Part 8

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.

“Dean Russell asked for suggestions to prevent this. Mr. Nielsen stated 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: