# Appendix — North Carolina v. Chas. Pfizer & Co. > Briefs, arguments, decisions, and more. URL: https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385004_0087%3A2 ## Record - **Collection:** Supreme Court brief - **Document type:** Appendix - **Published:** January 1, 1976 - **Citation:** 429 U.S. 870 ## Text IN THE ee OOM Supreme Court of the United Biaies.. “8 Bite OCTOBER TERM 1975 |: 4 \ JUN 11 1976 MICHAEL RODAK, JR., CLERK et No 95-1801 THE STATE OF NORTH CAROLINA Petitioner, Vv. CHAS. PFIZER & CO., INC., AMERICAN CYANAMID COMPANY, BRISTOL-MYERS COMPANY, OLIN MATHIESON CHEMICAL CORPORATION and THE UPJOHN COMPANY, Respondents. APPENDICES TO PETITION FOR A WRIT OF CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR THE FOURTH CIRCUIT RUFUS L. EDMISTEN Attorney General of North Carolina JEAN A. BENOY Deputy Attorney General NOEL L. ALLEN Attorney N. C. Department of Justice P. O. Box 629 Raleigh, North Carolina 27602 Telephone: (919) 829-3786 Attorneys for Petitioners ee APPENDICES TABLE OF CONTENTS Appendix A Judgment of the Fourth Circuit.. Opinion of the Fourth Circuit... Order granting extension of time to file petition for DEMOS EMBc cc cccceccecceesesoce Order denying petition for TTT TTTTTrTeTeTee Order staying issuance of 0 re Appendix B Pertinent part of First Amended Complaint re plea of Collat- eral Estoppel...cccccccccccces Bench order of E.D.N.C. re plea of Collateral Estoppel........ Order of E.D.N.C. re plea of Collateral Estoppel..........-. In re Coordinated Pretrial Proceedings in Antibiotic Antitrust Actions (S.D.N.Y. BOT ES ccc cocececcesoeceeeeceess Pfizer v. Lord, 456 F. 2d 545 Eee 66 6 6866.00 0666 064068 OD6" B-1 B-10 B-13 B-15 B-36 Appendix C Memorandum of Decision of Means © © & © 66 6 68 66 6606666 60d Judgment Of E.D.N.C...ceeeeececs Appendix D Statutes and Rules Involved..... Appendix E Excerpts of Kespondents' Briefs to the Sixth Circuit re issue of fairness of FTC PFOCECEMING. .. ce eeeeeeseeveees Excerpts of Pfizer's Brief to the Sixth Circuit re issue of COE ses be 60 0b0660es6 Excerpts of Cyanamid's Peti- tion for Rehearing in Sixth Circuit re fraud........ Appendix F Chronology of principal events relating to the patent aspect of the Commission's Decision as to Pfizer and Cyanamid..... Appendix G Antitrust cases in which Walker Process was applied but no fraud was found........ Antitrust case in which Walker Process was applied and fraud was PS «44466000 466466406006 35la 908a D-1 E-1 E-13 F-1 G-1 G-3 Appendi»x H Excerpts of Petitioner's Main Brief to the Fourth Circuit re questions raised on appeal and issues presented.......... H-l Appendix I Excerpts of Patent Examiner Lidoff's COSCIMOMY «ce cccccccecce I-l Appendix J PetitionerS Exhibit showing exchange of price information between TESPONGENtTS.ccocssccseseseseseseses J-1 A-1 UNITED STATES COURT OF APPEALS For The Fourth Circuit No. 74-2154 THE STATE OF NORTH CAROLINA, Appellant, versus CHAS. PFIZER & CO., INC., AMERICAN CYANAMID COMPANY, BRISTOL-MYERS COMPANY - OLIN MATHIESON CHEMICAL CORPORATION and THE UPJOHN COMPANY, Appellees. Appeal from the United States District Court for the Eastern District of North Carolina, at Raleigh This cause came on to be heard on the record from the United States District Court for the Eastern District of North Carolina, and was argued by counsel. On consideration whereof, It is now here ordered and adjudged by this Court that the judgment of the said District Court appealed from, in this cause, be, and the same is hereby, affirmed. A~2 A-3 s/s William K. Slate, II CLERK UNITED STATES COURT OF APPEALS For The Fourth Circuit FILED No. 74-2154 JAN 12 1976 THE STATE OF NORTH CAROLINA, WILLIAM K. SLATE, II Appellant, CLERK versus CHAS. PFIZER & CO., INC., AMERICAN CYANAMID COMPANY, BRISTOL-MYERS COMPANY - OLIN MATHIESON CHEMICAL CORPORATION and THE UPJOHN COMPANY, . Appellees. Appeal from the United States District Court for the Eastern District of North Carolina, at Raleigh Argued Jun 10, 1975 Decided Jan 12, 1976 Before RUSSELL, FIELD and WIDENER, Circuit Judges. [Names of Counsel Ommitted] FIELD, Circuit Judge: Alleging violations of sections 1 and 2 of the Sherman Act, the State of North Carolina instituted this action for damages on behalf of itself, its governmental sub- divisions and all citizen consumers who had purchased broad-spectrum antibiotics manu- factured and sold by the defendants in North Carolina during the seriod 1952 to 1966. The defendants are Chas. Pfizer & Co., Inc. (Pfizer), American Cyanamid Company (Cyanamid), Bristol-Myers (Bristol), Olin- Mathieson Chemical Corporation (Squibb), and The Upjohn Company (Upjohn). The thrust of the plaintiff's case is that Pfizer, aided by Cyanamid, obtained the Conover patent! on the antibiotic, tetracycline, by conduct which amounted to a fraud on the Patent Office and thereafter, in combination with the other defendants, exploited it for the purposes 1. Tetracycline was first identified by Dr. Conover, a Pfizer chemist, and an application for a patent on tetracycline and the production process was filed by Pfizer on behalf of Dr. Conover on Oct 23, 1975. The patent, carrying No.2,699,054, is generally referred to as the Conover patent. A-5 of restraining and monopolizing trade and commerce in the broad-spectrum antibiotic market and particularly the tetracycline market. + The case was tried to the court without a jury, and after an ex- tended trial the district judge filed an opinion containing his —— of fact and conclusions of law.” The court con- cluded that the plaintiff had failed to establish that the defendants had violated the Sherman Act, or that Pfizer was guilty of fraudulent procurement or misuse of the Conover patent. Accordingly, judgment was entered in favor of the defendants and North Carolina has appealed. North Carolina's appeal presents two issues: (1) Whether the district court erred as a matter of law when it denied the plaintiff's motion for partial summary judgment on the basis of collateral estoppel that Pfizer and Cyanamid had caused the Conover patent to be issued by defrauding the United States Patent Office; and (2) whether the district court's findings of fact were clearly erroneous. . See Walker Process Equipment, Inc. v. 2 Food Machinery & Chemical Corp., 382 U.S. 172 (1965). Pfizer 2. State of North Carolina v. Chas. & Co., Inc., 384 F.Supp. 265 (E.D. N.C. 1974). 3 A-6 The Conover patent has been involved, either directly or indirectly, in extensive litigation commencing with a proceeding before the Federal Trade Commission (Commission) in 1958, and the background of the present controversy has been chronicled in a number of decisions.° The relevant facts developed in the district court are as follows. Prior to 1952 three effective and patented broad- spectrum antibiotics were produced and marketed. They were Aureomycin which was produced by Cyanamid and was covered by the Duggar patent, U.S. Patent No. 2,482,055 and the Niedercorn patent, U.S. Patent No.2,609,329; Terramycin 3 The reported cases are as follows: United States v. Chas. Pfizer & Co., Inc., et al, 245 F.Supp. 801 (S.D. N.Y. 1965). American Cyanamid Co.v. F.T.C., 363 F.2d 757 (6 Cir. 1966). Chas. Pfizer & Co., Inc. v. F.T.C.. 401 F.2d 574 (6 Cir. 1968), cert. den.ed, 394 U.S. 920. United States v. Chas. Pfizer & Co., Inc., 217 F.Supp. 199 (S.D. N.Y. 1963). United States v. Chas. Pfizer & Co., 281 F.Supp. 837 (S.D. N.Y. 1.68). United States v. Chas. Pfizer & Co., 426 F.2d 32 (2 Cir. 1970), reh.den., 437 F.2d 957, cert. granted,402 U.S. 548. United States v. Chas. Pfizer Co., Inc., 367 F.Supp. 91 (S.D. N.Y. 1973). 4 A-7 which was produced by Pfizer and was covered by the Sobin patent, U.S. Patent No. 2,516,080; and Chloromycetin which was patented and produced by Parke-Davis. Parke-Davis is not a party to the present litigation. None of these three manu- facturers granted licenses or cross- licenses for these particular drugs. Each of the antibiotics are prescription drugs and their sales are largely dependent upon the physician's opinion of their effectiveness. Since they have a high degree of interchange- ability, each manufacturer priced his drugs at a level competitive with the other two producers, thereby creating a stable and parallel price structure, and price reductions by one manufacturer were met by the others during these years. Prior to 1952, neither the molecular structure of Terramycin nor that of Aureomycin was known, and Dr. Conover, a Pfizer scientist, was a member of a research team which was seeking to determine the structure of Pfizer's Terramycin. In the spring of 195% the Pfizer team succeeded in ascertaining the structures of both Terramycin and Aureomycin. Shortly thereafter, Dr. Conover discovered that another antibiotic, tetracycline, 5 A-8 could be produced by the application of a deschlorination process to Aureomycin. Pfizer filed the Conover application for a product and process patent on tetra- cycline in October of 1952, and in March of 1953 Cyanamid filed its Boothe-Morton application for a similar patent. In addition to these two applications, in September of 1953 H-yden Chemical Corp- Oration filed its Minieri application? for a patent on tetracycline and the fermentation process for producing it, and in Oc’.* er, 1953, Bristol filed a similar application under the name of Heinemann. The competing claims of Pfizer and °* Cyanamid resulted in the declaration of an interference by Herbert J. Lidoff, the Patent Examiner, in December of 1953. While Pfizer believed that it possessed priority of invention, it was aware that its sole method of tetracycline production 4. Shortly after the filing of the Minieri application, Heyden negotiated the sale of its Antibiotic Division to Cyanamid and on December 1, 1953, Cyanamid took over the assets of Heyden's Antibiotic Division, in- cluding the Minieri patent application. Thereafter, Cyanamid abandoned the product claims of the Minieri application but continued to prosecute the process claims. A patent on the Minieri process claim was issued to Cyanamid in February, 1956. 6 A-9 depended upon the application of the deschlorination process to Cyanamid's patented Aureomycin thereby making it wholly dependent upon Cyanamid for its supply of bulk Aureomycin. In an attempt to resolve the question, representatives of the two companies worked out an agree~- ment providing (1) that the parties would exchange proof of priority and that the prevailing party would grant a non- exclusive license to the other in consid- eration of a fixed royalty; (2) that Cyanamid would grant Pfizer a non-exclusive license to produce Aureomycin for use in tetracycline production; and (3) that Cyanamid would sell to Pfizer an initial quantity of bulk tetracycline so that Pfizer might immediately enter the tetra~ cycline market. After an exchange of proofs relative to the discovery Cyanamid conceded priority to Pfizer and, upcn this concession, the Patent Office ter- minated the interference. In the meantime, Bristol continued the prosecution of its Heinemann application, and in March of 1954 the Examiner declared a second interference between the Heinemann, Conover and Cyanamid's Minieri applications. The interference proceed- ing continued until October 14, 7 A-10 1954, on which date the Examiner dissolved the interference, primarily on the ground that tetracycline was unpatentable over the prior art as disclosed in Cyanamid's Duggar and Niedercorn patents because tetracycline, as well as Aureomycin, appeared to be co- produced in fermentation processes disclosed by those two prior patents. Thereafter, in November of 1954 the Examiner issued rejections on all of the claims in the Conover, Minieri and Heinemann applications. Following this dissolution of the second interference Pfizer continued the ex parte prosecution of the Conover application and endeavored to convince Examiner Lidoff that he was in error. Subse- quently, Lidoff requested Pfizer to run tests on “Example 28: which was one of the forty- four samples of media contained in the Niedercorn patent. Pfizer conducted the tests to determine whether tetracycline could be recovered from "Example 28" using the recovery procedures described in the Bogert-Walsh,> Minieri and Heinemann applications. 5. The Bogert-Walsh application was filed by Pfizer in April of 1954 and dealt with the separation of tetracycline from chlortetra- cycline in fermentation broths and other aqueous solutions. 8 A-11 Based upon these tests Pfizer submitted affidavits to the Examiner, reporting that efforts to recover products clearly identifiable as tetracycline from the "Example 28" fermentation broths were unsuccessful. Following the submission of further information by Pfizer, Examiner Lidoff withdrew his previous rejection and allowed the Conover application. The patent on tetracycline and the deschlorination process was issued to Pfizer on January ll, 1955. -I- As heretofore stated, the controversy relative to the procurement: and use of the Conover patent by Pfizer first surfaced in a proceeding before the Federal Trade Commission in 1958, charging the five defendants in the present case with violations of Section 5 of the Federal 9 A-12 Trade Commission Act, 15 U.S.C. §45.° the Commission's complaint alleged, among other things, that Pfizer had made false and mis- leading statements to the Patent Office for the purpose of inducing the issuance of the Conover patent, and that Cyaiiamid and Bristol had withheld material information from the Patent Office in the course of the prosecution of their patent applications. It further charged that Pfizer, Cyanamid, Bristol, Squibb and Upjohn had violated the Act by maintaining arbitrary prices through a conspiracy and combination, and by restraining and eliminating competition in the sale of antibiotics. The Hearing Examiner initially found in favor of the drug companies on all issues and dismissed the complaint. However, the Commission reversed the Hearing Examiner and determined that Pfizer and Cyanamid were guilty of a fraud 6. 15 U.S.C. §45 (a) (1): "Unfai -C. : r methods = Fa Sema in commerce, and unfair eceptive acts or practices i are declared eniewlei.* pines 15 U.S.C. §45 (a) (6): "The Commission is empowered and directed to prevent per sons partnerships, or corporations *** rth using. unfair methods of competition in commerce and unfair or deceptive acts or practices in commerce." 10 A-13 on the Patent Office and that they, together with Bristol, Squibb and Upjohn, were guilty of price fixing. The Commission issued a cease and desist order with respect to price fixing and, additionally, directed Pfizer to license its tetracycline patent to any domestic applicant on a two and one-half per cent royalty basis. Under identical terms Cyanamid was directed to license its two Aureomycin patents. The respondent companies filed a petition for review in the Court of Appeals of the Sixth Circuit. ’ After a review of the pro- ceedings in the Patent Office incident to the prosecution of the Conover application, the court stated that "[f]undamental to the Commission's findings of improper conduct on the part of Pfizer and Cyanamid is the question as to what extent previous co- production of tetracycline in Aureomycin broths was material to the issuance of the patent."® The court noted that this involved numerous questions concerning the actions and purposes of Examiner Lidoff as representative of the Patent Office, 7. American Cyanamid Company v. F.T.C., 363 F.2d 757 (6 Cir. 1966). 8. Id., at 777. 11 , A-14 and concluded that in the absence of his testimony the decision of the Commission on this issue was necessarily based upon infer- ences and speculation insufficient to constitute substantial evidence. Accordingly, the entire proceeding was remanded to the Commission for a de novo hearing, with directions that the Commission could consider any evidence previously taken as well as any additional evidence relevant to the issues. Upon the remand, the proceeding was assigned to a new Hearing Examiner and the testimony of Examiner Lidoff and two witnesses for Pfizer was taken. The Hearing Examiner found that representatives of both Pfizer and Cyanamid had made false and misleading state- ments to the Patent Office which induced the issuance of the Conover patent, and that such conduct constituted an unfair method of — competition within the meaning of the Federal Trade Commission Act. The Commission adopted the findings and conclusions of the Hearing Examiner relative to the patent issue, but dismissed the charge of price fixing by an equally divided vote. The Commission's order again required Pfizer and Cyanamid to grant non-discriminatory =. 12 A-15 licenses under their patents for tetra- cycline and Aureomycin. Upon petition for review the Sixth . Circuit held that the Commission's findings were supported by substantial evidence and affirmed and eaforced its order.” The court noted the sharp disagreement between Pfizer's witnesses and Examiner Lidoff with respect to the tests which had been conducted by Pfizer on Niedercorn "Example 28". Pfizer took the position before the Commission ( as it did in the present litigation) that Lidoff was interested only in “appreciable" and “recoverable” amounts of tetracycline, but Lidoff testified that he did not con- sider either the proportion or the amount to be the significant factor. Pfizer further contended that if Lidoff was in- terested in mere trace amounts, he failed to convey that fact to Pfizer's representatives and, accordingly, they were not guilty of any misrepresentation. The court held, however, chat there was substantial evidence to support the conclusion of the Commission that the Patent Office records were sufficient to put both Cyanamid and Pfizer 9. Charles Pfizer & Co. v. F.T.C., 401 F.2d 574 (6 Cir. 1968). 13 A-16 on notice that Lidoff was interested in ascertaining whether any tetracycline was inherently produced in the Aureomycin broths. 29 The complaint in the present case was filed in January of 1969, and thereafter the parties engaged in extensive discovery proceedings which focused primarily on the patent aspect of the litigation. In July of 1973, shortly prior to trial, the plaintiff filed a motion for partial summary judgment against Pfizer and Cyanamid on the issue that the Conover patent had been granted as a result of the false and misleading state- ments which had been made to Patent Examiner Lidoff. The basis for the motion was that this precise factual issue had been pre- viously adjudicated by the Federal Trade Commission in the proceedings hereinabove set forth, and that Pfizer and Cyanamid should be collaterally estopped from relit- igating the issue in the present case. In pressing its motion, the plaintiff contended that Blonder-Tongue v. 10. The review statute, 15 U.S.C. §45(e), provides: "The findings of the Commission as to the facts, if supported by evidence, shall be conclusive." 14 A-17 University Foundation, 402 U.S. 313 (1971), had discarded the doctrine of mutuality of estoppel, and that under Zdanok v. Glidden Co., 327 F.2d 944 (2 Cir. 1964), and United States v. United Airlines, Inc., 216 F.Supp. 709 (E.D. Wash. & Nev. 1962), aff'd as to res judicata, sub nom., United Airlines v. Wiener, 335 F.2d 379 (9 Cir. 1964), it was entitled to use the Commission's decision offensively against Pfizer and Cyanamid. The district court, in denying the motion, rejected plaintiff's argument that the doctrine of collateral estoppel as recog- nized in Blonder-Tongue should be extended to cover its use offensively by an antitrust plaintiff against a patentee. The question before the Court in Blonder- Tongue was whether the doctrine of mutuality of estoppel which it had applied in Triplett v. Lowell, 297 U.S. 638 (1936), was “a viable rule where a patentee seeks to relitigate the validity of a patent once a federal court has declared it to be invalia.*24 Upon the narrow issue before it the Court concluded "that Triplett should be overruled - 11. 402 U.S. 313, at 327. 15 A-18 to the extent it foreclosed a plea of estoppel by one facing a charge of in- fringement of a patent that has once been declared invalia. "+4 Since the validity vel non of the Conover patent was not directly in issue in the proceedings before the Commission?? or in the court below, the precise holding of Blonder-Tongue is not dispositive of the question raised by the plaintiff's motion. This is of little moment, however, since the plaintiff's motion should properly be considered in the light of the fundamental change and develop- ment of the doctrine of collateral estoppel in the courts which was thoroughly reviewed and analyzed‘ by Mr. Justice White in his opinion in Blonder-Tongue. The landmark case is, of course, Bernard v. Bank of America Nat. Trust & Savings Assn., 19 Cal.2d 807, 12. Id., at 350. 13. "The Commission did not undertake to pass upon the validity of the patent nor do we. Tne order of the Commission treats the patent as valid and requires compulsory licensing. The issue here is a violation of section 5 of the Federal Trade Commission Act, not the validity of a patent." Chas. Pfizer & Co. v. F.T.C., 401 F.2d 574, 586 (6 Cir. 1968). 16 A-19 122 P.2d 892 (1942), in which Justice Traynor rejected the doctrine of mutuality and stated the criteria as follows: "In determining the validity of a plea of res judicata three questions are pertinent: Was the issue decided in the prior adjudi- cation identical with the one pre- sented in the action in question? Was there a final judgment on the merits? Was the party against whom the plea is asserted a party or in privity with a party to the prior adjudication?" 19 Cal. 2d, at 813, 122 P.2d, at 895. In the wake of Bernard, the great majority of the courts, both state and federal, elected to jettison the mutuality requirement, especially where the prior judgment was in- voked defensively. This abrogation of mutuality engendered what Mr. Justice White characterized as “mutations in estoppel doctrine" which have resulted in a much more flexible application of this once narrow and restricted concept. Typical of this more liberal approach is Eisel v. Columbia Packing Company, 181 F.Supp. 298, 301 (D.Mass. 1960), where Judge Wyzanski stated: “where a plea of collateral estoppel is raised against a plaintiff who had a full trial in a prior action, the decisive question is not wheher there is mutuality of estoppel. Nor is the decisive question whether there is technical privity between the second defendant and the first defend- 17 A-20 | A-21 ant. Instead of such wooden tests, mission's conclusions. The issue before the inquiries should be made as to C whether plaintiff had a fair Commission was whether the sa etmnanratens in opportunity to procedurally, sub- that proceeding were guilty of unfair methods Soman eae ae to of competition in violation of Section 5 of aim " e first time. the Federal Trade Commission Act which is a This rationale was adopted in our own circuit regu’atory statute much broader in its scope in Graves v. Associated Transport, Inc., 344 than the Clayton and Sherman Acts under F.2d 894, 900 (1965): . which the present litigation was instituted. "The courts *** have willingly The Commission did not require that the inquired into the circumstances alleged fraud on the Patent Office be of the actual case, and time and 14 again they have allowed the plea demonstrated by clear and convincing evidence Pe pee pe gy te having the and employed evidentiary and procedural rules iative in e former action whenever they have been satisfied much more lenient than those incident to a that the party against whom the judicial trial. While we are not disposed former judgment was invoked in to hold that an administrative proceeding fact had a realistically full and fair opportunity to litigate the can never be the basis for a plea of col- issues in the former action." lateral estoppel, we do not think it would Appraised in the light of Eisel and Graves, be appropriate to accord such effect to the however, we think the plaintiff's motion was Commission's Section 5 proceeding in the properly denied since, in our opinion, the present case.*> proceeding before the Commission did not afford Pfizer and Cyanamid a "fair opportunity 14. The parties concede that the "clear and convincing" standard applies to this issue. procedurally, substantively and evidentially" See Schnadig Corporation v. Gaines Manu~ to litigate the issue raised in the present a Co., Inc., 494 F.2d 383, 393 (6 Cir case. First cf all, the case before the 15. In support of its contention that the Commission was an administrative proceeding, adninistretive pepetsios 56 Se it +4 , collateral esti 1 effect, the plaintiff not a judicial trial, and while the Sixth cites United states Vv. Willard Tablet Co., 141 F.2d 141 (7 Cir 1944), and United States Circuit put its imprimatur upon the Commission's v. Piuma, 40 F.Supp. 119 (S.D. Cal. 1941) . . . , . - . + 7 determination, the court, acting under the These cases are inapposite since they bee A . i | me roc i h of whic review eae merely found that there was roontgen Bemgpee ew 5 Doplied the provisions of substantial evidence to support the Com- 45 U.S.C. 45(g) gqverning the finality of - the Commission's orders. 19 A-22 We agree with the observation of the court in United States v. Chas. Pfizer & Co., 205 F.Supp. 94, 96 (S.D. N.Y. 1962): "The legal concepts and issues are quite different. The Federal Trade Commission is regulatory in nature; the Sherman Act is penal as well as civil; the consequences flowing from each Act are quite dissimilar. The proceedings themselves, the rules governing them and the legal principles applicable to each are distinct." Our conclusion on this point is buttressed by the fact that by the very terms of the Federal Trade Commission Act, proceedings under Section 5 appear to be incompatible with the doctrine of collateral estoppel. Section 5(e)1® of the Act reads: "No order of the Commission or judgment of the court to enforce the same shall in any wise relieve or absolve any person, partnership, or corporation, from any liability under the antitrust acts." It would be strangely unfair to permit the Government to litigate under the Sherman or Clayton Acts an issue earlier decided against it in a Section 5 proceeding, and at the same time deny to a respondent the right to defend on the same issues in a subsequent antitrust suit brought | 16. 15 U.S@&€. §45(e). 20 A-23 by a plaintiff who was not even a party to the administrative proceeding. We further 17 note that Section 5(a) of the Clayton Act provides, in effect, the* a final judgment or decree rendered in any civil or criminal proceeding brought by or on behalf of the United States under the antitrust laws to the effect that a defendant has violated such laws shall be prima facie evidence agair* -jpdant-s. Ta this memorandum of i-eds 'On the court will record its findinas rs ace ; oO tact and conclusions ot law in contormity with Rule 52, F.R.C.P. f Footnote ?, This is on» of a qreat number of Stiwilat fuits brought by virtually il! of the states and other plaintiffs ajyainst these defendants apparently stemming from a proceeding by the Federal Trade Commission instituted in tr lat+ (950s (see 40] &.2d 574, 6th Cir. }¥oo,cert. denied, 394 U.S. 920) and a criminal action brought against three of the defendants, Pfizer, Cyanamid and Rristol, in the Southern District of New York. The civil litigation including this action was transferred to the District of Sinnesota under the multi-district litigation Statutes for consolidated pre- trial and discovery and possible trial, but a motion mad? in that court to sever this action and return it to this district for trial was allowed. . The court is informed that a substantial portion of the civil litigation in the Minnesota court has since beon settled and that the cri.inal action, following reversal of a judqment of conviction by the Second Circuit in {970 (see 426 F.2d 32) has now been retried betore Juige Cannella without a jury = and has resulted in a judgment of acquittal. lis decision apparently has not been reported. ; The piaintift's case here has been tried tor the most part on some 25,000 pages or testimony amassed in these prior 1 -_ | BEST COPY AVAILABLE i 354a proceedings and introduced here in deposition form. } JURISDICTION AND VENUE The United States District Courts have exclusive jurisdiction of actions for damages for violations of the federal antitrust laws, and the venue for this action is properly laid in the United States District Court for the Eastern District of North Carolina. 15 U.S.C. Sec. {5 and 22. Neither jurisdiction nor venue is at issue in this case. PLAINTIFF'S ALLEGATIONS [ Footnote 3. This section of the memorandum is quoted directly from plaintiff's brief. ] Plaintiff charjes that defendants at varying times during the period commencing about November, {953 through the winter of 1955 entered into contracts, combinations, agreements, understandings and conspiracies 355a to unreasonably restrain trade and commerce in the broadspectrum antibiotic market generally and the tetracycline market par- tricularly, all in violations of Sections | and 2 of the Sherman Act. : {[ Footnote 4, Sections | and 2 of the Sherman Act, 15 U.S.C. Sec.| and 2, provide in pectinent part as follows: Section |- Every contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several states, or with foreign nations, is hereby declared to be illegal ... Section 2. Every person who shall monopolize, or attempt to monopolize, Orc combine or conspire with any other person or persons, to monopolize any part of the trade or commerce among the several states . .. shall be deemed quilty of a misdemeanor ... The action is authorized by Section 4 of the Clayton Act, {5 U.S.C. Sec. 15, which provides: Section 4, That any person who shall be injured in his business or property by reason of anything forbidden in the antitrust laws may sue therefor in any district court of the United States in the district in which the defendant resides or is found or has an agent, without respect to the amount in controversy, and shall 356a recover threefold the damages by hin sustained, and the cost of suit, including a reasonable attorney's fee. ] Plaintiff aleges the gist of the understandings reached between the defendants, among other things, was: A. As to Price Fixing -- Pfizer and Cyanamid agreed that the new broad-spectrum antibiotic, _ tetracycline, whether patentable or not, was to be priced and marketed by each of them in such a manner as to maintain the then existing prices and price structure of their BSA products, Le @ce Aureomycin and Terramycin. Subsequently Bristol, Squibb and Upjohn aqreed to price and market tetracycline in accordance with the structure established by Pfizer and Cyanamid. It was understood and agreed to at varying times between two or more, but ultimately all defendants, that sales were to be at substantially identical prices to the same class of trade 357a and sales were to be on substantially identical terms in identical package sizes; B. As_to Limitations on the Number of Manufacturers and Conditions on Sellers; a (1) In addition to the foregoing understandings, initially the Pfizer and Cyanamid understandings were that the manufacture, distribution and sale of tetracycline was to be limited to Pfizer and Cyanamid. (2) Subsequently, however, on or about December, |955 (through the joint efforts of Bristol, Squibb and Upjohn resulting fron unlawful contracts, combinations, and conspiracies entered into between these latter defendants on or about September, 1954), Bristol, Squibb and Upjohn joined the continuing combination and conspiracy of Pfizer and Cyanamid of November, |953. 358a (3) The gist of the understandings reached bet ween Pfizer, Bristol, Squibb and Upjohn during or about the winter of 1955 was that Bristol was to remain in the market as a third manufacturer, distributor and seller of tetracycline to the trade, while Squibb and Upjohn would continue to refrain from the manufacture of tetracycline; they would continue to purchase their entire requirement of tetracycline in bulk from Bristol; they would refrain from resale of the bulk to any other party; and they would limit their resale of tetracycline to finished dosage forms to the trade only. | C. Understandings Re the Pategt: (1) Each of the defendants understood at all of the time in controversy that the issuance of a patent and its continued existence as an enforceable instrument on the proad clains 359a to tno chemical compound tetracycline were essential to maintain the prices then pre- vailing in the BSA market generally; and in particular for the therapeutic product tetracycline (vis-a-vis the chemical compound). (2) Plaintiff avers that Pfizer and Cyanamid took concerted steps to assure the issuance of a patent covering the broad claims to the chegical compound tetracycline; and toward that end, each made material misrepresentations of fact to, and withheld material information fron, the Onited States Patent Office, thereby causing the issuance of the Conover patent covering the broad claiuws to the chemical compound tetracycline which otherwise would not have heen issued. (3) Plaintiff avers that Cyanamid, Rristol, Squibb and Upjohn knew ot the manner in which Pfizer had caused 360a the Conover patent to issue, and notwithstanding such knowledge, actively sought, acquired and enforced licenses thereunder. EPENSES Rach of the defendants filed answer denying generally the material allegations of the complaint in which violations of the antitrust laws were charged. Other defenses raised included the statute of limitations, laches, failure of the complaint to state a clain, standing and the propriety of maintenance ot the case as a class action, but these defenses have all been disposed of adversely to the defendants leaving only for determination the question of defendants’ liability under the antitrust statutes. 36} a In its brief the Plaintiff has: correctly framed the two Principal issues raised by the pleadings and litigated during the trial as follows: "A. Did defendants Pfizer and Cyanamid, during the fall of 1953: defendants Bristol, Squibb and Upjohn, during the late summer and early § fall of 1954; and all defendants during late fall and early winter of 14955 enter into contracts, combinations, agreements, understandings or conspiracies to unreasonably restrain trade and commerce in the manufacture, distribution and sale of the broad-spectrum antibiotic tetracycline, its analogues, and combination products containing tetracycline or its analogues by: 362a (1) Fixing and maintaining the prices of tetra- cycline, its analogues and corbinations products containing tetracycline or its analogues at the then existing price of Pfizer's Terramycin and Cyanasid's Aureomycin; and (2) Limiting the number of manufacturers of tetracycline and its analoques to Pfizer, Cyanamid and Bristol and the number of sellers of tetracycline to Pfizer. Cyanamid, Bristol, Squibb and Upjohn, in violation of Section | of the Sherman Act? "B. Did defendants Pfizer and Cyanamid, during the fall of 1953; defendants Bristol, Squibb and Upjohn, during the late suagmer and early fall of 4954; and all defendants during late fall and early winter of {955 enter into contracts, combina*ions, 363a agreements, understandings and conspiracies to monopolize, and actually monopolize the manufacture, distribution and sale of tetracycline, its analogues, and combination products containing tetracycline or its analogues in violation of Section 2 of the Sherman Act?" {Pootnote 5. The plaintiff posed a third issue arising from a_ belatedlyraised further claim aqainst Pfizer alone - that of an attempt to monopolize - stated thus in its brief: "In addition to the violations of law set forth above, plaintiff alleges that Pfizer is individually and separately liable to plaintiff for its violation of Section 2 of the Sherman Act for its attempt to monopolize, and monopolization of, the product tetracycline through the fraudulent procurement of its patent on tetracycline and its subsequent enforcement thereof with knowledge of the manner and methods used by its agents in causing the patent to issue." It is questionable that plaintiff's complaint is fairly susceptible to. such interpretation. There was no mention ot this claim in plaintiff's opening statement 364a nor at any time in the trial prior to plaintiff's final argument and only then in response to a question from the bench. Pfizer, claiming surprise, has protested vigorously the assertion of the claim in this manner, and the court is of opinion that the objection is well taken. The court has nevertheless treated the claims as having been timely alleged and presented, but has disposed of it in connection with the treatment of the two principal issues actually litigated. ] HISTORICAL BACKGROUND _AND_ CHRONOLOGY The ftirst major antibiotic discovered and introduced was penicillin which was used extensively during World War II and thereafter. Subsequent to the introduction of menicillin, additional antibiotics were discovered and marketed. Four of these were effective against a wider group of disease-causing microorganisms than. was penicillin, and they became known as "broad-spectrum" antibiotics. The first of these, chlortetracycline, was covered by the Dugyar Patent which issued to Cyanamid 365a it Septomber, 1°49. Cyanamid first marketed this drug under the trade name “Aureomycin" on December |, {948. On January 25, {949, Parke, Davis & Company introduced the second broad- Spectrum antibiotic, chloramphenicol, under the trade name, “Chloromycetin". It was covered by a patent issued to Parke, Davis in October, 4949. The third broad-spectrum antibiotic, oxytetracycline, was introduced in March, 1950, by Pfizer under the trade name, "Terramycin". This drug was covered by the Sobin Patent issued to Pfizer in July, 1950. The fourth of the broad-spectruas, tetracycline, was discovered by Pfizer's Dr. Conover in June, {|952. He had speculated that it might he possible to develop a new and superior antibiotic by removing the chlorine atoa from 366a chlortetracycline (Aureomycin), and he was finally able to accomplish this by hydrogenating Aureomycin so as to replace the chlorine atom with a hydrogen atom- a process called "deschlorination". On October 23, |952, Pfizer filed Conover's application for a _ patent on tetracycline and the deschlorination process. Shortly thereafter scientists at Cyanamid also discovered that tetracycline could be produced by deschlorination ot Aureomycin, and on March |6, 1953, Cyanamid filed its Boothe-Morton application for a patent on tetracycline and the deschlorination process. During {953 scientists at the Heyden Chemical Corporation (Heyden) and at. Bristol were conducting experiments in an effort to produce tetracycline by direct fermentation. On September 28, |953, Heyden filed its Minieri application for a 367a patent on tetracycline and the fermentation process for producing it, and on October 19, 1953, Bristol filed a Similar application under the name of Heinemann for a product and direct fermentation process patert on tetracycline. _ [Footnote 6, Shortly after filing its Minieri application Heyden entered iuto negotiations with Cyanamid with the view to selling Heyden's Antibiotic Division to Cyanamid. An agreement of sale was entered into on November 4, |953, and on December le 953, Cyanamid took possession of the assets of Heyden's Antibiotic Division including its Minieri patent application. Since this application for a product patent on tetracycline was subsequent in time to Cyanamid's pending Boothe-Morton application, Cyanamid abandoned the product patent claims of the Minieri application but continued to prosecute the claimgs tor a direct fermentation process for the production of tetracycline. A patent on the Minieri process claim was issued to Cyanamid in February, 1956. ] | On October 29, 4953, the United States Patent Office issued notices "to Copy claims" to both Pfizer and Cyanamid, thus indicating an interference proceeding { Footnote 7. Under patient office rules an "interference" is a proceeding conducted for the purpose of determining priority of invention between two or more applicants claiming the same patentable 368a invention (Patent Office Rule 20{ (a); 37 C.F.eRe | -20] (a))- J on pending applications on tetracycline. Faced with the prospect of delay, expense and uncertainty with which a_ patent interference is normally attended, John McKeen, chief executive officer of Pfizer, who had correctly surmised that Cyanamid was to be the other party tec the interference, initiated discussions with Cyanamid's chief executive officer, Dr. Wilbur Malcolm, with the view to settling the interference. It was during the course of two meetings which took place between these two officers in November of {953 that plaintiff here alleges the conspiracies and agreements to violate the antitrust laws were born. The details of these meetings as disclosed by the evidence will be more fully discussed later. On November |6, 1|953, Cyanamid marketed the first tetracycline under its bran? 169%a nai mn - : Achromycin™, the introductory price basco de zr ‘ ic j ‘or identical with the price of the other three hroad-spectrum antibiotics then on the market, Aureomycin, Terramycin and Chloromycetin, On November 25, {953, in accordance with the terms of the agreements reached in the ‘YcKeen-Malcolm meetings, Cyanamid began shipments of bulk tetracycline to Pfizer. These continued until March 3], 4954, and amounted to a total of about 10,000 kiloqrams, On January {t, 1954, following formal declaration by the patent oftice of the first tetracycline interference, Pfizer and Cvanamiad executed written instruments embodying the aqreements neqotiated hy ScKeen and Malcolm. Thereafter Pfizer and Cyanamid exchanged their proofs of priority of discovery of tetracycline as a result of which Cyanamid conceded priority to Pfizer. f 370a By January |5, 1954, Pfizer was able to package and label the bulk tetracycline which it was obtaining from Cyanamid and it began marketing this under its trade name, "Tetracyn". Its introductory published prices followed those previously established for tetracycline by Cyanasid for its Achromycin and, of course, the prices were identical with the published prices of the other three broad-spectrum antibiotics then on the market. On March 2. }954, Bristol, in prosecuting its Heinemann application, was able to convince the patent examiner, at least tentatively, that the salt of tetracycline, tetracycline hydrochloride, was patentably distinct from tetracycline which had been the subject of tht first interference, and as _a-° consequence the examiner declared the second (sometiges referred to as “"salt") interfereu re between 37 4a Bristol*s Heinemann, Ptizer'*s Conover and Cyanemid's Minieri applications. The interference proceedings continued from March to October, {954, during which tire the Parties tiled and arqued numerous motions in the patent office. | Meanwhile, Pristol, undeterred by Pfizer's threat of suit for patent infringement when and if the Conover patent should issue, continued to produce tetracycline through its direct fermentation process, and on May |, (14954, Bristol began to market this product under the trade nage, "Polycycline". Its published prices followed those for the tetracycline products of Cyanapid and Ptizer which were already on the market. By September, (954, Bristol had entered into agreements with Squibb and Upjohn to sell them bulk tetracycline, and shortly theceafter these two companies began to ] i BEST Gory avAIUBE 372a market tetracycline under their own trade names, “Steclin" for Squibb and "“Pangycin" for Upjohn. Squibb‘s introductory published prices followed those of Pfizer, Cyanamid and Bristol except that its wholesale prices were slightly higher, while Upjohn, which was last to come on the market, followed generally the prices of the other four companies. On October 14, (954, the patient examiner issued a decision dissolving the second interfernce, primarily on the ground that tetracycline was unpatentable over the prior art as disclosed in Cyanasid's Duggar and Niedercorn patents because tetracycline as well as Aureosycin appeared to be co- produced in fermentation processes disclosed by these two prior patents and emyloying the Duggar species, streptomyces aureofaciens. Since the examiner also held that tetracycline hydrochloriu: war not 373a patentably distinct frop tetracycline, he concluded that the Subject matter of the interference was not patentable to anyone. ‘ Thereafter, in November, {954, the examiner issued rejections on all of the tetracycline and tetracycline hydrochloride claims in Pfizer's Conover, Cyanarsid's Minievi, and Bristol's Heinemann applications on the sare grounds that he had relied upon for dissolution of the interference. Pollowing the dissolution of the second interference Pfizer continued the ex parte prosecution of the Conover application, and in late November and early December, 4954, Pfizer's counsel submitted affidavits of proof concerning the prior art co- production question which the patent examiner accepted as sufficient to overcore his previous rejection of Conover's product _ Claims. A substantial part of the battle 374a in this action has been waged around plaintiff's contention that in these proceedings Pfizer made material representations of fact to and withheld material information from the patent examiner; that its conduct constituted a fraud on the patent office; and that otherwise the Conover patent would never have issued. It did issue on January II, 1955. Meanwhile a suit brought by Cyanapid against Bristol in late September, 1954 for infringment of its Duggar patent in the manufacture by Bristol of tetracycline using Bristol's tetracycline fermentation process was settled in mid-December, {|954. The teres of the settlesent included an aqreement that Cyanamid would grant Bristol a non-exclusive license under Cyanagid's - Aureomycin patent to manufacture and sell tetracycline containing not more than six 375a per cent Aureomycin for a royalty of five per cent of Bristol's net sales of its tetracycline products. On the sarge day the Conover tetracycline patent issued, January ti, 1955, Pfizer brought suits against Bristol, Squibb and Upjohn in the united States District Court in Atlanta, Georgia, for infringement. These defendants, in turn ? filed declaratory judgment suits in the Southern District of Wew York for the purpose of having the Conover patent declared invalid. They were also able to omtems the transfer of the Pfizer infringement suits to the Southern District of Now York. [Footnote 8 See 43 : , F. ’ a Por the remainder of 1955 this litigation was prosecuted and defended vigorously by the opposing parties, Pfizer on the one hand and Bristol, Squibb and 376a Npjohn on the other. Bristol, Squ.c «1 Upjohn instituted extensive discovery in an effort to determine whether Pfizer had qiven false or misleading information to the patent office in the course of obtaining the Conover patent on tetracycline, but the evidence developed was apparently considered inconclusive. The litigation stood in this posture in the late fall of 1955 when one John G.- Broady, a private detective, was tried and convicted in New York City on an indictsgjent charging wiretapping of various telephone lines including those of Bristol and Squibb. At the trial it Case ou i1n evidence that Broady had been retained by Pfizer whereupon Bristol's counsel was instructed by its chief executive otticer, Prederick Schwartz, to informa Pfizer's counsel that Bristol planned to bring wiretapping into the infringe.went suit as 37 7a an “unclean hands" defense and as counterclaian. {Footnote 9 "The Broad ° inc gave to Bristol a trump card which es not hitherto possessed and Bristol played t LY coo eae Se 37 (ona Bfis 1970). ) The Broady incident brought about a radical change in Pfizer's attitude toward the Litigation, and meetings were held on Deceaber {4 and {5, §955, between Schwartz of Bristol, McKeen of Pfizer and their patent counsel, which resulted in agreement to settle the litigation. Under the terms of the settlement Pfizer aqreed to grant Bristol a nonexclusive license to sake, use and sell tetracycline, and direct licenses to Squibb and Upjohn to use and sell t«tracycline to the drug trade. It was through the medium of these meetings and the neqotiated settlement resulting therefrom that plaintiff alleges Bristol, Squibb and Upjohn were able to join ("force 378a their way into") the alleged pre-existing conspitacy between Pfizer and Cyanamid. Plaintiff alleges the five-member conspiracy thus formed continued until November, | 966. Beginning with a broad econorgic investigation of the antibiotics industry instituted in mid-|957 by the Federal Trade Commission and continuing to the present day the five defendants herein, in addition to being subjected to investigation of the F.T.C. and the Subcommittee on Antitrust and Monopoly of the Judiciary Committee of the United States Senate (the “"Kefauver Committee"), have defended one criminal action and countless civil suits alleging violations of the antitrust laws of the United States in the manufacture and sale of broad-spectrum antibiotic drugs. {Footnote }0. The reported cases of which this court is aware are as follows: 379%a Unite S > uo thas zer & 80] (S.D.N.¥. 1965) _—— 363 PF. 2d 757 (6th Cir. | 966) Chas. Pfizer § Cow, Inc,, EFsTeC., 4O} P.2d 574 (6th a 968 i pyar Cert. denied, 394 U.S. 920 United States vy. Chas. Pfizer & Co., Inc., 2)? F.Su (S.D-N.Y. 1963) qin Co., 28) P.Supp.837 (S.D.N.Y.| 968) CQs.e 426 F.2d 32 (2nd Cir. 1970), modified, 437 F.2a 9 , 57 Cert. qranted, 402 U.S. 942. aff'd., 404 U.s. 548 (1972) ° AS previously indicated in P ootnot Judge John 4. Cannella's judgment ’ pt acquittal on the retrail of the criminal caSe apparently has not been reported nor has it been brought t¢ nn To: ght 9 the attention of So far as the court is inforrgjed, this is the first of the civil actions to cose to trial and reach the decision stage. THE EVIDENCE The sections of this senorandua which 380a follow will treat the principal points advanced by plaintiff and the evidence offered in support of its theory of liability on the restraint of trade and monopoly issues. {Pootnote {j- [In arriving at its findings and conclusions herin expressed the court has reviewed and considered all of the testimony and documentary evidence of fered by the plaintiff in the case notwithstanding any ruling excluding any such evidence wade at the tise of its offer and not thereafter changed. In the words of Justice Holmes, “a concession to the shortness of life: has precluded a summary of all the 142,000-odd page record, the several thousand exhibits offered and the many hundreds of pages of briefs and legal arguments submitted during the course of the trial and thereafter. } While the various topics are discussed separately, the court has been careful to consider all the plaintiff's evidence collectively with due regard to the Suprere (eurt's admonition that the antitrust plaintiff should be given the full benefit of his proot “vithout tightly compartmentalizing the varivcrs factual 384a components and’ wiping the slate clean after ff scrutiny of each." Continental ¢ t.nion Carbide £& Carbon Corporation, 370 U.S. 690, 699 (4962). The_McKeen-Malcols Seetings The ‘cornerstone of plaintiff's case ayainst Pfizer and Cyanamid is alleged to have been laid at the time of two meetings between the two chief executive officers of these companies in early November, |953. At that time both Pfizer and Cyanamid had product and process patents pending on tetracycline, and a notice to copy clains having been issued by the Patent Office presaging the declaration of an interference to determine priority of invention, John AicKeen, President of Pfizer, initiated a meeting with Dr. Wilbur Malcolm, Cyanamid's President, to discuss settlement of the interference when and if it shovld be declared. To understand 382a properly the motivations and actions of these two principals in the meetings it is necessary to review briefly the status of the tetracycline program in each of the companies as it existed in the fall of 1953. At Pfizer there was general optiaisns that by reason of the prior publication in a scientific journal by its scientists of Dr. Conover's discovery of tetracycline ("The Stephens Article") it had priority of invention and would ultimately receive the patent. Unfortunately, it had not been able to develop a process for the production of tetracycline by direct fermentation, and it was thus lisited to its deschlorination process in aching tetracycline from Aureosycin on which Cyanaaid held the Duggar-SNiedercorn patents. This created a blocking patent Situation, but it was not Piizer's only 383a Worry. - =" y It hal also learned that Cyanamid was about to come on the market with its brand of tetracycline, and this meant that Cyanamid would have valuable "lead time" in the introduction and sale of this new “wonder drug". This lead time, considered of prime importance in the pharmaceutical industry, would be very difficult for renens to overcome even if it Should ulti- mately obtain the patent and somehow manage to avoid its then dependence upon Aureomycin as the base product from which to produce tetracycline. At the same time Cyanamid was having its probleas. Its extensive Clinical testing of tetracycline had demonstrated its superiority over Aureomycin, the sale of which had been declining in the face of the competition by Pfizer's sdeniinins superior Terramycin, and Dr. Malcolm had committed Cyanamid to a program to promote Bua tetracycline and downgrade Aureomycin which had previously been its "bread and butter" product. Cyanamid had sade substantial expenditures in the development of this program, yet it appeared that Pfizer sight well have priority of invention by reason of having published the Stephens article prior to _Cyanasid's production of tetracycline. It was in this setting that McKeen and Malcolm had their first meeting about November 6, 1953. At that time they confirmed the fact that Pfizer and Cyanasid vere the two parties to the projected interference, and the terms of a proposed settlement were discussed. They agreec to meet again about ten days later, and at the second meeting they agreed upon the general terms of a settlement subject, with one exception, to the formal declaration of the interference by the Patent Office. The 385a exception was that Cyanamid agreed at NcKeen's insistence to sell Pfizer 10,000 kilograms of bulk tetracycline with shipments to beqin immediately. to he tarde i a TO TI sy _ a to cut down on Cyanamid's lead time, ] The interference was declared on December 28, (953, and two weeks later the agreements reached in the McKeen-Malcolm meetings were formalized in two written documents, one a license fros Cyanamid to Pfizer to make Aureomycin for conversion to tetracycline by deschlorination and the other to settle the interference. The principal provisions of the agreements were (}) that proofs ot priority of invention would be exchanged, and if the parties could not agree on priority the question would be submitted to the Patent Office for decision; (2) that the party found not prior would take the necessary steps to 386a concede priority in the Patent Office; (3) that the losing party would receive a non- exclusive license under the tetracycline patent when it issued at a royalty rate of two and one-half per cent; (4) that Pfizer would receive a nonexclusive license under Cyanamid's Aureomycin patent to make _ that product in connection with the manufacture of tetracycline and the knowhow and culture to make that license effective; and (5) that nothing in the settlement agreement was to be deemed to impair the right of a patentee to license others. It is the plaintiff's position that in addition to the aqreements esbodied in the written instruments that McKeen-Malcola meetings resulted in secret agreements not reduced to writing under the teras of which third parties were not in fact to be licensed to sell tetracycline nor were they to be sold the antibiotic in buik. And to 387a this end, plaintiff Charges, Pfizer and Cyanamid agreed to do whatever was necessary to insure that one or the other of them obtained a patent in order to leqalize the monopoly and exclude others from the market, There was a further undecstanding, so plaintiff contends, as to the price at which tetracycline would be sold in the market, On the contrary, the four principals who participated in the meetings have given consistent and convincing testimony in this and the prior cases that no such agreements were made, {Footnote |3. Three of thea, John NcKeen and John Powers of Pfizer and George Martin of Cyanamid, all now retired, appeared in person in this court. The court found them intelligent, forthright and credible. The testimony of Dr. Malcolm, also retired from Cyanamid, came in by way of the transcripts of forser proceedings. His absence was explained on the basis of a precarious health condition, but his previous testimony was corroborated by that ot his successor at Cyanamid, Lyman Duncan, and Robert Fiske, Cyanamid's patent 388a counsel, both now retired, who appeared ani testified in this court. ] Nor are the inferences to be drawn from the course of conduct thereafter followed by these parties necessarily inconsistent with legitimate business practices. Settlement of the patent interference is a noreal, routine method of resolving such — controversies and is sanctioned by the courts. Hutzler Brothers Company _v- Sales Affiliates , Inc.-, 164 F.2d 260, 267 (4th Cir. |947). Nor are cross-licensing agreements necessarily violative of the antitrust laws. "In a case involving blocking patents such an arrangement is the only reasonable sethod for making the invention available to the public." International Manufacturing Company __vs Landon, Inc., 336 F.2d 723, 729 (9th Cir. 1964), citing Standard Oil) Company _v- United States, 283 U.S. 163 (1931)- 389a [ Footnote 44 Of c SO ° ourse i - wi agreement iis combined TN ae 0 jceement to pool patents, the arrangement may become unlawfu faterial company, 333 0.8. 367 tr988) ones no price-fixing sgeesnens 86° Shte eaeeet The refusal to license others was no more than a continuation of policies previously followed by Pfizer, Cyanagmid and Parke-Davis with respect to granting licenses under their patents on the first three broad-spectrum antibiotics. But even sO, within two years after the NcKeen- Malcolm meetings Pfizer had licensed Bristol, Squibb and Upjohn under the Conover patent. It did this without the knowledge of Cyanamid, and this negates any inference of a side agreement to exclude competitors. The court has therefore been unable to tind from a preponderance of the evidence that conspiratorial aqreements forbidden by Sections | and 2 of the Sherman Act were in 390a fact entered into at the McKeen-Malcols meetings. On the contrary, the court has concluded that the agreements reached were fully expressed’ in the formal docusents thereafter executed and that these agreements were the result of arams-length bargaining which reflected the relative bargaining strength of each company and the independent judgments of their chief executive officers. [Footnote |5. In these times when the innermost secrets of large corporations and indeed the government itself are routinely publicized in the news media the court has deemed it significant that the federal government in the prior proceedings and the State of North Carolina in this case have failed to produce a single witness to give any direct evidence of the existenc@,of a conspiracy. Of the thousands of esployees of these five large defendant companies over the last twenty years it would sees that at least one disgruntled forser employee might have been located who would be willing to come forward and pinpoint some wrongdoing on the part of at least one of the defendants. No such witness has appeared. On the contrary several former employees came and testified freely for defendants and corroborated fully the testimony of their chief executive otficers. J ; win 39}a * Seg tee Mh On remand of the F. T Be om . y e Sixth Circuit the testimony all a ig ent Examiner, Herbert J. Lidoff rym = . and the Coamission affirmed a sae =F y the Hearing Examiner that the — Practices of Pfizer and Cyanamid re the Patent Office constituted unfair decision was affirmed ; s sd by the Sixth c tn Charles Pfizer € co. y P.T.C. 1"P.28 UT Baay ert Sb sag,Eedgkes 401 #2 ' ): On the basis of this decision the ote ff here just prior to the tri 1 mr. 8 + ra Partial Summary judgment on the =e near On the ground of collateral : ppel, asserting that the doctrine now recognized in B e -Ton = lon, 402 U.s. 3 3 Should be extended to cover Ag da F collateral estoppel off ensivel antitrust plaintiff against ny ay The argument was reject j ed S the motion was deetse’} ry wae SUS and The plaintiff has Placed great reliance on the charqe that Ptizer and Cyanamid feacticed fraud on the Patent Office in Obtaining the issuance of the Conover Patent on tetracycline and that Bristol, Squibb and Upjohn later accepted licenses under the patent with knowledge of the fraud. And 392a It is, of course, well settled that "those who have applications pending with the Patent Office or who are parties to Patent Office proceedings have an uncosprosising duty to report to it all facts concerning possible fraud or inequitableness underlying the applications in issue. * * * Public interest demands that all facts relevant to such matters be submitted formally or informally to the Patent Office, which can then pass upon the sufficiency of the evidence. Only in this way can that agency act to safeguard the public in the first instance agains t fraudulent patent monopolies." Precision Instrurgent Nanufacturing Cogppany _v-. _Auto- motive Saintenance Sachine Company, 324 U.S. 806 (| 945). in this same litigation the Sixth Circuit has stated: "The Patent Office, not having testing facilities of its own, must rely upon information furnished by applicants and their attorneys. Pfizer and Cyananid, like all other applicants, stood before the Patent Office in a confidential relationship and owed the obligation of frank and truthful disclosure." Charles Pfizer and Co., Inc., Ve F-T-Ce 393a 40] F.2d 574, 579 (6 : th Cir. cert. denied, 394 U.s. 920 (1969). That a finding of fraud will support a treble damage action under the Sherman Act if all the other elements of a cause of action thereunder are found is equally well settled. Walker ~Process Equipment, Inc _— - v. Food Machinery and Chemical Company o 382 U.S. 472 ($965). As is frequently the case, the difficulty arises when the task of applying these settled principles to a given fact Situation is faced. ethics ae concept of esentation as a patent infringement aul akeane to no fixed parameters and promulgates no specific dogma. At best it is an abbreviated expression of basic equitable maxims inherent in the law of patents; a recognition that a part of the quid pro quo for the acquisition of a patent monopoly is an insistence that the circumstances surrounding the application for the patent be ‘free from fraud and other inequitable conduct. '* Precision 394a : Au osotive supra, 324 I ‘fou5)." Honsanto J.-S. 806, ants ap y Vv. RO ) ase esd 552, «59-8 =((3ed CFEe 1972) - In performing this task 4 review of the j the events which occurred following in rejection by Patient Examiner Lidoff 1954 of all claims to the product Noveaber, tetracycline is therefore necessary- to when the Conover patent was returned } hese ex parte prosecution following t who rejections pfizer's patent counsel, b strongly believed the reasons assigned y j st the examiner to be unsound in law, also ; his inmediately sought an interview with i his and endeavored to convince hin of j his error. However, Lidoff persisted in j tl position that tetracycline was inherently the co-produced along with Aureomycin in practice of Cyananid's Duggar and 1 erefore Niedercorn patents and was th unpatentable over Aureomycin. 395a {Pootnote {7. Four patent experts, including one called by the plaintiff, and Several patent attorneys testified that the prior accidental and unrecognized co- production of small amounts of tetracycline with Aureomycin did not render the claia to tetracycline unpatentable. A review of their testimony and the applicable lavw, e.d- Kuehmsted v. Parben- fabriken, |79 F. 70| (7th Cir. (910), cert.denied_, 220 U.S. 622 (1910), and Rarke, Davis £ Co, vy. H. K. BMulford Co., {89 PF. 95 (C.C.S.D. N.Y. 1911). aff'd in part, reveresed in part oa other grounds, 196 F. 496 (2nd Cir. {9{2) (curiously cited by Lidoff in support of his rejction), and numerous others have served to establish to the satisfaction of this court the proposition that "novelty is not negatived by an prior accidental occurrence or production, the character and function of which was not recognized until later than the date of the patented invention sought to be anticipated thereby," | Walker, patents 6th Ed., Sec. }06, and that Lidoff was indeed wrong. j He required that additional experiments be conducted either to prove or disprove the "speculated basis" of his rejection. These experiments were conducted forthwith and the results were reported by Pfizer's attorneys in affidavits and a written summary of interviews with the Examiner. In substance they informed hin 396a *hat if any tetracycline was present in the Aureofiycin- producing broths, the amount was minuscule and that in any event it was understood by them that the Examiner was not interested in "useless trace agounts" of tetracycline which might be present in the broths. [Footnote |8. The amendment filed following a meeting with the Examiner on November 29, 1954, contained these statements: "while applicant's counsel did not concede that there is any necessity for such a showing [the non-existence of tetracycline "in a clearly identifiable form according to present-day efficient methods for the separation thereof from fermentation broths"], he ventured the opinion that it could be made and stated that he would explore the matter in view of the great urgency of this case. The Examiner made it clear that he would not insist on 4 categorical averment that the fermentation broths prepared according to cited patents contained no tetracycline whatsoever. He evidently appreciates the impossibility of proving its non-~ existence and is not concerned about useless trace amounts which cannot be separated from the broths by methods now recommended for recovery cf the new antibiotic." ] 397a Another conterence with the Exami Biner f Ollowed on December 8, 1954, and the next da Y a notice of allowance of the patent was mailed, On January jj, 1955, the patent issued, It is now abundantly clear that the ’ , . presence of at Least soae tetracycline in the Aureomycin broths was known by scientists, and indeed Was disclosed by documents in patent applications then pending before Examiner Lidoff, at the time Pfizer's final affidavits were submitted, but there is no evidence whatever that it has ever been detected in the product Aureomycin in sufficient quantitites to impart the therapeutic qualities of tetracycline to it, Plaintiff insists, however, that the presence of any amount of tetracycline, however sraall, in the f'rmentation broths would have sufficed to preclude allowance of the patent by 398a Examiner Lidoff. [ Footnote {9. The parties seersed to aaree that if Pfizer's agents knew this was Lidoff's view, a failure to report even 4 trace amount of tetracycline in the fermentation broths would have constituted a wrongful withholding of material information notwithstanding Lidoff may have been in error and the patent might ultimately have issued as a result of an appeal. See Transcript, Vol. 57, pp- 7217- 19.) To drive home this point plaintiff has introduced several hundred pages of testimony given by Examiner Lidoff in the F. T. C. proceeding following remand of that case by the Sixth Circuit in American Cyanamid Company v- Fs T- C2 +» 363 F.2d 757 (1966), and later by way of deposition. Aside from the questionable admissibility of this testimony, {Footnote 20. The admissibility of Lidoff's testimony was sharply contested by defendants at the trial, primarily on the grounds that a quasi-judicial officer may not testify as to his mental processes in making a decision and the speculative and untrustworthy nature of the testimony itself. The objections were overruled, but the court is still concerned as to the correctness of the ruling in the light of 399a nj tate TEE a Sv. Sorgan, 313 U.S. 409 Park Manufacturing ee be {8 U. S. - 0 (F-D.I11. 1974). i se And with characteristic and coamend able candor counsel for plaintiff has conceded that Lidoff's testimony is the Sine gua non of plaintiff's charge of f Patent Office. ‘ ee THE COURT: Without the testimony of Lidoff do you agree that reasonable minds could differ on the interpretation of the patent record? MR. BENOY: Well, withont Lidoff being there, I would have to say reasonable minds could differ because we have Oppos findings. ti + * * THE COURT: Next question: Does your case on the patent issue, the, (assuming) that reasonable minds could differ on the record without his testimony depend first upon the admissibility of the Lidoff testimony and second its believability? SR. BRNOY: Well, given the assumption that reasonable minds could differ on the evidence it just has to follow, yes, Sir, that it is crucial to 400a the case. I would not contend otherwise. } the court has found it lacking in that degree of probative force necessary to carry plaintiff's heavy burden of establishing fraud by “clear, unequivocal and convincing" evidence, a standard which all parties agree applies here. {Footnote 2}. “Fraud or unclean hands are not to be lightly inferred. They must be established by ‘clear, unequivocal and convincing' evidence. Becton- Dickinson & Co. ve. Robert P. Scherer Corporation, |06 F.Supp. 665, 67| (E.D.Mich. 1952), aff'd, 211 F.2d 835 (6th Cir. |954). See also Scott Paper Company v. Ft. Howard Paper Co,, 432 F.2d 1198, 1294 (7th Cir. 1970), cert. denied, 40} U.S. 913, YF S-Cte 882, 27 L.Ed.2d 842 (1971)-" 4Oja SChnadiq Corporation Vv. Gaines Manufacturing Company, Inc., 494 F.2d 383, 392 (6th Cir. 1974). ] Lidoff testified: "It is utterly impossible for me to remember any statements that [I actually made at the interview. "AS I have prefaced all ay remarks, everything I have said is based on reconstruction, based upon what [ think, what I thought the principles of patentability were." (Tr., Vol. 28, p. 3755) and at another place in the record: "So that anything that I say as having recalled something is really a reconstruction in my mind based on what recent review of the record TI have had, which has net been in any great detail, so that [ cannot say that I positively recall one thing or another but I can reconstruct what my view would have been at that time." (Tr., Vol. 28, p. 3754) Against that background the witness went on to testify that he would have been interested in whether any tetracycline 402a whatever was to be found in the Aureomycin broths. But the pivotal question is whether or not Pfizer's attorneys understood this to be the information the Examiner wanted, and they have testified unequivocally that they did not so understand it. Their testimony is corroborated by the summary of their interview with Lidoff filed as an amendment to the patent application (see Footnote ;8). A supplemental affidavit. filed by Pfizer's Dr. Bogert should also have alerted Lidoff to the tact that tetracycline was present in the fermentation broths or at least to the fact that if he were really interested in the presence of any amount of tetracycline whatever, he was obviously talking about one thing and Pfizer's representatives another. under Footnote 22. Although he- was the Mae: of reading such materials before 40 3a acting on thom, it may well be that Lidoff did so hurriedly in the short time which “lapsed between the filing of the amendment and his issuance of the notice of allowance, It was in evidence that this particular Examiner was an unusually productive worker, and he admitted that he sometiaes merely “scanned" such filings. Additionally, it appears that he was not an expert in fermentation chemistry and that his rejections had in fact been written by another Examiner, a Mrs. Wendt, with whoa he did not enjoy a good personal rapport. But Lidoff's prolificacy would appear to afford no basis for his failure to read and comprehend these statements prior to the actual issuance of the patent on January tt. 1955. The same is true of an affidavit filed with him by Bristol in connection with its patent application on January 3, 1955, stating in effect that numerous saaples of Aureomycin products had been found to contain two per cent to four per cent tetracycline. ] Nor does Lidoff dispute the testimony of the Pfizer agents on this score as shown by the following exchange between him and Ptizer*'s counsel at the hearing before the F. Te Ce 8 Q: SO you were satisfied to issue the patent with statements of that type in the record without even bothering to inquire? 4O04a If you wish to attack sy action on this application, you might. It may be that had I been as sharp as Geniesse, I would not have issued this patent. But, nevertheless, I am only tell- ing you what my impression is of what I did. Whether stupidly done or not, nevertheless this is what I did, and I took this affidavit to mean that there was no tetracycline present. Based on that I issued the patent. * * + And their understanding of what you had in mind by the words in your rejection is what they learned from the interview with you and put in their amendment? I have no control of what they understood by my words. Whatever they understood, my feeling was that this patent should not issue it the compounds were not novel. And this is the only thina that I was basing my stand on. What they understood by my words I do not know, and have no influence on at all. Do you consider that Mr. Hutz and Mc. Murphy gave you what they understood you were interested in? 4O%a A: As tac as I know, I assumed that they gave me what I had asked for, but they qave ne what they understood, yes. They did not qive pe - - well, [ retract that. I don't know what they gave me With relation to what T actually wanted. 0: but they gave you what they understood you wanted? A: Apparently. 0: Isn't that so? A: Apparently § so. I have no reason to believe otherwise. (Tr. Vol. 30, pp. 4024-4026) That Pfizer had complete confidence in its patent and the actions of its representatives in ovrocuring its issuance was further demonstrated by its action in institutina suit for its infringement against Bristol, Squibb and Upjohn on January |{, 1955, the very day on which the patent issued, {Footnote 23. The court i that the validity of the +s ogy brought into question in a number of cases stnce that time, but in only one of then was the decision stage reached. In that 4uQ6a Chas. Pfiz & Co. ve. Barry-Martin oe i ” 24) FPF. Supp. I91 Pharmaceuticals InCe, (Ss > fis. 1965) - the Conover patent was held valid. } That Cyanamid's experienced paten* attorney, who immediately went to Washington and examined the file wrapper as soon as he heard the patent had issued, was able to find no evidence of fraud is also deemed significant on this point. {Footnote 24. In a w—-- > to Pn ys superior dated January 14%, cos § attorney, Harvey W. Rdelblute, stated: j i idence of "ly fail to find any evide deliberate concealment or Selsstsentses of facts or the misapplication - fallacious or legally unsoun: arguments. * * * "Tt is my Opinion, therefore, par the Conover patent No. 2,099,054 oe 7 be held valid ina anil itel ip-cossuee’” litigation before a fair-minded ju a who appreciates the objectives p. ‘ value of the United States we system." (P. 3, Cyanamid Trial Exhibi 12) ] of course this flies in the face of plaintiff's contention that [:°1izer and 4O7Ta Cyanagwid were in collusion on the patent matter all alonq, but the court has been unable to find that such collusion existed. There are, in tact, stronq indications to the contrary. {Footnote 25. For instance, in his letter of January (4, 4955 (see Footnote 24), Attorney Fdelblute also said: “Following this office action an interview was granted to Conover's attorneys by the Examiner. It is, of course, not known what was said at the interview except what is stated by Conover's attorneys in an amendsgent filed on December 8, 14954." (P. te Cyanamid's Trial Exhibat 42) In a letter from one Cyanamid official to another dated October 2\- 1954, reporting the Patent Examiner's decision to reject all product claims to tetracycline it was stated: "We, of course, have no knowledge of what course Pfizer plans to follow. However, if we pick up any information as to their plans, we will advise you immediately. . . "It wouid be my guess that Pfizer will elect to issue their patent on the claims covering the deschlorination process and file a divisional application to cover the compound tetracycline and salts thereof for the purpose of appeal. .." 408a And in Edelblute's letter to the same official dated October 27, 1954, it was stated: "The Examiner held that tetracycline as well as salts thereof are not patentable over Duggar or Niedercorn for reasons which you have read. This action, while undoubtedly very distressing to Pfizer, is of considerable comfort to Mr. Watson in his action against Bristol. Mr. Watson feels that it will be helpful in extending the scope of the Duggar patent, and he feels that it was very fortunate that we sued Bristol on our Duggar patent before the Examiner's decision was handed down. " ..I have not been in touch with Pfizer's attorneys and have been advised by Mr. Behrens not to do so, and accordingly, I do not know what steps they are taking to obtain patent protection on the product..." (Pp. 2-3 , Cyanamid Exhibit 10) If there was in fact a deal between Pfizer and Cyanamid that one or the other of them should obtain a patent on tetracycline, one wonders why the Examiner's action was not equally "distressing" to Cyanamid. Instead, it appears that Cyanamid's attorneys were taking "considerable comfort" from the action for the very good reason that if the rejection held up, it would enable Cyanamid to dominate the tetracycline field through its Duggar and Niedercorn patents. ] 409a At best the evidence has left the court with the impression that there was a mutual misunderstanding between Lidoff and Pfizer's representatives as to what Lidoff wanted established. {[ Footnote 26 Much of ° the contr 5 — has swirled around the cenadan an words employed in, these affidavits and mio mag > — time and many pages have A” evote to argument over — to be attached to such isle canpeestanil Re expressions as e","recoverable" ' identifiable". Rut, of TE aay curating "(a] word is not a crystal, t and unchanged, it ry the a oo living thought and may vary greatly in color and content according to the circumstances and the time in which it is used." Justice Holmes in Towne y Eisner, 245 U.S. WIR, 425 (1918). Ana having found that j . the evide eqardless of how the words’ used oe yarties are to be interpreted, falls short ot establishing fraud, this court declines to enter this thicket i el oe of semasiological ‘he court tinds itself in much the same position as did the First Circuit in N shua Corporation v. RCA Corporation, 43) F.2d 4jOa 220, 227 (4970), where it said: "Our problem - and Nashua's - lies in the fact that the only evidence on this issue is the cryptic and technical file wrapper exchanges between the Fxaminer and the applicant. These exchanges are ambiguous as to precisely why the Fxaminer rejected the first two applications and what significance the Examiner attached to RCA'S amendment of its copending ‘539 application and to RCA's Rule 43) affidavit. Given these critical ambiguities, we cannot say that the district court was clearly erroneous in finding no fraud on RCA's part. (Lt is simply not sufficiently clear to us that RCA filed the affidavit realizing that its effect would be to materially misrepresent the prior art and deliberately intending such misrepresentation. Foundation v. Blonder-Tongque Laboratories, Ince, 422 F.2d 7609, ———— a aaa 776-777 (7th Cir. |970)- "We therefore uphold the district court's finding that the filing of the Rule j3f atfidavit did not constitute a fraud on the Patent Office." The court does not suggest that inferences favorable to the plaintift cannot be drawn from the conduct of G|ja PFize izcr"'s representatives before the Patent Office tee, and one gets the impression, in fact, that these gentlemen did not tell Lidotf any more than was absolutely nhec-ssary to satisfy him. put "as long as the patent fulfills his ‘ancoaprosising duty! of good faith and conducts the prosecution with utmost candor ro py a frank and truthful Sclosure, he is not required to list out the full spectrum of his knowled j ry eg aay establish Noe bona rare v.-_ Generix Drug Sales, Inc., OF.2d |096,4402-1103 1972)." Schnadig fo RS Gaines__ Manufacturin Inc 1 a P.2d 383, 393 (6th Cir. 4 And, as previously indicated, the evidence in this case is far from "clear e unequivocal and convincing” that Pfizer's representatives failed to fulfill their ‘uncompromising duty’. { Footnote 27. A this language from sso, Sppropriate here is | Vv. e ee 35 e | 379-80 (F.D.Pa. 1972), 7 oats tod opinion, 487 F.2d 1395 (3rd Cir. 1973): ui 2a "Two conflicting principles tear at an attorney practicing before the Patent Office. One is that the proceeding is not adversary, so “ attorney therefore owes a high duty o candor to the Examiner. The second . that the attorney has a duty o advocacy to his client. One should = forget in this context that the Pxaminer himself is or should be ° advocate for the public interest an should not be too easily swayed by the applicant's attorney." And it may not be amiss to quote the following from the same opinion: "The fact that this court has not found fraud chargeable to plaintiff, or awarded attorneys’ fees, should not = taken as placing this court's imprimatur on all of plaintiff . actions. It results more from failurs to result in profitable operations Or their respective companies. — And one rer wonder if it is really in the _ put a i.terest for competition to be maintaine with such cutthroat intensity in 4 re such as the pharmaceutical industry as result in a curtailment of cesearch = development programs designed to produc 42Ila new and more beneficial drugs. The question is, of course, sore properly addressed to the economists and law makers, our task here being simply to ascertain if the plaintiff has made a case under the antitrust laws. } "In deciding whether evidence of defendant's conduct can reasonably support an inference of conspiracy, there must be sore than mere general similarities; there must be a sagseness of conduct under circumstances which logically suggest joint agreesaent, as distinguished from individual action. Proof of parallel business conduct is not a sub- stitute for proof of conspiracy, and similar conduct, as such, does not establish conspiracy. Theatre Enterprise v. P ° 1954, 346 U.S. 537, 74 S.Ct. 257, 98 L.Ed. 273. As stated in United States v. Borden Cow, D.C.N.D.Ij}. 1953, F.Supp. 562, 579: ‘Reasonable businessmen will act Similarly when presented with the same problem. The antitrust laws were not meant to prohibit businessmen from adopting sound business policies merely because competitors had already adopted the same or a similar policy. "An inference of conspiracy is permissible only where the conduct was adopted by a competitor "in apparent contradiction to its own self- interest’. MSilgram vy. Loew's, 422a 579 Cir., 1951, 192 F.2d. ° es. - inference "of conspiracy would only arise from = business conduct if it appeare interest of ore to the coagetiters to adopt pony practices. Chorak v. RKO Radio 96 F.2d ictures, 9 Cir. 1952, | oe 229, cert. denies hee 4 _ ete o * 702.8 ay A I Iron Works, el e United _States __stee- Comme, 17? PF. Supp. 743, 746-7 322 F.2d -D.Cal. 1959), aff'd, 656 (9th Cir. 1963), cert. denied, 375 U.S. 922 (1963). It will be remembered that during all of the period under consideration, {953 - 1961, Parke, Davis & Company was selling its broad spectrum antibiotic, Chloromycetin, at prices identical with those being charged by defendants for their broad-spectrums. Yet it has never been charged that Parke, Davis was involved in the conspiracy. Plaintiff would explain this by saying that Parke, Davis was engaged in “conscious parallelism" and not collusion - that it was simply yetting a "free ride". Defendants on the other hand 423a insist that the uniformity of prices was the expression of "“Oligopolistic price behavior", [Footnote 30. "The term ‘oligopoly’ describes a market in which the sellers are few enough for sensible sarket strategy to require that the probable reactions of competitors to changes in Price and output be taken into account. In practice this is a ve -y typical market situation in modern industry and trade." Neale, the 0.S.A., 2nd Ed. Pp. 48, Plaintiff here concedes that this market was one in which Oligopolistic behavior might be expected. "Plaintiff agrees as to the homogeniety or Substitutability of defendants' BSA products, and will agree the record shows thep to be almost perfect substitutes, Also, plaintiff agrees that the size distribution of the sellers indicates that the market could be characterized as a ‘small numbers* homogenous Oligopoly (see P. M. Scherer, es Pe f0). Given the knowledge of these conditions and j S most antitrust attorneys and economists would agree that price Stability on the order of the |954-60 tetracycline prices might result." Plaintiff's reply brief, pp. 24-25. ] 424a while the resolution of this question is always fraught with difficulty, ote 3]. "To distinguish between ber naennent 4 a + and collusion as — cause of damped-down price cosmpetit - is the most difficult task that = courts have to face in this fie e qiven that they must give due weight : normal legal safeguards in a = the defendant and yet avoid no og deceived by merely specious arguments. It would not be claimed that they = make a mistake in this task. Indee . the distinction is not always hard 7 fast; one can imagine situations rs which it would be genuinely difficu even for the businessman himself to od | whether he was acting from individua prudence or under the suasion of a i itably the common understanding. Inevi courts are criticized from both .™ Neale, ~ on ENE U.S,A., 2nd Ed. p- 48. ] in any view of the matter the parallel pricing actions of Parke, Davis and the defendants must be regarded as strong evidence that no conspiracy existed. Footnote 32. Testimony given in one of mo prior cases by Harry J. Loynd, chief executive of Parke, Davis 6& paapente explained why that company's policies _— adopted. He testified that the es Parke, Davis were adopted indepen = y without consultation with any — company, and his testimony concerning © 425a broad-spectrum antibiotic market was corroborative of that of the defendants! officials on this Subject. Tr. Vol. 46, Pp- 5981-84, 6004-05, 6034-35. j Plaintiff has conceded that “pure price uniformity, Standing alone, can be justified by the laws of economics, or by a theory of price leadership", and that "other factors must be proven", (Plaintiff's brief, Appendix Aye Pe 3]-) The identity of list prices of the defendants (and Parke, Davis) prevailed principally in the prescription market which accomuted for approximately eighty- five per cent of the total sales of tetracycline. While there were numerous instances of identical bidding on contracts to supply the drug to public and private hospitals, the record is replete with evidence that defendants did regularly compete, sometimes intensely, for this business. This was done through the use of "tree goods" and other inducements offered 426a to get the business. {Footnote 33. “Free goods" is merchandise furnished without charge in addition to that purchased and shown on the invoice at the list price. The result to the purchaser, of course, is a reduction in the overall price paid. ] It would unnecessarily prolong this opinion to recount this evidence, but some typical examples are shown in the margin. [ Footnote 34. The following are illustrative excerpts from salesmen's reports on competitive price cutting and free qoods transactions: "Neither Pfizer nor Lederle will knowingly be undersold by the other." (Squibb Exhibit |89) "We just lost the business at Presbyterian Hospital - «+ - rough competition." (Squibb Exhibit 243) "Hopkins have been purchasing all of the tetracycline that they use from Pfizer, at a most ridiculous price. . . I wonder if we are on the verge of another price war?" (Squibb Exhibit 266) "Wow! When is it going to stop?" (Squibb Exhibit 31]7) "The hospital received another 200 vials of IS from Lederle as free goods." (Bristol Fxhibit 50) 427a "The hospital is getting sixt er cent in free goods’ fror leterie. ced Pfizer on tetracycline." Exhibit 51}) Y e (Bristol "The most active competitor on pt 9 eat = in our region has been the aries Pfizer Company." P ° Exhibit 787) gy — = "AS much is being given away as is sold. The book price is recognized as fee) fiction." (Plaintiff's Exhibit "Bristol continues to raid Chicago." (Cyanamid Exhibit 155) "Squibbs and Bristol leads [sic] the parade with a low of fifty per cent in free goods on ‘tetracycline’. (Plaintiff's Pxhibit 799) "Various amounts of materials being given from trunks of cars." (Plaintiff's *xhibit 764) "In view of highly competitive..." (Plaintiff's Exhibit 795) : In a report a Lederle agent complained of Pfizer's "blitzing", accusing Pfizer of wanting all the business, “entertaining — by the dozen". (Plaintiff's Exhibit "Pfizer is sponsoring golf tournaments for St. Elizabeth's Hospital «++ One of Pfizer's salesmen in the Maine area has been generous not only with the hospitals, but with druggists as well in the way of free 428a cee So far Squibb's efforts have oe than in the very large hospitals, but they have not made ers: Bristol has been most active in, ” Buffalo area and generally it someone from management that sets up p. deal through an account... re : just getting into the act in hosp me 9 in an effort to get Panmycin established, but so far have not _ as rough as Pfizer. This — = very generous with sapples in eed doctor's office, particularly vw their readimix product... In the =. run we have to meet competition bu 2 think your policy of keeping 4a a . . head is a good one at ier ° (Cyanamid Exhibit 4O dated May, 1955) "In my opinion, the Achromycin situation is becoming more serious “— by day as our competitors continue : whittle away at key county, city an state institutions by bidding yy percent less than ourselves or >Y allowing their accounts 0S ere the $22.49 price..." (Cyanamid Exhibit 42) ] It was in evidence that it is not unusual in the drug business for prices to remain steady for as long as seven years, and in this case the evidence shows that after 1960 substantial declines in prices charged by defendants for- tetracycline began to appear. Plaintiff would argue 429a that this affords an unmistakable inference Of collusion in the earlier years, but the court is unable to agree. [Pootnote 35, Plaintiff prepared and submitted a "scatter chart" (Plaintiff's Exhibit 999), showing that these price declines were auch amore Pronounced for tetracyciine than for more than one hundred other druqs. Plaintiff arques that some abnormal force namely, a conspiracy sust have been at work to produce this result. These declines have been adequately explained by defendants and their economists (with whom Plaintiff's econosist was in basic agreement) as having been caused by the appearance on the market of new “medium spectrum" antibiotics and the growth of generic prescribing of tetracycline. And, of course, the possibility that the Kefauver Committee hearings had an impact cannot be discounted. Even so, the decline in prices of the combination tetracycline products which constituted by far the greater portion of tetracycline sold in the 1960's did not vary appreciably from the declines experienced by other drugs during that period. } FXCLUSION OF COMPETITORS Plaintiff's charge that the defendants engaged in a conspiracy to exclude competitors is not supported by the evidence. As we have seen, there was no 430a such express agreement between Pfizer and Cyahagid coming out of the HcKkeen-MSalcolsa meetings, nor is such inference toc be drawn from the fact that the patent interference was settled. Faced with a sirsilar contention in Hutzler Bros, Co, _v- Sales Affiliates, _Inc., {64 F.2d 260 (1947). Judaqe Dobie, writing for the Fourth Circuit, said: "We cannot attach, as defendants seem to suggest, any ulterior motives, or any improper conduct, to plaintiffs in connection with the agreed settlement with Bohemen in the interfernce proceedings. Had the interference proceedings been prosecuted to final judgment, this would have unquestionably delayed the aranting of the patent in suit. There were ample business reasons for a friendly settlement. And there was evidence to show that this settlesent was recogmended by Bohemen's attorney after a review of the proofs of the priority of Evans and NcDonough." Id.at p. 267. Other actions taken by the defendants and relied upon by plaintiff to establish 43]a conspiracy are seen upon close analysis to have been equally consistent with the lawful exercise of sound business judgment. Reference to a few of such actions will suffice to demonstrate the point: (i) Bristol's decision to sell tetracycline in bulk was based on its recognition that it could not with its comparatively small sales force compete successfully with the much larger companies like Pfizer and Cyanamid without selling its product in bulk. Its decision to sell to just two customers, Squibb and Upjohn, was in line with its ultimate objective of becoming a substantial seller under its own label. The more bulk customers Bristol had, the more competitors its own brand of tetracycline would have. These decisions were made by Bristol in {954 at a time when it is not alleged to have been conspiring with anyone. 432a (2) The negotiations leading to the acquisition of Heyden's Antibiotic Division by Cyanamid were initiated not by Cyanasid but by Heyden and these negotiations were instituted before the McKeen-Malcolsa meetings took place. While the MSinieri patent was held out by Heyden “as bait", evidence is lacking that it constituted much of an inducement ot Cyanamid to purchase. On the contrary Dr. Salcola reasoned that Minieri's product claims were foreclosed by Cyanamid's Dugqaqar-Niedercorn patents, and there was ample evidence to support the bona fides of this transaction. There is no evidence that Pfizer had anything to do with it. (3) The settlement in December, |954, of the infringement suit brought by Cyanamid against Bristol occurred a year before Bristol is alleged to have joined the conspiracy allegedly existing at that 433a time between Pfizer — and Cyananid. The negotiations leading to the settlement were initiated by Bristol's President, and there is no evidence that Pfizer had any part of the prosecution or settlement of the suit. [It occurred at a time when Cyanarmid had reason to believe Pfizer would not obtain a patent on tetracycline. Dr. Malcolm testified that after satisfying himself that Bristol was indeed infringing the Duggar patent, he concluded to settle for a reasonable royalty in order to avoid long, drawn-out and expensive litigation. The testigony is uncontradicted. (4) It is undeniable that the suits instituted by Pfizer against Bristol, Squibb and Upjohn on the very day its patent issued [Footnote 36. The Conover patent file wrapper (p.65) indicates that Pfizer's attorneys had requested a deferment of the issuance of the patent until January {], 1955, and this may have been for the purpose of allowing the attorneys to 434a prepare the suit papers which Pfizer had promised Bristol it would file immediately upon the issuance of the patent. ] were adversary in every sense of the word and that they were bitterly contested by the defendants. It seems equally clear that the settlements reached following the "Broady incident" reflected the exercise of sound business judgment and were not the result of any collusive agreements. It was not shown that Cyanamid had any part in the prosecution of these suits or the settlements. Bristol recognized the serit in Pfizer's position by agreeing to pay back royalties. By settling it avoided a possible liability exceeding fifty sillion dollars. Squibb and Upjohn demonstrated their lack of faith in their altisate chances of success by exacting from Bristol under threat of cancelling their bulk purchase agreements, an agreement to indemnify them against loss in the event Pfizer prevailed - the reverse of § the anaegnity agreement previously in effect between thea. { Footnote 37 The att © orneys defendants counseled the pa 5 + le tp te uncertainties of patent liti i igation wer Suemed up by Squibb's attorney who, eteee listing several c PN rrcsstisiye onsideration prompted his recommendation, ee” which “So you had all considerations and I cannot see ee cuere are any firm views p 3 to whether we would win or Fos gage 4 ia a@ satuation that I have characterized in the past as rolling dice in the halls of justice. That is where we were." (Tr. Vol. 44, p. 5705) Piaintift’'s strongly ur ged contentio chat Bristol, Squibb and Upjohn knew iden could win these suits but settled anyway is Simply not consonant with the realities wnich face aii parties i i nh co lirigation. ] ae oe And Bristol's action tollowing the sertiement tn Filing with the court all the Gepositrous ae tad taken contaliing “amaging evidence against pPtizer rather than cetaining these in its files as it Bignt have done, 15 corroborative of its 436a position that it had nothing to hide. (5) The contention strongly urged by plaintiff that a statement reported to have been made by Pfizer's McKeen at a geeting of security analysts held at Pfizer's Brooklyn plant is an admission that Pfizer and Cyanamid had agreed to exclude competition is not impressive. Whether the statement was actually made and if so, whether it was properly admissible in evidence against Pfizer are questions not free from doubt. Be these things as they may, however, it is simply not realistic to suggest that a sophisticated business executive who would enter into a conspiratorial agreement would call a press conference to announce it. 437a MONOPOLIZATION What has been said in disposing of the patent and the restraint of trade issues renders unnecessary further extended discussion of plaintiff's Section 2 Sheragan Act charges of monopolization against al] defendants and the charge of attempt to monopolize made against Pfizer alone. Suffice it to say with respect to all defendants that the court has not found the charges sustained by the greater weight of the evidence, With respect to the unilateral monopolization charge against Pfizer, in addition to its failure to prove that Pfizer procured the Conover patent by fraud or that it misused a valid patent, Plaintiff has failed to establish the essential elements of an attempt to monopolize. See Smith, "Attempt to Monopolize: Its Elements and Their 438a Definition", 27 Geo. Wash. L. Rev. 227 (1958). ADDITIONAL FINDINGS In addition to the findings set forth herein the court adopts as its own the, following proposed findings of fact submitted by the parties: |. Plaintiff's proposed findings | - 10 inclusive filed February 8, }974. 439a A. BACKGROUND TO THE VIOLATIONS ALLEGED (1) ANTIBIOTICS Antibiotics are substances used for the treatment or prevention of disease. These Substances compete with each other for the phvcicians'® demands in treatment of diseases which are susceptible to some or all antibiotics. The extent of competition between specific antibiotics depends upon the extent to which the particular product has been advertised and promoted to the medical profession, the range of susceptibility of disease causing organisms to the various antibiotics, the extent to which the medical profession or individual physicians might prefer one antibiotic to another antibiotic either from a thera- peutic standpoint Or from ease and convenience of administration, the 440a prevalence of undesirable side effects resulting from usage of certain antibiotics, or from purely personal reasons attributable to individual physicians. (2) PENICILLIN ROPOSED FINDING 2: The first major antibiotic discovered and introduced was penicillin which was used extensively during World War If and thereafter. Subsequent to the introduction of penicillin, additional antibiotics were discovered. Four of these were effective against a wider qroup of disease-causing micro-organisms than was penicillin and other antibiotics and became known = 45 "broad spect rua" antibiotics. These broad spectrum antibiotics were the following: chlortetracycline, which was introduced in 4Uja 1948 by Cyanamid under the trade name Aureomycin; chloramphenicol, which was the first marketed in 4949 by Parke, Davis and Company under the trade name Chloromycetin; Oxytetracycline, which was introduced in 1950 by Pfizer under the trade name Terramycin; and tetracycline which was introduced at varying dates in 4953 and 1954 by the five defendants each having its own distinct trade name. The patent covering the product Aureomycin is the Duggar patent, U.S. Patent 2,482,055. The Niedercorn patent, U.S. Patent 2,609, 329, is an improvement patent on a process for producing Aureopycin. The Terraaycin patent, U.S. Patent 2,516,080, was issued to Pfizer in March {950 and is also sometimes referred to as the Sobin patent, as he was the applicant for the patent. 442a PROPOSED PINDING 3: During and subsequent to World War II, many companies entered the penicillin industry and “price wars" broke out. The price of penicillin declined repeatedly. The penicillin industry came to be characterized by very competitive and low prices to all classes of customers, undertain profits, or even losses, and attrition among producers. —_—--——eoereor!™vm—r- Basic penicillin as such was not patented. Aureomycin and Terramycin were patented by defendants Cyanasid and Pfizer respectively. No other company has_ been licensed by Cyanamid to sell Aureomycin as such in the United States. Pfizer has been licensed to manufacture Aurecaycin for the purpose of converting it to tetracycline, and Bristol has been licensed to produce up 44 3a to 6% Aureonycin in the production of tetracycline and to sell tetracycline containing not more than 6% Aureomycir. No company has been licenseé by Pfizer to produce or sell Terramycin in the United States. Both defendants Cyanamid and Pfizer as a result of their patents have had, therefore, a complete monopoly of the production and sale of Aureomycin and Terramycin, respectively, since the introduction of these antibiotics. PROPOSED FINDING 5: Aureonycin and Terramycin are Substances produced by certain picro- organisms, Tetracycline is produced both by chemical transformation of Aureomycin, and by micro-organisms. These substances have the capacity to inhibit the growth of infectious and disease producing micro- organisas and to destroy them. Aureomycin, 444a Terramycin and tetracycline are substances of vital and unique importance to the health and welfare of the general public. These antibiotics are produced as a result of large scale fermentations of micro-organisas, sometines familiarly called “bugs". For commercial purposes, these micro-organisas are allowed to develop and grow in large vats, 20,000 gallon vats not being unusual, containing various types of nutrient media specially designed or known to cause rapid and large growth of the micro-organisa|. After the qarowth has continued for a few hours or days to the point where experience has taught that the most satisfactory yield of antibiotic can be obtained, the fermentation is stopped. Thereafter the antibiotic is harvested from the broth or beer. The method of accomplishing this is to selectively separate the antibiotic 445a from the broth leaving behind as much impurities or "gunk", which accumulates during the fermentation, as is possible. After further purification efforts, a usable product results. This compound is then processed, mixed with other materials or other antibiotics, and packaged in many different package sizes and dosage forms. The dosage forms vary depending on the amount of antibiotic per dosage; e.g. 250 maj. capsules, {25 mq. capsules, |00 ag. Capsules or 50 mg. capsules. This gives the physician ample dosage formas for various types of patients and diseases. Aureomycin and Ter *mycin are both made by the procedures very briefly outlined above, Tetracycline is also made in this fashion. In addition, tetracycline can be made by subjecting Aureomycin (obtained by feraentation) to mild hydrogenation in the G4u6a presence of a catalyst, ©€-9- palladiua. This hydrogenation removes a chlorine atop from the basic Aureomycin aolecules and the resulting product is tetracycline. Tetracycline, Aureomycin and Terramycin are products which can only be obtained by the ultimate consumer or patient, by authority or prescription issued by a physician. Tetracycline is customarily prescribed by the physician under one of the five defendants*' brand names. These antibiotics are not products which are generally available to consumers aS are other products in general commercial usage. It is the physician's prescription which determines the amount and brand of drug which the pharmacist will sell. uta PROPOSED FINDING 7: Tetracycline, Aureomycin and Terramycin are antibiotic substances which can be used by the medical profession for the treatment and cure of the same diseases. These antibiotic substances, therefore, are directly competitive. While these antidviotics do differ Slightly in chenical structure they are standard products havina the same commercial use and are marketed in identical dosage forms and package’ sizes with few minor exceptions. PROPOSED FINDING 8: Tetracycline and in some instances Aureonvecin an Terramycin have been combined with various additives such as so'liun metaphosphate, citric acid, ascorbic acid, xylocaine, procaine and others and has been wace available in hydrochloride or phosphate salts. These adlitives or salts, while perhaps differing from each other 44Ba from a pharmacological standpoint, do not change the basic forma of the tetracycline which remains the basis of the therapeutic value of such combinations. The addition of these various substances is made for the purpose of attempting to raise the blood level of the antibiotic, shorten the time necessary to achieve higher blood levels, extend the period of the higher blood levels and add a sedative to the drug to alleviate pain or discomfort resulting from administration. In addition these antibiotics have been combined with vitamins (S.F. or stress formula) and with other antibiotics (Pfizer's Signemycin) and with antifungal agents (Squibb's Mysteclin). These various dosage forms are, with minor differences, identical and are competitive each with the other. 449a PROPOSED FINDING 9: Tetracycline is marketed in substantially identical dosage forms by each defendant. The oral dosage forms are the gost important dosage forms in teras of dollar volume of sales. The oral dosage forms consist of capsules and tablets, and liquids such as suspensions, syrups and pediatric drops. The injectible dosage formas are next in importance in terms of dollar volume of sales, The remaining dosage forms such as ointments, sprays, troches, powders, soluble tablets, otics, etc., are comparatively unimportant commercially. All defendants market the Significant, or large volume, dosage formas in identical package sizes. _ Be. RELEVANT MARKET STRUCTURE PROPOSED FINDING j0: The market for antibiotics consists of 450a five classes of custormers and the prices charged each customer class by all defendants depends upon the classification into which each customer falls. (a) Retailers--This class of customer consists of the retail drug pharmacies throughout the United States to whon defendants sell their products direct. These pharmacies, in turn, dispense the antibiotics to the consuming public as a result of prescriptions by physicians presented to the drug pharmacists and are the source from which the public obtains these antibiotics involved in the proceeding. In some instances, retail pharmacies, in addition to selling to the consuming public, sell to city, county and state hospitals and non-profit association hospitals. (b) Drug wholesalers--This class of customer purchases antibiotics direct from 4Sia the manufacturers’ thereof and, in turn, resell the antibiotics to the retail ‘Pateacios throughout the United States. In addition, drug wholesalers in sose instances sell antibiotics to city, county and state hospitals, non-profit association hospitals and to some federal institutions. (c) City, county and state hospitals (hereinafter called ccs hospitals) --This Class of customer consists of tax-supported hospitals operated either by cities, counties or states throughout the United States. Purchases by this class of customer are made by purchasing agents or hospital pharmacists or, in many instances, by agencies of the state, city or county which purchase antibiotics for a number of institutions operating within the political sub-division. Purchases by this class of customer are made in two fashions: first, as a result of requests for the submission 452a of formal bids which are sent to the manufacturers and local wholesalers and retailers; second, by direct order fros the manufacturers, retailers or wholesalers without the submission of bids. (4) Pederal Government--This class of customer consists or all the various agencies who purchase antibiotics for use in federally operated hospitals and clinics. Included in this class of customer are the Veterans Administration (V.A.), General Services Administration (G.S.A.)- the District of Columbia Government, United States Public Health Service, and the Military Medical Supply Agency (M.M.S.A~)- The M.M.S.A., who purchases for the three armed services, is the largest single purchaser of these products. Purchases of drugs by this class of customer are made in several manuers. All, 453a from tise to time, ask for the submission of prices. This can be done on a formal secret bid request basis or a less formal request for bids with the prices subsitted open to further negotiation between representatives of the agency and the suppliers. G.-S.A. requests prices and these are then incorporated in to the G.S.A. schedules and distributed to the various agencies purchasing from the G.S.A. schedule. In addition many hospitals, particularly V.A. hospitals, purchase drugs direct from a manufacturer without regard to V.A. or G.S.A. price schedules. V.A. regularly uses this type of "decentralized" contract instead of its "depot" contract where a bid is let to a particular supplier for delivery to the various V.A. warehouses. On a depot award, the hospitals order from the V.A. warehouse and not from the manufacturers. Sua Generally federal institutions deal directly with the manufacturers of these drugs and not local wholesalers or retailers. (e) Non-Profit Associations (NPA)~--~ This class of customer consists of hospitals and other institutions such as clinics which are privately owned and operated whether for profit or not. Purchases by this class of customer are usually made fros the manufacturer, wholesaler or retailer on 4a negotiation basis or on a regular order basis. Some larger WPA institutions do, however, from time to time request the submission of bids. In addition, some defendants, e-q- Upjohn, make some insignificant sales of these drugs direct to physicians for dispensing to patients. 455a 2. Pfizer's proposed findings of fact (A) §-45 inclusive and (B) {-79 inclusive relating to the commercial issues and proposed findings |-59 inclusive relating to the patent issues, all filed October 16, 1973. Pfizer's Policy of Attempting to Keep Its Discoveries to Itself Was An Independent Business Decision Which Was Adopted Years Before Any Alleged Conspiracy. 1. Prior to World War II, Pfizer was a manufacturer of fine chemicals which were sold in bulk, through a small sales force, to food, beverage and pharmaceutical manufacturers for use in their own manufacturing processes. These manufacturers would use the saterial purchased from Pfizer as an ingredient in their finished product, or they would relabel the material for sale under their own name. In either event, Pfizer's identity was completely lost in the finished product. Pfizer offered no finished drugs to the medical profession. 2. During World War II, the government asked Pfizer to help in the development of penicillin because of its knowledge concerning the production of chemicals by 456a fermentation. Pfizer manufactured penicillin and streptomycin during this period, but again, these antibiotics were sold in bulk or unlabeled bottles to other manufacturers, and Pfizer's identity was completely lost in the finished product. Pfizer was still virtually unknown to doctors, hospitals, or drug wholesalers or retailers. 3. Their experience with penicillin and streptomycin led Pfizer to become interested generally in antibiotics. In 1946 Pfizer built a research facility and pilot plant in Brooklyn in order to search for new antibictics. In 1949 Pfizer discovered the broad spectrum antibiotic Terramycin, and in |950 received a patent on the product. Pfizer viewed Terramycin as its "golden opportunity" to enter the pharmaceutical business by producing prescription drugs under its own label, and marketing them in the channels of the drug trade. 4. Pfizer's entry into the pharmaceutical business under its own label required a substantial financial commitagent and certain risks. Pfizer had to build a marketing organization consisting of several hundred salesmen, a marketing staff to back them, a sedical staff to advise them, and conduct clinical studies, and a physical distribution system throughout the country. Additionally, a substantial commitment to additional product research was required so that the succecs of the company was not dependent solely on 457a coe Pfizer also faced direct — a fron pharmaceutical houses in , With the established facilities and organizatio . build to vr that Pfizer would have to 5. Despite the Substant ial f iris dg required, and the ee ne eae : Pfizer management decided to use ~ Bycin as a vehicle to enter the a he field. Concomitant with bn ecision, Pfizer also decided not to merical Tt erase pn in bulk or grant re uring licenses to others. It was r e that Terramycin, as well as an uture discoveries made by Pfi ; scientists, would be kept as specialty products for the Pfizer marketing Rivieion in order to ensure the company's growth viability around the world. i og 6. At the sane time, Pfizer sieetaaene expand their "oiaeeen Fhe te in an effort to discover other : gs w ch, along with Terramycin, would ecome specialties so Pfizer could corgpete with the more establish pharmaceutical firms. we SeEee-peosest Although Pfizer Discovered T etracycli Cyanamid's Aureomycin Patent peesieses. Pfizer From Maintaining It as An Exclusive Product. 7. %In June of 1952 D e Dr. Conover, a Pfi Scientist, discovered tetracycline: and oo 458a j j ducing it. schlorination process for pro a patent application for both product — process claims was filed in October o 1952. 8. Translating Dr. Conover's invention from a laboratory discovery into . commercial product proved to be a a problem to Pfizer. The only method ~~ o to Pfizer for making tetracycline was deschlorination of Aureomycin, 4a = process by which the Aureoaycin ren e was transformed into a tetracyc — molecule. Aureogycin was a —~*"\ e exclusive of Cyanamid, and Pfizer ha _ source of supply of this product other t - the small quantities which could e purchased on the open market. Thus, "eager could not commercially sanufacture tetracycline without a patent pares AS A supply of bulk Aureomycin from Cyanag@id. win the discovery ot ei Pfizer refrained trom seeking a patent license or bulk Aureomycin trom Cyanamid to manufacture tetracycline, because they felt tetracycline was thear discovery and had no intention of sharing it. Pfizer, instead, tried to develop 4 direct fermentation process = tetracycline, thereby avoiding Py e necessity of Aureogycin aS 4 page hee material. However, for several years this effort was unsuccessful. 459a 10. While trying to develop a direct fermentation process for tetracycline, Pfizer became aware of Cyanamid's interest in tetracycline. In the late Sugger of 1953, Pfizer began to receive information about Cyanasid's extensive clinical testing of tetracycline from its salesmen. This led Mr. McKeen to believe that Cyanasid was seriously interested in tetracycline and would probably market it in the near future. 11. McKeen's suspicion that Cyanamid would soon begin coagercial marketing of tetracycline was confirmed in the latter part of October |953, when he attended an antibiotic symposium sponsored by the Pood and Drug Administration. At this Symposius, Cyanamid scientists presented a number of papers describing the successful results of Clinical tests with tetracycline. This made it clear to ar. NicKeen that Cyanasid considered tetracycline superior to any other antibiotic then on the market and was preparing to introduce it soon. : {2. Shortly after this syaposium, on October 29, |953, Pfizer received a notice to copy claims from the Patent Office in connection with its Conover patent application. This notice indicated that an interference proceeding with respect to the application for tetracycline was imminent. Based on Cyanamid's, clinical testing reported by its salesmen and events at the FDA symposium, McKeen had little doubt that Cyanamid was the other party to the 460a til this j terterence. Up un np agua os gg been no cogueeerr t [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_IA40385004_0087%3A2. Public record. Not legal advice.