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State of West Virginia v. Chas. Pfizer Co., 314 F. Supp. 710 | Casetext
State of West Virginia v. Chas. Pfizer Co.
In addition, it has been used to refer to "the entire procedure of classwide calculation of damages and…
Full title:STATE OF WEST VIRGINIA, Plaintiff, v. CHAS. PFIZER CO., Inc., American…
Date published: Sep 18, 1970
314 F. Supp. 710 (S.D.N.Y. 1970)
approving a settlement with a .04% claims rate
Summary of this case from Barcia v. Contain-A-Way, Inc.
No. 68 Civ. 240, and other antibiotic drug antitrust actions.
June 24, 1970. As Amended September 18, 1970.
Dickstein, Shapiro Galligan, New York City, for plaintiffs States of Alabama, Florida, Georgia, Iowa, Kentucky, Louisiana, Maine, Massachusetts, Minnesota, Mississippi, Missouri, North Dakota, Ohio, Oklahoma, Rhode Island, South Dakota, Texas, Vermont, Virginia and Wisconsin; Cities of New York (counterclaim plaintiff) and Memphis; District of Columbia.
Harrison, Strick Myers, Phoenix, Ariz., for plaintiffs State of Arizona and County of Maricopa.
Perry Goldberg, Friedman, Koven, Shapiro, Salzman, Koenigsberg, Specks Homer, Chicago, Ill., for plaintiffs States of Connecticut, Idaho, Maryland, New Jersey, New Mexico, and Wyoming; City and County of Denver; Mayor and City Council of Baltimore.
Robert L. Woodahl, Atty. Gen., James R. Anderson, Douglas J. Wold, Asst. Attys. Gen., Helena, Mont., for plaintiff State of Montana.
Clarence A.H. Meyer, Atty. Gen., Lincoln, Neb., for plaintiff State of Nebraska.
Louis J. Lefkowitz, Atty. Gen., Albany, N.Y., George C. Mantzoros, Asst. Atty. Gen., New York City, for plaintiff State of New York.
Robert E. Sher, Washington, D.C., for plaintiff Commonwealth of Puerto Rico.
Daniel R. McLeod, Atty. Gen., John Bowen, Asst. Atty. Gen., Columbia, S.C., for plaintiff State of South Carolina.
Dilworth, Paxson, Kalish, Kohn Levy, Cohen, Shapiro, Berger, Polisher Cohen, Philadelphia, Pa., for plaintiffs City of Philadelphia, City of Detroit et al., and Sun Ray Drug Co., et al.
Schein, Askounis, Stavins Wald, Chicago, Ill., for plaintiffs Alpine Pharmacy, Inc., et al.
Peck, Shaffer Williams, Cincinnati, Ohio, for plaintiffs Herbert Beins, d/b/a Waverly Drugs, et al.
Schwartz Alschuler, Beverly Hills, Cal., for plaintiff Domaro, Inc. and counterclaim plaintiff Benalen Corporation.
Levy Erens, Chicago, Ill., for plaintiffs Ford Hopkins Co., et al.
Sager, Silverman, Bodne Burns, Miami, Fla., for plaintiff Lee's Prescription Shops, Inc.
Cochrane Bresnahan, St. Paul, Minn., for plaintiffs Peterson's Pharmacy, Inc., et al.
Antonio M. Bird, Old San Juan, P.R., for plaintiffs Weiwall Drug Corporation et al.
Dewey, Ballantine, Bushby, Palmer Wood, New York City, for defendant Chas. Pfizer Co., Inc.
Donovan Leisure Newton Irvine, New York City, for defendant American Cyanamid Co.
Winthrop, Stimson, Putnam Roberts, New York City, for defendant Bristol-Myers Co.
Cravath, Swaine Moore, New York City, for defendants Olin Mathieson Chemical Corporation and Squibb Beech-Nut, Inc.
Covington Burling, Washington, D.C., for defendant The Upjohn Co.
This is an application by defendants and by plaintiffs in these class actions for approval of a proposed compromise under which the actions and all claims of the classes therein will be settled and dismissed with prejudice. Fed.R.Civ.P. 23(e) The application is granted and the proposed compromise is approved.
These are 66 civil actions, 26 of which were commenced in this District and 40 of which were transferred to this District by the Judicial Panel on Multidistrict Litigation (the Panel) "for coordinated or consolidated pretrial proceedings" ( 28 U.S.C. § 1407; see 295 F. Supp. 1402, 297 F. Supp. 1126, 299 F. Supp. 1403, 301 F. Supp. 1158, 303 F. Supp. 1056, 309 F. Supp. 155). The 66 civil actions which are the subject of the present application are sometimes referred to in this opinion as simply "these actions".
The claim in each of the actions is that defendants violated the antitrust laws in the sale of antibiotics, specifically Sections 1 and 2 of the Sherman Act ( 15 U.S.C. § 1, 2); treble damages are sought, as authorized in 15 U.S.C. § 15.
Data as to the four principal broad spectrum antibiotics are as follows:
Generic Name Trade Name First Introduced By Whom chlortetracycline Aureomycin December 1948 Cyanamid chloramphenicol Chloromycetin January 1949 Parke, Davis oxytetracycline Terramycin March 1950 Pfizer tetracycline Achromycin November 1953 Cyanamid Tetracyn January 1954 Pfizer Polycycline April 1954 Bristol Steclin September 1954 Squibb Panmycin October 1954 Upjohn
When the Duggar and Sobin patents issued, the chemical structure of the antibiotics produced — trade names, Aureomycin and Terramycin — were not known.
Bristol, Squibb and Upjohn then sued Pfizer in this Court for a declaratory judgment on the Conover patent and, over strong opposition from Pfizer, obtained transfer of Pfizer's action from the Northern District of Georgia to this Court ( 131 F. Supp. 21, 225 F.2d 718, 225 F.2d 720).
By resolution on July 22, 1953 (amended on July 13, 1956), the Commission initiated an investigation ( 15 U.S.C. § 46, 49) of "the * * * business, conduct, practices and management of corporations engaged in the production, sale or distribution of antibiotic drugs * * *". This investigation went on until 1958. The defendants and others responded to extensive data requests of the Commission. On the basis of these responses and other material and records, the Commission in June 1958 issued an "Economic Report on Antibiotics Manufacture"; this Report was of some 360 pages.
On July 28, 1958, the Commission issued a complaint charging the defendants with unfair methods of competition and unfair acts and practices in the sale of antibiotics, all in violation of Section 5 of the Federal Trade Commission Act ( 15 U.S.C. § 45).
The final order of the Commission was that the five defendants cease and desist from any and all forms of price fixing agreements, that they each take specific steps in respect of independent pricing activities, that Pfizer grant to any applicant a license under the Conover patent for a royalty of not more than 2 1/2% of net sales, and that Cyanamid grant to any applicant a license under the Duggar and Niedercorn patents for a royalty of not more than 2 1/2% of net sales. See Note: Improperly Procured Patents: FTC Jurisdiction and Remedial Power, 77 Harv.L.Rev. 1505 (1964).
6. Decision of the Court of Appeals ( 363 F.2d 757)
The defendants obtained a review of the Commission's order by the Court of Appeals for the Sixth Circuit ( 15 U.S.C. § 45(c)).
The Court first decided that the active part played by Chairman Dixon while counsel to the Senate Subcommittee caused him to form opinions as to facts which later became "inseparably a part of the ultimate findings of fact of the Commission" ( 363 F.2d at 765). The Court concluded that the participation of Chairman Dixon in the decision of the Commission was a denial of due process to the defendants, requiring that the decision be set aside and the matter remanded for a fresh consideration by the Commission without any participation by Chairman Dixon.
Pfizer and Cyanamid obtained a review of the Commission's order by the Court of Appeals for the Sixth Circuit ( 15 U.S.C. § 45(c)).
It may be noted that the Court did not decide whether the views of Lidoff as to patent law were correct or not. Lidoff testified that had he known what Pfizer and Cyanamid knew as to coproduction of tetracycline and as to its presence in Aureomycin, he would not have allowed the patent. As will be mentioned later, there may be some question whether this would be good patent law. Decisions such as Parke-Davis Co. v. H.K. Mulford Co., 189 F. 95 (C.C.S.D.N.Y. 1911), affirmed 196 F. 496 (2d Cir. 1912) raise difficult issues in this connection. The Court of Appeals for the Sixth Circuit stated that it "did not undertake to pass upon the validity of the [Conover] patent" (401 F.2d at 586).
The Supreme Court denied certiorari on March 24, 1969 ( 394 U.S. 920) and the Commission proceedings came to an end.
After the return of the indictment, a grand jury in January 1962 was empanelled in the District of Columbia and investigated the conduct of a government official in transactions with drug firms, including these defendants. Under subpoena, McKeen, Malcolm and Schwartz testified before this Grand Jury (which returned no indictment). On motion of these individual defendants and over the Government's opposition, Judge Ryan, by order with opinion filed September 9, 1965, dismissed the indictment as to them ( 245 F. Supp. 801). The reason was that by testifying before the grand jury in the District of Columbia the individual defendants became immune from prosecution on the indictment in this District ( 15 U.S.C. § 32, 33).
It was developed at trial that Parke Davis Co. was a maker of broad spectrum antibiotics, was second in volume of sales of such antibiotics, followed the same prices and practices as the defendants on trial, and was concededly not a member of any conspiracy.
On April 16, 1970 — after the hearing before this Court on the issue of approval of the proposed compromise — the Court of Appeals handed down its decision, reversing the judgments of conviction and directing a new trial. 426 F.2d 32. Judge Moore wrote the opinion; Judge Friendly concurred; Judge Hays dissented.
The first infringement actions by Pfizer were against Bristol, Squibb, and Upjohn; these (to which reference has been made above) were brought on the day the Conover patent issued and, as noted, were settled in December 1955.
Pfizer brought no other such actions until October 1960 but after that date and over the next five years Pfizer brought some 30 infringement actions on the Conover patent. A list of these actions is Appendix F to the first opinion of the Sixth Circuit ( 363 F.2d at 817).
A large number of the actions are brought as class actions under Rule 23(b)(3) of the Federal Rules of Civil Procedure.
Each state, Puerto Rico and the District of Columbia has commenced a separate action, except for Delaware and Nevada.
Baltimore (68 Civ. 4325) Boston (68 Civ. 4354) Chicago (69 Civ. 901) Denver (68 Civ. 4930) Kansas City, Missouri (69 Civ. 2861) Los Angeles County (68 Civ. 4341) Memphis (68 Civ. 1807) Nashville and Davidson County (69 Civ. 899) New York City (64 Civ. 1742; counterclaim) Philadelphia and Detroit (68 Civ. 4298) San Francisco County and City (68 Civ. 4274)
Akron Lansing Buffalo Madison Heights Cleveland Pittsburgh Dearborn Santa Clara Honolulu Tampa
"B. Claims of wholesalers, retailerers and individual consumers arising out of their purchases, including claims of states as parens patriae on behalf of their citizens or on behalf of classes including the state as a consumer and all other consumers in the state."
The procedure set out in the settlement plan was, in brief, that appropriate actions would be determined to be maintained as class actions; that the required (Fed.R.Civ.P. 23(c)(2)) notices with option to be excluded from the class would be directed to all class members; that if exclusions were "substantial and material" defendants could withdraw; that if defendants should go forward with the settlement, the $100,000,000 settlement figure would be reduced appropriately to reflect the exclusions from class membership; that any plaintiff accepting the settlement could present to the Court a Proposed Plan for the allocation of the global settlement amount; that if all plaintiffs did not agree on a common Plan, then defendants might elect to proceed with any Proposed Plan or modification thereof; that the proposed compromise embodied in the agreed common Plan or the Plan elected by defendants would be submitted to the Court for approval under Rule 23(e) of the Federal Rules of Civil Procedure; that administrative and other costs incurred in the settlement procedure should be paid from the settlement amount; and that if the settlement were approved, all claims covered thereby would be "satisfied or otherwise terminated".
As to the group (1) plaintiffs, the May 26, 1969 order provided a "temporary national class action" (West Virginia v. Pfizer, 68 Civ. 240 in this Court) from which any of the plaintiff states not accepting the offer of settlement could by notice exclude themselves. Alternatively, any state (as defined in the order) which on or before June 10, 1969 filed with the Clerk of this Court a statement in writing that it accepted the offer of settlement but did not wish to become a member of the "temporary national class" could maintain its action as a class action and become an accepting state without having been included in the "temporary national class". A number of states accepted the offer of settlement under this alternative procedure. It was provided that as to the states accepting the offer of settlement, each action commenced by them was to be maintained as a class action (Fed.R.Civ.P. 23(c)(1)) for two classes, described in detail in the order but in summary as follows: (a) state, county, and city hospitals and other institutions; and (b) individual members of the consuming public who bought antibiotics in the state.
The May 26, 1969 order was directed to the states as notice to members of the "temporary national class" (Fed.R.Civ.P. 23(c) (2)) and copies of the order were sent to each member of the class.
3. Notices Under Rule 23(c)(2)
Having determined that certain actions were to be maintained as class actions, it was then necessary to direct to members of the classes the notice required by Rule 23(c)(2).
The order as to consumer class members directed that notice be given by publication of the prescribed form of notice on or about July 1, 1969 in every daily English and Spanish language newspaper of general circulation in the state. The consumer class members were given until August 1, 1969 to exclude themselves from the class. They were also notified that if they wished to make a claim in the settlement they were required to file by August 16, 1969 a verified statement or a statement certified by the supplier. The notice to consumers also contained this statement: "If you do not make an individual claim by August 16, 1969, that will constitute an authorization to the Attorney General [in the District of Columbia and in some other government entities the chief law officer was referred to by a different title] to utilize whatever money he may recover as your representative for the benefit of the citizens of your State in such manner as the Court may direct."
As noted above, the State of California chose to reject the offer of settlement. At the time of the Rule 23(c)(2) notices, Los Angeles County and San Francisco County had chosen to accept the offer of settlement; so also had the City of Santa Clara, California, an intervenor plaintiff in the City of Philadelphia and City of Detroit action.
Los Angeles County, wishing to accept the settlement, sought to amend its complaint so as to allege claims on behalf of consumers within its geographical limits. California opposed. This Court ruled that within a rejecting state a county, but not a city, could maintain a class action independent of the state. By order filed June 18, 1969, the amendment sought by Los Angeles was allowed and a determination made that Los Angeles could maintain its action as a class action. By separate order filed the same date, Rule 23(c)(2) notice was directed to be given to the consumer class represented by Los Angeles County by publication in newspapers there. A stay sought by California was denied, as well as a statement under 28 U.S.C. § 1292(b).
San Francisco (a county as well as a city), wishing to accept the settlement, had, by order on a stipulation filed April 29, 1969, amended its complaint to assert claims on behalf of consumers within its geographical limits. By order filed June 19, 1969, it was determined that the action of San Francisco could be maintained as a class action. By separate order filed the same date, Rule 23(c)(2) notice was directed to be given to the consumer class represented by San Francisco by publication in newspapers there.
5. Responses to the Rule 23(c)(2) Notices
This plan will be described in some detail because, with modifications, it was later adopted by defendants and moreover was the most comprehensive of the plans filed.
It was then assumed that, absent the claimed antitrust law violations, competitive prices would have been much lower; it was calculated that the prices actually charged contained an overcharge of 66 2/3%. Allowing for uncertainties in law and in fact, it was concluded that for settlement purposes an overcharge figure of 40%-41% could properly be used. This figure is said to have been used in negotiations which preceded the $100,000,000 offer by defendants. Applying a 41% overcharge figure to the sales figure of $121,620,000 yielded a figure of $49,864,200 or, rounded off, $50,000,000.
It was then assumed that, absent the claimed antitrust law violations, competitive prices by defendants to vendors (retail drug stores, mainly) would have been lower and reimbursement payment would have been much lower; it was then calculated, but by a different method from that employed for institutional purchases, that the vendor reimbursement sum of $24,300,000 contained an overcharge of 66 2/3%; applying the same overcharge figure for settlement purposes of 41% to the vendor reimbursement sum of $24,300,000 resulted in a settlement figure of $9,963,000 or, rounded off, $10,000,000.
The allocation therefore was $60,000,000 to government entities — of which $50,000,000 was for institutional purchases and $10,000,000 for vendor reimbursement.
The amount to be allocated to claims of wholesalers-retailers was first determined. The proponents felt that in principle nothing should be allocated to these claims because the members of this class sold nearly all their antibiotics to consumers and passed on any and all overcharge. (This problem was considered in a different context in Hanover Shoe, Inc. v. United Shoe Machinery Corp., 392 U.S. 481, 88 S.Ct. 2224, 20 L.Ed.2d 1231 (1968).) It was also taken into consideration by the proponents that the offer of defendants contemplated and the Alabama Plan provided for, payments in settlement to individual purchasers (consumers). The proponents felt that members of the wholesaler-retailer class actually made more profits as a result of the assumed violations of law. However, in order to secure the agreement of the wholesaler-retailer class to the settlement, a "nuisance value" allocation of $3,000,000 (a somewhat arbitrary figure) was made to this class.
"As of midnight August 16, 1969, some 38,000 individual consumers filed claims in accordance with this Court's July 1, notice. This is the first time that individual consumers — those who actually paid the overcharge caused by a defendant's antitrust violations — will participate in an antitrust settlement. The $37,000,000 fund will provide a basis for payment of all individual consumer claims and will also provide a surplus from which the indirect benefit contemplated by this Court's July 1 notice may be conferred upon consumers as a whole.
Government entity claims institutional purchases 50,000,000 vendor reimbursement programs 10,000,000 Individual purchaser claims 37,000,000 Wholesaler-retailer claims 3,000,000 --------- $100,000,000
The next problem in the allocation was to divide the $50,000,000 fund for institutional purchases between the various government entity plaintiffs acting as class representatives. This was done by use of the number of hospital beds in institutions of, or represented by, each such plaintiff, applied as a percentage of the total number of hospital beds in the United States and Puerto Rico. Figures on hospital beds were taken from the American Hospital Association Guide for the years 1955, 1961 and 1967 (as to certain hospital beds in Puerto Rico, figures were taken from the Puerto Rico Hospital Registry, as being more complete). The percentage figure was then obtained for each of the years 1955, 1961 and 1967; the average of these three percentages was used in making the division of the $50,000,000 amount.
The final allocations of the Alabama Plan for each government entity plaintiff for (A) institutional purchases, (B) vendor reimbursement programs, and (C) consumers are shown on Exhibit "E" to that Plan. The total is not $97,000,000 but $82,615,030. This is because the offered settlement amount had to be reduced under the settlement plan so as to reflect those government entity plaintiffs who rejected the settlement. This was done by simply excluding the amounts allocated to them of the $100,000,000 total settlement amount. (Doubtless by oversight Kansas City, Missouri was not taken into account as a separate government entity plaintiff in any of the divisions of the Alabama Plan and no adjustment was made for Kansas City as a plaintiff rejecting the settlement.)
During the negotiations to agree upon a common Plan, the State of Vermont withdrew its Plan and adopted the Alabama Plan. Agreement was reached among counsel for the government entity plaintiffs that they would abide by the decision of the Court as to the fairness of any Plan among those submitted by government entity plaintiffs which the defendants might elect.
The Escrow Agreement is dated October 20, 1969 and is between the five defendants and The Chase Manhattan Bank as Escrow Agent. A brief reference will be made to some of its principal provisions:
At the request of counsel for 31 government entity plaintiffs which had accepted the proposed compromise, an order was made and filed on November 18, 1969 requiring all parties to the 66 settling actions to show cause on December 5, 1969 why notice should not be sent to all class representatives and class members, in form as annexed to the order. The proposed forms of notices were of a hearing to consider whether the proposed compromise should be approved by the Court (Fed.R.Civ.P. 23(e)).
There was further discussion of the forms of notices at hearings held on January 13, 19 and 29, 1970. On January 27, 1970, forms of notices to class members as redrafted by the Court were sent to all counsel who had attended the hearing on December 15, 1969. An explanatory memorandum was also sent and notice was given that the redrafts would be discussed with counsel on February 2, 1970.
By orders filed February 6, 1970 in each of the actions by a government entity in which a class of government institutions is represented, the Clerk was directed to mail (by February 24, 1970) a copy of a notice (in the form annexed to the order) to the chief law officer of each plaintiff, to each county, city or other government entity within the plaintiff, and to each hospital district, hospital and other institution — all as more specifically provided for in the respective orders.
"According to notices already given with the Court's approval, each state and other governmental entity participating in the settlement is authorized to use for the benefit of its citizens in such manner as directed by the Court whatever money is recovered on account of claims of consumers represented in its action who failed to file an individual claim by August 16, 1969."
The amounts proposed by defendants to be paid in respect of the claims in each separate action will now be given, and also the proposed allocation of those amounts in the Alabama Plan as between the three classes: (a) government entities on account of institutional purchases ("institutional purchases"), (b) government entities on account of vendor reimbursements under public assistance programs ("vendor reimbursements"), and (c) government entities on account of individual unreimbursed purchasers ("consumers"). The amounts to be paid by defendants are taken from their Election and its Addendum, with some adjustments later made by them and explained at the end of this section.
1. The State of Alabama v. Chas. Pfizer Co., Inc., et al. 68 Civ. 1099
institutional purchases $1,355,000 vendor reimbursements consumers 666,000 ---------- $2,021,000
2. State of Alaska v. Chas. Pfizer Co., Inc., et al. 69 Civ. 2357
institutional purchases $ 10,000 vendor reimbursements 6,000 consumers 48,100 -------- $ 64,100
3. The State of Arizona and The County of Maricopa v. Chas. Pfizer Co., Inc., et al. 69 Civ. 1698
institutional purchases $ 265,000 vendor reimbursements consumers 266,400 --------- $ 531,400
4. The State of Arkansas v. Chas. Pfizer Co., Inc., et al. 69 Civ. 778
institutional purchases $ 500,000 vendor reimbursements consumers 362,600 ---------- $ 862,600
5. The State of Colorado v. Chas. Pfizer Co., Inc., et al. 68 Civ. 5141
institutional purchases $ 395,000 vendor reimbursements 113,000 consumers 255,300 ---------- $ 763,300
6. City and County of Denver v. Chas. Pfizer Co., Inc., et al. 68 Civ. 4930
institutional purchases $ 105,000 vendor reimbursements consumers 99,900 ---------- $ 204,900
7. State of Connecticut v. Chas. Pfizer Co., Inc., et al. 68 Civ. 4323
institutional purchases $ 215,000 vendor reimbursements 201,000 consumers 518,000 ---------- $ 934,000
8. City of Philadelphia and City of Detroit v. Chas. Pfizer Co., Inc., et al., 68 Civ. 4298
institutional purchases $ 65,000 vendor reimbursements 1,000 consumers 92,500 ---------- $ 158,500
institutional purchases $ 75,000 vendor reimbursements consumers 55,500 ---------- $ 130,500
institutional purchases $ 10,000 vendor reimbursements consumers 103,600 ---------- $ 113,600
institutional purchases $ 200,000 vendor reimbursements consumers 340,400 ---------- $ 540,400
institutional purchases $ vendor reimbursements consumers 22,200
---------- $ 22,200
institutional purchases $ vendor reimbursements consumers 22,200 ---------- $ 22,200
institutional purchases $ vendor reimbursements consumers 7,400 ---------- $ 7,400
institutional purchases $ vendor reimbursements consumers 14,800 ---------- $ 14,800
institutional purchases $ vendor reimbursements consumers 107,300 ---------- $ 107,300 Erie County, New York: $380,518
institutional purchases $ 255,000 vendor reimbursements 19,000 consumers 107,300 ---------- $ 381,300
institutional purchases vendor reimbursements consumers $ 59,200 ---------- $ 59,200
institutional purchases $ 85,000 vendor reimbursements consumers 177,600 ---------- $ 262,600
institutional purchases $ vendor reimbursements consumers 44,400 ---------- $ 44,400
institutional purchases $ 530,000 vendor reimbursements consumers 407,000 ---------- $ 937,000
institutional purchases $ vendor reimbursements consumers 122,100 ---------- $ 122,100
institutional purchases $ 15,000 vendor reimbursements consumers 207,200 ---------- $ 222,200
9. The District of Columbia v. Chas. Pfizer Co., Inc., et al. 69 Civ. 2778
institutional purchases $ 295,000 vendor reimbursements 1,000 consumers 155,400 ---------- $ 451,400
10. The State of Florida v. Chas. Pfizer Co., Inc., et al. 67 Civ. 4143
institutional purchases $1,813,530 vendor reimbursements 364,000 consumers 954,600 ---------- $3,132,130
11. The State of Georgia v. Chas. Pfizer Co., Inc., et al. 69 Civ. 153
institutional purchases $1,870,125 vendor reimbursements consumers 802,900 ---------- $2,673,025
12. State of Idaho v. Chas. Pfizer Co., Inc., et al. 69 Civ. 897
institutional purchases $ 230,000 vendor reimbursements consumers 136,900 ---------- $ 366,900
13. The State of Illinois v. Chas. Pfizer Co., Inc., et al. 68 Civ. 273
institutional purchases $2,154,593 vendor reimbursements 1,019,000 consumers 1,328,300 ---------- $4,501,893
14. The City of Chicago v. Chas. Pfizer Co., Inc., et al. 69 Civ. 901
institutional purchases $ 85,000 vendor reimbursements consumers 721,500 ---------- $ 806,500
15. The State of Indiana v. Chas. Pfizer Co., Inc., et al. 68 Civ. 3157
institutional purchases $1,390,000 vendor reimbursements 199,000 consumers 950,900 ---------- $2,539,900
16. The State of Iowa v. Chas. Pfizer Co., Inc., et al. 68 Civ. 4297
institutional purchases $ 815,000 vendor reimbursements 273,000 consumers 562,400 ---------- $1,650,400
17. The Commonwealth of Kentucky v. Chas. Pfizer Co., Inc., et al. 68 Civ. 4453
institutional purchases $ 515,000 vendor reimbursements 209,000 consumers 617,900 ---------- $1,341,900
18. The State of Louisiana v. Chas. Pfizer Co., Inc., et al. 68 Civ. 1380
institutional purchases $1,630,000 vendor reimbursements 227,000 consumers 662,300 ---------- $2,519,300
19. The State of Maine v. Chas. Pfizer Co., Inc., et al. 69 Civ. 916
institutional purchases $ 49,016 vendor reimbursements consumers 196,100 ---------- $ 245,116
20. The State of Maryland v. Chas. Pfizer Co., Inc., et al. 68 Civ. 4324
institutional purchases $ 395,000 vendor reimbursements 112,000 consumers 440,300 ---------- $ 947,300
21. The Mayor and City Council of Balti- more v. Chas. Pfizer Co., Inc., et al., 68 Civ. 4325
institutional purchases $ 410,000 vendor reimbursements consumers 192,400 --------- $ 602,400
22. The Commonwealth of Massachusetts v. Chas. Pfizer Co., Inc., et al., 68 Civ. 4355
institutional purchases $ 925,000 vendor reimbursements 812,000 consumers 906,500 ---------- $2,643,500
23. City of Boston v. Chas. Pfizer Co., Inc., et al. 68 Civ. 4354
institutional purchases $ 425,000 vendor reimbursements 132,000 consumers 140,600 --------- $ 697,600
24. The State of Michigan v. Chas. Pfizer Co., Inc., et al. 69 Civ. 898
institutional purchases $1,742,725 vendor reimbursements consumers 1,187,700 ---------- $2,930,425
25. The State of Minnesota v. Chas. Pfizer Co., Inc., et al. 68 Civ. 735
institutional purchases $1,314,173 vendor reimbursements 443,000 consumers 695,600 ---------- $2,452,773
26. The State of Mississippi v. Chas. Pfizer Co., Inc., et al. 68 Civ. 1625
institutional purchases $ 938,290 vendor reimbursements consumers 444,000 ---------- $1,382,290
27. The State of Missouri v. Chas. Pfizer Co., Inc., et al. 68 Civ. 5180
institutional purchases $1,081,440 vendor reimbursements 47,000 consumers 880,600 ---------- $2,009,040
28. The State of Montana v. Chas. Pfizer Co., Inc., et al. 69 Civ. 1278
institutional purchases $ 50,000 vendor reimbursements 51,000 consumers 136,900 ---------- $ 237,900
29. The State of Nebraska v. Chas. Pfizer Co., Inc., et al. 69 Civ. 2106
institutional purchases $ 354,240 vendor reimbursements 41,000 consumers 288,600 ---------- $ 683,840
30. The State of New Hampshire v. Chas. Pfizer Co., Inc., et al. 68 Civ. 4878
institutional purchases $ 100,000 vendor reimbursements 47,000 consumers 125,800 ---------- $ 272,800
31. State of New Jersey v. Chas. Pfizer Co., Inc., et al. 68 Civ. 4929
institutional purchases $1,200,000 vendor reimbursements 213,000 consumers 1,235,800 ---------- $2,648,800
32. State of New Mexico v. Chas. Pfizer Co., Inc., et al. 68 Civ. 4326
institutional purchases $ 255,000 vendor reimbursements 101,000 consumers 192,400 ---------- $ 548,400
33. The State of New York v. Chas. Pfizer Co., Inc., et al. 68 Civ. 845
institutional purchases $1,965,000 vendor reimbursements 328,000 consumers 1,616,900 ---------- $3,909,000
34. Chas. Pfizer Co., Inc. v. The City of New York, et al. 64 Civ. 1742
institutional purchases $3,750,000 vendor reimbursements 296,000 consumers 1,583,600 ---------- $5,629,600
35. The State of North Dakota v. Chas. Pfizer Co., Inc., et al. 68 Civ. 1626
institutional purchases $ 40,000 vendor reimbursements 73,000 consumers 129,500 ---------- $ 242,500
36. State of Ohio v. Chas. Pfizer Co., Inc., et al. 68 Civ. 2019
institutional purchases $1,676,068 vendor reimbursements 393,000 consumers 1,694,600 ---------- $3,763,668
37. The State of Oklahoma v. Chas. Pfizer Co., Inc., et al. 68 Civ. 5096
institutional purchases $ 580,000 vendor reimbursements consumers 473,600 ---------- $1,053,600
38. The Commonwealth of Pennsylvania v. Chas. Pfizer Co., Inc., et al., 68 Civ. 1212
institutional purchases $ 940,000 vendor reimbursements 909,000 consumers 1,568,800 ---------- $3,417,800
39. Commonwealth of Puerto Rico v. Chas. Pfizer Co., Inc., et al. 69 Civ. 806
institutional purchases $ 725,000 vendor reimbursements consumers 477,300 ---------- $1,202,300
40. The State of Rhode Island v. Chas. Pfizer Co., Inc., et al. 68 Civ. 5112
institutional purchases $ 95,000 vendor reimbursements 156,000 consumers 173,900 ---------- $ 424,900
41. The State of South Carolina v. Chas. Pfizer Co., Inc., et al. 69 Civ. 777
institutional purchases $ 910,000 vendor reimbursements 4,000 consumers 484,700 ---------- $1,398,700
42. The State of South Dakota v. Chas. Pfizer Co., Inc., et al. 69 Civ. 205
institutional purchases $ 70,000 vendor reimbursements 52,000 consumers 140,600 ---------- $ 262,600
43. The State of Tennessee v. Chas. Pfizer Co., Inc., et al. 69 Civ. 1631
institutional purchases $ 971,977 vendor reimbursements 45,000 consumers 543,900 ---------- $1,560,877
44. The City of Memphis, Tennessee v. Chas. Pfizer Co., Inc., et al. 68 Civ. 1807
institutional purchases $ 190,000 vendor reimbursements consumers 99,900 ---------- $ 289,900
45. The Metropolitan Government of Nashville and Davidson County v. Chas. Pfizer Co., Inc., et al., 69 Civ. 899
institutional purchases $ 65,000 vendor reimbursements consumers 81,400 ---------- $ 146,400
46. The State of Texas v. Chas. Pfizer Co., Inc., et al. 68 Civ. 4375
institutional purchases $2,700,609 vendor reimbursements consumers 1,949,900 ---------- $4,650,509
47. The State of Vermont v. Chas. Pfizer Co., Inc., et al. 69 Civ. 915
institutional purchases $ 20,000 vendor reimbursements consumers 81,400 ---------- $ 101,400
48. The Commonwealth of Virginia v. Chas. Pfizer Co., Inc., et al. 68 Civ. 5140
institutional purchases $ 598,825 vendor reimbursements 10,000 consumers 806,600 ---------- $1,415,425
49. The State of West Virginia v. Chas. Pfizer Co., Inc., et al. 68 Civ. 240
institutional purchases $ 212,807 vendor reimbursements 8,000 consumers 59,200 ---------- $ 280,007
institutional purchases $ 338,031 vendor reimbursements 154,000 consumers 377,400 ---------- $ 869,431
50. The State of Wisconsin v. Chas. Pfizer Co., Inc., et al. 68 Civ. 91
institutional purchases $ 906,936 vendor reimbursements 231,000 consumers 806,600 ---------- $1,944,536
51. State of Wyoming v. Chas. Pfizer Co., Inc., et al. 69 Civ. 900
institutional purchases $ 246,585 vendor reimbursements 31,000 consumers 66,600 ---------- $ 344,185
Both the City and County of Honolulu are intervenor plaintiffs in the action (numbered 8 above) of City of Philadelphia and City of Detroit. The County of Honolulu was overlooked as a settling plaintiff in computing the allocations of the Alabama Plan. The County, however, has no hospital beds additional to those of the City and thus no change in the figures for institutional purchases is required. The County has no vendor reimbursement program and no change in those figures is required. But the County does have a population not included in that of the City; using the percentage formula based on the 1960 census an allocation of $44,400 was required for the consumer class in the County. This meant an addition of $44,400 to the Alabama Plan figure of $59,200 for the Honolulu consumer class, or a total of $103,600 for this Honolulu (City and County) class. Adjusted for expenses on the basis used in the October 20, 1969 Election of defendants, this $44,400 was reduced to $44,309 and the figure for Honolulu (City and County) in the Election increased by the same amount to the $113,367 shown as now proposed in settlement.
An attorney for a consumer wished to make a statement but since it appeared that this consumer was maintaining an action and was not accepting the settlement, his attorney was not heard.
The most important factor is the strength of the case for plaintiffs on the merits, balanced against the amount offered in settlement. This factor is sometimes referred to as the likelihood of success. The Supreme Court directs the judge to reach "an intelligent and objective opinion of the probabilities of ultimate success should the claim be litigated" and to "form an educated estimate of the complexity, expense, and likely duration of such litigation, * * * and all other factors relevant to a full and fair assessment of the wisdom of the proposed compromise". The Supreme Court then emphasizes:
The quotations are from Protective Committee for Independent Stockholders of TMT Trailer Ferry, Inc. v. Anderson, 390 U.S. 414, 424-425, 88 S.Ct. 1157, 1163, 20 L.Ed.2d 1 (1968).
There is a further important principle to be observed in respect of judicial consideration of proposed settlements. This is that the judge does not try out or attempt to decide the merits of the controversy. "Any virtue which may reside in a compromise is based on doing away with the effect of such a decision". In re Riggi Bros. Co., Inc., 42 F.2d 174, 176 (2d Cir. 1930), cert. denied under name Woods Selick, Inc. v. Todd, 282 U.S. 881, 51 S.Ct. 85, 75 L.Ed. 777 (1930). See also Schleiff v. Ches. Ohio Ry. Co., 43 F.R.D. 175, 178-179 (S.D.N.Y. 1967) and cases there collected.
Thus, in the Commission proceedings there are no findings of any misconduct by three of the defendants — Bristol, Squibb and Upjohn. As to the other two defendants, Pfizer and Cyanamid, the only finding of misconduct has to do with patent prosecutions in the Patent Office. Aside from serious questions of law about the effect of this misconduct, it would not itself constitute any violation of the antitrust laws; at best, it might arguably be some evidence of an attempt to monopolize.
The misconduct also raises a troublesome question of patent law. This is the question whether the presence of tetracycline in the broth or in the product (Aureomycin) would be sufficient to justify denial of a patent on tetracycline. The inherent production of tetracycline was not known before Conover and did not appear to have imparted any utility to Aureomycin. Hearing Examiner Piper concluded that tetracycline was therefore patentable, citing (among other decisions) Parke Davis Co. v. H.K. Mulford Co., 189 F. 95 (C.C.N.Y. 1911; L. Hand, J.), affirmed 196 F. 496 (2d Cir. 1912). The Commission disagreed and Judge (then Commissioner) Higginbotham wrote ably on the subject. It is not necessary on this application to decide the question of patent law. Its significance is that it exists and that the answer is not clear.
In the criminal proceeding, the jurors required a considerable time to reach a verdict and were clearly puzzled by the Parke Davis situation. Our Court of Appeals found, among other things, that defendants were wrongly restricted in argument about the Parke Davis situation and that the Court had mistakenly charged about Parke Davis. Whether the jury would have otherwise convicted is at least doubtful. The reversal of the judgment of conviction leaves the criminal proceeding without substantial effect at this point except as it shows that the outcome of a jury trial and any appeals is highly problematical; the prima facie effect of a final judgment in a criminal proceeding ( 15 U.S.C. § 16) is at least postponed to a date long in the future.
There is no direct evidence of any price fixing or of any conspiracy. Such evidence as there is must come almost entirely from the defendants themselves and, as the Court of Appeals noted, "the facts may be said to be virtually undisputed". Before the first Hearing Examiner and at the criminal trial, executives of defendants testified. They denied the existence of any conspiracy or any price fixing. Even if a jury chose to disbelieve such testimony, it is at least questionable whether there is other evidence sufficient to support a verdict for a plaintiff.
One of the questions of law, for example, is whether the Commission proceeding tolled the statute of limitations so that damages could be recovered for a 4 year period before July 1958 when that proceeding was commenced. This depends on whether the Federal Trade Commission Act is part of the "antitrust laws" as that term is used in Section 5(b) of the Clayton Act ( 15 U.S.C. § 16(b)). It is not within the definition of the term in the Clayton Act ( 15 U.S.C. § 12) and there are two decisions that Commission proceedings do not toll the statute of limitations. Laitram Corp. v. Deepsouth Packing Co., 279 F. Supp. 883 (E.D.La. 1968); Rader v. Balfour, 1969 Trade Cas. ¶ 72,709 (N.D.Ill. 1968). A contrary result was reached in Lippa's, Inc. v. Lenox, Inc., 305 F. Supp. 182 (D.Vt. 1969).
In considering the proposed compromise, it seems also to be of importance that (if approved) the substantial amounts of money are available for class members now, and not at some distant time in the future. The nature of these actions is such that a final judgment, assuming it to be favorable, could only be obtained after years of expensive litigation. It has been held proper "to take the bird in hand instead of a prospective flock in the bush". Ladd v. Brickley, 158 F.2d 212, 220 (1st Cir. 1946), cert. denied 330 U.S. 819, 67 S.Ct. 675, 91 L.Ed. 1271 (1947).
The proposed compromise is supported by a very high percentage of all the plaintiffs to which it was offered. The law officers of forty-three states, Puerto Rico, and the District of Columbia — almost all with retained specialist counsel — urge approval of the settlement. All except three of the cities ask approval; among those asking approval is the City of New York, whose counterclaim was the earliest of these claims. Nearly all of the wholesalers and retailers ask approval; these include the plaintiffs in the first action commenced for the class of retail drug stores.
In Piccard v. Sperry Corp., 36 F. Supp. 1006 (S.D.N.Y.), affirmed 120 F.2d 328 (2d Cir. 1941), a proposed settlement was disapproved. The action was then tried on the merits, resulting in judgment for defendants ( 48 F. Supp. 465 (S.D.N.Y. 1943), affirmed 152 F.2d 462 (2d Cir.), cert. denied 328 U.S. 845, 66 S.Ct. 1024, 90 L.Ed. 1619 (1946)).
In Upson v. Otis, 155 F.2d 606 (2d Cir. 1946), approval of a settlement was reversed, the Court saying (at 612): "on the facts presented to the district judge, the liability of the individual defendants was indubitable and the amount of recovery beyond doubt greater than that offered in the settlement. Accordingly it was an abuse of discretion to approve the settlement". The action was then tried and plaintiffs obtained a judgment, twice considered by the Court of Appeals ( 168 F.2d 649, 169 F.2d 148 (1948)). We are told, however, that "the ultimate recovery * * * turned out to be substantially less than the amount of the rejected compromise". Haudek, The Settlement and Dismissal of Stockholders' Actions, 23 Sw.L.J. 765, 794 (1969).
Attorneys from the Committee of Counsel for the wholesaler-retailer class argued at the hearing in support of the settlement. Two attorneys for plaintiffs in one of the 13 consolidated wholesaler-retailer actions argued against the allocation proposed for the wholesaler-retailer class, as did two attorneys for certain members of the class; one attorney for some members of this class said at the hearing: "* * * we are not completely or * * * not opposed to this plan as such, but we are not necessarily in favor of it either" (SM 181).
Without attempting to decide the matter, it appears at first glance to be highly doubtful whether wholesalers or retailers suffered any damage whatever. Defendants sold only in dosage form; this means that the wholesaler then sold in the original packages (at a mark-up of 16 2/3% or more over cost) and that — if the retail druggist did not always sell in the original packages but repackaged in varying quantities — at least the retail druggist sold the dosage form just as received from a wholesaler or from a defendant and without any addition, subtraction or combination. To the consumer, antibiotics are sold only by prescription. In some instances the retail druggist may charge his cost, plus a flat professional fee. According to affidavits of experts in the field, however, the overwhelming majority of drug stores in the period 1953-66 charged for prescription drugs a uniform mark-up of 66 2/3% over cost. If so, this would mean that any overcharge by defendants in violation of the antitrust laws was passed on to the end use purchaser. The result is that wholesalers and retailers, far from sustaining damages, made substantial profits from any antitrust violations.
The representatives of the wholesaler-retailer class, both those in favor of and those opposed to the present proposed allocation, contend that as a matter of law their class members may recover for any illegal overcharges by defendants, whether or not these were collected from the end use consumers. They rely on Hanover Shoe, Inc. v. United Shoe Machinery Corp., 392 U.S. 481, 88 S.Ct. 2224, 20 L.Ed.2d 1231 (1968). Their reliance might after long litigation prove to be well placed. For present purposes, no decision is required but it is very doubtful, to say the least, that Hanover would apply to the situation here; the point must be regarded as highly uncertain.
United charged Hanover more for shoe machinery than would have been charged except for the antitrust law violation. The machinery was then used in making shoes from Hanover designs, using all the necessary materials (leather, thread, cloth, etc.) and applying the labor and skills of the Hanover organization. The use of the machinery was by Hanover, which was in the position of a consumer or end user of the machinery. The machinery was not resold, as were the antibiotics in suit. The illegal overcharge in Hanover was merely one of many items of cost; as the Court said, it "was reflected in the price charged for shoes sold by Hanover to its customers" ( 392 U.S. at 488, 88 S.Ct. at 2228, emphasis supplied). Here the antibiotics in dosage forms (capsules, tablets, or other forms) were resold just as obtained from defendants. Nothing was added or changed. The mark-up was applied to the cost and the resultant price was collected from the consumer. The higher the cost, the higher the mark-up, and the higher the profit to the members of this class. The situation here seems much like the "`cost-plus' contract" referred to in the Hanover opinion; the Supreme Court recognized that in such a case it was easier to prove that there were no damages and that the "passing-on defense" might therefore be valid ( 392 U.S. at 494, 88 S.Ct. 2224).
The Court in Hanover also alluded to the danger to the private enforcement of the antitrust laws if a "passing-on defense" were permitted and recovery allowed only to those who had ultimately paid the higher prices generated by an antitrust violation: "These ultimate consumers * * * would have only a tiny stake in a lawsuit and little interest in attempting a class action. In consequence, those who violate the antitrust laws by price fixing or monopolizing would retain the fruits of their illegality because no one was available who would bring suit against them." 392 U.S. at 494, 88 S.Ct. at 2232. Here, in contrast to the situation in Hanover, that danger does not exist, for it is proposed that much of the settlement amount be made available to ultimate purchasers (institutions or individuals) who are before the Court as plaintiffs and class members and who have sustained the burden of the alleged overcharge. Contrast also State of Minnesota v. United States Steel Corp., 299 F. Supp. 596 (D.Minn. 1969), appeal docketed, No. 20184 (8th Cir. March 5, 1970).
The only possible conclusion is that the allocation proposed for the wholesaler-retailer class is fair and reasonable. It is a matter of real concern that the allocation is too high. The situation is, however, that the excess above $3,013,939 (which excess may well be $8,000,000 or more) is a further contribution to this class by defendants and thus does not reduce the amounts for other classes. If defendants by this means choose to make a settlement possible, the Court should encourage the effort rather than defeat it.
As described before, states, counties and cities under public assistance programs often reimbursed vendors for antibiotics delivered to those receiving such assistance. About 50% of the cost of these programs was paid by the federal government under the Social Security Act ( 42 U.S.C. § 301 and following).
Mention was made at the hearing on March 24, 1970 (SM 30-34) of a drug "ampicillin" and of some civil action by the United States with respect to that drug. Except for this mention on March 24, 1970, there is nothing in the record about any such drug. It is impossible, therefore, to say at this time what effect, if any, the consummation of the proposed compromise would have on claims of these plaintiffs, if any, on account of "ampicillin".
In Pfizer, the District Court for the Southern District of New York approved a settlement agreement between the defendants and several of the plaintiffs that called for the states to recover damages on behalf of consumers who had not filed individual claims.
In West Virginia v. Chas. Pfizer Co., 314 F. Supp. 710 (S.D.N.Y. 1970), aff'd 440 F.2d 1079 (2d Cir.), cert. den. 404 U.S. 871, 92 S.Ct. 81, 30 L.Ed.2d 115 (1971), 66 antitrust class actions against makers of anti-biotics were settled. The portion of the settlement fund allotted to individual consumers was mostly unclaimed.
Summary of this case from Superior Bev. Co. v. Owens-Illinois
In West Virginia v. Chas. Pfizer & Co., 314 F.Supp. 710 (S.D.N.Y.1970), aff'd., 440 F.2d 1079 (2d Cir.), cert. denied, 404 U.S. 871, 92 S.Ct. 81, 30 L.Ed.2d 115 (1971), notice was published of a settlement with various political entities and other institutions and of the claims of individual consumers, including state claims as parens patriae on behalf of their citizens or on behalf of states as consumers and all other consumers in respective states.
In West Virginia v. Chas. Pfizer & Co., Inc., 314 F.Supp. 710, 745-746 (S.D.N.Y., June 24, 1970), Judge Wyatt observed that it was highly doubtful whether wholesalers or retailers in that multidistrict case suffered any damage at all, because their purchases and sales were like the cost-plus contracts which were recognized as an exception to the Hanover rationale.
Summary of this case from Philadelphia Housing Authority v. American Radiators&sStandard Sanitary Corp.