Court Opinion

ID: 9455619
Source: CourtListenerOpinion
Date Created: 2023-08-04 19:27:31.794279+00
Date Added: 2024-06-11T17:34:39.663628
License: Public Domain

HAYS, Circuit Judge
(dissenting).
I respectfully dissent.
1. General
“On appeal from the convictions the evidence is to be viewed in the light most favorable to the government and all permissible inferences are to be drawn in its favor. United States v. Kahaner, 317 F.2d 459, 467 (2d Cir.), cert. denied, 375 U.S. 836, 84 S.Ct. 74, 11 L.Ed.2d 65 (1963); United States v. Hall, 346 F.2d 875 (2d Cir.), cert. denied, 382 U.S. 910, 86 S.Ct. 250, 15 L. Ed.2d 161 (1965); United States v. Marchisio, 344 F.2d 653 (2d Cir. 1965).” United States v. Jones, 374 F.2d 414, 419 n. 2 (2d Cir.), cert. denied, 389 U.S. 835, 88 S.Ct. 40, 19 L.Ed.2d 95 (1967). Although the evidence against appellants is not overwhelming, viewed in the perspective of our limited scope of review it is sufficient.
The indictment charged defendants, in three counts, with having combined and conspired in restraint of trade in the broad spectrum antibiotic market, with having combined and conspired to monopolize that market, and with having illegally monopolized it. It was alleged that defendants conspired to exclude competitors and to fix prices and that, having sufficient market power to do so, defendants succeeded in accomplishing the objects of their conspiracy.
The government’s evidence establishes that the price of tetracycline, a broad spectrum antibiotic controlled by defendants and having a very large sale, did not change at all from 1953 until 1960. Throughout that whole period each defendant charged exactly the same amount although Pfizer and Cyanamid were consistently producing tetracycline at a cost substantially lower than the production costs of Bristol, Squibb and Upjohn. Pfizer and Cyanamid allowed themselves to lose significant portions of their market to the higher cost producers without ever attempting to regain those portions by cutting prices. Although the production costs of all producers markedly decreased, the resulting savings were not reflected by any price reductions.
The agreement to exclude competitors centers on the 1953 patent settlement between Pfizer and Cyanamid. Pfizer licensed Cyanamid to produce and sell tetracycline while Cyanamid licensed Pfizer to manufacture, though not to sell, aureomycin. Neither Pfizer nor Cyanamid, then, with Parke-Davis, the only producers of broad spectrum antibiotics, had previously licensed any other drug companies to produce or sell their respective broad spectrum antibiotics. The government presented evidence from which the jury could infer an agreement between Pfizer and Cyanamid that Pfizer would not license anyone other than Cyanamid to manufacture tetracycline. Shortly after their meeting at which the parties had the opportunity to discuss such an agreement Pfizer publicly announced that the company policy was not to issue any licenses for tetracycline. That policy was strongly impressed upon Bristol, Squibb *49and Upjohn, and almost certainly would have resulted in litigation had the Broady wiretap incident not intervened. The point at which the understanding between the parties merged into an agreement is, perhaps, difficult to define with precision, but this constitutes no reason for denying to the jury the power to conclude that such an agreement existed.
2. The Issues of Patent Fraud and Unreasonably High Prices
The court’s instructions on the issues of patent fraud and unreasonably high prices were entirely proper. The evidence introduced on these issues tended to support the charge of conspiracy.
The government did not contend that Pfizer and Cyanamid agreed to defraud the patent office, but only that their conduct was evidence of the underlying conspiracy to exclude competitors. The jury would have been justified in finding that Pfizer’s statement to the patent office that the processes of the prior art produced no tetracycline was deliberately false and that it was made in the expectation that Cyanamid would not challenge the statement. Cyanamid’s participation in such a course of conduct is readily explainable by its expectation that it would be Pfizer's sole licensee.
The evidence relating to the high price level for broad spectrum antibiotics was equally relevant to the issue of conspiracy. There was evidence that the price for the antibiotics remained the same notwithstanding differences in costs among the defendants, notwithstanding overall decreases in costs through the period of the conspiracy, and notwithstanding changes in the market percentages controlled by each defendant. The jury would be justified in finding that the failure of any defendant at any time over a period of seven years to lower these extremely high prices evidenced a conspiracy. Defendants attempted to convince the jury that the oligopolistic nature of the broad spectrum antibiotics market made the ordinary concept of a competitive market irrelevant. The jury was not compelled to accept defendants’ representations, and we are not justified in questioning its refusal to do so.-
The government’s substantial evidence as to the level of profits enjoyed by defendants from the sale of broad spectrum antibiotics was also relevant on the issue of conspiracy. Its relevance lies in the fact that, when profits were so enormous, defendants could have been expected, in the absence of a conspiracy, to experiment with price reductions in an effort to increase percentage of sales.
Defendants also complain that the evidence was improperly admitted because the government introduced no evidence of comparative prices from which the jury could properly conclude that defendants’ profits were unreasonably high. The government did introduce evidence relating to the profits realized by the drug companies on penicillin and on other drugs. The evidence shifted the burden to defendants to convince the jury of the inapplicability of the standards suggested by the government.
Defendants argue that the jury was given an erroneous impression of their level of profits by the introduction of evidence relating to production costs rather than to total costs. Defendants had it within their power to introduce their own evidence on costs. The relevance of production costs was clearly established by the government’s showing that defendants relied on production cost data both in internal memoranda and for establishing the industry-wide “rule of thumb” price level of approximately three times production costs.
3. Parke, Davis
The jury was instructed that the evidence concerning Parke, Davis was part of the total evidence that it should consider in reaching its verdict. It was then told, however, that “the fact that Parke, Davis has not been indicted and is not a defendant has no relevance whatsoever in any direction as a fact in itself. There is no profit here in speculating as to why Parke, Davis was not indicted. *50Parke, Dávis is not on trial here * * *” It is claimed that the effect of this instruction was to detract from the force of the testimony concerning Parke, Davis. The defendants’ theory is that Parke, Davis, which was not indicted, conducted its activities in the same manner as defendants and the accused co-conspirators, and that the jury should consider, therefore, whether defendants had not in fact been acting consistently with good business practices rather than with a conspiracy. The construction that defendants place on the charge is a possible construction but, in terms of the charge as a whole, that possibility seems hardly serious enough to warrant reversal.
4. Licenses to Squibb and Upjohn
The jury was instructed that “[t]he critical inquiry on this score is whether the limitation on Squibb and Upjohn, which barred them from manufacturing, was the particular objective of Bristol and was an agreed objective between Bristol and Pfizer in the issuance of that license." The instruction might have been construed by the jury to mean that but for the restriction Squibb and Upjohn would have had the right to manufacture tetracycline, whereas in fact there would have had to be a specific grant of permission.
It seems to me to be quite unlikely that the jury was seriously misled by this instruction. The settlement did not grant Squibb and Upjohn the right to manufacture, and the real issue was whether Pfizer had declined to grant that right at Bristol’s request.
5. Bristol
Bristol settled on its own behalf and on behalf of Squibb and Upjohn their suits against Pfizer and Pfizer’s suits against them. In the settlement Bristol obtained licenses to manufacture and sell tetracycline, while Squibb and Upjohn obtained licenses which prevented them from making bulk sales.
The restriction imposed on Squibb and Upjohn precluding the resale of bulk tetracycline suggests an agreement to exclude competitors. In addition, the circumstances of the settlement — including the private discussion between McKeen and Schwartz (allegedly about the Broady wiretap incident about which all the other participants in the meeting already knew anyway) — were sufficient to justify the jury in finding that the parties agreed upon the desirability of keeping as small as possible the number of manufacturers and therefore granted Squibb and Upjohn only the minimal license that would satisfy Bristol in its settlement with Pfizer.
I would affirm the judgment.