Tetracycline Case Nears End FTC hears arguments on appeal of hearing examiner's motion for dismissal of antitrust charges against antibiotics producers

One of two government antitrust ac­tions against tetracycline producers is finally drawing to the wire. The full commission is expected to rule within six months on an appeal by Federal Trade Commission counsel to set aside an FTC hearing examiner's motion to dismiss FTC's complaint that five com­panies conspired to monopolize and set prices on this broad spectrum anti­biotic (C&EN, Aug. 11, 1958, page 27) .

Named in the complaint are Ameri­can Cyanamid; Chas. Pfizer; Bristol-Myers and its subsidiary Bristol Labo­ratories; Olin Mathieson (through Squibb) ; and Upjohn.

If the commissioners uphold the hearing examiner's ruling, the four-year ordeal is over for the antibiotics pro­ducers. But, if the decision goes against the drug producers, their only recourse will be to appeal to the courts.

In any event, the five companies still face additional, and more serious antitrust charges. They are under in­dictment on criminal charges lodged by the Department of Justice in federal district court in New York (C&EN, Aug. 28, 1961, page 21) . Also named as defendants in this in­dictment are the top officers of Cyana­mid, Pfizer, and Bristol-Myers. Olin and Upjohn are named as co-con­spirators, but not as defendants. Still in the pretrial stage, the case is ex­pected to go to trial early next spring.

Misrepresentation. The FTC com­plaint accuses the companies of mis­representations before the Patent Office by withholding facts concerning the discovery of tetracycline—facts, it contends, which would invalidate Pfizer's patent on the product. It further contends that Cyanamid and Pfizer—each with tetracycline patents pending, and before the Patent Office had declared an interference—entered into patent, cross-licensing, and other agreements to share tetracycline, speed up patent issuance, foreclose the mar­ket, and fix prices. It accuses Bristol, Squibb, and Upjohn of joining in and becoming full partners in an alleged combination.

Counsels for the respondents vigor­

ously uphold the validity of Pfizer's patent and deny that fraud was con­nected with its issuance. They con­tend that Pfizer and Cyanamid, work­ing independently, developed tetra­cycline within a few months of each other. Each applied for a patent. But, they say, Cyanamid realized that in a contest over priority Pfizer prob­ably would win out. A Pfizer article on the structure of tetracycline was published before the earliest invention date that Cyanamid could claim.

Although not armed with this knowl­edge, Pfizer nevertheless felt it had first claim on tetracycline. But to make tetracycline, Pfizer needed Aureomycin. Cyanamid, holding the Aureomycin patent, could block Pfizer from producing tetracycline.

Counsel for the respondents stress that after, and only after, the Patent Office declared an interference on tetracycline did Cyanamid and Pfizer sit down to work out a settlement—a normal and above-board procedure in these matters. Under the arrange­ment, proof of priority was examined and, if either party felt compelled to concede priority to the other, it would do so. The losing party would receive a nonexclusive, royalty-bearing license.

Dismissal Move. In moving for a dismissal of commission charges, FTC hearing examiner Robert L. Piper ab­solved the respondents of any wrong­doing (C&EN, Nov. 20, 1961, page 26) .

The evidence, says Mr. Piper, clearly established that Pfizer had pri­ority. Faced with this fact, Cyana-mid's settlement was in its own best interest, he believes. On the other hand, Pfizer, he feels, would not have agreed to license Cyanamid if Cyana­mid had not held a blocking position with Aureomycin.

Counsel for FTC appealed the Piper ruling to the full commission. Final arguments on the appeal were heard by the five commissioners on May 9. Commission Chairman Paul Rand Dixon, who earlier turned down a re­quest from the respondents that he dis­qualify himself from the case, took an active part in the hearing. Respond­ents had argued that his earlier role in

directing the Kefauver committee's in­vestigation of the antibiotics industry made him incapable of giving an un­biased decision.

The hearing produced little in the way of new arguments from either side. But it did raise some question of whether alleged misrepresentations in testimony before another government body, the Patent Office, are within FTC's bailiwick, and whether these alleged misrepresentations, standing alone, are a violation of the Federal Trade Commission Act.

Key Point. This is a key point in FTC's case. The Government con­tends that Pfizer was not entitled to a patent on tetracycline because the product was not new—it had been pro­duced inherently in making Aureomy­cin, a product first marketed in 1949. After a patent examiner rejected Pfizer's application on these grounds, FTC claims that the company came in, armed with a series of affidavits, and I convinced the examiner that no tetra­cycline had been produced. "The patent was issued," FTC counsel Ernest G. Barnes told the commis­sioners, "because these respondents did not tell the truth to the Patent Office."

At this point, Commissioner Phillip Elman raised a point to Mr. Barnes, "Suppose we agree with the hearing examiner that there has been no con­spiracy here to fix prices, monopolize shares of the market, etc., but we do find there were misstatements of fact made by individual respondents to the Patent Office for the purpose of procuring this patent, what would the consequences be?" This act in itself, Mr. Barnes believes, is a violation of Section 5 of the Federal Trade Com­mission Act. But, he points out, "that is not the theory of our complaint. We charge that the respondents, through a concerted action, through a conspiracy, misrepresented, and foreclosed, as a result of an agreement in combina­tion. We do not necessarily contend that there was an agreement in 1953 to misrepresent to the Patent Office. It just worked out that way. They (Pfizer and Cyanamid) were after a patent, they did whatever was neces­sary to get a patent, and the patent examiner put them in a position where they had to misrepresent to get this patent." Otherwise, he claims, "they would have been delayed for years, others would have entered the market, and the price would have become com­petitive and reasonable."

40 C & E N M A Y 21 , 1962