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Abbott Laboratories v. Portland Retail Druggists :: 425 U.S. 1 (1976) :: Justia U.S. Supreme Court Center Log In
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Abbott Laboratories v. Portland Retail Druggists 425 U.S. 1 (1976)
U.S. Supreme CourtAbbott Laboratories v. Portland Retail Druggists, 425 U.S. 1 (1976)Abbott Laboratories v. Portland Retail Druggists Assn., Inc.No. 74-1274Argued December 16, 1975Decided March 24, 1976425 U.S. 1CERTIORARI TO THE UNITED STATES COURT OF APPEALS
Respondent, as assignee of more than 60 commercial pharmacies, brought this antitrust action against petitioner manufacturers, charging that, by selling drugs to certain hospitals, each of which has a pharmacy, at prices lower than those charged to respondent's assignors, petitioners violated the Robinson-Patman Act, which makes it unlawful for one engaged in commerce to discriminate in price between different purchasers of like commodities where "the effect . . . may be substantially to lessen competition." 15 U.S.C. § 13(a). Petitioners claimed that the challenged sales were exempt under the Nonprofit Institutions Act, which, inter alia, excludes from the application of the Robinson-Patman Act nonprofit hospitals' "purchases of their supplies for their own use." § 13c. The District Court ruled on the basis of the evidence adduced that the hospitals involved were nonprofit, and that their drug purchases were "for their own use" within the meaning of § 13c, and granted summary judgment in favor of petitioners. The Court of Appeals vacated and remanded. While agreeing that the designated hospitals were nonprofit, that court concluded that a hospital's drugs are purchased for its "own use" only where the hospital can be said to be the consumer, i.e., Page 425 U. S. 2 where dispensations are to inpatients and emergency facility patients.
(c) To the walk-in customer, who has no present connection with the hospital or its pharmacy (except in the occasional emergency situation, which can be viewed as de minimis). Pp. 425 U. S. 17-18. Page 425 U. S. 3
The Robinson-Patman Price Discrimination Act (Robinson-Patman), adopted in 1936, 49 Stat. 1526, amending § 2 of the Clayton Act, 38 Stat. 730, in general makes it unlawful for one engaged in commerce to discriminate Page 425 U. S. 4 in price between different purchasers of like commodities where, among other things, "the effect of such discrimination may be substantially to lessen competition." 15 U.S.C. § 13(a). The Nonprofit Institutions Act, adopted only two years later, in 1938, c. 283, 52 Stat. 446, exempts from the application of Robinson-Patman "purchases of their supplies for their own use by schools . . . hospitals, and charitable institutions not operated for profit." 15 U.S.C. § 13c. [Footnote 1]
The amended complaint asserted five causes of action. Only one of the five (the second) is presently before us. [Footnote 2] Page 425 U. S. 5 In this claim, the respondent alleged that, in selling pharmaceutical products, petitioners discriminated between nonprofit hospitals, on the one hand, and commercial pharmacies (regular drugstores), including respondent's assignors, on the other. As an affirmative defense, petitioners pleaded that their sales of pharmaceutical products to nonprofit hospitals were exempt from Robinson-Patman under the Nonprofit Institutions Act.
The District Court, id. at 292, certified its judgment under 28 U.S.C. § 1292(b), and the United States Court of Appeals for the Ninth Circuit permitted the interlocutory appeal to be taken. The Court of Appeals, while Page 425 U. S. 6 rejecting respondent's contentions that the designated hospitals did not qualify for exemption under § 13c, [Footnote 3] nevertheless vacated the District Court's judgment and remanded the case for further proceedings. 510 F.2d 486 (1974).
The pertinent facts are not really in dispute. The petitioners, admittedly, sell their pharmaceutical products to the designated Portland hospitals at prices less than those that govern petitioners' sales of like products to the respondent's assignors who are commercial pharmacists in Portland. The respective hospitals, in turn, dispense the pharmaceutical products they have so purchased from the petitioners. The application of Robinson-Patman to this situation is conceded except to the extent the exemption provision of the Nonprofit Institutions Act applies. The controversy, thus, comes into clear focus. Page 425 U. S. 7
The Court of Appeals agreed that the inpatient and emergency facility situations "cover by far the greater part of hospital distribution," and that "such dispensing of drugs in the course of treatment in the hospital is the hospitals' [sic] own use." 510 F.2d at 489. The court recited petitioners' asserted justifications for the other types of sales "as proper hospital functions": the need Page 425 U. S. 8 of the departing inpatient for take-home drugs; the continuation at home of the patient's treatment begun earlier in the hospital; the sales to employees as being pursuant to collective bargaining agreements; the sales to students as being aspects of the hospital's educational programs; the sales to physicians as being perquisites of hospital staff membership; the limitation of walk-in sales to instances where, at the time, the needed drugs could not be obtained elsewhere; the hospital's position "as a center for the provision of a full range of health services"; and "a decent regard for the needs of the community." Ibid.
We, too, find it convenient to view the hospitals' sales and dispensations of the pharmaceutical products purchased from petitioners as falling into several categories. [Footnote 5] We divide them as follows: Page 425 U. S. 9
7. To the hospital's employee or student for personal use or for the use of his dependent. [Footnote 7] Page 425 U. S. 10
This concession, then, covers the above-listed categories 1, 2, and 3. We hasten to add, however, that, if the respondent had made no concession as to these three categories, we would have reached the same result, for it seems to us to be very clear that a hospital's purchase of pharmaceutical products that are dispensed to and consumed by a patient on the hospital premises, whether that patient is bedded, or is seen in the emergency Page 425 U. S. 11 facility, or is only an outpatient, is a purchase of supplies for the hospital's "own use," within § 13c. In our view, as the respondent's concession indicates, this is so clear that it needs no further explication.
It has been said, of course, that the antitrust laws, and Robinson-Patman in particular, are to be construed liberally, and that the exceptions from their application are to be construed strictly. United States v. McKesson Page 425 U. S. 12 & Robbins, 351 U. S. 305, 351 U. S. 316 (1956); FMC v. Seatrain Lines, Inc., 411 U. S. 726, 411 U. S. 733 (1973); Perkins v. Standard Oil Co., 395 U. S. 642, 395 U. S. 646-.47 (1969). The Court has recognized, also, that Robinson-Patman
But the legislative history of the Nonprofit Institutions Act indicates clearly that that Act was concerned with the suspicion that Robinson-Patman, at the time just recently enacted, actually might operate to outlaw price favors that sellers would wish to grant to eleemosynary institutions. S.Rep. No. 1769, 75th Cong., 3d Sess., 1 (1938); H.R.Rep. No. 2161, 75th Cong., 3d Sess., 1 (1938). The parties here seek to utilize this legislative history in opposite ways. The respondent asserts that the statutory assurance of exemption "was never intended to countenance a mass invasion of the retail drug sale market by hospitals," Brief for Respondent 34, and that what Congress had in mind was "the role traditionally occupied by hospitals," id. at 35. The petitioners assert Page 425 U. S. 13 that the 1938 statute "was written to assist a wide range of nonprofit institutions to operate at the lowest possible cost in the public interest," Brief for Petitioners 17, and that the focus was on the character of the institution, not on the particular features of its program, and not only on those institutions that operated at a loss, id. at 17-18.
We are not fully persuaded by either view. The modern American hospital developed from an institution originally intended for the sick poor. See Eastern Kentucky Welfare Rights Organization v. Simon, 165 U.S.App.D.C. at 249, 506 F.2d at 1288; E. Fisch, D. Freed, & E. Schachter, Charities and Charitable Foundations § 322 (1974); Bromberg, The Charitable Hospital, 20 Cath.U.L.Rev. 237, 238-240 (1970). Language in the bill which became the 1938 Act, that would have exempted only sales to nonprofit institutions "supported in whole or in part by public subscriptions," was deleted, 83 Cong.Rec. 6065 (1938), and the Act's exemption provision was not so restricted and confined. We thus do not relate the exemption to what might be described as the nonprofit hospital's original or "traditional" status. On the other hand, there is nothing in the Act that indicates that its exemption provision is to be applied and expanded automatically to whatever new venture the nonprofit hospital finds attractive in these changing days. The Congress surely did not intend to give the hospital a blank check. Had it so intended, it would not have qualified purchases by nonprofit institutions in the way it did in § 13c. See H.R.Rep. No.1983, 90th Cong., 2d Sess., 78-79 (1968). We are concerned, after all, with an exemption from an antitrust statute, and the accepted general principles, hereinabove set forth, do have application even in the nonprofit hospital context. Page 425 U. S. 14
4 and 5. The take-home prescription, usually a continuance of, or supplement to, what has been prescriptively administered at the hospital while the recipient was an inpatient, emergency facility patient, or outpatient, takes us, to be sure, one small step beyond and outside the hospital's door. The patient is released from Page 425 U. S. 15 care to continue his treatment and recuperation under something less than the hospital's emergency or routine intensive, regular, or, even, more casual care (if it offers that type), and less than its consultative service at its outpatient facility. The release from the hospital environment into the home is the next step in the chain of treatment on the patient's way to his resumption of normal activity completely free of treatment. The medical supervision and the hospital's participation in it to this point, at least, although approaching an end, are continuous and real, and are distinct parts of the transition from hospital care to home care. We therefore conclude that the genuine take-home prescription, intended, for a limited and reasonable time, as a continuation of, or supplement to, the treatment that was administered at the hospital to the patient who needed, and now continues to need, that treatment, is for the hospital's "own use." We therefore disagree with the Court of Appeals as to categories 4 and 5. We feel that a contrary ruling on our part would unduly and undeservedly emphasize the doorsill of the hospital, and that to draw a line at that threshold would be arbitrary, and not consistent with congressional intent. In these instances, the hospital's "own use" of the pharmaceutical products extends realistically and not inappropriately somewhat beyond that threshold.
6. We conclude, however, that the refill for the hospital's former patient is on the other side of the line that divides that which is in the hospital's "own use" from that which is not. Inevitably, in accord with the test above set forth, there comes a point where the dispensation of pharmaceutical products is not for the institution's "own use." That point, we feel, is positioned short of the refill. Continuation of a drug's use for some time after initial prescription at the hospital may well be indicated for the particular patient, but, except for the limited Page 425 U. S. 16 take-home prescription referred to above, it is not the hospital's "own use," and it certainly is not for its "own use" forever just because it originated under hospital auspices. We conclude that the statute's limitation has been exceeded when the connection with the hospital has become as attenuated as it is at the refill stage.
8 and 9. What we have said in the preceding paragraph applies with equal force to dispensation to a Page 425 U. S. 17 physician member of the staff for his personal use or for the personal use of his dependent. The physician staff member, though not an employee in the technical sense of being full time in the hospital's service and on its payroll, nevertheless is vital to its existence. It is he who supplies the patient and who engages, perhaps directly and at least to some extent through the staff organization, in the formulation of the hospital's professional and operative policies. His activity at the hospital is in the hospital's use -- its very purpose for existence -- and dispensation to the physician and his dependent, we think, is for the hospital's "own use," within § 13c.
10. The walk-in prescription buyer for the most part affords little difficulty for us in the context of § 13c. Even though one acknowledges the full weight of the argument that the modern hospital is a different institution from what it was when the Nonprofit Institutions Act was adopted in 1938, and that increasingly it has become a focus of health care in the community, the extension of § 13c to the walk-in customer, who has no present connection with the hospital and its pharmacy other than as a place to have his prescription filled, would Page 425 U. S. 18 make the commercially advantaged hospital pharmacy just another community drug store open to all comers for prescription services and devastatingly positioned with respect to competing commercial pharmacies. This would extend the hospital's "own use" concept beyond that contemplated by Congress in 13c.
We therefore hold that the walk-in buyer generally is not within the statute's exemption. We recognize, however, that there may be an occasion when the hospital pharmacy is the only one available in the community to meet a particular emergency situation. The respondent seeks to counter this possibility with a telephone book yellow-page reference to the providing of 24-hour service, and of some emergency or delivery service, by certain metropolitan Portland retail pharmacies. Brief for Respondent 56. That may be. We are content, however, to conclude that the occasional emergency is de minimis, in any event, and that its presence solitarily would not trigger litigation of the present kind. So long as the hospital pharmacy holds the emergency situation within bounds, and entertains it only as a humanitarian gesture, we shall not condemn the hospital and its suppliers to a Robinson-Patman violation because of the presence of the occasional walk-in dispensation of that type. [Footnote 10] Page 425 U. S. 19
"requires a segregation of drugs or accounting of their use Page 425 U. S. 20 that can be achieved only through the institution of clumsy and expensive dual supply or tracing systems to regulate and account for the use of dugs."
The supplier, on the other hand, properly may expect to be protected from antitrust liability for reasonable and noncollusive reliance upon its hospital customer's certification as to its dispensation of the products it purchases Page 425 U. S. 21 from the supplier. But it is not unreasonable to expect the supplier to assume the burden of obtaining the certification when it seeks to enjoy, with the institutional purchaser, the benefits provided by § 13c. It clearly does this with respect to responsibility for identification of its purchaser under that statute's standard, and little additional burden is imposed if it is required to take the small second step of routinely obtaining a representation from its hospital customer as to the use of the products purchased.
I agree with the Court that the exemption is not "to be applied and expanded automatically to whatever new Page 425 U. S. 22 venture the nonprofit hospital finds attractive in these changing days." Ante at 425 U. S. 13. But I believe the exemption is applicable to any new venture the hospital finds attractive and that is both charitable and not operated for profit. There is no suggestion -- nor could one be made -- that the activities the Court today finds outside the exemption fall within this category, * so there is no need to address this problem here. But I write to emphasize that I do not read the Court's opinion as foreclosing hospitals -- or other exempted institutions -- from expanding their charitable activities in highly untraditional ways and still qualifying for the exemption.
Since all charitable institutions are covered by the Act, the purpose quite obviously is not to freeze a particular charitable institution into a particular kind of charity. Rather, as I understand it, the purpose of the limitation is generally to preclude the institution from taking advantage of its antitrust exemption by buying low-cost supplies solely for the purpose of reselling them at a profit. That is, Congress was primarily interested in directly aiding nonprofit institutions by lowering their operating expenses, but not interested in indirectly aiding Page 425 U. S. 23 such institutions by providing them with the means of raising additional money -- particularly when such resales of supplies would put the institution in competition with retail businesses not eligible for the exemption. While I do not believe Congress meant to preclude profitmaking sales in the course of the institution's charitable activities -- and so I agree that the Court's inquiry is the correct one -- I suggest that the nexus between particular sales and those activities should be particularly closely scrutinized when a profit is made to assure that the sales are not made primarily for moneymaking purposes. Thus, sales only arguably within the scope of the institution's charitable activities might be exempted when made on a nonprofit basis and not exempted when made for profit. After analysis with this balancing factor in mind, I agree with the lines drawn by the Court, and concur in its opinion.
"We may concede that, in these respects distribution by the hospitals can be justified as a proper and useful community service and thus can be regarded as a proper hospital function. It is not, however, the hospitals' 'own use.' . . . The purpose for which these supplies are purchased -- the use to which they are to be put -- is their consumption. Section 13c Page 425 U. S. 24 can apply here only to cases in which a hospital can be said to be the consumer. It cannot apply to cases of resale by the hospital to a private consumer."