Opinion ID: 453009
Heading Depth: 2
Heading Rank: 1

Heading: Diversion In the American Pharmaceutical Industry

Text: 5 The Robinson Patman Act, 15 U.S.C. Sec. 13 et seq. (1982), prohibits anticompetitive discrimination in the pricing of goods sold for use, consumption or resale within the United States. An exception to the Act allows discriminatory prices for sales to nonprofit organizations. By its terms, the Act does not cover sales of goods for export. 6 In response to the Act, pharmaceutical manufacturers maintain a bifurcated pricing structure. One price is quoted for drugs sold to domestic wholesalers for resale in the United States. A much lower price is quoted for sales to exporters and nonprofit organizations. Pharmaceutical manufacturers thus discount products sold to exporters and nonprofit organizations. In most cases, the pharmaceutical products so sold are exported for resale in foreign countries or are used by nonprofit organizations for charitable purposes. Occasionally, however, exporters or nonprofit organizations may purchase a surplus of pharmaceutical products and later seek to resell that surplus in the domestic market. Because Robinson Patman only prohibits discriminatory pricing with anticompetitive effect, it is contended that it does not apply to such resales; no issue is raised as to that position. Notably, resale under these circumstances is also at a significant advantage. Nonprofit and export organizations can, because of the low price at which they were able to obtain the products, undercut the domestic prices pharmaceutical manufacturers offer on their own goods. This is the diversion market. It is a significant source of supply for many discount pharmacies and hospitals throughout the nation. 7 Understandably, diversion is unpopular with pharmaceutical manufacturers. While there was testimony in this case that in many instances pharmaceutical manufacturers used nonprofit and export organizations as a dumping-ground for pharmaceutical products nearing expiration, it was clear that many pharmaceutical houses actively seek to prevent diversion of products sold to export and nonprofit organizations. Some companies, in fact, go so far as to maintain investigators whose sole function is to trace sources of diversion supply. 8 These facts inform our disposition of the case. They are not, however, ultimately material to our decision. The financial motives a pharmaceutical manufacturer may have to favor or disfavor diversion are a matter of company policy. Diversion, whether boon or bane to the pharmaceutical industry, is not contended to be illegal as a matter of federal law.