that Abbott Laboratories would give further thought to this problem.
Tentatively, he suggested that the concentrate might be denatured by
the addition of a drug also indicated in these cases--Ephedrine, for
example--that the product be considered as a drug, not a vitamin, and
that it be distributed for clinical trial under a special name--all
provided that the licensees agree. _Any untoward effects from it thus
would not reflect on the Viosterol products on the market._”
Despite its lofty objectives, the licensing program of the Foundation
appears to have resulted actually in a substantial reduction of
research and development. Its attitude toward research is indicated in
a letter from Russell to the licensees dated August 24, 1936:
“We are hardly interested in the prosecution of problems of a purely
scientific character that come to us from outside institutions.
Nevertheless, if this is a problem that has definite commercial
possibilities, we should not make a hasty adverse decision.”
In a letter dated January 6, 1937, addressed to Elley of duPont,
Waddell of duPont referred to a meeting in Madison with members of the
Foundation and stated:
“He [Steenbock] mentioned that most of the pharmaceutical licensees
had not been interested in obtaining rights to the manufacture of
crystalline Vitamin D (from ergosterol) and that the present situation
might find them in the same attitude. He admitted, however, that if
the patent situation and licensing arrangements worked out so that the
five pharmaceutical companies were again in a position of having an
exclusive hold on the synthetic Vitamin D field that undoubtedly they
would be very much interested.”
Thus, in spite of the acknowledged physiological superiority of Vitamin
D₃, the Foundation was reluctant to do any research whatever unless the
willingness and cooperation of the licensees showed a definite promise
of substantial profits.
The effect of the licensing policy on the research activities of
licensees is explained in a letter from Kupperian of Acetol to Waddell,
research director of Acetol. This letter states:
“According to my reading of the contract with Wisconsin Alumni
Research Foundation, we are not at liberty to use yeast in connection
with irradiated ergosterol, this field being reserved exclusively to
Fleischmann. In view of this fact, I think we ought not to waste time
and money on experiments in connection with yeast.”
In at least one case where the Foundation sponsored and financed
research, the publication of the results of the research were
suppressed by the Foundation because they were at variance with the
Foundation’s commercial interests. In an attempt to eliminate the
non-infringing product of General Mills from competition with the
Viosterol of the pharmaceutical licensees, the Foundation attempted
to prove that Viosterol was clinically superior to the General Mills
product. To accomplish this, the Foundation made a grant to Drs. Smith
and Owens of Freedmen’s Hospital in Washington, D. C., to run certain
tests comparing the effectiveness of the General Mills product and
Viosterol, and to prepare an article for the medical journals on the
results. On June 17, 1936, Drs. Smith and Owens submitted to the
Foundation their article, which contains the following conclusion:
“A comparative study of nine cases of varying degrees of rickets
receiving 800 U.S.P. units of Squibb’s Viosterol daily with eleven
comparable cases receiving 800 U.S.P. units of American Pharmaceutical
Company Viosterol [General Mills’ product] shows no significant
difference in rate or degree of healing as determined (1) by X-ray of
the wrists and (3) Ca and P determination on the blood.”
The attitude of the Foundation and its licensees to this article is
described in a letter from Lescohier of Parke-Davis to Anderson of
Squibb, dated July 6, 1936:
“If this article is published the Steenbock group are certainly in the
position of being hung with their own rope. I should like to see the
publication suppressed but am pretty certain that Meade Johnson will
see that it is published since they are no longer vitally interested
in Viosterol. Certainly anything that can be done to delay publication
would be advisable.”
In a letter dated August 17, 1936, Scott of the Foundation expressed
the Foundation’s attitude on this article as follows:
“From the outset, of course, we have been opposed to publication of
this paper in any form. We have advised Dr. Smith that it was necessary
to get the opinions of the pharmaceutical committee, and we intend to
confer with them in the near future advising them that publication of
the work is not desirable.”
The Foundation has also suppressed the use of competing patents.
Article II of the Supplemental Agreement of June 3, 1937, between
the Foundation and Meade Johnson, Squibb, Parke-Davis, and Abbott
provides for the licensing of additional pharmaceutical manufacturers
who had been using Sperti Patent No. 1,676,579 on the irradiation of
pharmaceutical products. This section provides:
“It is understood and agreed that such additional Licensees shall be
prohibited, by appropriate restrictions in any license agreements that
may be entered into between the Licensor and such additional Licensees,
from employing the process described and claimed in United States
Letters Patent No. 1,676,579 to George Sperti and from advertising the
use of said process in connection with products sold under said license
agreements....”
Thus, the results of the Foundation’s licensing program have been to
stifle its own research activities and the research activities of
its licensees, to prevent the publication of information which might
jeopardize the Foundation’s financial interests, and to suppress
competing patents. Certainly, these are peculiar results of a program
instituted “to protect the public” and “to prevent unscrupulous
commercialism.”
One of the most important fields in the Foundation’s scheme of
exploitation is the pharmaceutical field. All Vitamin D products used
in the treatment or prevention of human ills are embraced within the
pharmaceutical field, and restrictions in this field thus have a direct
and immediate effect on the health and well-being of the general
public. Also, at the time the Foundation embarked on its licensing
program, the pharmaceutical field probably was one of the most
promising, both from a publicity and a profit standpoint.
In or about March 1929, the Foundation made agreements with five
licensees, all manufacturers of pharmaceuticals: Meade Johnson & Co.,
Winthrop Chemical Company, Abbott Laboratories, Parke-Davis & Company,
and E. R. Squibb & Sons. These agreements have been amended several
times by letter agreements and supplemental agreements. Two letters,
dated March 20, 1939 and April 27, 1939, offer the licensees certain
royalty reductions, and it is assumed that these reductions were
accepted. These letters do not, however, make any substantial changes
in the restrictive provisions of the agreement.
This combination in restraint of trade between the Foundation and its
licensees is expressed in various ways throughout the pharmaceutical
licenses. For example, Article XII of the agreement of March 21,
1929, fixed minimum prices for the sale of irradiated pharmaceutical
products. This article contains the following language: “Such prices so
established shall remain in effect indefinitely but may be changed by
the Licensor not less than ninety (90) days after consultation with all
of the Licensees of this group.”
Article XIII of the agreement of March 21, 1939, states that the
potencies of the pharmaceutical products shall remain fixed “until
and unless changed by the mutual understanding of a majority of the
licensees of this group.” Article XVII prevents the assignment of the
licenses “without the written consent of the Licensor, the Patentee
and the Licensees under similar licenses.” Each of the agreements with
Abbott, Meade Johnson, Squibb and Parke-Davis, executed June 3, 1937,
also contains long recitals regarding the provisions to be introduced
into a new contract with Winthrop Chemical Co., Inc.
Price stabilization was one of the main considerations offered by the
Foundation to its licensees in exchange for the royalties. It might
almost be said that this price stabilization was the bait which made
the licensing scheme of the Foundation so attractive to the various
manufacturers. Clough of Abbott wrote to Russell of the Foundation
on April 21, 1936, and referred to the importance of price-fixing
activities of the Foundation as follows: “It was argued by your
Trustees that under our arrangement with the Foundation, we were given
certain benefits of price stabilization which was well worth the
additional 5%.”
That price-fixing was one of the most important points in the
pharmaceutical licensing plan and is described in a memorandum of a
conference between Anderson and Lewis of Squibb and Ross and Barney of
the Foundation on February 23, 1939:
“We outlined the high potency D situation both with respect to Merrell
and Winthrop. Their reaction was first that Squibb would have no
objection to Merrell’s continuing to sell its concentrated viosterol if
we could line up Merrell on its regular viosterol from the standpoint
of container size and price. We indicated that this latter could be
accomplished.”
Further, the papers indicate that this price-fixing was carried over
into the field of resale prices. This is brought out in a letter from
R. D. Keim of Squibb to Dean Russell of the Foundation dated July 23,
1934:
“We gave this matter our very serious consideration and wrote to all
the licensees, under date of July 19, 1934, as per copy enclosed and we
firmly believe that our suggested _Full Retail Prices per package to
the consumer and Minimum Retail Prices per package to the consumer_ for
Viosterol in Oil and Cod Liver Oil with Viosterol are more in line with
present market trends and the present economic market conditions than
those proposed by Parke-Davis & Company.
“We are desirous of acting in harmony with all the other licensees of
the Wisconsin Alumni Research Foundation in regard to the stabilization
of the market for Viosterol in Oil and Cod Liver Oil with Viosterol.
However, we firmly believe that it is necessary to establish a schedule
of Minimum Retail Prices to the consumer such as we have suggested in
order to bring about such stabilization.”
Prices were not only fixed; they were fixed arbitrarily at levels which
can only be regarded as extortionate in view of the economic status
of the people whose need for Vitamin D was the greatest. (Barney, the
business manager of the Foundation, once stated on examination in
a lawsuit: “It is my understanding that rickets is found to a great
extent in the so-called poorer class of people.”) Despite this full
awareness of the incidence of their high price policy, the Foundation
and its licensees remorselessly maintained prices on the Viosterol
products so high that their use was practically restricted to those who
had least need for them. This is recognized in a letter dated March
30, 1934, from Russell to the pharmaceutical licensees: “Very severe
criticism from certain prominent pediatricians has been lodged against
the Foundation on account of the alleged high retail prices of certain
Vitamin D preparations.”
The price-fixing activities of the Foundation also extended to sales to
Federal, State and local governments and government agencies. On May
10, 1940, W. S. Merrell Company wrote to the Foundation:
“We have an inquiry from the Government for a substantial quantity
of Irradiated Ergosterol and are wondering if we shall have to abide
by the price schedule in our license agreement in quoting. In other
words, would our quotation have to be the same as our minimum price to
wholesalers, or could we figure on a reasonable profit basis taking our
cost on such a large quantity for one shipment into consideration?”
The letter also contained a postscript: “We know that the price would
have to be much lower than our price to the wholesalers to secure the
order.” In spite of the fact that Merrell was merely asking to quote on
a “reasonable profit basis” and assured the Foundation that the price
would have to be “much lower ... to secure the order,” the business
manager of Foundation replied on May 13, 1940:
“Under the present license agreement with your company and the other
pharmaceutical licensees of the Foundation under the Steenbock
patents, the minimum price to be quoted to government institutions is
the minimum wholesale price as outlined in your contract, less two per
cent discount for cash if paid by the tenth of the following month.
“All of the other pharmaceutical licenses of the Foundation have
operated under this arrangement for some time. We note, however, your
postscript which indicates that the quotation to the government will
have to be lower than the price to wholesalers in order to secure the
order. We dislike to see your company or any of our other licensees
lose business.”
The pharmaceutical agreements fix both the potency and the quantities
in which Vitamin D concentrates may be sold by the pharmaceutical
licensees. The purpose and effect of these additional controls were
stated by an official of the Foundation. “We feel that it is perfectly
proper to control the price of Viosterol and cod liver oil from a legal
standpoint and, unless we control the potency of the product and size
of the container, price control of the product, of course, would be
rather useless.”
The pharmaceutical agreements specified that potencies could be changed
only by “mutual agreement of Licensees of this group,” while container
sizes could be changed by “mutual understanding of a majority of
the Licensees of this group.” Operations were in exact accord with
these provisions, and only unanimous approval by the licensees could
authorize potency changes. Notes of a phone conversation of March 30,
1932, between Nielsen of Meade Johnson and Russell of the Foundation
state: “Russell said under no condition could such approval be given.
That Meade Johnson had no warrant in changing the potency without the
knowledge and approval and consent, not only of the Foundation but also
of the other four licensees.”
Prior to December 24, 1936, the Foundation and its pharmaceutical
licensees maintained a very effective black list and white list of
dealers. While the approval of dealers was ostensibly within the
exclusive control of the Foundation, actually it was again a matter
for vote by the licensees. L. D. Barney, business manager of the
Foundation, described the program to Dr. Russell, director of the
Foundation, in a memorandum dated November 6, 1935:
“As you know, the usual procedure in handling requests of wholesale
drug concerns with respect to their addition to the approved wholesale
list for the sale of Viosterol products is for the Foundation to send
the name and address of this company to the five licensees. They,
in turn, investigate the company and report back to whether or not
they favor the addition of the said company to the list. The general
procedure set up several years ago was that a majority of the licensees
(three) would constitute sufficient authority on the part of the
Foundation to add the name of the company to the approved list.
“By reason of the manner in which these are handled, it is impossible
for us to tell the licensee when we refuse their request anything other
than the fact that the Committee, which handles the request, did not
approve their application, or, stated in another way, the Committee
voted in the negative. Obviously, we cannot say that our licensees did
not favor the addition of this company to the group.”
W. N. Larson of Meade Johnson recognized that this black list and white
list might be illegal, and referred to it in a letter dated December
22, 1936, to Ward Ross, Counsel for the Foundation. He sent copies to
each of the other pharmaceutical licensees. Larson’s letter states:
“We would have no objection to the Foundation acting as a clearing
house for information relative to those to whom wholesale terms on
Viosterol and Cod Liver Oil with Viosterol are extended, except we
wonder if such action might not be construed as a violation of law.
Anyone investigating this activity might well inquire as to why this
was done, if some action which could be construed as collusion or
restraint of trade were not contemplated.”
One of the principal functions of the black listing and white listing
of wholesalers and retailers was the maintenance of resale prices.
This is explained in a letter dated June 29, 1931, from W. N. Larson
of Meade Johnson to N. A. Buttle of Winthrop, with copies to the other
licensees and to the Foundation. This letter states:
“To our knowledge there have been very few departures from the
suggested minimum price, and these departures have been confined to a
very few relatively unimportant wholesale druggists whose objectives
unlike ours, are not to stabilize conditions in the drug trade. It is
the legal right of any manufacturer to refuse to sell to a wholesaler
or any other customer in fact, who will not carry out his wishes.
I hope that it will not be necessary, but it is entirely possible
that it may become desirable for the Foundation to make the list of
preferred jobbers a trifle more exclusive than it is at the present
time. We would work with the Foundation in any reasonable steps in that
direction. Better proof of our desire to have this matter straightened
out could hardly be given, we believe.”
At least as early as 1933, the Foundation and the pharmaceutical
licensees realized that this black list was illegal. On May 11, 1933,
Larson of Meade Johnson wrote to Gunn, attorney for the Foundation,
regarding this black list:
“Licensees cannot make agreements among themselves in these matters
and must, of course, take the position that they are acting under
instructions from the Wisconsin Alumni Research Foundation. The
revelation that that is not the case might prove to be very
embarrassing, as you probably realize. My suggestion is that, in
cases of this kind, you simply inform the inquiring party that your
action was guided by a committee, operating under the Wisconsin Alumni
Research Foundation, and that this committee does not reveal its
reasons for taking any action of this kind.”
Probably in part on account of this growing disquietude concerning the
lawfulness of their undercover boycott, in part also, perhaps, because
of the vast amount of detail work involved in maintaining the list,
the Foundation ceased rendering this service for its licensees some
time late in 1936. On December 24, 1936, the business manager of the
Foundation referred a prospective wholesaler to the pharmaceutical
licensees for direct action.
The pharmaceutical agreements were thus far more than mere restrictive
patent licenses. Prices, potencies, dosages and container sizes were
fixed by the licensees jointly and black lists of price-cutting dealers
were established and maintained. The Foundation offered little more
than a facade of respectability to conceal these activities, and it
was for this concealment that the licensees were willing to pay so
handsomely.
The remaining agreements of the Foundation prohibit the other
licensees from invading the pharmaceutical field. Several of the
agreements prohibit, in express terms, sales of activated products
for pharmaceutical uses, others so limit the potency of the licensed
product as to make it worthless for medicinal purposes, while still
others merely limit the right of the licensee to claim curative
properties for his product in his advertising.
All the agreements of the Foundation clearly show the intention to
protect the exclusive market of the pharmaceutical licensees in the
human medicine field. Actually this practice is carried to a ridiculous
extent. The following statement appears in a memo note of November
14, 1935, written by Ward Ross, General Counsel for the Foundation,
regarding a conference with Dr. Hooper of Winthrop:
“With regard to the comparison between Viosterol and Drisdol, I asked
Hooper how he would like it if our milk licensees said that one quart
of irradiated milk was equal to 10 drops of Viosterol. Hooper claimed
that this would be an invasion of the pharmaceutical field by our milk
licensees and that they would be selling milk as medicine.”
Apparently, the licensees are prevented from telling the truthful
merits of their products if the truth would cause an overlapping of the
artificial division of fields.
Another industry capable of using large quantities of Vitamin D was the
bread industry. Under an agreement dated November 15, 1939, this field
is allocated exclusively to duPont. DuPont’s chief concern in the bread
field was price “stabilization” which to duPont meant the maintenance
of high price levels. DuPont was even willing to share the field with
Standard Brands to accomplish this end. A memorandum, dated September
19, 1935, from Mr. Kenneth T. King of duPont to Mr. Ralph Horton and
Mr. W. S. Kies, a Trustee of the Foundation, states: “We would be
willing for the Foundation to grant non-exclusive license for the sale
of Vitamin D from Ergosterol in the bread field to the Fleischmann
Company, providing the price of Vitamin D in the bread field shall be
stabilized.” The agreement between duPont and the Foundation expressly
stipulates the limits of licensees’ discretion in price policy. Article
2 (C) provides: “DuPont shall not sell said irradiated or activated
Ergosterol or its derivatives at a higher price than one dollar and a
half ($1.50) or a lower price than ninety-five cents ($.95) per million
U.S.P.A. (revised 1934) Vitamin D Units.”
The Foundation’s support of duPont’s policy of high prices is
indicated in a letter dated July 18, 1935, from Barney to Atkins of
duPont which states: “Dr. Waddell stated that it was his opinion
that if General Baking came back into the picture a higher price for
ergosterol should be charged. We discussed the possibility of a price
of $1.25 to $1.50 per million Steenbock units.”
So long as the Foundation could be “merciless in beating out
competition” price-fixing at these levels was quite attractive. But by
1940 the weakness of the Steenbock patents was so apparent that the
fixed prices became a competitive hazard. On March 5, 1940, King of
duPont wrote to the business manager of the Foundation:
“In reply to your letter of February 24th we are very much interested
in modifying our contract with respect to the maximum and minimum
provisions in the baking field. In fact, we believe the simplest way
to handle this question is to delete from our present contract the
clause specifying maximum and minimum provisions. This, of course,
was explained to you over the telephone in our recent conversation
concerning General Baking. I believe unless some change is made in the
maximum and minimum provisions all business in this field will be lost
by the licensees of the Foundation.”
The Foundation recognized the need for abandoning these artificially
high price levels and on March 14, 1940, Barney of the Foundation
wrote to King of duPont referring to “a quotation from General Mills
at a price of 60¢ per million” and stated: “This will acknowledge
receipt of your letter of March 5th regarding the maximum and minimum
price provisions with respect to the baking field. Shortly, Ward
[Ross of the Foundation] will send Art [Connolly of duPont] either a
letter agreement or supplemental contract deleting this provision from
the contract.” On July 19, 1940, Connolly wrote Ross again asking
elimination of the price-fixing provision and finally on July 30,
1940, Ross of the Foundation wrote to duPont deleting the price-fixing
paragraph from Article 2 (C) of the agreement.