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FEDERAL PRESCRIPTION SERV. v. AMERICAN PHARM. ASSN

February 14, 1980

Federal Prescription Service, Inc., et al.
v.
American Pharmaceutical Association.



The opinion of the court was delivered by: GESELL

FINDINGS OF FACT AND CONCLUSIONS OF LAW

 I. Trade and Commerce in Prescription Drugs

 Prescription drugs are those drugs which according to federal or state law may be dispensed to the buyer only upon presentation of a valid prescription. Prescription drugs are commodities sold in the course of interstate commerce. These drugs have an annual sales volume of approximately 10 billion dollars. Valid prescriptions are issued primarily by medical doctors and also by veterinarians and dentists. In normal course, prescriptions are filled by licensed pharmacists. There are approximately 125,000 such pharmacists in the United States.

 Pharmacists usually operate or are employed by stores serving local communities. These stores compete among themselves in a given area. Some such stores specialize in drug sales, others include pharmacies as part of a more diversified retail service that includes non-drug items. Competition is also provided by labor or other organizations providing drug services for their members, hospital outpatient services, and mail order pharmacies such as Federal. Local pharmacies are principally independents and chain stores. The independents comprise about 60 percent of the total. The balance are mostly chain stores and some hospital pharmacies.

 II. Federal and the Mail Order Business

 Federal is primarily a mail order pharmacy that does business throughout the United States operating from its plant and offices in Madrid, Iowa. It is incorporated under the laws of Iowa and commenced its mail order pharmacy business in approximately August, 1963.

 The mail order pharmacy is a relatively recent method developed for prescription drug distribution. Although licensed to operate as a pharmacy only by the state or states in which it is located, a mail order pharmacy solicits persons to send it prescriptions by mail from anywhere in the United States and returns the drugs by mail to the buyers. This form of drug distribution became of competitive consequence to the established independents in the late 1950's and early 1960's. The number of mail order pharmacies was never large. Many had a brief existence and few survived for any appreciable period. As far as the record shows there were no new entrants in the 1970's.

 Because mail order pharmacies are subject to the delays inherent in the use of the mails, they primarily serve older people who often require long-term medication by what are known as maintenance drugs. Most prescription drugs, including maintenance drugs, are compounded in advance by the manufacturer and accordingly a large number of mail ordered prescriptions can be filled each day by a single pharmacist.

 In order to maintain a sufficient volume of prescriptions a mail order pharmacy necessarily seeks to reach customers by advertising and offers discounted prices at least on some items. The fact that mail order pharmacies rely of necessity on advertising and discounting was well known at all relevant times to APhA and pharmacists generally. A wide variety of choices exists for placing such advertising in national publications, local newspapers and in-house organs of specialized membership organizations, notably organizations willing to sponsor the mail order seller. Customers requiring maintenance drugs are particularly attracted by lower prices.

 APhA, the sole defendant in this action, *fn1" is the national professional society of pharmacists in the United States. It is a non-profit corporation incorporated and operating under the laws of the District of Columbia. The Association was founded in 1852 and its membership is now approximately 60,000 members from all states and territories, consisting primarily of practicing pharmacists, and including pharmaceutical scientists, pharmacy educators and government-employed pharmacists. Associate membership in APhA is open to any individual not eligible for active membership. Student membership in APhA is open to any undergraduate student enrolled in an accredited school or college of pharmacy. Approximately 15,000 individuals hold student membership in APhA. Approximately one-third of all practicing pharmacists in the United States are APhA members.

 APhA encouraged and supported local associations in every state. In seventeen states affiliation agreements with the local associations promoted joint membership in both the local and national association and tended to establish APhA's policies as the standards followed at the local level.

 From as early as 1960, APhA's Constitution has outlined in broad general terms its undertaking to promote the interests of pharmacists in the areas of health, education, interprofessional relations, regulations, etc., including the development and maintenance of a Code of Ethics.

 APhA policies are established by its House of Delegates. Delegates are appointed by recognized or affiliated state pharmaceutical associations and national associations, and by other divisions of APhA. APhA Trustees, Past-Presidents and Judicial Board members also are delegates. In the interim between House of Delegates meetings, the Board of Trustees is authorized to act for the House of Delegates.

 Policy recommendations considered by the House of Delegates are formally initiated by Policy Committees on Public, Organizational and Professional Affairs, consisting of eleven members each. Each Policy Committee's recommendations are subjected to a public hearing before a reference committee, which then submits its own recommendation to the House of Delegates as to whether each policy recommendation should be adopted, rejected or referred back to the Policy Committee by the House of Delegates.

 As will be developed in more detail, APhA established a policy of consistent and vigorous opposition to mail order pharmacies. During the relevant period, APhA broadly publicized its concerns regarding mail order pharmacies in speeches by its officers and staff, in its official statements and responses to inquiries, and in its publications.

 APhA's publications are used as a means of constantly communicating with APhA's members regarding its policies and activities. Both the Journal and newsletter are provided to all APhA members. The Journal is distributed also to state pharmaceutical associations.

 IV. The Alleged Violations of Antitrust Laws

 Federal's claims have been clarified and refined in the normal course of pretrial and trial. Several violations of the antitrust laws are urged in support of Federal's claims for substantial damages. Generally the antitrust violations alleged fall under two broad headings. It is contended that APhA alone and in conjunction with certain co-conspirators

 (1) conducted a far-reaching campaign in the nature of a boycott directed to the public, its pharmacist members and health groups generally, specifically designed to discredit mail order pharmacies, including Federal, for the purpose and with the effect of preventing mail order competition with established pharmacy outlets;

 These claims must be further identified and particularized in the light of the proof to determine their legal significance under the antitrust laws and the nature of their effect on the business of Federal.

 V. APhA's Campaign to Discredit and Restrain Mail Order Pharmacies

 From as early as 1960, APhA as a matter of its established policy opposed the distribution of prescription drugs by mail. It coordinated its efforts in this regard with other groups, including its own local associations in every state. Although this opposition was usually couched in terms of a concern that mail order pharmacies undermined the pharmacist-patient-physician relationship and thus threatened patient safety or public health, in fact APhA throughout was motivated primarily by its concerns for the economic well-being of its members. The validity of the health concerns, repeatedly expressed, was never satisfactorily supported at trial. Moreover, these concerns in no way justified the generalized indiscriminate attack on all mail order pharmacies which occurred. See National Society of Professional Engineers v. United States, 435 U.S. 679, 695-96, 98 S. Ct. 1355, 1367-68, 55 L. Ed. 2d 637 (1978).

 APhA, the National Association of Boards of Pharmacy ("NABP"), and the National Conference of State Pharmaceutical Association Executives ("NCSPAE") held a conference in Washington, D.C., on January 6, 1960, for the purpose of discussing mail order dispensing of prescription drugs. The conference was attended by secretaries of numerous state boards of pharmacy and state pharmaceutical associations as well as representatives of APhA. It was decided to oppose mail order pharmacies. Various recommendations for approaching the mail order prescription situation were made, ranging from the seeking of state and federal laws through legislation or administrative rulings to incorporating a specific statement in the APhA Code of Ethics relating to mail order pharmacy.

 The results of this conference were widely publicized and the cooperation of other affected groups such as the National Association of Retail Druggists ("NARD"), and American College of Apothecaries ("ACA") was encouraged.

 A report of the 1960 conference was published in the APhA Journal in February of that year, and copies of the report were later distributed by NABP to secretaries of its member boards of pharmacy.

 In April, 1960, APhA reported in its Journal that certain state regulatory agencies, state associations, and other organizations had taken action regarding mail order pharmacies.

 APhA adopted a policy condemning the commercial promotion of prescription drugs to the public. This policy and the already established opposition to mail order selling generally were amplified and tightened as time went on.

 In May, 1965, a formal resolution read:

 
Resolved: That the Association unequivocally oppose the circumvention of state pharmacy laws, the destruction of the physician-patient-pharmacist relationship and the obvious opportunity for diversion of drugs to illegitimate uses presented by all prescription mail order schemes; and
 
Be it further resolved: That the Association provide guidance to the several state societies to assist them in protecting the welfare of the public from such mail order operations; and
 
Be it further resolved: That the Association again encourage the Congress to review the problems associated with the improper distribution and use of drugs obtained by mail order.

 In November, 1968, the Judicial Board held that under the 1960 version of the APhA Code of Ethics eleven forms of discount and price advertising of prescription drugs which had been submitted to it were unethical. None was found acceptable.

 In 1969, the Code of Ethics was further particularized to make clear that no member pharmacist could participate in any plan for pharmaceutical service which eliminates the pharmacist-patient-prescriber relationship. This was specifically directed against mail order concerns. This action included a new section that banned any solicitation of pharmacy practice by advertising, reading as follows:

 
A pharmacist should not solicit professional practice by means of advertising or by methods inconsistent with his opportunity to advance his professional reputation ...

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