receipts of $8,769,-

aa 1969 Kaiser reported gross receipts of $7,057,-

Pe, 1968 Kaiser reported gross receipts of $4,959,-

In four calendar years Kaiser reported gross re-
ceipts totaling $31,348,159 from drug sales outside the
“nonprofit” organization tax exemption. And Kaiser
paid federal income taxes on that revenue.

Even if only ten percent of the above total repre-
sented “walk-in” sales, the percentage is equal to $3.1
million!

42. There is an issue of relevant and material
fact concerning defendants’ claim that nearly 90 per-
cent of the drugs are dispensed to “inpatients.” Be-
sides being incorrect, the statistic does not take into
account the much greater casual sales of the Kaiser
group. Many of the so-called “inpatient” sales include
so-called “take-home” drugs that are charged to the
patient’s bill, but are for use following his or her

discharge from the hospital, and include forced sales
over

94
[R. 456]

protests and against the wishes of the recipients, See
the Carlston and Pye depositions. Both represented
forced, involuntary sales of drugs for use following
discharge of the patient.

43. There is an issue of relevant and material fact
concerning defendants’ allegation at page 10 of their
memorandum that the hospital drug sales are used
primarily for the “acutely ill.” At best that is sim-
plistic, for as a general proposition only a fraction of
the hospitalized are “acutely” or “seriously” or “crit-
ically” ill. Indeed, much of the drugs are in the na-
ture of “maintenance of health” drugs, e.g., vitamins,
routine pain pills, ete. It is questionable whether birth
control pills are for the “acutely ill.” A noticeable per-
centage of so-called “inpatient” drug sales represent
sales of drugs to be consumed following discharge
from the hospital. The users would not be discharged,
presumably, if they were “acutely ill.”

44. There is an issue of relevant and material
fact concerning defendants’ allegation at page 10 of
their memorandum that the hospitals make no effort
to sell drugs to the public by advertising or other pro-
motion. Such hospitals promote the sale of their drugs
for the considerable profits earned by encouraging
the sale, inter alia, of “take-home” drugs to be used
following discharge from the hospital.

45. There is an issue of relevant and material
fact concerning defendants’ allegation at page 11 of
their memorandum that the drug distribution policies

are designed “to avoid competition with community
pharmacies.” Defendants ignore the Kaiser policy, of
course, to sell to all buyers. Plaintiff subpoenaed writ-
ten policy statements on the subject, but the alleged
non-competition policies appear to be oral policies and
in a number of instances are contradicted by the Mon-
tee affidavit. Moreover, sales to outpatients and other
persons not hospitalized “inpatients,” employees and
their families, and doctors and their families consti-
tute competition with community pharmacies. It is
ridiculous to claim that the hospitals don’t compete
for drug sales when, in fact, they offer advantageous
low, subsidized prices

[R. 457]

that the community pharmacy cannot meet. Were
plaintiff allowed by the Court to make the hospital
price discovery plaintiff insists is vital for proper
understanding and evaluation of the Second Cause of
Action and the pending motion, it would be quite
manifest that the hospitals successfully and deliber-
ately compete with community pharmacies for the re-
tail trade of the public and the hospitals’ employees,
physicians, students and volunteers and their fami-
lies. Because the hospitals offer prices substantially
lower than the prices that can be charged by the com-
munity pharmacies, which pay the full, unsubsidized
price, the hospitals are quite successful competitors,
as evidenced by their substantial sales to employees,
physicians and others. Sometimes the favored employ-
ees, physicians and their families pay less for a drug

than the price the drug manufacturer charges the
community pharmacy. One example of competition
with a community pharmacy that is one of plaintiff’s
assignors is contained in the AFFIDAVIT OF LO-
GAN WALLACE RE REFILLING OF PRIVATE
DOCTOR’S OFFICE PRESCRIPTION BY PORT-
LAND ADVENTIST HOSPITAL, executed February
24, 1973. Another example of such competition is con-
tained in the AFFIDAVIT OF LOGAN WALLACE
RE REFILLING OF PRIVATE DOCTOR’S OFFICE
PRESCRIPTION BY EMANUEL HOSPITAL
PHARMACY, executed December 30, 1972. Other ex-
amples of successful taking away of drug business
from a community pharmacy are exhibits 13 and 14
to the December 7, 1972, deposition of Henry Wong,
Providence Hospital Chief Pharmacist.

Deposition exhibit no. 13 states:
“TO WHOM IT MAY CONCERN:

“Please do not accept any more prescriptions
for Vera Narveson at Bel Air Convalescent Home
as both my husband and I work at Providence
Hospital and can get our prescriptions filled at a
very good discount.

“Guess the nurses at Bel Air didn’t understand
the instructions when we brought Mother to Bel
Air for care.

“Thank you so very much, but I just can’t see
paying the full price when we can get a discount
especially when her medicines run very high.
Thank you so very much.

97
[R. 458]

Sincerely,
/8/ Mrs. Raymer (Avis)”

Deposition Exhibit No. 14 states:

“TO WHOM IT MAY CONCERN:

“Please continue to issue the GLYSENNID
TABLETS whenever necessary to Bel Air Con-
valescent Home, 11850 S. W. Allen Blvd., Beav-
erton, Oregon. for Vera Narveson as these I can’t
get through Providence Hospital Pharmacy. They
do not carry them.

“Thank you very much.

/8/ Mrs. C. Rhymer
(Her Daughter)”

46. There is an issue of relevant and material fact
concerning defendants’ allegation at page 11 of their
memorandum that “Most of the hospital pharmacies
are located in areas not easily accessible to the public.”
I categorically deny that said allegation is true; cer-
tainly plaintiff’s representative, Raymond Montee, ex-
perienced no access difficulties when he purchased
drugs from various hospital pharmacies. Not one of
the witnesses examined and cross-examined on the
“access” issue said their hospital pharmacy was inac-
cessible, or barred to the public, or difficult to locate.
None said that a hospital employee would refuse an
inquiry as to the location of the pharmacy. All of the
pharmacies were in the “public” parts of the hospital,
as distinct from areas restricted to employees and

physicians such as laboratories. Some of the hospital
pharmacies are quite readily accessible. The Bess Kai-
ser Hospital Pharmacy, for example, occupies a highly
visible location in the main hospital lobby a short dis-
tance from the entrance to the lobby. It is difficult,
if not impossible, to avoid seeing the pharmacy. See,
for example, Zeazas Deposition Exhibit No. 18. It is
a sketch of the Holladay Park Hospital lobby showing
the pharmacy to be located five feet from the lobby
entrance. The Zeazas deposition states at page 40,
lines 10-18, with respect to Exhibit No, 18:

[R. 459]

“@ With that as north, the entrance is north,
so, therefore, the pharmacy then is at the east of
that main entrance?

“A That is right.

“Q About how many feet from the main en-
trance is the pharmacy?

“A Just a few feet, five feet.

“Q Five feet from your main entrance?

«A Yes.”’

47. There is an issue of relevant and material
fact concerning defendants’ allegation at page 11 of
their memorandum that drug sales to “walk-ins,” per-
sons having no association with the hospital, are for-
bidden or discouraged and are characteristically lim-
ited to cases of imme ciate need or emergency, as in
the evenings and on weekends when community phar-
macies are closed, and the alleged “policy” is en-
forced by requiring customers who are not known to

99

the pharmacist to identify themselves or the family
member for whom a drug is purchased. I categorically
deny that said allegations are true, and cite in sup-
port of said denial the unchallenged Montee affidavit,
the fact that the hospital pharmacies do sell to the
casual public and the further admitted fact that Bess
Kaiser Hospital sells without any restrictions whatso-
ever.

48. There is an issue of relevant and material fact
concerning defendants’ allegation at page 11 of their
memorandum that the volume of walk-in business is
negligible and is less than one percent of total drug
sales. I categorically deny that said allegations are
true, and cite in support of said denial that assuming
but not conceding that “walk-in” sales are less than
one per cent of total drug sales, even one percent of
the $32,792,997 in drug sales in the record is signifi-
cant, and the figure is much higher when Kaiser’s
sales without restriction at its hospital pharmacy and
five Permanente Clinic pharmacies are taken into con-
sideration. See, for example, Exhibit No. 3 to the
March 6, 1973 deposition of Robert C. Wiggin, Lincoln

[R. 460]

National Life Insurance Company Claim Manager,
which evidence a total of 2,071 Kaiser prescriptions
and 13 Willamette Community Hospital prescriptions.
See Wiggin Deposition No. 4—EILEEN CUMMINS
AFFIDAVIT RE RETAIL CLERKS UNION, LO-
CAL 1092, PRESCRIPTION DRUG PURCHASES

100

FROM KAISER HOSPITAL AND RELATED
CLINIC PHARMACIES AND WILLAMETTE COM-
MUNITY HOSPITAL. By definition, none of the
Kaiser prescriptions are “inpatient” hospital drug or-
ders. Instead, they are purchases by casual “walk-in”
members of the public — members of Retail Clerks
Union, Local 1092 and their families. The Kaiser
sales were “captive” sales because the union local
required its members to purchase prescription drugs
from Kaiser and other “participating” pharmacies
(see Wiggin Deposition Exhibit No. 2, the Wiggin
deposition, the January 3, 1973, deposition of Gordon
Swope, President of Retail Clerks Union Local 1092,
and the deposition taken January 12, 1973 of Wil-
liam C. Earhart, who administers the agreement be-
tween the union and the insurance company) if they
desired to be reimbursed for 80 percent of the cost
of said prescriptions. Of course they desired to be so
reimbursed and therefore purchased their prescrip-
tions from Kaiser and other “participating” pharma-
cies.

49. There is an issue of relevant and material
fact concerning defendants’ allegation at page 11 of
their memorandum that “walk-in” sales are minimal.
I categorically deny that allegation. The “estimates”
lack foundation and are suspect, at best, because they
were self-serving to protect the hospitals from possible
lawsuits for violation of the Robinson-Patman Act.
The weight, if any, to be given the unreasonably low
estimates is a question for the jury after the jury has
observed the demeanor of the witnesses under examin-

101

ation and cross-examination. Assuming but not con-
ceding that “walk-in” sales are minimal, what is rel-
evant for purposes of this litigation is that “walk-in”
drug sales occurred over a period of years throughout
the metropolitan area of Portland.

50. There is an issue of relevant and material
fact concerning

[R. 461]

exclusion from defendants’ allegations at page 11 of
their memorandu, [sic] of the cash register computed
“walk-in” drug sales reported by Kaiser for the period
March 1, 1970 to September 30, 1972. Pirtle Deposi-
tion Exhibit No. 2 lists a total of 6055 “non-mem-
ber,” that is, “walk-in” drug sales, for the 30-month
period ending September 30, 1972. That number is
more than “minimal,” to say the least.

5v. There is an issue of relevant and material fact
concerning defendants’ allegation at page 11 of their
memorandum that none of the hospitals “supply other
markets.” I categorically deny that allegation on the
evidence in the record that Bess Kaiser Hospital ships
drugs it receives at its receiving facility to destina-
tions out of the State of Oregon. By definition, a mar-
ket outside of this state is another market.

Counsel for defendant William H. Rorer, Inc. and
counsel for the Kaiser Foundation objected to plain-
tiff’s efforts to determine whether Kaiser Hospital in
Portland shipped drugs from Portland to the State of
California:

102

“MR. PHELAN: Before we were apprised of
Mr. Ellis’s representation of one of the defend-
ants with respect to distribution of drugs, I think
he has answered with respect to distribution of
drugs within this area. He would certainly answer
those questions, but as far as distribution outside
of this area, we would ask him not te answer be-
cause we think it is outside of the scope of your
examination and of the case.

“Q (BY MR. KANE:) All right, let’s make
a record.

Are you shipping drugs into the State of Cal-
ifornia?

“MR, PHELAN: Don’t answer.

“MR. KANE: All right.

“MR. TRIPLETT: I will join in the objection.

“MR. KANE: Let the record show that the
witness refused to answer on advice of counsel.”
(Pirtle dep. 37, lines 1-18)

The Court denied plaintiff’s motion to overrule the
above objection:

[R. 462]

“6. Paragraph (2) of plaintiff's motion,
dated October 27, 1972, for an Order that Mr.
Roscoe Pirtle, Chief Pharmacist, Bess Kaiser
Hospital, shall answer fully and completely plain-
tiff’s deposition questions concerning distribution
of drugs from said hospital, including but not lim-
ited to whether drugs are shipped from said hos-
pital to delivery points in the State of California,
and shall produce documents called for pursuant
to any Subpoena Duces Tecum relating to such

103

distribution, is denied, except as allowed in Para-
graph 2 of this Order.” (AMENDED ORDER
dated December 8, 1972)

The trial court file confirms the issue of disputed rel-
evant fact.

51. There is an issue of relevant and material fact
concerning defendants’ allegations at pages 11-12 of
their memorandum that none of the hospitals purchase
drugs for, or distribute them to, clinics or other hospi-
tals or pharmacies “and only if a drug is needed in an
emergency for immediate use will any hospital lend
or sell drugs (usually at cost) to such institutions
(App. 6).” I categorically deny said allegations.

The Bess Kaiser Hospital sells drugs to the Per-
manente Clinic, a for personal gain partnership of
some 130 physicians practicing in the Portland area.
See page 11, lines 1-22, of this affidavit, supra, re
purchases of drugs by the Permanente Clinic from the
Kaiser Foundation Hospitals, and paragraph 50 of
this affidavit, supra.

52. There is an issue of relevant and material
fact concerning defendants’ allegations at page 12 of
their memorandum that sales to staff physicians are
small in amount and that the record shows no signifi-
cant distribution of drugs to doctors’ offices. I cate-
goricaily deny said allegations. What is significant is
that such sales occur and the record is barren con-
cerning any prohibitions on sale of drugs to physicians
for distribution and resale by the favored physicians.
At Portland Osteopathic Hospital, for example, for

104

the ten months ending October 31, 1972 the hospital
sold drugs for $4,134.54 to staff physicians, accord-
ing to Matlick Deposition Exhibit No. 5. The Dwyer
Memorial Hospital physician figure total was an esti-
mated $2,000 for

[R. 463]

for the period ending June 30, 1972 (Lindley Ex. No.
3)..Other hospitals, e.g., Emanuel Hospital and Phy-
sicians and Surgeons Hospital, include sales to physi-
cians in the statistical data designated sales to hos-
pital employees. The Emanuel Hospital Chief Phar-
macist testified :

“BY MR, VAVROSKY:

“Q Mr. Fawkes, we have discussed the per-
centage breakdown of sales of drugs by the phar-
macy. I understand that over 91% of your drugs
are administered to inpatients in the hospital.

“A Yes.

“Q And of less than nine per cent, approxi-
mately half of those are administered to both em-
ployees and their families and staff physicians
and their families, is that correct?

“A Well, half of the nine percent to employ-
ees and physicians, yes.” (Fawkes dep. p. 26,
lines 9-20)

Assuming the above-quoted estimates are correct,
sales to physicians are more than nominal because
Emanuel Hospital reported drug sales totaling
$5,114,964 for the discovery period ending November
1, 1972. Further assuming that the above estimates

105

are correct and that sales to physicians were half the
42% estimate for doctors and employees, drug sales
to physicians were in the neighborhood of $20,000, a
not inconsiderable sum for but one of 14 alleged “non-
profit” hospitals.

Physicians have every incentive to purchase their
drugs for office use through the hospitals because of
the difference in price between purchase from the
manufacturer or wholesaler at the full, unsubsidized
price and the much lower price of the hospital charged
by the hospitals after sweetening the incentive with
generous physician’s discounts.

Mr. Ralph G. Sessler, former Portland Osteopathic
Hospital Chief Pharmacist, testified of hospital drug
sales to physicians for office use:

“Q During this period did you sell drugs to
physicians?

“A Yes.

“Q Were there any restrictions on drugs sold
to physicians?

[R. 464]

“A Our administrator was trying to cut that
out, but there was no restrictions, no.

“Q Did these drug sales, during that period
that you we

[Text truncated at 120,000 characters. The full text is on the page linked above.]

---

Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385003_0326%3A02. Public record. Not legal advice.