This case presents for review an order of the Federal Trade Commission holding that petitioners violated Section 5 of the Federal Trade Commission Act,1 in connection with the production and sale of tetracycline, which is described as "currently the best selling wonder drug in the United States."2

Tetracycline, a broad-spectrum antibiotic, is sold and distributed under various trade names by all five petitioners: Chas. Pfizer & Co., Inc. ("Pfizer"), American Cyanamid Company ("Cyanamid"), Bristol-Myers Company and Bristol Laboratories ("Bristol"), Olin Mathieson Chemical Corporation through its E. R. Squibb & Sons Division ("Squibb") and the Upjohn Company ("Upjohn"). Pfizer owns the patent on tetracycline and produces it in addition to selling and distributing.

Under licenses granted by Pfizer, Cyanamid and Bristol also produce this antibiotic as well as selling and distributing it. Squibb and Upjohn sell and distribute by authority of licenses granted by Pfizer.

Also involved are two older antibiotics: (1) chlortetracycline, which is produced and sold by Cyanamid, owner of its patents, as aureomycin; and (2) oxtetracycline, which is produced and sold by Pfizer, owner of its patent, as terramycin.

Antibiotics are chemical substances produced by certain microorganisms. They have the capacity to counteract and cure a broad variety of diseases. At the end of World War II, penicillin was the principal antibiotic. It was a "narrow-spectrum" drug with more limited effectiveness than the later "broad-spectrum" antibiotics. Penicillin was not patented. Its production and sale proved to be fiercely competitive and profits were marginal.

The antibiotics involved in this case were described by the Commission as follows:

"The earlier antibiotics such as penicillin and streptomycin are known as narrow spectrum antibiotics because they are normally effective against either gram-positive or gram-negative bacteria but not both. The antibiotics with which this case is concerned are known, beginning with the discovery of Aureomycin, as broad spectrum antibiotics because they are effective against a far wider range of bacteria, including both gram-positive and gram-negative bacteria. Because of their wide-range of efficacy against practically all infectious diseases, the broad spectrum antibiotics have become known popularly as `wonder drugs'. Their use results in a marked decrease in the cost of treating those diseases, and they presently are prescribed in substantially all instances in which they are effective. Antibiotics are also employed to prevent infection or disease as, for example, prior to surgery, and to prevent recurrences of infection and disease. Antibiotics are, therefore, of vital and unique importance to the health and welfare of the general public.

"Antibiotics, including tetracycline, Aureomycin and Terramycin, as all ethical drugs, are products which can be obtained by the ultimate consumer or patient only under the authority of a doctor's prescription. Each is customarily prescribed by the physician under the respective brand name of the manufacturer, rather than its generic or chemical name. It is the physician's prescription which determines the amount and brand of drug which the pharmacist will sell. Consequently, respondents direct a major portion of their sales and promotional efforts at physicians, emphasizing their respective trade names. By law and custom pharmacists are prohibited from substituting one brand of an ethical drug for another without permission of the physician."

When Cyanamid obtained a patent on aureomycin in 1949, the molecular structure of that drug was not known. The patent application described it in terms of certain secondary chemical properties. In 1952 the molecular structure was discovered, and a Pfizer scientist speculated that an antibiotic of at least equal strength could be produced by altering only slightly the structure of aureomycin. The result was a vastly improved antibiotic, tetracycline, which first was produced by Pfizer scientists in 1952.

Within six months of the discovery of tetracycline, both Pfizer and Cyanamid filed applications for patents.3 The Patent Office declared an interference, which was settled as a result of a private cross-licensing agreement between Pfizer and Cyanamid to the effect that the party found to have priority would license the other. Thereafter Cyanamid conceded priority to Pfizer and withdrew its application.

Bristol then filed a patent application. A second interference was declared. The patent examiner filed an opinion which concluded that tetracycline was unpatentable. Pfizer thereupon submitted affidavits to the effect that tetracycline could not be recovered from broths representative of those described in the Cyanamid patent application on aureomycin. Shortly afterwards a product patent was issued to Pfizer.

The proceedings before the Commission primarily were concerned with the events leading up to the issuance of the tetracycline patent to Pfizer, which are described in some detail later in this opinion, the subsequent conduct of Pfizer and Cyanamid in exploiting the patent and the conduct by the five petitioners which the Commission found to constitute a conspiracy to fix the price of this drug.

The Commission's complaint, filed July 28, 1958, charged that Pfizer made false, misleading and incorrect statements to, and withheld material information from, the Patent Office for the purpose and with the effect of inducing the issuance of a patent on tetracycline; and that Cyanamid and Bristol withheld from the Patent Office material information in the course of the prosecution of the patent applications, as a result of which Pfizer was aided in obtaining its tetacycline patent.

It was further charged that, while both of their patent applications were pending, Pfizer and Cyanamid agreed that they would settle privately between themselves the question of which had priority on the invention of tetracycline, after which they would cooperate in securing the awarding of a patent to the winner; that the owner of the patent then would license the unsuccessful party; and that the two would exchange information concerning the production of this drug.

The complaint avers that, pursuant to the terms of this prior agreement, Pfizer issued a license to Cyanamid to manufacture and sell the newly patented antibiotic. Cyanamid agreed to license Pfizer to use the process covered by the aureomycin patents in the production of tetracycline,4 to furnish cultures and procedures for this purpose and to provide to Pfizer a quantity of bulk tetracycline so as to cut down the lead time that Cyanamid then had in the commercial marketing of the drug.

The complaint further charges that in March 1956, as a part of a settlement of an infringement suit brought by Pfizer, the latter also granted a license to Bristol to manufacture and sell tetracycline and, at the same time, licensed Squibb and Upjohn to sell this drug. It is further averred that all five petitioners fixed and maintained arbitrary and rigid prices through conspiracy and combination; and that petitioners have violated Section 5 of the Federal Trade Commission Act in that the activities of Pfizer before the patent office had and continue to have the effect of hindering, foreclosing, and eliminating competition in the sale of antibiotics and had and continue to have the dangerous tendency of creating a monopoly in Pfizer; and that all five petitioners, including Pfizer, through conspiracy and combination, have restrained, foreclosed and eliminated competition in the sale of antibiotics.

It is further charged that the antibiotics industry is one of dynamic growth, with sales exceeding $330 million per year; that tetracycline enjoys the largest sale by dollar volume, aggregating more than $100 million in 1957; and that petitioners account for all of these sales.

The hearing examiner issued his initial decision, finding in favor of the petitioner drug companies on all issues, and dismissed the complaint.5 On appeal, the Commission reversed, finding that the hearing examiner had misconstrued the actions of the patent examiner and the information which he deemed relevant to the application. The Commission found that Pfizer made deliberately false and misleading statements to, and withheld material information from, the Patent Office in securing its tetracycline patent; that this conduct amounted to "unclean hands," "inequitableness" and "bad faith" vis-a-vis the Patent Office; that Pfizer asserted monopoly rights under its patent in order to prevent competition in the tetracycline market; and that the effects of Pfizer's acts and conduct before the Patent Office have been to restrain competition, to foreclose access to substantial markets to competitors and potential competitors, and to create a monopoly in the manufacture and sale of tetracycline in violation of Section 5 of the Federal Trade Commission Act.

The Commission further found that Cyanamid made erroneous representations to the Patent Office concerning matters bearing upon the patentability of tetracycline; and that although Cyanamid soon discovered that these representations were inaccurate, it did not disclose this fact to the Patent Office until after the tetracycline patent had been granted to Pfizer, thereby aiding the latter in its efforts to obtain a patent. The Commission ruled that this suppression of material information, combined with the cross-licensing agreement between Pfizer and Cyanamid and the acceptance by the latter of a license from the former to produce and sell tetracycline, constituted an illegal attempt to share a monopoly with Pfizer and amounted to a combination in restraint of trade. Similar charges against Bristol, Squibb and Upjohn were dismissed by the Commission, although these latter three companies were found guilty of price-fixing.

On the issue of price-fixing, the Commission decided that the record as a whole sustains the conclusion that the five petitioners fixed and maintained the price of tetracycline in substantial markets through conspiracy and combination.6

In August 1963 the Commission released the first two paragraphs of its final order, dealing only with the price-fixing aspects of this case. All five petitioners were ordered to cease and desist from (A) raising, fixing, stabilizing or maintaining prices or terms or conditions of sale; (B) discussing, conferring on or exchanging information for the purpose and with the effect of price-fixing; and (C) submitting collusive or rigged bids to purchasers or potential purchasers. All petitioners were directed to review prevailing prices for antibiotics; to determine new prices based on each petitioner's own manufacturing and overhead costs, the margin of profit individually desired, and other lawful considerations; and to cancel existing price lists.

On the issues relating to the tetracycline and aureomycin patents, the parties were directed to submit proposed forms of order with accompanying memoranda.

Thereafter, under date of December 17, 1963, the Commission entered its final order with an accompanying opinion. (See footnote 6). In addition to the provisions relative to the price-fixing aspects of the case, this order directs Pfizer to license its tetracycline patent to any domestic applicant on a two and one-half percent royalty basis and to provide the licensees with certain technical information. Under identical terms Cyanamid is directed to license its two aureomycin patents.

The initial decision of the hearing examiner was announced October 31, 1961. (See footnote 5). After notice of appeal to the Commission from this decision, all five petitioners filed motions on December 13, 1961, to disqualify Chairman Paul Rand Dixon from participating in the proceeding. These motions were filed pursuant to § 7(a) of the Administrative Procedure Act, 5 U.S.C. § 1006(a), and were based upon the contention that Chairman Dixon, in his former capacity as Chief Counsel and Staff Director of the Subcommittee on Antitrust and Monopoly of the Committee on the Judiciary of the United States Senate, played an "active role" in an investigation by that Subcommittee of many of the same facts and issues and of the same parties as are involved in this proceeding, and participated in the preparation of the report of the Subcommittee on the same facts, issues and parties. These motions to disqualify Chairman Dixon were made or renewed on three separate occasions prior to the Commission's final decision. The motions were denied.

Before this court petitioners take the position that the decision and order of the Commission are void because of the participation of Chairman Dixon therein. Before proceeding to other issues, it is necessary to pass upon this question.

The Issue of the Disqualification of the Commission's Chairman

The question of when a judicial officer is disqualified to sit in judgment in a particular case is one of the most difficult and delicate problems in judicial administration.

The basic rule was stated by the Supreme Court in In re Murchison, 349 U.S. 133, 136, 75 S.Ct. 623, 625, 99 L.Ed. 942;

"A fair trial in a fair tribunal is a basic requirement of due process. Fairness of course requires an absence of actual bias in the trial of cases. But our system of law has always endeavored to prevent even the probability of unfairness. To this end no man can be a judge in his own case and no man is permitted to try cases where he has an interest in the outcome. That interest cannot be defined with precision. Circumstances and relationships must be considered. This Court has said, however, that `every procedure which would offer a possible temptation to the average man as a judge * * * not to hold the balance nice, clear, and true between the State and the accused denies the latter due process of law. Tumey v. State of Ohio, 273 U.S. 510, 532, 47 S.Ct. 437, 444, 71 L.Ed. 749. Such a stringent rule may sometimes bar trial by judges who have no actual bias and who would do their very best to weigh the scales of justice equally between contending parties. But to perform its high function in the best way `justice must satisfy the appearance of justice.' Offutt v. United States, 348 U.S. 11, 14, 75 S.Ct. 11, 13 [99 L.Ed. 11]."

This rule applies to the Federal Trade Commission and other such administrative tribunals under the express terms of Section 7(a) of the Administrative Procedure Act of 1946.7

Although the rule is clear, its application in particular cases presents practical difficulties.8

In approaching this problem in the present case we recognize that judicial officers "do not stand aloof on these chill and distant heights; and we shall not help the cause of truth by acting and speaking as if they do." Cardozo, The Nature of the Judicial Process, 168 (1921). It has been held that it was not necessarily "a violation of procedural due process for a judge to sit in a case after he had expressed an opinion as to whether certain types of conduct were prohibited by law." Federal Trade Commission v. Cement Institute, 333 U.S. 683, 702-703, 68 S.Ct. 793, 804, 92 L.Ed. 1010. A judicial officer is not disqualified because he "may have an underlying philosophy in approaching a specific case." United States v. Morgan, 313 U.S. 409, 421, 61 S.Ct. 999, 1004, 85 L.Ed. 1429. A "strong conviction" or a "crystallized point of view" on questions of law and policy are not grounds for disqualification. 2 Davis, Administrative Law, § 12.01. "Federal Trade Commissioners, like other adjudicators, are entitled to hold and express views on the laws they are charged with enforcing and applying. * * * We do not equate impartiality with utter indifference. * * We do not expect a Trade Commissioner to be neutral on anti-monopoly policies." Texaco Inc. v. Federal Trade Commission, 118 U.S.App.D.C. 366, 336 F.2d 754, 764 (dissenting opinion of Judge Washington), vacated and remanded on another ground, 381 U.S. 739, 85 S.Ct. 1798, 14 L.Ed.2d 714.

All of the motions to disqualify Chairman Dixon were supported by affidavits filed with the Commission. In an effort to avoid lengthening this opinion, we are attaching as appendices the following documents:

Appendix A. Pfizer's affidavit in support of motion to disqualify Chairman Dixon. (Similar affidavits were filed by Cyanamid, Bistol, Squibb and Upjohn.)

Appendix B. Copy of a letter written by Senator Estes Kefauver to the Chairman of the Federal Trade Commission dated July 19, 1960.9

Appendix C. Copy of Commission's interlocutory order denying motions to disqualify Chairman Dixon. (59 Federal Trade Commission Decisions, 1488.)

Appendix D. Memorandum of Chairman Dixon in regard to motions that he be disqualified. (60 Federal Trade Commission Decisions, 1881.)

Appendix E. Excerpts from hearings before the sub-committee on antitrust and monopoly of the Committee on the Judiciary, United States Senate, on Administered Prices in the Drug Industry, 86th Congress, 1st and 2nd Sessions, Vol. 24 (1959-1960), in which Mr. Dixon participated as Chief Counsel and Staff Director.

These appendices disclose that during a period beginning in 1959 and extending through 1960 (a time subsequent to the filing of the complaint by the Commission against petitioners in 1958) the sub-committee conducted an investigation of the drug industry, including the manufacture and sale of tetracycline. As Chief Counsel and Staff Director of the Subcommittee, Mr. Dixon played an active part in the investigation. These hearings were concerned specifically, among other things, with issues which were decided against petitioners by the Commission in the instant case and which are involved on the present petitions to review. The subcommittee received evidence relating to petitioners' prices for broad spectrum antibiotics, including tetracycline, to retailers, wholesalers, institutions and government agencies; costs and profits of petitioners; and proceedings before the patent office preceding the issuance of the tetracycline patent to Pfizer, including the interference settlement entered into between Pfizer and Cyanamid. Until the middle of March 1961, Mr. Dixon was in charge of and personally supervised all the investigatory activities of the Subcommittee's staff; participated in the selection of witnesses to testify and the documents to be introduced in evidence; and as an attorney conducted extensive examinations of witnesses in connection with factual issues involved in the present appeals. Chairman Dixon's memorandum (Appendix D) states that "as counsel, I played an active role in the accumulation and presentation of this factual data to the members of the Subcommittee."

Some of the questions and comments of Mr. Dixon as quoted in Appendix E demonstrate to us that he then had formed the opinion that tetracycline prices quoted by petitioners were artificially high and collusive and that the patent interference settlement between Pfizer and Cyanamid involved improper aid by Cyanamid to Pfizer in obtaining the tetracycline patent. Any opinions so formed were conclusions as to facts, and not merely an "underlying philosophy" or a "crystallized point of view on questions of law or policy." The facts to which questions were directed as set forth in Appendix E are inseparably a part of the ultimate findings of fact of the Commission in disagreeing with the decision of the trial examiner in the present proceeding.

The letter of Senator Kefauver to the then Chairman of the Federal Trade Commission dated July 19, 1960 (Appendix B), expressed the view that the proposed findings of fact and conclusions of fact and law in the present proceedings "appear to be firmly based upon a large body of persuasive evidence" and that "I am confident that ultimately the Commission will reverse the hearing examiner's decisions." Petitioners charge that this letter was either prepared by Mr. Dixon or by someone on his staff at his direction or with his approval. This charge is not denied in the record before this court.

The report of the Subcommittee (S. Rep. No. 448, 87th Cong., 1st Session (1961)) contains the following language dealing with issues in the present case:

"The most important and well-known example of the emergence of oligopoly from this process of mutual accommodation is the important antibiotic, tetracycline — manufactured by three of the leading drug companies and sold by five. * * * Moreover, it was touch-and-go whether the product was even patentable. To the intense distress of the companies, it developed that some quantities of tetracycline are obtained in the production of chlortetracycline — a fact which might well make the product unpatentable. The problem was further aggravated by laboratory and clinical tests which appeared to indicate that tetracycline is superior to its patented predecessors-chlortetracycline and oxytetracycline. Under these circumstances the prospects of a repetition in the broad spectrums of what was so widely deplored in penicillin — free competition, falling prices and shrinking profit margins — appeared very real indeed.

"It was against this background that the companies made their legal maneuvers with the twofold objective in mind — to assure the issuance of a patent and to secure the patent for themselves." Report, supra, p. 145.

* * * * * *

"Although, under the earlier private agreement between Cyanamid and Pfizer, it was Pfizer who was to get the tetracycline patent, the latter could not act since no patent had yet been issued. Cyanamid then moved into the breach; on September 29, 1954, it instituted action against Bristol on the ground that Bristol's manufacture of tetracycline infringed Cyanamid's Aureomycin patent. * * *

"Pfizer, however, persisted in its submission of affidavits to overcome the rejection by the patent examiner, who asked if tetracycline could be shown to be present in Aureomycin `in clearly identifiable form.' Pfizer scientists conducted tests purporting to prove that Aureomycin fermentation broth did not contain tetracycline. Using what Pfizer itself described as `low potency' broth and `commercial' tests, a negative result was secured, although the use of known sensitive tests would have shown the presence of identifiable tetracycline in the broth. In an affidavit submitted to the Patent Office, the Pfizer scientist swore that `in fact there was no indication whatever of the presence of tetracycline'. This led the patent examiner to grant the patent to Pfizer. [File, U. S. Patent No. 2,699,054. The validity of this assertion is a central point at issue in the FTC case, docket 7211, In the Matter of American Cyanamid et al.] On the same day separate infringement actions were instituted by the patentee against Bristol, Upjohn and Squibb.

"This set the scene for the end of the matter. On January 13, 1955, Cyanamid's infringement action against Bristol was settled with a license by Cyanamid for use of its Aureomycin patent in the manufacture of tetracycline. In return, Bristol agreed to pay royalties to Cyanamid on all of its sales of tetracycline." Id. at p. 146.

* * * * * *

"Then suddenly the controversy was stilled. In March 1956 the six lawsuits then pending were privately settled in a series of agreements among the companies. * * *

"With the consummation of these arrangements, the orderly and controlled marketing of tetracycline was an inevitable and expected result. * * * all five have consistently sold at identical prices, * * *." Id. at p. 147. (Emphasis supplied.) The letter of Senator Kefauver transmitting the report to the Chairman of the Senate Committee on Judiciary expressed appreciation for the "efforts of Paul Rand Dixon, formerly counsel and staff director, and Dr. John M. Blair, chief economist, both in the work of the hearings on which this report is based and the assistance they rendered the Committee in the preparation of this report."

We do not find in the record before us a denial of the charge that Mr. Dixon, in his capacity as Counsel and Staff Director, assisted in the preparation of the report of the Senate Subcommittee, including the language above quoted.

We are not impressed with the Commission's argument that the proceedings before the Senate Subcommittee had no relationship to the proceedings before the Commission because the former were "legislative" and "investigative" in nature. The record shows that the activities of the Subcommittee went beyond the scope of the ordinary legislative committee hearings. The report of the Subcommittee demonstrates that it extended its activities to the full limits of the Senate authorization, which included the power "to make a complete, comprehensive and continuing study and investigation of the antitrust and monopoly laws of the United States and their administration, interpretation, operation, enforcement and effect."

Under the facts and circumstances of this case we conclude that the participation of Chairman Dixon in the hearing "amounted * * * to a denial of due process which invalidated the order under review." Texaco, Inc. v. Federal Trade Commission, supra, 118 U.S. App.D.C. 366, 336 F.2d 754, 760, vacated and remanded on other grounds. 381 U.S. 739, 85 S.Ct. 1798, 14 L.Ed.2d 714.

As said in Amos Treat & Co. v. Securities and Exchange Commission, 113 U.S. App.D.C. 100, 306 F.2d 260, 267:

"[A]n administrative hearing of such importance and vast potential consequences must be attended, not only with every element of fairness but with the very appearance of complete fairness. Only thus can the tribunal conducting a quasi-adjudicatory proceeding meet the basic requirement of due process."

In Trans World Airlines v. Civil Aeronautics Board, 102 U.S.App.D.C. 391, 254 F.2d 90, 91, Judge Prettyman said:

"It is plain that in this statute Congress contemplated an adjudicatory proceeding and conferred upon the Board in this respect quasi-judicial functions. The fundamental requirements of fairness in the performance of such functions require at least that one who participates in a case on behalf of any party, whether actively or merely formally by being on pleadings or briefs, take no part in the decision of that case by any tribunal on which he may thereafter sit."

It is fundamental that both unfairness and the appearance of unfairness should be avoided. Wherever there may be reasonable suspicion of unfairness, it is best to disqualify. See Prejudice and the Administrative Process, 59 Nw.U.L.Rev. 216, 231 (1964); Disqualification of Administrative Officials for Bias, 13 Vand. L.Rev. 713, 727 (1960).

It is to be emphasized that the Commission is a fact-finding body. As Chairman, Mr. Dixon sat with the other members as triers of the facts and joined in making the factual determination upon which the order of the Commission is based. As counsel for the Senate Subcommittee, he had investigated and developed many of these same facts.

The result of the participation of Chairman Dixon in the decision of the Commission is not altered by the fact that his vote was not necessary for a majority. "Litigants are entitled to an impartial tribunal whether it consists of one man or twenty and there is no way which we may know of whereby the influence of one upon the others can be quantitatively measured." Berkshire Employees Association of Berkshire Knitting Mills v. N. L. R. B., 121 F.2d 235, 239 (C.A.3).

We therefore must vacate the order and decision of the Federal Trade Commission and remand the case for a de novo consideration of the record without the participation of Chairman Dixon. We reject the argument of the Commission that such a holding "would create an unworkable concept of administrative bias." Our decision on this issue goes no further than to hold that disqualification is required when, as in the present case, the legislative committee investigation involved the same facts and issues concerning the same parties named as respondents before the administrative agency, and to the extent here presented. We do not hold that the service of Mr. Dixon as counsel for the subcommittee, standing alone, necessarily would require disqualification. Our decision is based upon the depth of the investigation and the questions and comments by Mr. Dixon as counsel, as shown by the record in this case, including Appendix E.

It has not been a rare occurrence in judicial history for an Attorney General or Solicitor General of the United States to be appointed to the Supreme Court. The practice of the justices so appointed in recusing themselves from participating in the decision of cases in which they were active while with the Department of Justice has not handicapped the President in making appointments of capable judges or created an "unworkable concept of judicial bias."

In holding that Chairman Dixon was disqualified to sit in this case, it is not the intention of this court to reflect in any way upon or question in the slightest degree the integrity, ability or dedication of the distinguished Chairman of the Commission.

The Issue as to the Jurisdiction of the Commission

For the assistance of the Commission on remand we deem it advisable to pass upon two additional issues that are pressed by the petitions to review: (1) whether or not the Commission has jurisdiction; and (2) whether the findings of the Commission with respect to the proceedings in the Patent Office involving the granting of the tetracycline patent are supported by substantial evidence.

The jurisdictional issue may be stated as follows: Assuming that a patent is obtained by misrepresentation and improper conduct in the proceedings before the Patent Office, does the Federal Trade Commission have jurisdiction to hold that the subsequent use of such a patent for the purpose of excluding competition constitutes an unfair method of competition under Section 5 of the Act and, in fashioning a remedy, to order compulsory licensing of the patent upon a reasonable royalty basis? For the purpose of our discussion of the jurisdictional question we assume the facts to be as found by the Commission. The issue of the sufficiency of the evidence on this question will be discussed later in this opinion.

"We are not holding that every misrepresentation of fact or withholding of material information before the Patent Office necessarily constitutes per se an unfair method of competition under the Federal Trade Commission Act. Some patents may be commercially worthless or have no adverse effects on competition. The facts of this case, however, are that a patentee has asserted monopoly rights under a patent so acquired and, as a consequence thereof, has restrained competition in the manufacture and sale of an important antibiotic; in at least one year the annual sales of tetracycline exceeded $1XX-XXX-XXX. The record further discloses that numerous drug houses have endeavored to enter the tetracycline market. All have been refused with the exception of respondents Cyanamid, Bristol, Squibb and Upjohn."

It is well settled that the Commission may exercise only the powers granted to it by the Act. Federal Trade Commission v. National Lead Co., 352 U.S. 419, 428, 77 S.Ct. 502, 1 L.Ed.2d 438; Federal Trade Commission v. Western Meat Co., 272 U.S. 554, 559, 47 S.Ct. 175, 71 L.Ed. 405. It is equally well settled that in enacting Section 5 of the Act Congress intended to make a broad delegation of power to regulate and control unfair methods of competition. The legislative history shows that Congress intended to provide the Commission with broad discretion in interpreting Section 5:

"It is impossible to frame definitions which embrace all unfair practices. There is no limit to human inventiveness in this field. Even if all known unfair practices were specifically defined and prohibited, it would be at once necessary to begin over again. If Congress were to adopt the method of definition, it would undertake an endless task." H.R. Rep. No. 1142, 63rd Cong., 2d Sess. 18-19 (1914).

As said by the Supreme Court in Atlantic Refining Co. v. Federal Trade Commission, 381 U.S. 357, 367, 85 S.Ct. 1498, 1505, 14 L.Ed.2d 443:

"Section 5 of the Federal Trade Commission Act declares `[u]nfair methods of competition in commerce, and unfair * * * acts or practices, in commerce * * * unlawful.' In a broad delegation of power it empowers the Commission, in the first instance, to determine whether a method of competition or the act or practice complained of is unfair. The Congress intentionally left development of the term `unfair' to the Commission rather than attempting to define `the many and variable unfair practices which prevail in commerce * * *.' S.Rep. No. 592, 63d Cong., 2d Sess., 13. As the conference report stated, unfair competition could best be prevented `through the action of an administrative body of practical men * * * who will be able to apply the rule enacted by Congress to particular business situations, so as to eradicate evils with the least risk of interfering with legitimate business operations.' H.R. Conf.Rep. No. 1142, 63d Cong., 2d Sess., 19. In thus divining that there is no limit to business ingenuity and legal gymnastics the Congress displayed much foresight. See Federal Trade Comm'n v. Cement Institute, 333 U.S. 683, 693, 68 S.Ct. 793, 799, 92 L.Ed. 1010 (1948). Where the Congress has provided that an administrative agency initially apply a broad statutory term to a particular situation, our function is limited to determining whether the Commission's decision `has "warrant in the record" and a reasonable basis in law.' National Labor Relations Board v. Hearst Publications, Inc., 322 U.S. 111, 131, 64 S.Ct. 851, 661, 88 L.Ed. 1170 (1944). While the final word is left to the courts, necessarily `we give great weight to the Commission's conclusion. * * *.' Federal Trade Comm'n v. Cement Institute, supra, 333 U.S. at 720, 68 S.Ct. [793] at 812."

Pfizer and Cyanamid contend that the Commission had no power to order the compulsory licensing of their patents. Pfizer asserts that the Commission has no jurisdiction to review the proceeding in the Patent Office, to attack indirectly the validity of a patent or to "second-guess the actions of the Patent Office." This is not a correct statement of the jurisdictional issue now before us. In the present case the Commission has not undertaken to pass upon the validity of the patents in question nor has it held the patents to be invalid. The order recognizes the validity of the tetracycline and aureomycin patents but compels licensing on what the Commission found to be a reasonable royalty basis. The Commission has not ruled that the act of obtaining the tetracycline patent by misrepresentation as such constituted a violation of Section 5, but rather that the subsequent use, for purposes of excluding competition, of a patent so obtained, constituted such a violation. It found that Pfizer has employed the tetracycline patent to suppress competition by suits and threats of suits against competitors and their customers and that Cyanamid also employed its patents as a weapon toward the common objective of suppressing competition. A list of thirty-six infringement actions filed by Pfizer against potential competitors and their customers is attached as Appendix F.

In its recent opinion in Walker Process Equipment, Inc. v. Food Machinery & Chemical Corp., 382 U.S. 172, 86 S.Ct. 347, 15 L.Ed.2d 247, the Supreme Court said that the enforcement of a patent procured by fraud on the Patent Office may violate Section 2 of the Sherman Act, provided all other elements to establish a § 2 monopolization charge are proved, in which event the treble-damage provisions of § 4 of the Clayton Act would be available to the injured party. This case originated before a United States District Court, which indisputably has jurisdiction in such matters, and therefore is not controlling in the present case on the issue of the jurisdiction of the Commission. The reasoning, however, gives support to the decision of the Commission in the present case. The Court quoted with approval the following language from Precision Instrument Manufacturing Co. v. Automotive Maintenance Machinery Co., 324 U.S. 806, 816, 65 S.Ct. 993, 998, 89 L.Ed. 1381:

"A patent by its very nature is affected with a public interest. * * * [I]t is an exception to the general rule against monopolies and to the right to access to a free and open market. The far-reaching social and economic consequences of a patent, therefore, give the public a paramount interest in seeing that patent monopolies spring from backgrounds free from fraud or other inequitable conduct and that such monopolies are kept within their ligitimate scope."

In his concurring opinion in Walker Process Equipment, Inc. v. Food Machinery & Chemical Corp., supra, Mr. Justice Harlan said:

"To hold, as we do, that private suits may be instituted under § 4 of the Clayton Act to recover damages for Sherman Act monopolization knowingly practiced under the guise of a patent procured by deliberate fraud, cannot well be thought to impinge upon the policy of the patent laws to encourage inventions and their disclosure. Hence, as to this class of improper patent monopolies, antitrust remedies should be allowed room for full play." (Emphasis supplied.) 382 U.S. 179-180, 86 S.Ct. 351.

In his concurring opinion in United States v. Singer Manufacturing Co., 374 U.S. 174, 199-200, 83 S.Ct. 1773, 1786, 10 L.Ed.2d 823, Mr. Justice White said:

"* * * There is a public interest here * * * which the parties have subordinated to their private ends — the public interest in granting patent monopolies only when the progress of the useful arts and of science will be furthered because as the consideration for its grant the public is given a novel and useful invention. * * * When there is no novelty and the public parts with the monopoly grant for no return, the public has been imposed upon and the patent clause subverted. * * * [C]learly collusion among applicants to prevent prior art from coming to or being drawn to the Office's attention is an equitable imposition on the Office and on the public. * * * In my view, such collusion to secure a monopoly grant runs afoul of the Sherman Act's prohibitions against conspiracies in restraint of trade — if not bad per se, then such agreements are at least presumptively bad."

To like effect see Kingsland, Commissioner of Patents v. Dorsey, 338 U.S. 318, 319, 70 S.Ct. 123, 94 L.Ed. 123; United States v. United States Gypsum Co., 333 U.S. 364, 400, 68 S.Ct. 525, 92 L.Ed. 746.

The Federal Trade Commission Act may be construed in pari materia with the Sherman and Clayton Acts. "This construction allows for using cases decided under any of the antitrust laws in dealing with cases brought by the Commission." Atlantic Refining Co. v. Federal Trade Commission, 344 F.2d 599, 606 (C.A. 6), cert. denied, 382 U.S. 939, 86 S.Ct. 391, 15 L.Ed.2d 350.

The Federal Trade Commission Act contains no statutory exemption10 of Patent Office proceedings, and we find nothing in the Act indicating any intention to set aside the Patent Office as a "city of refuge"11 from the Commission's jurisdiction over unfair trade practices. Assuming that a Section 5 violation of the Act occurred, growing out of and following proceedings before the Patent Office in the present case, we hold that Section 5 of the Act confers jurisdiction upon the Commission with respect thereto. Decker v. Federal Trade Commission, 85 U.S.App.D.C. 137, 176 F.2d 461, cert. denied, 338 U.S. 878, 70 S.Ct. 159, 94 L.Ed. 539; cf. Baldwin Bracelet Corp. v. Federal Trade Commission, 117 U.S.App.D. C. 85, 325 F.2d 1012, cert. denied, 377 U.S. 923, 84 S.Ct. 1221, 12 L.Ed.2d 215.

It is not accurate to accuse the Commission of "second guessing" the Patent Office. The Commission had before it evidence which it found to have been withheld from the Patent Office and passed upon a situation which the Patent Office never knew existed.

From our review of what was before the Commission in these proceedings, we are satisfied that it was within the competence of the Commission to adjudicate whether the total conduct of petitioners disclosed a violation of the Act. We hold that the Commission had jurisdiction to determine that the conduct of the parties before the Patent Office resulting in the issuance of the patent, and the subsequent use of the fruits of such conduct may, in total, be found to constitute violation of Section 5 of the Act.

Obviously there can be no question as to the jurisdiction of the Commission over the price fixing aspects of the case.

As to the authority of the Commission to prescribe a remedy, the Supreme Court in Atlantic Refining Co. v. Federal Trade Commission, supra, said:

"The Commission, of course, has `wide discretion in its choice of a remedy deemed adequate to cope with * * * unlawful practices * * *.' Jacob Siegel Co. v. Federal Trade Comm'n, 327 U.S. 608, 611, 66 S.Ct. 758, 760, 90 L.Ed. 888 (1946). Furthermore, it acts within the limits of its authority when it bars repetitions of similar conduct with other parties. Federal Trade Comm'n v. Henry Broch & Co., 368 U.S. 360, 364, 82 S.Ct. 431, 433, 7 L.Ed.2d 353 (1962) * * *

"* * * But Congress has placed in the Commission in the first instance the power to shape the remedy necessary to deal with unfair methods of competition. We will interfere only where there is no reasonable relation between the remedy and the violation. Federal Trade Comm'n v. Ruberoid Co., 343 U.S. 470, 473, 72 S.Ct. 800, 803, 96 L.Ed. 1081 (1952)." 381 U.S. at 376-377, 85 S.Ct. at 1510.

As this court said in Sandura Co. v. Federal Trade Commission, 339 F. 2d 847, 861 (C.A. 6):

"Where there has been a continued course of unlawful price maintenance by agreement, however, it is within the discretion of the Commission to determine that the only effective way to terminate the effects of the unlawful conduct is by barring an otherwise lawful course of conduct which could have the practical effect of continuing the unlawful conduct unmitigated."

In the present case the Commission was not dealing with a patent on an ordinary item of commerce, but with patents on antibiotics of vital importance in the treatment and cure of many diseases and of tremendous impact upon the public health.

Compulsory licensing of patents by the courts for patent misuse is a permissible remedy in anti-trust cases. Hartford-Empire Co. v. United States, 323 U.S. 386, 65 S.Ct. 373, 89 L.Ed. 322; 59 Nw.U.L.Rev. 543; 38 N.Y.U.L.Rev. 1191.

We accordingly hold that, assuming the facts as found by the Commission to be supported by substantial evidence, the Commission had jurisdiction to require as a remedy the compulsory licensing of the tetracycline and aureomycin patents on a reasonable royalty basis. We do not hold that the Commission has jurisdiction either directly or indirectly to invalidate or destroy a patent, nor do we hold that the Commission could order compulsory licensing without payment of reasonable royalties. We do hold that, in exercising its broad jurisdiction in the enforcement of Section 5 of the Act, the Commission could explore means and methods employed in obtaining the patents here involved and the subsequent use of the fruits thereof, assuming the other elements of a Section 5 violation.

Because of our remand to the Commission, we do not express any opinion as whether or not the findings and decision with respect to the price-fixing issues are supported by substantial evidence.

For the assistance of the Commission, however, we are passing now upon the question of whether the findings with respect to misconduct in the proceedings before the Patent Office involving the granting of the tetracycline patent, and the use made of the fruits of such misconduct, are supported by substantial evidence.

The Commission's holding of improper conduct in the Patent Office proceedings is based upon its findings that false and misleading statements were made to the Patent Office and that material information was withheld, resulting in the granting of the tetracycline patent to Pfizer.

The findings of fact of the Commission must be accepted by this court if they are supported by substantial evidence on the record considered as a whole. 15 U.S.C. § 45(c); Atlantic Refining Co. v. Federal Trade Commission, supra, 344 F.2d 599 (C.A. 6), cert. denied, 382 U.S. 939, 86 S.Ct. 391, 15 L.Ed.2d 350; Sandura Company v. Federal Trade Commission, 339 F.2d 849, 856 (C.A. 6).

In the present case the hearing examiner, who heard the testimony of the witnesses, found that no misrepresentations were made to the Patent Office by Pfizer, that the patent examiner was supplied with all the information which he requested and in which he was interested concerning the coproduction or inherent production of tetracycline, and that the patent examiner was not misled or deceived by information withheld by either Cyanamid or Pfizer. The Commission disagreed with its hearing examiner and made findings of fact diametrically to the contrary.

Where the Commission overturns findings of fact of a hearing examiner, this conflict in fact findings is to be considered by a reviewing court. Procter & Gamble Company v. Federal Trade Commission, 358 F.2d 74 (C.A. 6), citing Universal Camera v. N. L. R. B., 340 U.S. 474, 496, 497, 71 S.Ct. 456, 95 L.Ed. 456 and N. L. R. B. v. Ohio Calcium Co., 133 F.2d 721 (C.A. 6).

In United States Retail Credit Association v. Federal Trade Commission, 300 F.2d 212, 217 (C.A. 4), the court said:

"As we interpret the Universal Camera decision, the reviewing court is not prevented from considering the examiner's decision; if the agency's findings are not supported by substantial evidence, and if the examiner's findings are, the agency's findings must give way to those of the examiner. The examiner's findings are not sacrosanct; there is no mandate that the Commission accept them; they are but one portion of the entire record which the court is to consider in its review."

In Benrus Watch Co. v. Federal Trade Commission, 352 F.2d 313, 321 (C.A. 8), cert. denied 384 U.S. 939, 86 S.Ct. 1457, 16 L.Ed.2d 538, the court said:

"While the findings of the Examiner were certainly not binding upon the Commission, they are part of the record, and are entitled to consideration in appraising the correctness of the ultimate findings of the Commission."

The details of the evidence will not be discussed at greater length than necessary in this opinion. Reference is made to the initial decision of the hearing examiner, which comprises 195 pages (see footnote 5), and the opinion of the Commission, which comprises 110 pages (see footnote 6).

Sufficient for the purposes of this opinion is the following summary, which is based principally upon, and sometimes stated verbatim from, the Commission's findings of fact.

Aureomycin (patented in 1949 by Cyanamid), terramycin (patented by Pfizer in 1950) and tetracycline are produced by the fermentation of microorganisms in aqueous nutrient media. The media are inoculated with the microorganisms and under controlled and aseptic conditions the microorganisms are allowed to grow. After a period of fermentation the antibiotics are recovered from the broth. For production on a commercial scale, the fermentation is conducted in large vats and the antibiotic substance is recovered and subjected to purification procedures in order to arrive at a product suitable for therapeutic use.

Aureomycin is made by the fermentation of a species of microorganism known as Streptomyces aureofaciens, hereinafter referred to as S. aureofaciens.

Tetracycline can also be produced by subjecting aureomycin to a process of mild catalytic hydrogenation, which removes the chlorine atom from the aureomycin molecule. This chemical transformation was the original method by which tetracycline was discovered.

The patent covering aureomycin is the Duggar patent, U.S. Patent 2,482,055, issued September 13, 1949. (The Niedercorn patent, U.S. Patent 2,609,329, issued September 2, 1952, is an improvement patent on a process for producing aureomycin.) Both are owned by Cyanamid. The Sobin patent, U.S. Patent 2,516,080, covering the product terramycin, was issued to Pfizer on July 18, 1950; the Conover patent, U.S. Patent 2,699,054, covering tetracycline, was issued to Pfizer on January 11, 1955.

No company has been licensed by Cyanamid to sell aureomycin in the United States. Pfizer has been licensed to manufacture aureomycin for the limited purpose of converting it to tetracycline, and Bristol has been licensed to produce up to six per cent aureomycin in the production of tetracycline, and to sell tetracycline containing not more than six per cent aureomycin. Pfizer has licensed no company to produce or sell terramycin. As a result of their patents, Cyanamid and Pfizer have had a legal monopoly of the production and sale of aureomycin and terramycin, respectively. Pfizer has licensed Cyanamid and Bristol to manufacture and sell tetracycline, and has licensed Squibb and Upjohn to sell tetracycline.

Prior to 1952, the chemical structures of aureomycin and terramycin were unknown. During the spring of that year, a Pfizer research team headed by Dr. R. B. Woodward of Harvard University discovered the molecular structure of these two antibiotics. A member of the research team, Dr. Conover, noting the similarity in the structures of the two antibiotics, speculated that it might be possible to develop a new antibiotic by removing the chlorine atom from aureomycin. By subjecting aureomycin to mild hydrogenation by means of a catalyst such as palladium Conover removed the chlorine atom and, in June of 1952, produced tetracycline.

On August 8, 1952, an article by the Pfizer research team was submitted to the Journal of the American Chemical Society disclosing the formations and structures of aureomycin, terramycin and tetracycline. This article, referred to as the Stephens article, was published in the Journal on October 5, 1952.

On October 23, 1952, Conover filed an application for a patent claiming the product deschloroaureomycin (later called tetracycline), its salts, and a process for producing it by hydrogenation of aureomycin. On July 23, 1953, the Patent Office rejected the Conover application on the ground that the subject matter was obvious in the light of the aureomycin (Duggar) and terramycin (Sobin) patents, because of the similarity of the structural formulae of the three antibiotics.

On October 20, 1953, Pfizer filed a preliminary amendment to its patent application pointing out that the structures of aureomycin and terramycin were not known at the time of Conover's discovery of tetracycline. Thereafter, the patent examiner withdrew the rejection of the application on the aforementioned ground.

In 1948, Cyanamid had hydrogenated aureomycin and obtained a product which it later claimed was tetracycline. In December 1952, Cyanamid repeated its 1948 work and embarked upon a project in which tetracycline was produced from aureomycin by hydrogenation. On March 16, 1953, Cyanamid filed its Boothe-Morton application for a patent on tetracycline, its salts, and a process for manufacturing it by hydrogenating aureomycin.

On August 6, 1953, Cyanamid submitted an article to the Journal of the American Chemical Society describing the production of tetracycline by deschlorination of aureomycin. On August 13, 1953, Pfizer submitted a similar article to the Journal. Both articles were published in the Journal on September 20, 1953. The disclosure of tetracycline and the process of deschlorination made possible the testing of previously unknown and unrecognized antibiotics, using the revealed tetracycline as a basis for comparison.

On September 25, 1953, the Heyden Chemical Corporation announced it had discovered an antibiotic, designated HA-20A, which might be tetracycline and that this antibiotic could be produced by direct fermentation. This announcement was the subject of an article which appeared in the Journal of Commerce on October 1, 1953. On September 28, 1953, Heyden applied for a patent (the Minieri application) on HA-20A, its salts, and a process for production thereof by fermentation using a newly discovered strain of S. aureofaciens and a mutant thereof.

On November 4, 1953, Cyanamid purchased Heyden's antibiotic facilities, including the rights to the Minieri tetracycline patent application.

H. J. Lidoff, the patent examiner handling the Cyanamid and Pfizer patent applications, declared an interference between these two applicants. Under Patent Office rules, an interference is a proceeding conducted for the purpose of determining priority between two or more applicants claiming the same invention.

The first interference was terminated on February 9, 1954, following the execution of the cross-licensing agreement between Pfizer and Cyanamid. Cyanamid conceded that the Pfizer (Conover) application had priority in time and withdrew its Boothe-Morton application.

On January 15, 1954, Bristol had filed continuation applications in the Heinemann matter, claiming tetracycline hydrochloride, and contending that this product was patently distinguishable from tetracycline.

On March 2, 1954, Examiner Lidoff declared a second interference. The parties to this interference were Pfizer (Conover application), Bristol (Heinemann application) and Cyanamid (Minieri application which it had purchased from Heyden).

On October 14, 1954, Examiner Lidoff dissolved the second interference, ruling that the product tetracycline was not patentable, and rejected all product claims on the basis of coproduction, i.e. that the previously patented aureomycin process (Duggar and Niedercorn patents) inherently produced certain amounts of tetracycline. The Minieri application filed by Heyden on September 25, 1953, had disclosed that the microorganisms used to prepare tetracycline belonged to the species used in producing aureomycin and that aureomycin was coproduced in the Minieri fermentation process. On the basis of this information, the patent examiner speculated that tetracycline was coproduced with aureomycin in the processes disclosed in the Duggar and Niedercorn patents.12 He also held that tetracycline hydrochloride was not patently distinguishable from tetracycline.

On November 29, 1954, Pfizer's patent representatives met with Examiner Lidoff in his office concerning the rejection of the Conover application on the ground of the unpatentability of tetracycline because of inherent production. The statements made at this interview and the affidavits and statements made concerning experiments conducted as a result of this interview encompass most of the misrepresentations which the Commission found Pfizer to have made in its successful effort to persuade Examiner Lidoff to change his decision.

A written summary of this interview contains the following recitation:

"At the outset of the interview, the Assistant Examiner agreed that the discovery of the new antibiotic, tetracycline (and its salts), constituted a major advance in the art, that should merit patent protection. He further conceded that neither the Duggar nor the Niedercorn patents contains any disclosure whatsoever of this important new antibiotic nor the slightest hint as to the possible existence thereof. However, he stated that applicant's product claims appeared to be anticipated by the possible, although wholly unappreciated, co-production of appreciable amounts of tetracycline in the fermentation processes described in the cited patents.

"It was pointed out to the Assistant Examiner that there is no reasonable basis for his speculation as to the coproduction of tetracycline in the prior art processes, and that the same rejection had previously been made and withdrawn in the prosecution of the Heinemann, et al. application. * * * The Examiner, however, felt that he was justified in relying upon the disclosure of the Minieri et al. application Serial No. 382,637 as giving rise to a rebuttable assumption of inherent production.

"Applicant's counsel denied that any such prima facie assumption is justified. * * *

"The available evidence is overwhelmingly contrary to the Examiner's assumption. Minieri et al themselves, in their brief on their motion to add fermentation counts in the interference * * * have stated that tetracycline could previously be produced only by deschlorination, and that there is no evidence of inherent production by the prior art processes. Most striking of all is the fact that the assignee of the Duggar and Niedercorn et al patents, who manufactured literally tons of chlortetracycline (Aureomycin) according to the methods described therein, failed to discover any tetracycline in such large-scale manufacture, although it devoted extensive research to the recovery, purification and properties of its patented antibiotic. Said assignee first claimed tetracycline (and its salts) made by a deschlorination process in its Boothe et al application Serial No. 342,556 filed March 16, 1953, some five years after the Duggar and Niedercorn patents were filed. This should conclusively refute the tenuous basis for the Examiner's unwarranted assumption.

* * * * * *

"Despite the foregoing arguments, the Examiner adhered to his position that he would not withdraw his rejection of the product claims, unless applicant submits a showing overcoming his speculated basis for such rejection. He explained that he would require evidence that fermentation broths produced strictly in accordance with the Duggar and Niedercorn disclosures, using the deposited strain NRRL-2209, do not contain recoverable amounts of tetracycline. He stated that the absence of such amounts of tetracycline would have to be established by failure to recover this antibiotic in a clearly identifiable form according to present day efficient methods for the separation thereof from fermentation broths.

"While applicant's counsel did not concede that there is any necessity for such a showing, he ventured the opinion that it could be made and stated that he would explore the matter in view of the great urgency of this case. The Examiner made it clear that he would not insist on a categorical averment that the fermentation broths prepared according to the cited patents contain no tetracycline whatsoever. He evidently appreciates the impossibility of proving its non-existence and is not concerned about useless trace amounts which cannot be separated from the broths by methods now recommended for recovery of the new antibiotic."

The Niedercorn (aureomycin) patent contained forty-four examples of media. Lidoff asked Pfizer to run some tests on Example 28, which appeared to contain only a trace of chloride ion. The Commission found as a fact that "It is evident, however, that the examiner was interested in the possible production of tetracycline in any of the Niedercorn examples."

Pfizer thereupon conducted tests to determine whether tetracycline could be recovered from Duggar and Niedercorn Example 28 broths, using the three recovery procedures described in the Bogert-Walsh, Minieri and Heinemann applications.

Pfizer submitted affidavits to Examiner Lidoff, executed by two of its scientists, Bogert and Tanner, reporting unsuccessful efforts to recover products clearly identifiable as tetracycline from the Example 28 fermentation broths. After examining these affidavits, Mr. Lidoff requested more information as to the possibility of recovering tetracycline. The next day, December 9, Pfizer representatives conferred again with Mr. Lidoff and submitted a supplemental affidavit signed by Bogert, in which the following conclusion was expressed:

"Based on these results and on his experience with the results of a great many such tests on materials containing tetracycline, chlortetracycline and mixtures thereof, he is convinced that not nearly as much as 20% of the potency of the amorphous material could be due to the presence of tetracycline, in fact there was no indication whatever of the presence of tetracycline. Assuming that the maximum possible proportion of the total potency due to tetracycline is 10%, this means that the 0.36 grams of amorphous material cannot contain more than about 0.009 grams of tetracycline. He does not know of any method whereby any part of such a minute amount of tetracycline could be separated and recovered in clearly identifiable form from the amorphous material."

Cyanamid representatives had told Examiner Lidoff earlier that, outside of experiments in fermenting tetracycline directly, Cyanamid had no knowledge that there had even been any coproduction of tetracycline in broths which were intended to produce aureomycin. The Commission found that Cyanamid discovered later, and prior to the issuance of the tetracycline patent, that there had been coproduction of tetracycline in aureomycin broths, but failed to disclose this fact to Examiner Lidoff.

On December 9, 1954, after receiving the Pfizer tests and affidavits, including Bogert's supplemental affidavit filed the previous day, Examiner Lidoff granted a notice of allowance to Pfizer. Under Patent Office procedure, a patent normally issues within a month after the notice of allowance.

On January 3, 1955, six days before the tetracycline patent was issued to Pfizer, Bristol filed with the Patent Office an affidavit disclosing in detail the fact of the presence of from two per cent to four per cent tetracycline in old aureomycin. Nevertheless the patent was issued to Pfizer on January 9.

Fundamental to the Commission's findings of improper conduct on the part of Pfizer and Cyanamid is the question of to what extent previous coproduction of tetracycline in aureomycin broths was material to the issuance of the patent. This involves numerous questions concerning the actions and purposes of Examiner Lidoff as representative of the Patent Office, the answers to which are so uncertain that the Commission reached conclusions directly contrary to the findings of its hearing examiner, based upon the same evidence.

There are numerous instances of sharp disagreement between the Commission and its hearing examiner as to findings of fact relating to the actions and purposes of Examiner Lidoff, examples of which are set forth in Appendix G.

Many material questions are not answered clearly by the evidence in the record before us, such as:

To what extent was Examiner Lidoff aware of inherent coproduction of tetracycline in aureomycin broths and in the finished product?

Was he concerned only about coproduction in aureomycin as a finished product, or was his inquiry also directed to coproduction in aureomycin fermentation broths?

Was the hearing examiner correct or incorrect in his finding that if Lidoff had known that old aureomycin contained from two to five per cent of tetracycline, he nevertheless would have granted the patent?

Did Lidoff consider any amount of coproduction under ten per cent to be immaterial?

Why did Lidoff request tests by Pfizer of Niedercorn Example 28, rather than requesting tests of others of the forty-four Niedercorn examples, at least one of which (Example 1) the Commission found would have disclosed five per cent coproduction?

Was Lidoff interested in establishing only that the prior art processes did or did not produce tetracycline in "appreciable" amounts, making possible its prior recovery as a therapeutic product? Was this his purpose in setting up the test of Example 28? If so, what did he consider to be an "appreciable amount" of tetracycline?

Was the hearing examiner correct in his conclusion that Lidoff knew "for more than a year prior to the decision on the second interference that fermentation broths produced under Duggar and Niedercorn usually contained tetracycline," or was the Commission correct in its conclusion to the contrary?

Did Lidoff draw a distinction as to the significance of coproduction as between product and process applications, as found by the hearing examiner, or was the Commission correct in reaching its contrary conclusion? Did Lidoff see the "Taylor affidavit" filed by Bristol January 3, 1955, six days before the patent was issued? If so, what significance did he attach to its contents?

Would Lidoff's decision to grant the patent have been different if Cyanamid had revealed that it was in error in its prior assurances that there was no coproduction of tetracycline in aureomycin? Or was he already aware of the facts which the Commission found to have been withheld by Cyanamid?

Finally, the ultimate questions are: Did Lidoff receive all the information that he requested from Pfizer? And was Lidoff mislead and deceived by Pfizer and Cyanamid and did he grant the tetracycline patent as the result of such deception?

It would seem that the answers by Examiner Lidoff to these questions might settle conclusively the issue as to whether Pfizer and Cyanamid made misrepresentations to the Patent Office and withheld essential information, thereby deceiving Lidoff into granting a patent which otherwise never would have been approved.

Only Examiner Lidoff could have answered these questions. Yet the Commission failed to call him as a witness, although requested by petitioners to do so during the hearings. Instead the Commission introduced as a witness Mr. Manuel C. Rosa, Lidoff's superior in the Patent Office, who obviously could not answer questions concerning matters which were exclusively within the personal knowledge of Examiner Lidoff. Petitioners did not seek to subpoena Examiner Lidoff to testify as their witness, having been denied an opportunity to interview him in advance.

It is said that it would be against the policy of the Patent Office to have permitted Lidoff to testify as a witness in these proceedings.

The Patent Office Manuel of Patent Examining Procedure, § 1701, provides as follows:

"1701 Examiners Not To Express Opinion on Validity Nor Testify as Patent Experts

"Inasmuch as public policy does not not permit Examiners to decide, as judges in the Patent Office, questions upon which they have been retained to give opinions as expert witnesses in patent cases in the courts, every Examiner who shall testify as an expert in a patent case pending in any court will be dismissed, unless he shall have so testified involuntarily, upon compulsion by competent judicial authority, and without retainer or preparation. (Basis: Notice of March 6, 1880.)

"Congress, in 35 U.S.C. 282, has endowed every patent granted by the Patent Office with a presumption of validity. Public policy demands that every employee of this Office refrain from expressing to any interested person any opinion or view as to the invalidity of any U.S. Patent. The question of validity or invalidity is exclusively a matter for the courts to determine. Each member of the examining corps is cautioned to be especially wary of any inquiry from any person outside the Patent Office (including any employee of another government agency), the answer to which might indicate that a particular patent should not have been issued.

"Whenever an examiner is asked or subpoenaed to testify in a suit concerning a patent, trademark registration, or application for either, he is directed to report that fact immediately to the Solicitor. (Basis: Notice, May 4, 1959.)

"Examiners are cautioned against answering inquiries from any person outside the Patent Office as to whether or not a certain reference was considered and, a fortiori, whether or not a claim would have been allowed over that reference. This applies to anything in the patented file, including the extent of the field of search and any entry relating thereto. The record of a patented file must speak for itself. Practitioners can be of material assistance in this regard by refraining from making such inquiries of members of the examining staff. Answers to inquiries of this nature must of necessity be refused, and such refusal should be considered neither discourteous nor an expression of opinion as to validity. (Basis: Notices of May 18, 1961 and October 21, 1960.)

"Also, Examiners are reminded that, in view of the long established policy of the Patent Office to refuse to permit members of the staff of the Patent Office to testify in patent suits, they should, before allowing an application, determine that the written record is accurate and complete."

We see no reason why Examiner Lidoff could not have been subpoenaed as a witness to testify as to facts known only to him with respect to material issues of great public interest in this proceeding.

With no testimony available from Mr. Lidoff, the hearing examiner and Commission drew opposite inferences and reached opposite conclusions as to what this patent examiner knew, intended, and required in the processing of the patent applications. We find the decision of the Commission on this issue to be based upon inferences and speculation which are insufficient to constitute substantial evidence. See Universal Camera Corp. v. N. L. R. B., supra, 340 U.S. 474, 496, 71 S.Ct. 456, 95 L.Ed. 456; N. L. R. B. v. Columbian Enameling & Stamping Co., 306 U.S. 292, 300, 59 S.Ct. 501, 83 L.Ed. 660.

Accordingly we hold that paragraphs three through eight of the final order of the Commission, and its decision to the effect that the tetracycline patent was issued as a result of improper conduct on the part of Pfizer and Cyanamid, are not supported by substantial evidence on the record considered as a whole.

This opinion is not to be construed as an approval by this Court of the initial decision of the hearing examiner.

The entire proceeding is remanded to the Commission for a de novo hearing on all issues without the participation of Chairman Dixon. Upon rehearing the Commission may consider any evidence previously taken and now on file and such additional evidence on any issue raised by the complaint as may be admissible and relevant to such issues. Any party shall be accorded the right to require the presence of any previously sworn witness for additional testimony either on direct or cross-examination.

Vacated and remanded.

Pfizer's Affidavit in Support of Motion
            to Disqualify Chairman Dixon
        
          UNITED STATES OF AMERICA
        
                   BEFORE
        
          FEDERAL TRADE COMMISSION
        
                [SAME TITLE]
        
        STATE OF NEW YORK,  )
                            ) ss.:
        COUNTY OF NEW YORK, )

JOHN E. F. WOOD, being duly sworn, deposes and says:

1. I am a member of the firm of Dewey, Ballantine, Bushby, Palmer & Wood, attorneys for the respondent Chas. Pfizer & Co., Inc. This affidavit is submitted in support of the motion of said respondent that the Honorable Paul Rand Dixon, Chairman of the Federal Trade Commission, be disqualified from participating in the hearing or determination of the appeal of counsel supporting the complaint from the Initial Decision herein or in other action of the Commission in this proceeding. This affidavit is based on the record of "Hearings before the Subcommittee on Antitrust and Monopoly of the Committee on the Judiciary, United States Senate, on Administered Prices in the Drug Industry", 86th Cong., 1st and 2nd Sess., vols. 14-26 (1959-60), and S. Rep. No. 448, 87th Cong., 1st Sess. (1961).

2. From February 1957 until he became Chairman of the Commission on or about March 16, 1961, Mr. Dixon served as Counsel and Staff Director of the Sub-committee on Antitrust and Monopoly of the Committee on the Judiciary of the United States Senate.

3. In 1959 and 1960 the Subcommittee conducted an investigation into the manufacture, pricing and sale of the broad spectrum antibiotics which are the subject of this proceeding, and of other ethical drugs. In the course of the investigation the Subcommittee requested and received documents and information from the respondents and others relating to many aspects of the manufacture, distribution and sale of broad spectrum antibiotics, including pricing, bulk sales and purchases, requests for bulk supplies, patents, patent licenses, requests for such licenses, and patent interference settlements. Some of the material thus received by the Subcommittee is a part of the record in this proceeding; a part of such material, however, is not in the record of this proceeding although it relates to matters at issue herein. Mr. Dixon was in charge of the investigating activities of the Subcommittee staff, including those relating to broad spectrum antibiotics.

4. In September 1960 the Subcommittee held a number of hearings relating primarily to broad spectrum antibiotics. The testimony was quite extensive, the transcript consisting of almost 4,000 pages. Mr. Dixon participated actively in these hearings, examined many of the witnesses and introduced a large number of exhibits. The hearings were in effect an adversary proceeding in which some witnesses adverse to the ethical drug industry were called to testify, and some representatives of the industry, including representatives of the respondents, were subjected to questioning in the nature of cross-examination.

5. During these hearings some of the very transactions and issues involved in this proceeding, which are now to be considered by the Commission on the appeal from the Initial Decision, were the subject of extensive testimony and documentary evidence. Thus, the hearings dealt at some length with respondents' prices to wholesalers, retailers and institutions (Hearings, pp. 13,657-72, 13,729-39); respondents' bids and sales to the Military Medical Supply Agency (Hearings, pp. 13,687-94, 13,702-04, 13,715-19, 13,779-82, 13,790-92, 13,800-04); the interference settlement entered into between Pfizer and Cyanamid on January 11, 1954 (Hearings, pp. XX-XXX-XXX); and the infringement litigation, including the settlement thereof, between Pfizer on the one hand and Bristol, Squibb and Upjohn on the other (Hearings, pp. 13,905-06, 13,910-15).

6. During these hearings, on issues which are involved in the present proceeding, Mr. Dixon advocated positions which are inconsistent with the findings and conclusions of the Hearing Examiner which are now to be reviewed by the Commission.

(a) After a detailed review of the respondents' bids and prices to the Military Medical Supply Agency (MM SA) and other federal agencies, the Hearing Examiner found that "The record demonstrates price competition in the Federal market." (Initial Decision, p. 168). On the other hand, the line of Mr. Dixon's questioning of representatives of the respondents and other witnesses on this subject was apparently based on the contrary view (Hearings, pp. 13,687-94).

(b) After reviewing all the evidence, the Hearing Examiner rejected as "without merit" the contention of counsel supporting the complaint that the respondents had agreed upon a division of the MMSA market (Initial Decision, pp. 166-67). Mr. Dixon, on the other hand, in the presentation of evidence on this subject before the Subcommittee, referred to facts upon which counsel supporting the complaint had relied and characterized them as an "unusual occurrence" which called for explanation (Hearings, pp. 13,702-04).

(c) The Hearing Examiner has found that there were good and non-conspiratorial business reasons for different prices to the MMSA and the Veterans Administration (Initial Decision, pp. 164-65). Mr. Dixon's questioning on this subject before the Subcommittee, however, suggested the view that the differences between the prices quoted to the two agencies were a cause for suspicion (Hearings, pp. 13,716-19).

(d) One of the subjects considered in detail by the Hearing Examiner was the interference settlement between Pfizer and Cyanamid. He found that the parties were actuated by sound and legitimate business reasons, that Pfizer was entitled to the concession of priority which it received and that there was no basis in the evidence or in logic for inferring that Cyanamid was seeking to help Pfizer obtain the patent (Initial Decision, pp. 24-26, 121-22). Mr. Dixon's questioning on this subject before the Subcommittee, however, indicated a considerably less favorable view of the interference settlement (Hearings, pp. 13,695-98).

(e) Although counsel supporting the complaint had sought to show that there was an agreement restricting Bristol's sales of bulk tetracycline to Squibb and Upjohn, the Hearing Examiner found to the contrary and specifically found that "Bristol's license [from Pfizer] contained no restrictions on bulk sales and authorized it to sell to whomever and wherever it wanted without restriction" (Initial Decision, p. 77). At the hearings before the Subcommittee, however, when a witness testified to the same effect, Mr. Dixon produced a document which is in evidence in this proceeding and which he contended was inconsistent with the statement of the witness (Hearings, pp. 13,913-14).

7. On May 8, 1961, Senator Kefauver transmitted to the Chairman of the Committee on the Judiciary a report of the Subcommittee on Antitrust and Monopoly entitled "A Study of Administered Prices in the Drug Industry" (S. Rep. No. 448, 87th Cong., 1st Sess. (1961)). His transmittal letter stated:

"I want to acknowledge with appreciation the efforts of Paul Rand Dixon, formerly counsel and staff director, and Dr. John M. Blair, chief economist, both in the work of the hearings on which this report is based and in the assistance they rendered the committee in the preparation of this report."

8. The Report contained a number of legal and factual conclusions concerning issues in this proceeding, some of which are inconsistent with the findings and conclusions of the Hearing Examiner which are now to be reviewed by the Commission.

(a) The Report (at pages 89-92) discusses at some length the respondents' bids to the MMSA. The Report adopts the conclusions suggested during Mr. Dixon's presentation of evidence (see par. 6(a) above). It refers to certain price fluctuations as "strange price behavior" and specifically quotes critical remarks made by Mr. Dixon with respect to this price behavior. It refers to the claimed division of the MMSA market as "another `astounding' coincidence".

(b) The Report (at pages 145-47, under the heading "Oligopoly") surveys the interference settlement between Pfizer and Cyanamid, the subsequent proceedings in the Patent Office, the litigation and settlement between Cyanamid and Bristol, and the litigation and settlement between Pfizer on the one hand and Bristol, Upjohn and Squibb on the other. These matters were considered in great detail by the Hearing Examiner and, as to each of them, the Initial Decision is to the effect that the parties acted properly and lawfully. The tenor of the Report is different. It presents these matters as questionable both in their motivation and their effect.

9. Another expression of opinion on matters which are in issue in this case was contained in a letter dated July 19, 1960 which was sent to Honorable Earl W. Kintner, then Chairman of the Federal Trade Commission, over the signature of Honorable Estes Kefauver, Chairman of the Subcommittee (Hearings, p. 15,831). This letter, it is submitted, may be taken as reflecting the views not only of Senator Kefauver but also of the staff members, including Mr. Dixon, who worked so closely with him. The letter, after complimenting counsel supporting the complaint "for having done such an excellent job", proceeded to an appraisal of their proposed findings and conclusions in this case in the following terms:

"* * * It appears to be firmly based upon a large body of persuasive evidence; the issues involved are presented understandably; and the whole document is written clearly and to the point."

The view that the presentation of counsel supporting the complaint "appears to be firmly based upon a large body of persuasive evidence" is directly contrary to the conclusion of the Hearing Examiner, which is now to be reviewed by the Commission, to the following effect:

"* * * The decision must be based upon reliable, probative and substantial evidence upon consideration of the whole record. By such standards, counsel supporting the complaint have not sustained their burden of proof. Based upon a consideration of all the reliable, probative and substantial evidence in the record, it is concluded and found that the respondents have not engaged in any of the violations alleged in the complaint." (Initial Decision, p. 194.)

10. On the facts set forth above it is respectfully submitted that Mr. Dixon, as Counsel and Staff Director of the Subcommittee, has participated in investigations of and hearings upon matters which are in issue in this case and has advocated positions inconsistent with the Initial Decision which is now to be reviewed by the Commission.

                    JOHN E. F. WOOD
        
        Sworn to before me this
        12th day of December, 1961:
        
          ROBERT W. ALBERTS
            Notary Public
        
          ROBERT W. ALBERTS
        Notary Public, State of New York
                 No. XX-XXXXXXX
          Qualified in Westchester County
        Certificate filed with N. Y. Co. Clerk
            Term Expires March 30, 1963

Letter Written by Senator Estes Kefauver
            to the Chairman of the Federal
            Trade Commission dated July
            19, 1960.
        
        "The Honorable Earl W. Kintner
        Chairman
        Federal Trade Commission.
        Washington 25, D.C.

I have read with great interest the Proposed Findings of Fact and Conclusions of Fact and Law, Docket 7211, in the matter of American Cyanamid et al., involving the antibiotic, tetracycline. I wish to take this opportunity to compliment the Commission, and particularly Mr. Goodhope and the other staff members who prepared the document, for having done such an excellent job. It appears to be firmly based upon a large body of persuasive evidence; the issues involved are presented understandably; and the whole document is written clearly and to the point.