indictments based on the antitrust legislation are made. Under such
circumstances it is extremely important to obtain as fast as possible
the protection of the most important patent claims.”
However, Roche-Organon resisted the transfer of the application,
writing in its circular letter to Ciba and Schering, A. G., dated April
15, 1939: “An expert would understand immediately that the transfer of
this application served only aims which have to be considered as lawful
according to the antitrust legislation. We couldn’t even mention any
consideration given the Ciba.”
Although Organon’s male hormone application was in fact not transferred
to Ciba, the result which the parties contemplated appears to have been
effected. Ciba, apparently relying upon its own male hormone patents in
the United States, became the licensor of Roche, Schering, and Rare,
while Roche-Organon participated in the licensing arrangements only
under its cortin patents.
There are numerous indications in the Schering correspondence that
the American license agreements are so bound up with the basic cartel
agreements that the sums of money paid by the American firms to each
other are regarded as parts of the total considerations which the
European firms are bound to pay each other.
As in the case of Schering A. G. and Schering Corporation the other
cartel members bound their United States affiliates to agreements which
precluded exports in any manner which would interfere with the division
of territory among members of the cartel. The agreement of April 1,
1938 between N. V. Organon and Roche-Organon contains the following
provisions: “Roche-Organon agrees not to deal in or manufacture
glandular and hormone preparations other than those originated by Oss
[N. V. Organon], nor to export or sell for export from the territory
any glandular and hormone preparations.” (The territory is defined as
the United States, its territories and possessions, Canada and the
Philippine Islands, and Cuba.) The other agreements contain similar
restrictions with some variations as to the exact territory.
The principles of competition, price, and research heretofore discussed
are well exemplified by the case of Stilbestrol (diethylstilbestrol), a
recently discovered pharmaceutical which has effects similar to those
of the female sex hormones. It is the product of research supported
by Government grant in England, several scientists of the University
of London and of Oxford University, headed by E. C. Dodds, being
responsible for the development. Throughout all of the work of Dodds
and his colleagues the Medical Research Council, a British government
organization, undertook the necessary financial support. (While
Stilbestrol is not a synthetic hormone, it has most of the valuable
therapeutic effects of these substances although it may not be entirely
free from side reactions. Its cost of manufacture--and the price to the
consumer--are much lower than those of the equivalent hormones).
The American hormone cartel members were aware of Stilbestrol and its
possibilities as early as 1939. In a conference of Roche-Organon, Ciba
and Schering officials, held on August 1, 1939 the following discussion
took place, according to minutes found in Ciba’s files:
“Mr. Kamp [Ciba] brought up the subject stilbestrol.
“Mr. Hammer [Schering] said he thought that any concern would have a
hard time getting stilbestrol accepted in this country.
“Dr. Oppenheimer [Ciba] pointed out that in this country estradiol
prices may not be too much out of line with those of stilbestrol
compared with Great Britain.
“The question of side effects from stilbestrol was then discussed.
“Dr. Josephy [Roche-Organon] told of reports from Amsterdam on the
use of stilbestrol in animal experimentation. He said that he thought
the government would look not only at the favorable reports on a
preparation which was submitted but also the unfavorable ones.
“Mr. Kamp said he thought some concern had already filed with the
government a request to market stilbestrol.”
A memorandum in Schering’s file concerning this same conference of
August 1, 1939 is somewhat more revealing:
“XVIII _Stilbestrol_. Ciba and Roche-Organon want to have it just to
be able to knock it with physicians. They say the hormone business
in England has been destroyed just by this new product. On the other
hand, it is said to injure the liver and there is doubt that the U. S.
Government will allow it to be used.”
In the minutes (from Ciba’s files) of a conference of representatives
of the three companies on Friday, October 27, 1939, there is this
statement: “During the discussion Stilbestrol was mentioned and Dr.
Weltzien [President of Schering] remarked he hoped ‘none of us will
introduce Stilbestrol’.” These quotations indicate the hostility of
cartel members towards a new product which endangers their control of
the market. Stilbestrol was put on the market in this country late in
1941 and had an immediate effect upon the sales of the higher priced
hormone products.
From what has been said it seems clear that in the field of synthetic
hormones the cartel control has been such as to be detrimental to our
national interest. When such control can be used to make American
corporations the tools of those of other countries it is exceedingly
unfortunate. When carried to the point of causing corporations in
this country to aid the Axis it could not be and was not tolerated.
The seizure of two of these companies by the Alien Property Custodian
has put an end to the German control. From the point of view of
encouragement of research those two companies are much better off than
they were when tied to the apron strings of their parent companies
in Germany. Complete removal of cartel restrictions from the entire
industry would be definitely in the interest of the general public in
this country and throughout the world.
7
_Vitamins_
The monopolistic control of one of the most essential products of
our modern era--the sunshine vitamin, also known as Vitamin D--has
been magnified by the fact that it is the poorer elements of our
country which have the greatest need for this product, since it is a
preventative and a cure for certain diseases most commonly found among
the lower economic strata of our population. Vitamin D is essential for
proper bone growth and development, the prevention and cure of rickets,
and the prevention or reduction of tooth decay.
The Wisconsin Alumni Research Foundation acts as a screen behind
which a group of monopolistic chemical, pharmaceutical and food
companies control Vitamin D. The story of the Wisconsin Alumni Research
Foundation is of extreme importance because it indicates how a
quasi-public research organization can be flagrantly misused.
At the outset I should like to state that the Wisconsin Alumni Research
Foundation has no formal connection with the University of Wisconsin,
and that the University of Wisconsin has absolutely no control over the
policies and practices of the Alumni Foundation. It should be clearly
understood, therefore, that what I say here does not reflect in any
manner upon the University of Wisconsin.
A report of the Trustees of the Foundation dated June 22, 1931, defines
the objectives and purposes of the Foundation as follows:
“Indeed one of the soundest reasons for the development of the
Foundation as a suitable means of handling the Steenbock process lies
in the rigid control through which it is possible to protect the public
and prevent unscrupulous commercialism from capitalizing the Steenbock
discovery.”
The investigation by the Antitrust Division of the Department of
Justice indicates, however, that somewhere along the line these
laudable objectives were lost. Instead, a summary of our investigation
discloses the following facts about the Wisconsin Alumni Research
Foundation:
(1) It has been the vehicle for creating a domestic monopoly resulting
in division of fields, price fixing, control of container size, and
limitation of potency of vitamin products--as a result of which the
public has been charged excessive and arbitrarily high prices. (The
Foundation has been described by a licensee as being “merciless in
beating out competition” in the field of vitamins.)
(2) It has considered plans to denature and adulterate Vitamin D
preparations in order to maintain high prices.
(3) It has exhibited a lack of interest in research unless a commercial
advantage could be obtained.
(4) It has used threats of patent litigations under patents which it
knew were very weak to eliminate competition. (Some of these patents
upon which the monopolistic scheme rested were, in fact, declared
invalid in 1943 by the Circuit Court of Appeals for the Ninth Circuit.)
(5) It has suppressed the use of competing processes.
(6) It has organized international cartels with I. G. Farben of Germany
and Joseph Nathan & Co., of Great Britain, in order to eliminate world
competition by dividing world territory into noncompetitive areas.
(7) It has attempted to suppress the publication of scientific research
data which were at variance with its monopoly interests.
(8) It has acted as a police organization for its licensees--in order
to maintain its price fixing arrangements--by setting up a black list
of price-cutting distributors.
(9) It has used its licensing scheme to discourage research by its
licensees.
(10) It has endeavored to suppress or prevent truthful advertising in
order to eliminate competition.
(11) It has required its licenses to charge unreasonable prices to the
government.
(12) It has forced farmers to buy vitamin-enriched animal feeds in a
monopoly market.
Since 1925 the production and use of Vitamin D has been under the
control of the Wisconsin Alumni Research Foundation. The control has
been based upon the so-called Steenbock patents, especially upon patent
No. 1680818, which the Foundation regards as the basic patent on
Vitamin D.
About 1925 Dr. Steenbock, then a professor at the University of
Wisconsin, conducted experiments which eventually resulted in the
Steenbock patents. Recognizing the commercial possibilities of his
developments, Steenbock offered his patents to the University, but the
Regents of the institution did not feel they were in a position to
commercialize them. The President of the Wisconsin Alumni Association
at that time was George I. Haight, a very able patent lawyer of
Chicago, who immediately recognized the commercial possibilities of
the Steenbock development. Together with some of the other leading
alumni of the University, Haight founded the Wisconsin Alumni Research
Foundation to undertake the exploitation of the Steenbock patents and
such other patents as the Foundation might from time to time acquire.
The Foundation was chartered on November 14, 1925 as a non-profit
corporation. Its purposes, as stated in its charter were “to promote,
encourage and aid scientific investigation and research at the
University of Wisconsin by the faculty, staff, alumni and students
thereof, and those associated therewith, and to provide or assist
in providing the means and machinery by which their scientific
discoveries, inventions and processes may be developed, applied and
patented, and the public and commercial uses thereof determined,
and by which such utilization or disposition may be made of such
discoveries, inventions and processes, and patent rights or interests
therein, as may tend to stimulate and promote and provide funds for
further scientific investigation and research within said University or
colleges or departments thereof.”
The Foundation is managed by a Board of Trustees. Originally these
trustees personally handled the work of the Foundation but, in 1931,
they secured the services of Henry L. Russell, former dean of the
University of Wisconsin College of Agriculture. Russell was made
Director and executive head of the Foundation. Later, as business
increased, L. D. Barney was employed as business manager, and Ward
Ross, an associate of Haight, was retained as General Counsel.
Steenbock himself appears to have handled most of the technical matters
of the Foundation insofar as they relate to Vitamin D. The royalties
received by the Foundation are invested and the resulting income is
utilized for research.
The Foundation has controlled Vitamin D by reason of its ownership of
the Steenbock patents Nos. 1680818, 1871135, 1871136, and 2057399. The
underlying concept of all of these patents is that certain substances
called pro-vitamins may be “activated” so as to result in a product
having a high Vitamin D potency. This “activation” is accomplished by
exposing the pro-vitamin to ultra-violet light, and the basic patent is
limited to activation by ultra-violet light produced by an artificial
source such as a quartz mercury vapor lamp.
The commercialization of the Steenbock patents was phenomenally
successful almost from the very outset. The report of the Trustees of
the Foundation dated June 22, 1931, states:
“The accumulation from royalties so far has been almost wholly from the
ultra-violet patents. During the calendar year 1930, the gross income
was $354,590, or very nearly $1,000 a day throughout the year. This
income has been developed within less than three years.”
The Foundation’s annual royalties showed a steady increase until
1936, when they amounted to nearly $1,100,000. After 1936, the annual
royalties decreased slightly, and in 1939 they amounted to $936,610.70
or over $2,500 per day. Up to 1940, the Foundation had received more
than $8,500,000 in royalties.
The royalty rates charged by the Foundation vary from 10% to 3% and
less, with higher royalties applying to only a few products. The
enormous size of the market is indicated by the munificent revenues
yielded by royalties at these rates.
The first requirement for the success of the Foundation’s licensing
program was the elimination of competition from non-licensees. The
Foundation’s practices in this respect are aptly described in a
memorandum dated February 20, 1935, from Connolly, a du Pont patent
attorney, to Kupperian, of du Pont: “The Foundation has been merciless
in beating out competition throughout the United States whenever such
competition threatened to encroach upon the synthetic vitamin D field.”
Some of the leading manufacturers in the country are licensees of
the Foundation. Many of these manufacturers have been licensees for
years, while in some cases licenses were obtained by the acquisition of
companies holding licenses. Both du Pont and Standard Brands obtained
their licenses by the latter method.
Acetol Products, Inc., had a license from the Foundation dated November
15, 1929. Du Pont acquired the assets of Acetol and on April 30,
1935, Acetol assigned its license to du Pont. On November 15, 1935, a
new agreement was executed between the Foundation and du Pont which
superseded the Acetol agreement of November 15, 1929.
Standard Brands succeeded to the rights of the Fleischmann Company
under an agreement dated August 8, 1928.
The question naturally arises why these powerful manufacturers paid the
Foundation such large royalties on the basis of the weak and limited
Steenbock patents. The correspondence indicates that the licensees were
not only willing but anxious to pay the royalties in return for the
profit opportunities offered under the Foundation’s schemes.
The desire of the licensees to cooperate in the Foundation’s
promotional schemes is well expressed in a letter dated July 8, 1935,
from Atkins of du Pont to Barney, the Foundation’s business manager:
“The writer feels certain that you understand our desire and
willingness to be considered as a part of the Foundation. You know
our desire to prevent the Vitamin D field from falling into disrepute
because of too many producers of various types of so-called Vitamin D.
We would much prefer centralized control in the hands of the Foundation
and you may count on us to support you even though, at times, we may
have differences of opinion.”
A memorandum dated January 25, 1937, from H. W. Elley, associate
chemical director of du Pont, to a number of the executives of du Pont,
explains the reason for centralizing “control in the hands of the
Foundation”:
“He [Mr. Protto, assistant general manager of du Pont] felt that it
would be preferable to deal with the Wisconsin Alumni Foundation
since they could be of considerable value to the industry in policing
and regulating matters. If, for any reason such arrangements become
unnecessary, it would then be possible to consider alternative
procedures not involving the use of the Foundation patents, that is, we
might commercialize the Milas process.”
The Foundation is organized along the lines of an international
cartel insofar as its licensing program is concerned. It is party to
agreements with the omnipresent I. G. Farbenindustrie of Germany and
Joseph Nathan & Co., of Britain. The agreements, following the standard
cartel pattern, create exclusive noncompetitive territories. Nathan
and I. G. are prohibited from exporting to the United States and the
domestic licensees of the Foundation are prohibited from exporting to
Germany or Great Britain.
The domestic licensing policy of the Foundation is characterized by a
most complex and minute division of fields into noncompetitive areas.
Generally speaking, these fields of activity are made exclusive so that
all competition between the different licensees or groups of licensees
is eliminated. Provisions of the various agreements, which will be
later described, prevent any substantial overlapping of these fields.
Often the provisions merely prohibit the licensee from accurately
describing his product but the essential object, elimination of
competition, is attained.
Fields are divided along three distinct lines: (a) the product to
be activated, (b) the method of activation, and (c) the use of the
activated product. In the first category there are 13 principal
divisions: (1) the pharmaceutical licensees are permitted to activate
ergosterol, (2) Standard Brands is licensed to activate yeast and yeast
products, (3) du Pont is allowed to activate ergosterol cholesterol
and other sterols except yeast and yeast products, (4) S. S. Kovaks
is allowed to activate sterols derived from yeasts but not yeast, (5)
a group of licensees are permitted to activate evaporated milk, (6) a
number of licensees are permitted to activate fluid milk, (7) Quaker
Oats is allowed to activate cereals, (8) Borden is allowed to activate
a milk product known as Dryco, (9) The Wanter Company is allowed to
activate Ovaltine, (10) the Commander Larrabee Company is allowed to
activate flour, (11) R. B. Davis and Company is allowed to activate
Cocomalt, (12) Loose-Wiles Biscuit Company is allowed to activate
crackers, and (13) Ayerst, McKenna and Harrison are allowed to activate
a food product known as Glucose-D.
The extent to which the division of fields is carried is exemplified
in an agreement dated June 27, 1938, between the Foundation and the
Loose-Wiles Biscuit Company. This agreement authorizes Loose-Wiles to
activate “Graham Crackers” and “Wafers slightly sweetened to such as
English Style Arrowroot Wafers,” but does not permit the activation of
“cakes” and “cookies.”
According to the method of activation, fields are divided into direct
irradiation and activation by the introduction of an irradiated
substance. Some few licensees are permitted to use either method of
activation, but most are restricted to a single method. One of the most
curious licenses issued by the Foundation permits the activation of
milk by feeding cows irradiated material.
The division of fields according to use is most detailed, but can be
broken into several general classes. Licenses are issued for the human
medicine field, for the human food field, for the fluid milk field, for
the evaporated milk field, for the animal feed field, and for a field
in which the product is not intended for internal use.
At the outset, it was pointed out that the stated objectives of the
Foundation are “to protect the public” and “to prevent unscrupulous
commercialization.” Over the years the Foundation’s devotion to these
objectives appears to have wavered. The Foundation appears to be
primarily interested in royalties, with little or no regard for the
public interest. Article VII of the agreement of November 1, 1938,
with the milk companies states that if “it should be found that the
activation of unsweetened evaporated milk by ultra violet rays under
this license is substantially harmful to the user of such milk, or
to the milk itself, the licensee shall have the right to cancel this
license.”
In a memorandum dated February 8, 1939, Dr. Russell described a similar
position of the Foundation in regard to high dosages of Vitamin D:
“Steenbock is of the opinion that in view of the fact that Vitamin
D is no longer a distinctive Steenbock product but can be secured
from a variety of sources that the Foundation might as well favor
the commercialization of high dosages unless there is _very_ serious
objection on the part of the A.M.A. officials toward a move of this
sort.”
It is to be noted that in neither of these cases is the Foundation
concerned with public benefit or medical approval, but only with
_substantial harm_ and a _very serious medical objection_.
Another instance of the Foundation’s regard for the public interest was
the Snider Packing Company matter. In 1931 the Snider Packing Company
obtained irradiated yeast from Fleischmann to add to Snider’s tomato
juice. The results were apparently not too satisfactory. After this
1931 failure, Snider was persuaded to continue the license and the
Foundation undertook to supervise the activation of the tomato juice.
Steenbock and Scott recommended Acetol irradiated ergosterol and this
recommendation was followed.
Despite the recommendations and supervision and guarantees of the
Foundation, the Vitamin D content of the Snider tomato juice did not
come up to expectations. This inadequacy was known to Snider, Acetol,
and the Foundation, and on February 27, 1933, Russell wrote to Acetol
stating:
“It would be most unfortunate if any publicity was to occur as a result
of the reduced potency of the Snider product and it would not only ruin
the Snider business in this product, but would affect most disastrously
you as well as ourselves. If the Government were to discover this
situation and publish the result, it would do irreparable injury to the
whole Vitamin D situation in foods.”
The correspondence does not show whether any of the Snider products
reached the market under false labels, but the Foundation’s concern in
the matter is clear. The Foundation feared only publicity or discovery
by the Government.
In 1934 and 1935 some research workers, and especially Dr. Reed of
the University of Illinois, found that large doses of Vitamin D were
highly beneficial in severe cases of asthma, hayfever and arthritis.
These large doses required a highly concentrated product which was
most easily used in the form of gelatin capsules. The Foundation and
its licensees were greatly interested in this project, but feared
the effect this concentrate might have on the pricing structure of
viosterol. These fears and a suggested solution are referred to in a
report of a conference between Russell and Ross of the Foundation and
Nielsen of Abbott, held early in February 1935. This report, signed by
Nielsen, states:
“Mr. Nielsen stated that if the capsules were priced considerably
lower than the commercial product unit for unit, nothing would prevent
the hospitals from opening the capsules and diluting the content with
vegetable oil to obtain a ‘250D’ solution far below the regular cost.