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.”

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:

“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.

DuPont’s aim in all of its Vitamin D operations was to obtain high, non-competitive prices for its products. This thought is expressed time and time again. A memorandum dated July 26, 1932, from Bradshaw to Atkins, both of Acetol, states: “This morning I reported to Mr. Protto and Mr. Robinson regarding conversation with Dean Russell and also the known facts concerning Lever Bros. business. It was Mr. Protto’s feeling that we should raise our prices as much as possible and not sell the material cheap.” The next day Atkins replied:

“It seems obvious to me that we should always try to get the maximum price for any of our goods, keeping in mind the possible potential volume and competitive conditions.

“According to authentic price information which we have secured, Fleischmann have been selling and offering Vitamin D at slightly less than $1.00 per 1,000,000 Steenbock Rat Units. This is what influenced my suggested price of $1.00 to Lever Brothers and I was very much surprised when you informed me that Fleischmann was not in a position to furnish irradiated ergosterol. If this were true, I apparently had gone too low on our initial price in view of the fact that we were the exclusive source of supply.”

The profit levels resulting from the Foundation’s activities were enormous. In a letter dated March 9, 1938, addressed to Ward Ross of the Foundation, King of duPont stated: “With respect to the Chesney matter, all I know is that 35¢ per million units was quoted to General Baking Company.”

Vitamin D is of the greatest importance to expectant and nursing mothers, infants, and children and, consequently, milk is one of the most natural and most important vehicles for this vitamin. The Council on Foods of the American Medical Association stated in the Journal of the American Medical Association for January 16, 1937, “Of all the common foods available, milk is most suitable as a carrier of added Vitamin D. Vitamin D is concerned with the utilization of calcium and phosphorous of which milk is an excellent source.” Next to the pharmaceutical industry, milk was probably the most promising outlet for Vitamin D from a profit standpoint. The Foundation therefore became active in promoting the use of Vitamin D in the milk industry.

On November 1, 1938, the Foundation granted licenses to five producers of evaporated milk, The Borden Company, Carnation Company, Indiana Condensed Milk Company, Nestle’s Milk Products, Inc., and Pet Milk Company, to activate evaporated milk. The agreements allocate the evaporated milk field exclusively to these five producers. Like the Foundation’s other agreements, these evaporated milk agreements provide for the maintenance of the division of fields. Article XX, in protecting the evaporated milk field, states: “The Licensor agrees that in all licenses for the activation of fluid milk by the use of irradiated ergosterol or by direct application of ultra violet rays, it will incorporate a provision preventing the use or sale of such activated milk by such licensees for the manufacture of activated unsweetened evaporated milk.”

The rights of the evaporated milk producers were similarly restricted to prevent encroachment on other exclusive fields. Article XII specifically protects the pharmaceutical field by providing that “said evaporated milk shall not be intended or sold as a cure for rickets.” The other fields of use of Vitamin D are protected from invasion by activated evaporated milk by Article IX which provides: “The Licensee agrees that it will not knowingly directly or indirectly sell its unsweetened evaporated milk activated under this license to others ... as a source of Vitamin D for any other product when such product is intended to be sold or resold on a commercial basis.”

There are several methods by which fluid milk may be activated and the Foundation has issued licenses for each of these methods. In one method, irradiated yeast is fed to cows to increase the Vitamin D content of the milk; in the second method, the milk is irradiated directly; and in the third method, an activated concentrate is introduced into the milk.

The Bill of Particulars in the Vitamin Technologists suit lists 138 dairies licensed to activate milk by feeding irradiated yeast to cows. In its agreement with West Haven Creamery, Inc., which is typical of all of the licensees of this class, the Foundation licensed and empowered the licensee to purchase from Standard Brands, Incorporated, dried yeast “antirachitically activated” upon the following terms and conditions:

“First: The Licensee shall buy and use such yeast for no other purpose than that of feeding cows to impart antirachitic qualities to milk.

“Fourth: The Licensee shall not sell any of its antirachitically activated milk to others for use or incorporation in any other marketed product when Vitamin D or antirachitic claims are made or intended to be made for such other marketed product.

“Fifth: The activated yeast purchased by Licensee pursuant to this License shall not be resold or otherwise used except for feeding the same to the Licensee’s animals, pursuant to the conditions of this license.”

The Steenbock patents do not even purport to cover anything more than a process of irradiating or an irradiated product. Under no circumstances could the milk from an irradiated-yeast-fed cow be an infringement of the Steenbock patents. Article Fourth is a bare-faced attempt to carry out the artificial division of fields. Milk from an irradiated-yeast-fed cow could, for example, be used in the commercial making of bread, but such use would be an invasion of the exclusive bread and breadstuffs field. It was, therefore, necessary for the Foundation to insert this limitation in the West Haven Creamery’s license even though the limitation was entirely outside the Steenbock patents.

The prohibition of resale in Article Fifth likewise lacks any taint of legal justification. A patentee’s right under a patent is completely exhausted by the first sale of the patented product. Here again the Foundation is seeking to prevent any use of the irradiated yeast which may in any way conflict with the division of fields.

As the demand for activated milk increased, the addition of concentrates was accepted by the medical profession. This business was so attractive that the Foundation decided to engage in the sale of these concentrates for addition to milk. The Foundation did not, however, wish to enter a market in which any competition existed and since Standard Brands had rights in this field, it was essential that the Standard Brands competition be eliminated. In the agreement of February 1, 1939, the Foundation agreed to pay Standard Brands 40% of the profits derived by the Foundation from the sale of concentrates in return for Standard Brands’ withdrawal and agreement not to compete.

Vitamin D is of the utmost importance in the poultry industry since it is essential for the prevention and cure of rickets and for bone development, egg production and hatchability. Prior to the war some Vitamin D could be obtained from cod and other fish liver oils, but at the present time, the requirements must be obtained almost exclusively from synthetic Vitamin D. Even apart from war time shortages, synthetic Vitamin D presents certain advantages over fish liver oils. The synthetic product may be used for forced feeding without adversely affecting the flavor of the poultry, while too generous use of fish liver oils results in a somewhat fishy flavor.

The size of the poultry market in the United States involves almost astronomical figures. The crop report of September 1, 1943 of the United States Department of Agriculture on poultry and egg production states that there were over 316,000,000 laying hens; over 318,000,000 pullets and over 224,000,000 chicks. The egg production for August 1943 was 3,863,000,000. This crop report also states that the average cost of feed for farm poultry ration on August 15, 1943 was $2.13 per hundred pounds. Dr. Harry Titus of the Poultry Nutrition Section of the Bureau of Animal Industries of the Department of Agriculture estimates that 25,000,000 tons of commercial mixed feed are used annually in the poultry industry and that 75% of this feed is fortified with Vitamin D.

The wartime demands on meat make the poultry market unusually important and any artificial restraints or artificial price levels affecting the poultry market are of the most serious national importance.

The discovery upon which Steenbock’s patent No. 1680818 is based is that certain substances, known as pro-vitamins take on antirachitic properties when irradiated with ultra violet light. These pro-vitamins are sterols which may be obtained from either vegetable or animal sources and the effectiveness of the irradiated product is dependent upon the nature of the pro-vitamin.

In the early days, vegetable pro-vitamins were used almost exclusively but it was subsequently found that the animal pro-vitamins were superior. Vegetable pro-vitamins were unsuitable for poultry feeding and the exploitation of this market awaited the development of the animal pro-vitamins, cholesterol and 7-dehydrocholesterol.

The animal and poultry feed field had been exclusively allocated to duPont and its predecessor, Acetol. This exclusive arrangement highlights the artificial nature of the Foundation’s division of fields. In the case of cows Vitamin D in the feed will result in a Vitamin D content in the milk. Vitamin D may also have some antirachitic effect on the cow itself. In interpreting this provision of its agreement with the Foundation, duPont was obliged to consider the question whether the effect of the Vitamin D feed is in the cow or in the milk. Finally, however, duPont resolved the doubt in its own favor. A letter dated February 20, 1935, addressed to Kupperian of duPont, from Connolly, a duPont attorney, states: “Irradiated cholesterol may therefore be used in feed for cows regardless of whether its purpose is to enhance the Vitamin D content of the milk or prevent rickets in the cow itself.”

Prior to 1936, duPont recognized the importance of the animal sterols, cholesterol and 7-dehydrocholesterol, in the poultry feed field. DuPont immediately set out to secure a monopoly over these pro-vitamins and through them to control the entire poultry feed field. The first step in this direction is described in a letter dated January 21, 1936 from King of duPont to Nielsen of Abbott which states:

“We were, of course, largely interested in the poultry field, and to protect our position had made tentative arrangements to secure all of the available cholesterol in the country, or perhaps we might say, in the world.”

Apart from attempting to corner the sources of animal sterols, duPont also sought exclusive rights in the field of animal sterols within the licensing scheme of the Foundation. The agreement of November 15, 1935 between the Foundation and duPont grants duPont an exclusive license to irradiate sterols from animal sources. When the Foundation wished to grant new licenses and submitted the proposed licenses to duPont for approval, duPont insisted upon retaining exclusive rights in the animal pro-vitamin field. In a report to the Executive Committee of duPont recommending approval of the Foundation’s license to Merrell, E. G. Robinson states:

“The Foundation now wishes to grant a license to the William S. Merrell Company of Cincinnati, Ohio, limited to Vitamin D from non-animal sources for sale only as medicinals or pharmaceuticals for human use, which this department is willing to approve. It is limited to non-animal sources in the pharmaceutical field and, therefore, we do not think it will materially interfere with our own developments. Also, the Foundation is able to grant a license with respect to yeast ergosterol without our permission, since that product is not in our license field; and if the license to Merrell is limited to yeast we will not have the opportunity of selling Merrell our own ergosterol.”

Thus, while duPont desired to protect its animal sterol field it did not wish the Merrell license so limited as to deprive duPont of a potential market for non-yeast ergosterol. In both instances the Foundation was most willing to cooperate.