Part 7

“It is up to Ciba to take care in accordance with the several single agreements in the United States for a correct and clear basis of the agreements relating to the male hormone field because corresponding proceedings are intended in the paranephros [cortin] hormone field in which Roche-Organon shall obtain the basic patent claims. In accordance with the opinion expressed here since Ciba gives its consent already in the letter of March 9, 1939 to transfer the basic application in which the patent claims for paranephros are established (Case 1577/1-4) to Roche-Organon, that however, is dependent upon corresponding proceedings of the Organon in the male hormone field.”

The reasons for this “swapping” were very clearly indicated in the last mentioned document:

“As it is known in the United States the antitrust legislation is of extremely great significance. The different agreements which are in the state of preparation in the United States are intended to put all contractors into position to sell hormone compounds in the United States without any violation of those statutes.... So far as ... cross promises to maintain prices exist, this promise is only lawful if the licensee, in this case Ciba, possesses the protection of a patent claim....

* * * * *

“According to the information of Dr. Joseph Engi almost daily new 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.”