public welfare have not been maintained we find that monopoly groups
have been responsible for the abuse of public confidence. When monopoly
is able to impose restrictive conditions on the production, the price
and the distribution of vital medicines and to determine who may buy
and sell products, it is in the interests of the drug industry and the
public alike for government to intervene.
Thus when it was found that a small ring of producers had been able to
maintain fixed prices on insulin and to pick and choose those who would
be allowed to distribute insulin to the public, it was necessary for
the government to act.
There are approximately two million persons in the United States
suffering from diabetes. Most of these sufferers require one or
more daily injections of insulin. They are dependent for their very
lives on an adequate supply of the drug at a reasonable price. Yet a
monopoly group exploiting its privileged position took advantage of the
industry and of the public to impose arbitrary prices and unreasonable
conditions of distribution. Wholesalers, distributors, and retailers
were compelled to adhere to the edicts of the monopoly group under the
threat that if they did not do so, no insulin would be sold to them.
The possible consequences of this exercise of monopoly power on the
well-being of victims of diabetes are appalling, yet in the hands of
monopoly the needs of the public become subordinated by the edicts
which are imposed on the industry and the public alike. It is for
this reason that the industry itself, as well as government, must
continuously be vigilant to oppose the growth and exercises of monopoly
power and to stimulate wholesome competition.
Few effects of monopoly have been more insidious than the consequences
of cartel control over many areas in the drug and medical field.
Because of cartel and patent agreements which carve up world markets
and divide fields of production, American drug manufacturers have in
some cases been denied the right and the chance to develop the American
drug industry to its full possibilities. Because international cartels
have been able to set up their own trade restrictions, American drug
manufacturers have been prevented from competing within the United
States. In many cases American manufacturers have been barred from
engaging in competition in other countries and from exporting to such
countries. In particular, American producers have found themselves shut
off from South American markets. Illegal patent abuses and agreements
have in other cases prohibited American manufacturers from entering
production or carrying on research in many important fields dominated
by foreign interests.
The fight against disease is a primary concern of society everywhere.
Yet the brilliance and the industry of modern scientists have all too
often been perverted by the efforts of selfish groups to fasten the
grip of monopoly on products essential to health and welfare. There
have been numerous illustrations of the malignant effects of monopoly
on national health and on the maintenance of free enterprise in the
pharmaceutical industry. It is instructive to recall some of the more
flagrant examples of the abuse of monopoly power in the drug and
medical field.
The cartel spirit in the pharmaceutical field is exemplified by the
following paragraph, written in July 1938 by the German company, I. G.
Farbenindustrie:
“There is an agreement between German and Swiss firms of the Chemical
Pharmaceutical Industry for the protection of original preparations
which are marketed by the individual members of the group.... This
agreement provides that products which compete with the original
products of members of the association and their subsidiaries or
affiliated firms shall not be introduced in any country throughout the
world.”
This agreement may be described as a conspiracy to deprive the world of
the benefits of research in new drug products wherever such benefits
may conflict with the vested interests of any of the participating drug
manufacturers.
The present war is not the first time that the United States has found
itself dependent in a period of crisis for vitally needed drugs and
medicines on cartels dominated by foreign interests. During the first
World War the scarcity of salvarsan, of veronal, of novocaine, and
similar synthetic medical products seriously affected the health of
our people. It was not until after the war was over that we were able
to relieve some of these shortages. In the years between the World War
and the present global war cartel interests once more were able to
reestablish their monopolistic control over new pharmaceutical products.
The myth of German superiority in the production of organic medical
compounds has been dispelled for many years. It is necessary, however,
to recall that this prestige rested not on superior skill but on the
abuse of monopoly and patent privileges. A well-known instance of
the way in which the German cartel interests sought to exploit their
monopoly position is the story of Bayer 205, sometimes called Germanin.
Shortly after the end of the World War I. G. Farben announced that it
had discovered a cure for sleeping sickness, the disease which is so
prevalent in Africa. The Germans refused to reveal the formula for
Bayer 205. Instead they sought to use their discovery as the basis of
an exchange of the secret process in return for the restoration of
Germany’s lost colonies. While this bold attempt to balance medical
achievement against political advantage is an extreme case, it
nevertheless reflects a cartel attitude.
From the standpoint of the progress and growth of the American drug
industry it must be realized that the influence of cartels has been
the principal factor in keeping American products from world markets.
Foreign concerns, by making treaties with monopoly groups in the
American drug industry, have been able to monopolize practically the
entire continent of South America. One typical agreement between an
American corporation and a German concern divided the world market for
more than 400 pharmaceutical and chemical products into non-competitive
areas. Among the fields included in the agreement were quinine
derivatives, sulfa drugs, vitamins and narcotics. The American firm was
prohibited from exporting. This same pattern of restriction by which
American producers were barred from selling to South America has been
found in a whole roster of cartel agreements involving pharmaceutical
products. The effects of these agreements have severely handicapped our
good neighbor relations with South America and have made more difficult
the establishment of healthy trade between the United States and Latin
American countries.
If we are to succeed in our efforts to create a better postwar world,
it should be evident that we must uproot every vestige of illegal
monopoly control over products essential to the health and welfare of
our people. Whether the restriction stems from the efforts of a cartel
to confine American industry to the domestic market, or to strangle
research and production by American concerns, or to use patents to
impose unlawful restraints on trade in the drug industry, it must be
our determined purpose to restore free enterprise in the pharmaceutical
field. Given freedom of opportunity and the incentive to enter branches
of the industry heretofore dominated by cartel interests, we may
rest assured that American drug manufacturers will demonstrate their
outstanding capabilities in research and their ability to compete both
at home and abroad. Competition will benefit the American drug industry
and permit it to attain its maximum development. What is perhaps even
more important, this country will be assured that in the future the
health and welfare of its citizens will not be dependent upon the
arbitrary exercise of monopoly power.
I am sure that responsible persons in the pharmaceutical industry will
not argue that European technology in this field is so superior to
ours that competition is futile. If American manufacturers have free
access to technology and are not barred by the misuse of patents and
the resurrection of cartel arrangements, then the industry will find
itself in a healthier financial and technological position as well as
in a position more fully to discharge its obligations to the American
people. The myth of European superiority in the medical field has been
carefully nurtured by foreign interests which have used this propaganda
as a commercial device. Only free competition and free enterprise
can fully dispel this myth. This cannot be done, however, unless the
pharmaceutical industry sees to it that victims of diabetes, malaria,
pellagra, rickets and arthritis are not at the mercy of privileged
groups who have abused public confidence and exploited human suffering.
The laboratories of our pharmaceutical industry have brought forth
wonderful discoveries. Their achievements have been a boon to the human
race. But they have a responsibility to erase the blemish caused by
those few who have misused their economic power to violate their trust.
The promotion of public welfare as well as the best interests of the
pharmaceutical industry are served when research, production and
distribution are carried on free from the taint of monopoly. National
health, like national economic well-being, demands that freedom of
opportunity to conduct research, to engage in business, and to compete
in domestic and foreign markets be preserved. No compromise is possible
with monopoly control in an industry which is so directly concerned
with human welfare.
6
_Synthetic Hormones_
The use of synthetic hormones in the United States has grown to such
an extent that the annual sales amount to many millions of dollars.
Something more than half of the entire business in this country has
been carried on by four companies. Each of these companies is the
subsidiary or affiliate of a corresponding company in Europe. The
European companies belong to a hormone cartel which has controlled the
hormone business most effectively abroad and in the United States.
After investigating the ramifications of the cartel’s activities in
this country the Department of Justice prosecuted the four American
companies for violations of the antitrust laws. Pleas of nolo
contendere were entered by the four corporations and by five of their
officials and fines totalling $54,000 were assessed and paid. At the
same time, on December 17, 1941, the defendants consented to the entry
of a decree in a civil action brought by the government, which enjoined
them from further activities in violation of the antitrust laws.
These are the basic aspects of the hormone cartel:
1. Research has been seriously affected by restrictions imposed by
foreign cartel members.
2. German interests have entered into patent licensing arrangements
with American affiliates under which they--the latter--agreed to
withhold their products from Latin American markets.
3. During the war American companies have aided their German affiliates
in evading the British blockade.
4. American companies have participated in the use of paper
corporations and dummy consignees to avoid the effects of the Black
List in Latin America.
5. American concerns have devised deceptive labels to preserve markets
for their German affiliates and to aid the spread of German propaganda
in Latin America.
6. Members of the cartel have misused patents in schemes to camouflage
flagrant violations of the laws of the nation.
7. The recognized benefits which might be obtained by the widespread
use of hormones have been to a large extent curtailed by reason of the
restrictions and illegal policies of the cartel members.
8. In the case of one of the synthetic hormones, there is evidence
indicating that it may have a substantial contribution to make in
connection with treatment of wounded soldiers for shock. The cartel
restrictions have had their effect upon the production and wide use of
this hormone as well as the others.
9. Two of the American companies have been taken over by the Alien
Property Custodian and one of these has been sold.
The following explanation of the nature of hormones does not purport
to be a scientific discussion. It represents my understanding of the
subject based upon what I believe to be reliable authority. I merely
give it for what it may be worth as background for the discussion of
this cartel.
Hormones are the secretions of certain ductless glands. As they enter
the bloodstream they regulate chemically practically every function of
the human body. They are really special agents of chemical coordination
of the body. They regulate, order and correlate bodily functions with
the same precision as that achieved by the nervous system. Since their
first definite isolation by the great English physiologists, Bayliss
and Starling, in the early years of this century, there has grown up
a whole new field of research. Infinitely small amounts of certain
hormones have the most profound effects upon the human body and its
emotions. As in the case of vitamins, much of our present knowledge
is the result of observing the striking pathological defects and
abnormalities produced by excess or deficiency of hormones.
Thus deficiency of certain of these drug-like substances from the
small thyroid gland causes a marked decrease in metabolism and mental
and physical sluggishness. Excess of this same hormone, or complex of
substances, has the opposite effect, increasing oxidation and pulse
rate, and causing nervousness and emaciation. It also has striking
effects upon growth and development. Deficiency in children results in
dwarfism and idiocy.
Other hormones such as those from the anterior lobe of the pituitary
gland affect the growth of bone. Hormones from the adrenal glands,
located near the kidneys, cause constriction of blood vessels,
accelerate the heart beat and cause discharge of glucose from the
liver. Insulin, one of the most widely known of the hormones, plays an
essential role in the metabolism of carbohydrates. Its absence causes
diabetes which is characterized by a failure of normal carbohydrate
metabolism.
Medical investigators and chemists have been exploring this vast new
field of research for many years. They have learned more and more about
the actions and composition of these complex substances. For many years
they have worked with the extracts from the glands of certain animals
to obtain the hormone itself, or as much of it as could be saved in
the process of extraction. At the same time they have been analyzing
the composition of the hormones, and endeavoring to synthesize the
active principles. Among those which have been produced in synthetic
form are the male sex hormone, testosterone; the follicular and corpus
luteum, both being female sex hormones; and desoxycorticosterone
acetate, a synthetic substance which has effects similar to those of
cortin.
Cortin is derived from the cortex of the adrenal glands. There is
still some question as to the role which this hormone plays, but
there is no doubt that it is essential to life. It apparently affects
the metabolism of sodium, potassium, and carbohydrates. This hormone
plays an important role in the concentration of body fluids and their
distribution between the inside and outside of body cells. The hormone
is therefore of some use in diseases or conditions where there occur
marked changes in the distribution of the body fluids. Specifically, it
means the hormones of the adrenal cortex are useful in the treatment
of Addison’s disease, where it seems to strike a balance in the intake
of salt. It has also been suggested that since surgical shock is
associated with unbalance of body fluids, this hormone may be of value
in counteracting the shock effects. Shock is so complex a condition,
however, that there is no general agreement on the effects of the
hormone. However, the hormone, or crystalline preparations possessing
hormonal activity, are being used by army surgeons both here and abroad
for whatever value they possess.
It is with these and certain other pharmaceutical specialties that the
hormone cartel has concerned itself. The cartel is composed of five
large European companies: Schering A. G. (Berlin); Ciba (Basle); N. J.
Organon (Oss, Holland); C. F. Boehringer & Sons (Mannheim); and Chimio
(France). Each of the first four has had a subsidiary or affiliate
in this country which has been used to carry out the policies of the
European company and of the cartel. I shall describe in some detail the
practices which were followed in aiding the German companies to avoid
the effect of the British blockade and Black List in Latin America.
The Schering A. G. firm is one of the most important pharmaceutical
and chemical manufacturers in Germany. It makes photographic supplies,
soaps, cosmetics and many other products. However by far the largest
part of its production consists of medicinal specialties and fine
chemicals, the former being the more important. It is the largest
German exporter of pharmaceutical and medical specialties, specializing
in sex hormones, vaccines, remedies for venereal and other contagious
diseases, rheumatism, tuberculosis, etc., and also laxatives,
anti-acids, opiates, etc. It is also one of the larger German exporters
of fine chemicals, laboratory chemicals and plant protection chemicals.
At the time of the first World War, Schering A. G. did comparatively
little export business. Its export system, established and carefully
developed after 1918, is mainly the result of the work of one man, its
former president Dr. Julius Weltzien. This export system spreads over
the entire world. The procedure in establishing outlets abroad has been
as follows: At first sales are made to all who may wish to buy; then,
with increasing turnover, a local firm is made sole agent. When the
yearly turnover reaches about $25,000, an expert sent from Berlin is
coordinated with the sole agency firm. When the yearly turnover exceeds
about $50,000, Schering A. G. sets up a firm of its own, directed by
managers sent from Berlin. Germans, or men of German descent, are
placed in all key positions, and the remainder of the staff is partly
German, partly persons of the country in which the agency is located.
The final step is to set up factories in the most important markets
which are equipped to ampule the finished solutions and to tablet the
finished substances which are used in that form. The supervision of all
firms abroad is strongly centralized in Berlin.
Until recently, Schering A. G. was one of the largest sellers of
pharmaceutical and medicinal specialties in South and Central America.
Testimony before the Truman Committee indicated that approximately
one-third of all materials shipped into South America by airmail over
the German controlled _Lati_ airline, during a six months period in
1941, were chemical and pharmaceutical products. Approximately the same
amount of books, maps, etc., intended for espionage and propaganda work
was also shipped by air since it was the only means of avoiding the
British blockade. On the return trips four-fifths of the air cargoes
were of mica for the Nazi war machine and most of the remaining fifth
was made up of other important war materials. The important role played
by the pharmaceutical exports in providing the exchange for purchase of
war materials should not be overlooked.
The interruption of exports due to the war caused Schering A. G. to
adopt several different methods of continuing its foreign business.
Prior to the invasion of Belgium and Holland, firms in those countries
and in the Scandinavian countries were used as blinds to avoid the
British blockade. Before Italy entered the war, the Milan factory was
utilized as a point from which the German goods, labeled in Italy,
could be sent out to the rest of the world.
The final step was to transfer to the United States the business of
supplying the markets cut off by the blockade. In preparation for this
emergency, several measures had been taken long before the actual
outbreak of the war.
The center of the new supply system was Schering Corporation
(Bloomfield, New Jersey), a firm now held by the U. S. Alien Property
Custodian. This firm was established as a Schering A. G. subsidiary
in 1929 to manufacture medical specialties for the market in this
country. Differing from most other Schering factories outside Germany
it developed the finished solutions and substances out of raw or
semi-manufactured imported materials, where the others merely finished
the process by placing the material in ampule, tablet and package
form. Gradually extending its research, laboratory and manufacturing
facilities it came to be as fully equipped to manufacture, although on
a much smaller scale, all Schering medical specialties as Schering A.
G. itself.
All of the common stock of this New Jersey corporation was owned by
Chemical and Pharmaceutical Enterprises, Ltd. (Chepha) and held in the
name of a nominee of the Swiss Bank. Chepha was owned 51 per cent by
the Swiss Bank and 49 per cent by other related interests. However, it
has recently come to light that the transaction in 1937 by which Chepha
and the Swiss Bank got apparent control of the Schering Corporation,
included an option agreement which made it possible for Schering
A. G. to regain its interest at any time it so desired. Obviously
the transaction was a mere sham to make it appear that the American
corporation was controlled from Switzerland rather than from Germany.
Actually Schering A. G. had never ceased to exercise its domination
over Schering Corporation up to the very outbreak of war between
Germany and the United States.
As of January 1, 1938 the two corporations entered into an extensive
and detailed agreement. Two paragraphs of the preamble of this
agreement are as follows:
“Schering A. G. is engaged in the development, manufacture and/or
sale of medicinal, pharmaceutical, biological, and bacteriological
preparations. It is the owner of processes and formulae used in the
production of such preparations and is also the owner of U. S. A.
patents and patent applications pertaining to such preparations. For
many years it has maintained and operated and still does maintain and
operate laboratories to carry on research and development work in
connection with such preparations, and has thereby acquired valuable
scientific knowledge, data and material concerning the aforesaid sphere
of activities.
“Schering Corp. has an organization suited for national distribution
and promotion of such preparations in the United States of America,
and is equipped to manufacture such preparations. It also maintains
and operates laboratories to carry on research and development work in
connection with such preparations, but has not acquired the extensive
scientific knowledge and practical experience in this field that
Schering A. G. commands by reason of its longer and more extensive
research work and experience.”
This language portrays the true relationship of the parent and
subsidiary companies.
The parties agreed to exchange patents and information and to deal in
each other’s products in their respective territories. The division
of territory, as in so many of these German-American agreements, gave
the United States to the American corporation as its territory and the
remainder of the world to the German firm.
Article V, Paragraph 5 is as follows:
“Schering A. G. agrees not to deal in selected preparations nor to sell
selected preparations to any corporation or person in the U. S. A.
except to Schering Corp., nor knowingly to sell them to any corporation
or person for purposes of exportation to or resale in the U. S. A.
unless Schering Corp. shall first have given its written consent.”
Article V, Paragraph 7 is as follows: