The Eli Lilly & Co.

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FEDERAL TRADE COMMISSION v. THE ELI LILLY & co.

COJ\IPJ,AINT IN THE MATTlo:R OF THE ALLEGED VIOLATION OF SEC- TION IS OI<'TIIEACTOFCONGRESSAPPROVEDSEP'l'El\lBER 26,1914, AND OF THE ALLEGED VIOLATION OF SECTIONS 2 AND 3 OF THE ACT OF CONGRESS APPHOVED OC'l'OBl.:R a, 1914. Docket No. 155.-May 27, 191!).

SYLLABUS.

Where a corporation engaged In tbe manufacture and sale of drugs, phurmaceut ieals, and similar products, the quantity of whose products wunufuctured and sold constltutec.l a substantial and lnl· portnnt Item of commerce-- (a) Sold the same to selected wholeSille distributors under contracts, agreements, or urulersttu~dlngs whereby such distributors agreed to adhere to and maintain re~ale prices fixed and determined by the manufacturer;

(II) Refused to sell to dlstrllnltors who resold its pro!lucts at less than tbe prices fixed ;

(c) Dlscrlmlnnted In price against those distributors who failed to adhere to the prices fixed<!; and (d) Discriminated In pt·lce In favor of such distributors as !lid adhere to said fixed prl<'t'8 ;

Held, That a scheme of resttle price maintenance, substnntlnlly as descrlbPd, constituted nn unfulr method of cornpetltlon in violation ot section 5 o! tbe act of SPptember 26, 1914. COMPLAINT.

I. The Federal Trade Commission, having reason to believe from a preliminary investigation made by it that The Eli Lilly & Co., hereinafter refened to as the respondent, has been and is u~ing unfair methods of competition in interstate FEDERAL TRADE COMMioSION DECISIONS, 443 commerce in violation of the provisions of section 5 of the act of Congress approved September 26, 1914, entitled "An act to create a Federal Trade Commission, to define its powers and duties, and for other purposes," and it appearing that a proceeding by it in respect thereof would be to the interest of the public, issues this complaint, stating its charges in that respect, on information and belief, as follows: PARAGRAPH 1. That the respondent, The Eli Lilly & Co., is now and was at all times hereinafter mentioned a corporation organized, existing, and doing business under and by virtue of the laws of the State of !.ndiuna, having its principal factory, office, and place of business located at the city of Indianapolis, in said State, and with branch offices located at the city of New York, State of New York; St. Louis, State of Missouri; Chicago, State of Illinois; Kansas City, State of Missouri; and New Orleans, State of Louisiana, now and for more than two years last past engaged in the manufacture and srle of drugs and similar products among the several States of the United States, the Territories thereof, the District of Columbia, and in foreign countries, in direct competition with other persons, firms, copartnerships, and corporations similarly engaged.

PAn. 2. That the respondent, The Eli Lilly & Co., in the conduct of its business, manufactures such drugs so sold by it in its factory located at the city of Indianapolis, State of Indiana, and purchases and enters into contracts of purchase for the necessary component materials needed therefor in different States of the United States, the Territories thereof, and foreign countries, causing the same to be transported to its factory, where they are made into the finished product, sold and shipped to the purchasers thereof; that after such products are so manufactured they are continuously moved to, from, and among other States and Territories of the United States, the District of Columbia, and foreign countries, and there is continuously and has been at all times hf'reinafter mentioned a constant current of trade and commerce in the said products between and among the various States of the United States, the Territories thereof, the District of Columbia, and foreign countries, and especially to and through the city of Indianapolis, State of Indiana, and therefrom to 444 FEDERAL TRADE COMMISSION DECISIONS. and through other States and Territories of the United States, the District of Columbia, and foreign countries. PAn. 3. That the respondent, The Eli Lilly & Co., has adopted and maintains a system of fixing prices at which its products shall be resold by jobbers and wholesalers, with the effect of securing the trade of such jobbers and wholesalers and of enlisting their active cooperation in enlarging the sale of its price-maintained products to the prejudice of competitors who do not fix and require the maintenance of the resale prices of their products, and with the effect of eliminating competition in price among the jobbers and wholesalers in its goods and thereby depriving jobbers und wholesalers of their right to sell such goods at such prices as they may deem adequate and warranted by their selling efficiency, and with other effects; and that for the purpose of maintaining said standard resale prices and of inducing and compelling its customers to maintain and keep such standard prices, the respo•ident for more than one year last pnst has refused and is still refusing to sell its products to customers or dealers who will not agree to maintain such specified standard resale prices or who do not resell such products at the specified standard selling prices so fixed and determined by the respondent us aforesaid, r.nd has made and is still making contracts with jobbers awl wholesalers whereby respondent discriminates in price, and otherwise, in their favor in consideration of their maintaining said resale price.

PAR. 4. That respondent for more than one year last past by means of contracts nnd by other means has been and now is discriminating in price and in nllowances of cost of transportation and otherwise in favor of certn.in jobbers and wholesalers (1) on the condition that such jobbers and whole· salers will furnish and supply respondent's products on all orders not specifying any particular make, and (2) on the condition that such jobbers and wholesulers will instruct their sales force, Loth house nnd tmvcling, from time to time, to pw;h respondent's goods in preference to all other nmkes, and (3) on other conditions of similar nature; nnd that respondent's said methods of marketing its goods are de· signed and calculated to, and do, cause such jobbers and FEDERAL TRADE COl\t:MISSION DECTSIONS. 445 wholesalers to confine their purchases, either largely or exclusively, to the products of the respondent, and hinder and pre\·ent respondent's competitors from making sales of similar products to such jobbers and wholesalers. II. The Federal Trade Commission having reason to believe fmm a preliminary investigation m11de by it, that The Eli Lilly & Co., hereinafter referred to as the respondent, has violated and is violnting the provisions of sections 2 and 3 of the act of Congress, approved October 15, 1914, entitled "An act to supplement existing laws against unlawful restraints and monopolies, and for other purposes," hereinafter referred to as the Clayton Act, issues this complaint, stating its charges in that respect, on information and belief, as follows:

PARAGRAPH 1. That the respondent, The Eli Lilly & Co:, is now and was at all times hereinafter mentioned a corporation organized, existing and doing business under and by virtue of the laws of the State of Indiana, having its principal factory, office, and place of business located at the city of Indianapolis, in said State, and with branch offices located at the city of New York, State of New York; St. Louis, State of Missouri; Chicago, State of Illinois; Kansas City, State of Missouri; and New Orleans, State of Louisiana; now and for more than two years last past, engaged in the manufacture and sale of drugs and similar products among the several States of the United States, the Territories thereof, the District of Columbia, and in foreign countries, in direct competition with other persons, firms, copartnerships, and corporations similarly engaged, as more fully nll<.'ged and set forth in para.grnph 2 of Section I of this complaint. PAn. 2. That the respondent, The Eli Lilly & Co., for more than one year last past, in the course of interstate commerce, in violation of section 2 of the Clayton Act, has discriminated in price and is now discriminating in price between different purchasers of drugs, which said drugs are sold for Use, consumption, or resale within the United States and the Territories thereof, and the District of Columbia, and that the effect of such discrimination may be, and is to substantially lessen competition or tend to create a monopoly in the business of manufacturing and selling drugs. 446 FEDERAL TRADE COMMISSION DECISIONS. PAR. 3. That the respondent, The Eli Lilly & Co., for more than one year last past, in the course of interstate commerce, in violation of section 3 of the Clayton Act, has sold and made contracts for sale of large quantities of drugs for use and consumption throughout the United States, the Territories thereof, and the District of Columbia, and has fixed and is now fixing the price charged therefor or discount from, or rebate upon such price on the condition, agreement, or understanding that the purchaser thereof shall not use the goods, wares, merchandise, supplies, or other commodities of a competitor or competitors of respondent and that the effect of such sales, and contracts of sale, or such conditions and agreements, or understandings may be, and is to substantially lessen competition and to tend to create a monopoly.

REPORT, FINDINGS AS TO THE FACTS, AND ORDER.

The Federal Trade Commission having issued and served its complaint herein wherein it is alleged tha.t it had reason to believe that the above-Ill\med respondent, The Eli Lilly & Co., has been and now is using unfair methods of competition in interstate commerce in violation of the provisions of section 5 of an act of Congress approved September 26, 1914, entitled "An act to create a Federal Trade Commission, to define its powers and duties, and for other purposes," and that a proceeding by it in respect of such alleged violation would be to the interest of the public, and fully stating its charges in that respect, and the respondent having entt:lred it.c; appearance by George L. Denny and Henry H. Hornbrook, its attorneys, and having duly filed its answer udmitting certain of the allegations of said complaint and denying certain others thereof, and attorneys for both parties having signed and filed an agreed statement of facts wherein and whereby it was stipulated and agreed that said statement of facts should be taken by the Commission in lieu of testimony herein and that the Commission should forthwith proceed upon such agreed statement of facts to make and enter its report stating its findings as to the fnets~ and its conclusions and its order disposing of this FEDERAL TRADE COMMISSION DECISIONS. 44 7 1-~roceeding; the Commission having duly considered the record and being fully advised in the premises, now makes its report and findings as to the facts and conclusions. FINDINGS AS TO Tile FACTS.

PARAGRAPH 1. That the respondent, The Eli Lilly & Co., is a corporation organized and doing business under the laws of the State of Indiana, and having its principal factory, office, and place of business located in the city of Indianapolis, in said State, and with branch offices located in the city of New York, State of New York; city of St. Louis, State of Missouri; city of New Orleans, State of Louisiana, and elsewhere, and is now and has been for more than two years last past engaged in the manufacture and sale of drugs, pharmaceuticals, and similar products among the several States of the United States, the Territories thereof, and the District of Columbia, and in foreign countries in direct competition with other persons, firms, copartnerships, and corporations similarly engaged.

PAR. 2. That in the conduct of its said business respondent manufactures such drugs, pharmaceuticals and similar products as sold by it in its factory located in the city of Indianapolis, State of Indiana, and purchases and enters into contracts of purchase for the necessary component materials needed therefor in the different States of the United States, the Territories thereof, and the District of Columbia, and in foreign countries, transporting the same to said city of Indianapolis, State of Inrliana, where they are made into the finished products which are thereafter sold and shipped to the purchasers thereof throughout the country; that after such products are so manufactured they are continuously moved to, from, and among other States and Territories of the United States, and there is continually, and has been at all times hereinafter mentioned, a constant current of trade and commerce in said products among the various States of the United States, the Territories thereof, and the District of Columbia, and in foreign countries. PAR. 3. That the quantity of such products so manufactured and sold and distributed by respondent has been and 448 FEDERAL TRADE COMMISSION DECISIONS, is substantial, and forms an important item of commerce among the several States and Territories of the United States, the District of Columbia, and in foreign countries, nnd that the total gross sales therein amount to several million dollars annually.

PAR. 4. That for many years respondent has and still does, market its drugs solely through wholesale druggists throughout the country. These druggists are known as respondent's selected wholesale distributors, and such distributors are generally known to the wholesale drug trade throughout the United States.

PAR. 5. That for more than two years last past the said respondent, The Eli Lilly & Co., has adopted and maintained in the sale and distribution of its products, and still maintains, a system of fixing and determining the prices at which the products manufactured by it shall be resold by said selected wholesale distributors throughout the country, and has made a practice of entering into contracts with all such selected wholesale distributors wherein and whereby e~tch of said distributors has agreed to adhere to and maintnin such resale prices so fixed and determined by respondent, upon the resale of its products to the retail trade or to the consuming public.

PAR. 6. That respondent periodically issues a list of its wholesale distributors which is circulated among all of the wholesale druggists of the country handling its said products, and on which is conspicuously printed the following notice:

Explanatory.-lVho!resale prices on Lilly products are made onltl to the dealers mentioned in this list. Lilly goods are sold to retailers at fixed and uniform prices and through our selected list of wholesale di,qtributors 011ly. These prices are never departed from by us und are to be strictly adhered to by our distrll.motors.

We reserve the right to refuse all orders from parties who do not ndlwre to our prlee~ and terms.

We also rest•rve the rl~ht to decide for ourselves the deslrahlllty of entering or removing names flom thl11 list. Changes In prlees due to market fluctuations are promptly sent to deniers on this Jist.

PAn. 7. That the respondent makes it generally known to all of such selected wholesale druggists handling its prod- FEDERAL TRADE COMMISSIO;:{ DECISIO;:{S, 449 ucts that if they or any of them fail to adhere to said prices so specified by rspondent in the resale of .said products as aforesaid, respondent resen-es the right to refuse to fill further orders for its said products from such "·hole!'>ule druggists.

Paint 8. That as a re:>nlt of the adoption and maintennnco of this policy the gre11t majority of respondent's wholesale distributors have in the past usually adhered and still do adhere in substantially all cases to the said resale prices so specified by respondent, and that while respondent has reserved the right to refuse to sell to any of said distt·ibutors for failure to adhere to said prices, yet, as a matter of fact, respondent has only been culled upon to £>Xercise this right in a few cases during the past five years. PAn. 9. That respondent's said system of price maintenance has been in force during the past 25 years and its said list of wholesale distributors has been built up during that time, and that the result has been that the relationship between the respondent and its said distributors has been and is a close one, and said distributors have all, as a general rule, favored said price-maintenance policy and coopemted with respondent in maintaining the snme.

PAR. 10. That wholesale druggists genemlly prefer to handle and push products on which there is a constant fixed margin of profit rather than •those sold by manufacturers who do not suggest resule prices or maintain the same by any means whatsoerer.

PAn. 11. That in the conduct of said business respondent employs a large force of traveling salesmen, V~<ho call upon said selected wholesale distribntot·s of respondent's prod- Ucts as well as upon the retail trade and physicians generally. and that through said tl'!lveling snlrsmen respondent received reports as to the ffi('thods by which said wholesale distributors are handling respondent's said prouucts, inclutling price cutting. Such reports, howe\·er, are not of a formal character and not systematically required by r('spondent, but through these salesmen respondent, in a general way, keeps informed as to conditions among its wholesale distributors and the wholesale drug trade generally. 147430°--~o----29 450 FEDERAL TRADE COl\IJ\fi88ION DECISIONS. PAR. 12. That the costs of doing business of wholesale dl'uggi~ts, including the said r£>spondent's selected wholesale di-:trilJIItors show din~rgeneies owing to diffe1·ences in selling methods, awl that the gro:::s profit margins allowed in said specified resale prices are the sanw for all such distributors. PAR. 13. That th£> form of contract attached to said agreed statement of facts marked " Exhibit A" is the one usually signed by said wholesale distributors of respondent's products, and that Exhiuit B annexed to said agreed statement of facts, is a copy of r£>spondent's list of wholesale distributors, revised to February 1, 1917, and contains the names of 248 wholesale druggists throughout the United States handling the respondent's said products under the terms and conditions above set forth.

CONCLUSIONS.

That the methods of competition set forth in the foregoing findings are, and each of them, is under the circumstances therein set forth, unfair methods of competition in interstate commerce in violation of the provisions of an act of Congress, approved September 26, 1914, entitled, "An act to create a Federal Trade Commission, to define its powers and duties, nnd for other purposes."

ORDJ-:R TO CEASE AND DESIST.

The Federal Trade Commission having issued and served its complaint herein wherein it is allrged that it had reason to believe that the above-named respondent, The Eli Lilly & Co., has been and now is using unfair methods of competition in interstate commerce in violation of the prorisions of section 5 of an act of Congress, approved September 26, 1914, entitled "An act to create a Federal Trade Commission, to define its powers and duties, and for other purposes," and that a proceeding by it in respect of such alleged violation would be to the interest of the public, and fully stating its charges, and the respondent having duly entered its appearance by George L. Denny and Henry H. Hornbrook, its attorneys, and having duly filed its answer admitting certain of the allegations of said complaint and d<'nying certain others thereof, and said attorneys having signed and filed FEDERAL TRADE COMMISSION DECISIONS. 451 an agreed statement of facts wherein and whereby it was duly stipulated and agreed that said statement of facts should be taken b.y the Commission in lieu of testimony herein, and that the Commission might forthwith proceed upon such agreed statement of facts to enter its report and its findings as to the facts, its conclusions, and its order dispo~:>ing of this proceeding, ancl the Commi~:>Sion of the date hereof having made and filed its report containing its findings as to the facts and its conclusions that respondent has violated seetion 5 of an aet of Congi'Pss, Approved September 26, 1!)14, entitl(•d "An act to create a Frdernl Trade Commission, to define its powers and duties, and for other purposes," and which said report is hereby referred to nnd made part hereof: Now, therefore, It i.s ordered: That respondent, The Eli Lilly & Co., and its officers, directors, agents, sernmts, and employees, cease and desist from directly Rnd indirectly recommending, r<.'quiring, or by any m<'ans whatsoever bringing about the reate by its wholesale distributors of the drugs and phanuaceuticals and similar products manufnctmed by it according to nny system of prices fixl:'<l or established by respondent, and more particularly by uny or all of the following m<'ans:

(1) Entering into contracts, agreements, or understandings with such distributors to the effect that such distributors in reselling such products will adhere to any system of resale prices fixed or established by respondent; (2) SN·uring from such distributors contracts, agreements, or understandings that they will adhere to any such system of reMle prices;

( 3) He fusing to sell to any such distributors because of their failure to adhere to uny such system of resale prices; (4) Discriminating in prices against such distributors because of their failure to adhere to any such system of resale prices;

(5) Discrimin~tting in prices in favor of such distributors hecauro:e of their adherence to any such system of resale prices;

( 6) Carrying out or causing others to carry out a price maintt•nance policy by any other means: 452 FEDERAL TRADE COMMISSION DECISIONS. Provided, That nothing herein contained shall prohibit .respondent from issuing price lists or printed prices in its advertising matter, or upon containers, of its said products, so long as respondent shall refrain from directly or indirectly recommending, reqturmg, or by any means whatsoever, bringing about the resale of such products at such resale pnces.