Jefferson County Pharmaceutical Assn., Inc. v. Abbott Laboratories – Oral Argument – November 08, 1982

Media for Jefferson County Pharmaceutical Assn., Inc. v. Abbott Laboratories

Audio Transcription for Opinion Announcement – February 23, 1983 in Jefferson County Pharmaceutical Assn., Inc. v. Abbott Laboratories

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Warren E. Burger:

We will hear arguments next in Jefferson County Pharmaceutical against Abbott.

Mr. Tucker, I think you may proceed whenever you’re ready.

Joe L. Tucker, Jr.:

Mr. Chief Justice, and may it please the Court:

This case involves the issue of whether or not the prohibitions of the Robinson-Patman Act apply to sales of drugs to governmental agencies where those governmental agencies act in direct competition with private enterprise.

That is, are agencies of Jefferson County, Alabama and the Board of Trustees of the University of Alabama exempt per se from the application of the Robinson-Patman Act, even though they compete with privately-owned enterprises; in particular in this case, retail pharmacists.

Sandra Day O’Connor:

I suppose on the status of this case, which was decided basically on the basis of the complaint, we have no idea what percentage of the pharmaceutical products were sold to indigent sick or what part to the public in general.

Joe L. Tucker, Jr.:

Justice O’Connor, we do not have any firm statistics with that regard, although a thorough investigation was made prior to filing the complaint, and that investigation did reveal plenty of facts sufficient to substantiate the complaint, with the exception, of course, the ruling of the district court.

Sandra Day O’Connor:

Would you agree that many states or local governments in states do and have traditionally undertaken to provide medical care and services to the indigent sick?

Joe L. Tucker, Jr.:

I would agree, Justice O’Connor, that many states have undertaken to provide care to the indigent sick.

However, I will not agree that providing of health care services is a traditional government function.

I would also not agree–

Sandra Day O’Connor:

You would concede that it is in some states, I suppose; those who since statehood have assumed that responsibility?

Joe L. Tucker, Jr.:

–I agree that some states have assumed part of that responsibility, but I could not agree that it was a traditional governmental function of states or counties to provide–

Sandra Day O’Connor:

Even in states which have done it since statehood?

Joe L. Tucker, Jr.:

–Well, Your Honor, I state this based on not only… with regard to indigent services, that may be true.

But in our case, the allegations were going not just to services for the indigent, but to the general public as a whole; paying persons as well as those on Medicaid, and drugs being purchased by Medicaid.

This case began in 1978 when Jefferson County Pharmaceutical Association filed suit in the United States District Court of the Northern District of Alabama seeking injunctive relief and treble damages against 15 drug manufacturers, and Jefferson County and the Board of Trustees of the University of Alabama Medical School.

The two hospitals, Jefferson County’s charitable institution, Cooper Green Hospital, and the University of Alabama Hospita were operating pharmacies in direct competition with private retail pharmacists.

I think it’s important to note where the pharmacy was with regard to the one operated by the University of Alabama.

The University of Alabama Medical Center has a hospital and that hospital has a pharmacy approximately on the 15th and 16th floors.

That pharmacy was not the one selling drugs to the general public, but a separate pharmacy located away from the hospital, at street level, nice, comfortable chairs in the lobby for people to come in and wait on their prescriptions to be filled off the street, the general public, to be served.

All of the defendants filed motions to dismiss claiming that the sales to governmental agencies were exempt from the application of the Robinson-Patman Act.

The district court ruled in favor of the defendants and held that sales to the county and state agencies’ pharmacies were beyond the reach of the Robinson-Patman Price Discrimination Act without regard to 15 USC 13c, which is the Non-Profit Exemption Act.

Petitioner appealed to the Fifth Circuit Court of Appeals, now the Eleventh Circuit, and that court affirmed the district court without opinion.

Just noting the decision of the district court.

However, Judge Clark wrote a dissenting opinion stating that the court had created a near-exemption to the Act.

He stated that this exemption allowed governmental agencies to compete in the private, proprietary sector of commerce, and use its superior buying power against businessmen operating private retail drug stores.

First of all, purchases for resale that’s the key here in this case.

This case is very similar, of course, to Abbott Laboratories versus Portland Retail Druggists Association, where this Court held that the Robinson-Patman Act applied to sales to private hospitals.

That case, of course, did not reach the issue here where that case, as I understand it, there were not it was not before this Court the issue of governmental agencies selling to general public.

Joe L. Tucker, Jr.:

The antitrust laws do apply to anti-competitive conduct of state and local governments when engaged in proprietary functions.

This has been cited in the City of Lafayette versus Louisiana Power where this Court held that the word “persons” as used in the antitrust laws, includes states and their political subdivisions.

Harry A. Blackmun:

Mr. Tucker, if you prevail here, will there be any spill-over effect on military exchanges?

Joe L. Tucker, Jr.:

No, sir, I don’t think that that would apply.

The case–

Harry A. Blackmun:

Why?

Joe L. Tucker, Jr.:

–The case of Champaign-Urbana News I believe spoke to that issue, a similar issue, except that in that case, Champaign-Urbana News sought to apply the Robinson-Patman Act to the Secretary of the Army and Secretary of the Air Force.

And of course, this Court held that it could be not applied; that the Secretary of Army and the Secretary of the Air Force were immune.

Harry A. Blackmun:

Did you, by any chance, have lunch in the Court cafeteria this noon?

Joe L. Tucker, Jr.:

No, sir, I didn’t.

Harry A. Blackmun:

You know we have one here in the building?

Joe L. Tucker, Jr.:

Yes, sir.

Harry A. Blackmun:

If you prevail here, do you think there would be a spill-over effect on the cafeteria here?

Joe L. Tucker, Jr.:

No, sir.

I don’t.

The–

Warren E. Burger:

Would you distinguish it on the grounds that that’s maintained chiefly for the convenience of personnel working in the building?

Joe L. Tucker, Jr.:

–Yes, sir.

I think that the cafeteria here would be very similar to the situation possibly in General Shale versus Struck Construction Company.

Harry A. Blackmun:

But it is open to the general public and is used by the general public.

Joe L. Tucker, Jr.:

Yes, sir.

William H. Rehnquist:

Did the Chief Justice say the cafeteria was maintained chiefly or cheaply?

[Laughter]

Well, my next question was going to be what if, then, the evidence showed that 75 percent of the customers were tourists and other people not connected with this building, and only 25 percent were people in the building?

Joe L. Tucker, Jr.:

If that were the case, Your Honor, and they were in direct competition, of course, the difference here is federal versus state and local.

I think my understanding of the case is there’s no question but that the Congress has the power to regulate through the commerce powers, activities of the state and local governments.

Whether or not–

Byron R. White:

Well, in the Chief Justice’s example, there’s still the possibility that the Robinson-Patman Act might not apply where there are sales to a government entity which then itself engages in activity that is competitive with private business.

But that it would cover just sales for resale by government.

Joe L. Tucker, Jr.:

–Yes, sir.

Joe L. Tucker, Jr.:

I think there is some distinction in what is happening there in that there, the hospital pharmacies are buying the drugs for the purpose of intent of reselling–

Byron R. White:

They aren’t just buying for the purpose of running a hospital.

Joe L. Tucker, Jr.:

–No, sir.

Byron R. White:

Which… the hospital would be competitive, perhaps, but they nevertheless aren’t… here they’re reselling.

Joe L. Tucker, Jr.:

The hospital may be competitive with other hospitals, and I think that from Justice O’Connor’s comment there has been some recognition that some hospital activities, although it’s not, according to the case of Swain versus Milford City Hospital, Inc., it’s not a traditional governmental function.

Those activities have been sanctioned to some extent.

But here you have something that is completely outside the traditional function of government, and that is the operation of retail pharmacies.

Sandra Day O’Connor:

Would you concede that to the extent that the state operated its public hospital and its pharmacy within that hospital only for the benefit of the indigent sick that the state undertook to care for, that even under your test, the Robinson-Patman Act would not apply?

Joe L. Tucker, Jr.:

Your Honor, I think that would depend entirely on the facts of the case.

I think it would depend on whether there was a resale in competition, or whether or not, for instance, they were giving away the drugs.

I think–

Sandra Day O’Connor:

Or sold very cheaply to people who qualified as indigents who couldn’t afford otherwise to buy them.

Joe L. Tucker, Jr.:

–Well, I would have to say, Your Honor, that if drugs were sold and they were sold in competition with private enterprise and they were obtained through discriminatory price bidding, then they would have to fall within the proscriptions of the Robinson-Patman Act.

There are–

Sandra Day O’Connor:

Wouldn’t that have the effect of discouraging states and local governments from providing certain forms of assistance to the indigent sick?

Joe L. Tucker, Jr.:

–No, Your Honor, I don’t believe so.

In Alabama this has not been a function of state government.

In fact, it’s not even authorized by the state code.

The code… nowhere have I been able to find in the Code of Alabama, 1975 edition, anything that authorizes any state agency, including hospitals, to sell drugs to the general public.

This is something that has occurred and evolved through the development of the University of Alabama in Birmingham which covers a 60-square block area of downtown Birmingham.

I would like to point to the legislative history.

It appears, from the cases, that certainly, an exemption should not be carved out.

An exemption should be just limited to the exemption stated.

And there is an exemption for private, non-profit hospitals.

That exemption, the Non-Profit Institution Act, in fact, does cover governmental agencies.

But the legislative history supports our position that purchases by state and county agencies are covered by the Act when those agencies use those goods in competition with private retail pharmacies, rather than consuming them for their own use.

I’d point to Mr. Teegarden’s testimony in the petitioner’s brief on the merits, pages 9 and 10, page 12, pages 15 and 16.

There, Mr. Teegarden explained that the state or federal government, whichever, is saved by its function.

That is, it was never envisioned that the state or the federal government would be in competition with private enterprise.

That they would take on this anti-competitive nature and compete with private enterprise.

Joe L. Tucker, Jr.:

He stated that the reason they were not subject to the Robinson-Patman Act, in his testimony, was because they were not in competition.

He went on to say that if a city hospital competed with a privately-owned hospital that it would be subjected to the proscriptions of the Robinson-Patman Act.

So certainly, the legislative history of Mr. Teegarden when he was testifying before the Senate or House committee, covered this area.

He covered this problem and stated that if they enter into competition, then they are going to be required to adhere to the proscriptions of the Act.

Byron R. White:

Your case only reaches situations where the resale is available to the public generally, I take it.

Joe L. Tucker, Jr.:

That’s correct.

Byron R. White:

So you don’t think it would reach post exchanges, which are just restricted to the military.

Joe L. Tucker, Jr.:

That’s correct.

Byron R. White:

Or whoever they’re restricted to.

Joe L. Tucker, Jr.:

That’s correct.

So long as it is restricted to that agency’s own use, whether it was its dependents… I mean, employees or dependents of the employees–

John Paul Stevens:

Well, what if the University of Alabama said we’ll only let students patronize the drug store?

Joe L. Tucker, Jr.:

–They would only let students patronize the drug store?

John Paul Stevens:

Yes.

Joe L. Tucker, Jr.:

I don’t think the students would be covered.

John Paul Stevens:

Well, the students aren’t covered, but are the drug stores covered?

You say it would not apply if the federal government, or the government agency restricted the resale to people within… for whom it had some responsibility.

Joe L. Tucker, Jr.:

Yes, sir.

John Paul Stevens:

So I take it you’ve just excluded the University of Alabama drug store if they say nobody but students can buy here.

Students or faculty.

Or faculty, yes.

So you would exclude them?

Joe L. Tucker, Jr.:

Faculty and staff members could purchase.

Byron R. White:

Yes.

And the Robinson-Patman Act wouldn’t reach that situation.

Joe L. Tucker, Jr.:

That’s right.

John Paul Stevens:

And how about students?

Joe L. Tucker, Jr.:

In my understanding of students, it would not apply, according to my reading of Abbott Laboratories versus Portland Retail Druggists.

John Paul Stevens:

So then, the only competition you’re talking about is the extent to which the university drug store sells to members of the general public who are not either students or faculty.

Joe L. Tucker, Jr.:

That’s correct.

John Paul Stevens:

What about families of the faculty or families of the students?

Joe L. Tucker, Jr.:

They could purchase, also.

My reading of Abbot Laboratories versus Portland Retail Druggists allows faculty members, staff and–

John Paul Stevens:

If that’s the case, it’s construing an exemption from the Act.

We don’t have an exemption here, do we?

Joe L. Tucker, Jr.:

–No, sir.

There is no exemption other than the Non-Profit Institutions Act.

There is no exemption spoken to in the entire Act.

John Paul Stevens:

Well, this is a very different theory from Mr. Teegarden’s theory that you quote I think three times in your briefs.

His theory was there’s an absence of injury to competition.

Now you’re relying… you say that isn’t the test at all; the test is 13c, which is a very different theory.

Joe L. Tucker, Jr.:

Well, Your Honor, I would say that Mr. Teegarden’s theory is what I’m saying–

John Paul Stevens:

You see, his theory came before there was any 13c.

Joe L. Tucker, Jr.:

–Right.

There would be an exemption; even though the Act applies there would be an exemption to take it out from under the proscriptions of the Act if it meets the test of Abbott Laboratories, which considered 13c.

John Paul Stevens:

What is the legal basis for your saying this?

Just that it makes good sense?

Because you certainly can’t base that on what Teegarden said; you can’t base it on 13c.

It may make a lot of sense, but is there any legal foundation?

Joe L. Tucker, Jr.:

Yes, sir.

As stated.

The Portland Retail Druggist in my reading of it is the same as what we have here except that we have governmental institutions competing with private enterprise as opposed to private persons.

If I may comment with regard to the Non-Profit Institutions Act, that Act exempts purchases for consumption by both non-profit and charitable governmental institutions.

My question would be why would Congress, two years after the Robinson-Patman Act, enact the Non-Profit Institutions Act if there was a per se exemption already?

It is only logical that the Non-Profit Institutions Act was enacted to create this exemption for non-profit charitable institutions and governmental institutions.

And I would point to–

Sandra Day O’Connor:

Is it possible that it was enacted only to aid the charitable institutions?

Wasn’t that where the problem was?

Joe L. Tucker, Jr.:

–Well, if I may point to the legislative history of that, Justice O’Connor, Representative Walter’s testimony… and that’s found on pages 8 and 9 of our Reply Brief, and on pages 11 and 12 of the Amicus Brief of the National Association of Retal Druggists.

Representative Walter’s testimony there specifically stated that the Non-Profit Institutions Act applied both to charitable institutions and to governmental agencies such as governmental hospitals.

Joe L. Tucker, Jr.:

Further, the case of Logan Lanes versus Brunswick held that the sales of bowling equipment to the Utah State University were exempt because that bowling equipment and those bowling lanes were being used for the university’s own use, and it went into detail to discuss how it was used in the PD program in the teaching of classes, used by faculty members, used in physical education by the students, et cetera.

Further, in the City of Lafayette case, as found at 425 US, at page 397, footnote 14, this Court exempted… stated in that footnote that libraries were exempt because they made purchases for their own use.

Further, I would point to the motions to dismiss by nine of the defendants in this case.

Those motions are found in the Joint Appendix Pages 19A to 48A.

Nine of the defendants in this case concede that the Non-Profit Institutions Act applies to governmental purchasers.

Now, I would suggest that if the Non-Profit Institutions Act applies to governmental purchases then, of course, the Robinson-Patman Act would have to apply to those purchases.

Further, the attorneys general of the states of California and Georgia–

John Paul Stevens:

Let me interrupt a minute.

They filed a motion to dismiss and one of the grounds of the motion was that the sales allegedly made are lawful under 13c.

Is that a concession, you think, that–

Joe L. Tucker, Jr.:

–I think so, Your Honor.

Nine of the defendants… and in fact, one of those defendants is Cooper Green Hospital.

Cooper Green Hospital, in my opinion, by filing this amendment, concedes that the Act applies by claiming the exemption under 13c.

The attorneys general of California and Georgia have held that the Robinson-Patman Act applies to governmental bodies when they act in competition with private enterprise.

These opinions of the attorneys general are referred to in our brief at page 13 and pages 14 and 15 of the Amicus Brief of the National Association of Retail Druggists.

In the case referred to by the Georgia attorney general, the state was running a factory for the blind, and in that opinion, the attorney general found that the Robinson-Patman Act did not apply to sales by that factory for the blind because they were… the sales were made to state agencies.

But he went on to say that the factory for the blind would divest itself of its sovereignty if it acted in a proprietary interest.

That is, if it sold goods out of that factory to the general public, if it got outside of sales to state agencies and to the state itself.

Once it got outside that sphere, then its sales would be subject to the Robinson-Patman Act.

Further, I would point to the opinion of the district court which is relied upon by the court of appeals, and would say that the cases and other authorities cited by the district court do not support its ruling.

Each and every of the cases cited as authority by the district court did not consider the issue of whether or not sales by governmental agencies were being made to the general public in direct competition.

None of those cases and none of those citations considered that point.

The case of General Shale versus Struck which I’ve already mentioned was one of the cases relied upon by Judge Pointer of the Northern District of Alabama, in that case there was no sale of brick.

Further, the brick was used by the City of Louisville, Kentucky for its own use in building a housing project.

And thus, since there was no sale and it was for their own use, there was no competition.

Further, another case cited by the district court, Gulf Oil versus Copp, turned on the fact that there was no interstate commerce.

So that case is inapplicable.

The case of Logan Lanes versus Brunswick.

That’s a Ninth Circuit case that affirmed the district court’s dismissal of a plaintiff’s case against Brunswick on the basis that the Non-Profit Institutions Act applied.

Because the Non-Profit Institutions Act applied and the state university was using the bowling lanes were for their own use, again, they were exempt because of that.

Joe L. Tucker, Jr.:

Further, the attorneys general’s opinions cited by the district court did not consider purchases that were being made for the purpose of resale by state and local agencies.

They did not consider the factor of competition with private enterprise.

The opinions of the… I might add, too, that the opinion of the Attorney General of the United States speaks to purchases by federal government and not to state and local agencies.

And I think that’s the key difference there.

The opinions of the attorneys general of Minnesota, Wisconsin and North Carolina were cited by the district court, but again, in each of these opinions, it was not considered… there was no consideration as to whether or not there was competition with private enterprise.

I’d like to save a few minutes.

Thank you.

Lewis F. Powell, Jr.:

–May I ask you a question before you sit down?

Did I understand you to say at the outset that the record does not show what percentage of the sales by these pharmacies went to the public generally?

Joe L. Tucker, Jr.:

No, sir, we did not get that far.

Lewis F. Powell, Jr.:

You don’t have any record other than the pleadings, do you?

Joe L. Tucker, Jr.:

No record other than the pleadings.

Lewis F. Powell, Jr.:

Decided on the motion to dismiss.

Joe L. Tucker, Jr.:

That’s correct, Your Honor.

Warren E. Burger:

Mr. Klingsberg.

David Klingsberg:

Mr. Chief Justice, and may it please the Court:

This case presents the question of whether sales to state and local government agencies are within the coverage of the Robinson-Patman Act.

I respectfully suggest that the petitioner has drawn the issue too narrowly, and that in interpreting congressional intent as to whether the Robinson-Patman Act covered state and local government agency purchases and looking at the language of the Act, it can’t simply be limited to drugs, it can’t simply be limited to hospitals and it can’t simply be limited to the state of Alabama.

But rather, it deals with the entire spectrum of government agencies, a great many of which purchase commodities and purchase commodities which are covered by the Robinson-Patman Act if indeed the Act was applicable, whether they’re sold for use or for consumption or resale under the terms of the Act.

Therefore, a very far-reaching assertion is being made here by the petitioner.

Our position, based on legislative history, judicial decisions and the unanimous view of the commentators, including Representative Patman, is that Congress did not intend to apply the Robinson-Patman Act to purchases by state and governmental agencies.

I would like, if I may, to concentrate on two main points; one, the statutory scheme as reflected in the Robinson-Patman Act of 1936 and the Non-Profit Institutions Act of 1938, which we say is logical and consistent only if the earlier statute, the original Robinson-Patman Act, is read as the legislative history indicates; not to reach purchases of governmental agencies.

And this conclusion is buttressed by Congress’s rejection in 1951 and 1953 of specific proposed amendments which were not enacted to extend the statute’s reach to purchases by states and their political subdivisions.

And thereafter, Congress failed to act despite more than 40 years of uniform enforcement agency recognition–

Byron R. White:

Do you have any instances in that legislative history of where the committee reports or individual congressmen or senators addressed expressly the sales for resale matter?

I know–

David Klingsberg:

–There was discussion–

Byron R. White:

–I’ve read your briefs, but I didn’t notice you ever picked out a particular instance like that.

David Klingsberg:

–Right.

There was discussion in the oral hearings with Mr. Teegarden, who is counsel to the wholesalers and one of the draftsman–

Byron R. White:

That may have been in a hearing, but nothing on the floor or in any committee reports.

David Klingsberg:

–Well, in the committee… in a written brief which Mr. Teegarden submitted, he was asked the question: would the bill prevent competitive bidding on government purchases below trade price levels.

And he answered that question first by saying that as a matter of statutory construction he would think that it would not be covered, and he assured Congress that it wouldn’t be covered.

And then he said a further reason was the effect on competition because of the requirements relating to secondary line competition.

I should point out, Your Honor, that the Robinson-Patman Act as ultimately passed also has a primary line provision in which there would be liability where there is a sale to a state, for example, if indeed the states were covered, and there is no effect on competition by the state or the city or the municipality with some drug store or retailer, but there was an effect on competition at the primary line level between the sellers.

And so on that basis, it would seem that the resale or the competition are not, by the state, would not, under the terms of the statute, have anything to do with whether the Act applies or not.

And Mr. Teegarden’s written report indicates the categorical elimination of applicability and assurance to the congressmen who were concerned as to whether or not the states and municipalities could continue their practice of competitive bidding and buy, in the words of Congressman Hancock who asked one of the questions, at the cheapest prices.

Congress was concerned that the states and cities be able to purchase at the cheapest prices and continue the practice, which they have today, of buying at prices as the question asked in the written report says, below trade price levels.

Now,–

William H. Rehnquist:

Mr. Klingsberg, with respect to the instances in 1951 and 1953 where you say that Congress rejected efforts to amend the Act, were there bills that actually were… hearings were held on in committee?

Did they get out of committee?

David Klingsberg:

–Not in the 1951 and 53, but in 1968 and 69, there were extensive hearings before a subcommittee of Congress on small business which dealt with this very problem.

The whole controversy was raised.

And as a matter of fact, Mr. Kintner, who is counsel to National Association of Retail Druggists who is one of the principal amici here, told the congressman on that occasion that there were three categories.

One category was government, and that was not covered by the Robinson-Patman Act.

The second category was charitable eleemosynary institutions, and that category was covered by the Robinson-Patman Act but given a partial exemption under the Non-Profit Institution Act.

The Non-Profit Institution Act did not apply to government.

And the congressional subcommittee adopted that, quoted it in its report and… to find the Non-Profit Institution Act as only applying to private charitable institutions, and concluded after extensive hearings at which it was brought out that there’s competition between drug stores and hospital pharmacies and so forth, there was testimony by pharmaceutical manufacturers that went on for weeks… concluded that what should be done is the administrative agencies should enforce the Robinson-Patman Act as against the non-profit, non-governmental private charitable hospitals where they don’t meet the requirements of the 1938 Act.

But never concluded and was never even asked by the National Association of Retail Druggists to extend the basic Robinson-Patman Act to cover governmental purchases.

So Congress–

William H. Rehnquist:

What was the purpose of that committee report?

Was it to say do not pass or do pass with respect to a particular piece of legislation?

David Klingsberg:

–I think the purpose was to consider the problem which was set before it at great length and to make recommendations which was a recommendation to the administrative agencies that they should enforce the Act as against the private, charitable hospitals.

Now, inherent in what I’ve been saying, if Your Honors please, is that to appreciate the logic of the statutory scheme, you have to look both at the 1936 Act and the 1938 amendment.

My proposition is that the 1938 amendment did not exempt governmental bodies because they were not covered by the Robinson-Patman Act to begin with, and any other construction would be illogical.

By its terms, the 1938 amendment provided for exemption of non-profit institutions.

Now, that’s not a term which is ordinarily applied to government.

It’s not the term which Congress used in 1951 and 1953 when they proposed amendments.

The called the state the states and political subdivision states political subdivisions.

The Non-Profit Institutions Act applies to purchases for own use by schools, colleges, universities, public libraries, churches, hospitals and charitable institutions, not operating for profit.

David Klingsberg:

Now, charitable institutions and churches are plainly not government.

Others, schools, libraries and hospitals theoretically encompass both governmental and non-government owned bodies.

Schools can be private.

So can hospitals, and as to libraries, despite the footnote in the Lafayette case which respectfully, we say is wrong, libraries can, I was very interested to find out, be privately run, privately endowed, open to the public libraries.

And there are thousands of libraries like that in the United States.

Now, if governmental purchases were intended to be covered by the 1938 exemption, a logical legislature surely would have included other types of governmental buyers.

Why would you have just three exemptions for libraries, schools and hospitals and apply the Robinson-Patman Act without any exemption, without any own-use exception to police, fire, sanitation, transit, parks, the cafeteria downstairs, museums, prisons and so on.

An irrational statutory scheme would result if the Robinson-Patman Act of 1936 were interpreted to reach purchases of all governmental entities and the 38 Act were interpreted just to exempt partially three governmental entities.

The only logical conclusion is that Congress believed, as the legislative history supports, that government purchases were not covered by the original ’36 Act, and the 1938 Act only applies to non-governmental eleemosynary, not-for-profit schools, hospitals, libraries, churches,–

John Paul Stevens:

Mr. Klingsberg, isn’t it possible that in 1938, Congress didn’t particularly consider the primary line competition problem because your principal focus was on the secondary line I think, in the Teegarden testimony at least, and that the assumption that it didn’t apply was simply based on the assumption that you wouldn’t have competitive injury in the normal case where there are sales to the government.

David Klingsberg:

–Your Honor, I think there are government agencies, in addition to the three that might be governmental in that Act, which compete, would sell for resale–

John Paul Stevens:

I understand it’s conceivable, as this case demonstrates.

But what the… the agencies they talked about, the large purchase contracts and so forth, in the attorney general’s opinion, were those where there wouldn’t be any realistic likelihood of competitive injury at the secondary line.

David Klingsberg:

–Well, public transit competes with private buses.

Public sanitation competes with private.

Cafeterias compete with restaurants.

Gift shops and souvenir shops in museums compete.

I think there are many areas where there might be competition which aren’t mentioned in this 1938 Act.

John Paul Stevens:

That’s my very point.

The areas of government purchases that are mentioned in the attorney general’s opinion and in the relevant discussion by Teegarden and others are areas in which there would be no competition with the private sector.

David Klingsberg:

Why would they pick, for example, libraries?

Libraries are not a particularly–

John Paul Stevens:

That was in 38.

David Klingsberg:

–In the 38 Act.

Why would they pick libraries, which ordinarily would not be viewed as competing or selling for resale?

Why would they pick schools or hospitals out of the myriad of agencies?

It seems to me the only logical conclusion is that as Congress indicated in the Senate and the House reports on the 1938 Act, that was dealing with eleemosynary institutions.

That’s what Congress said in both the Senate and the House reports.

And eleemosynary institutions are private, charitable institutions.

That’s what Congress said again in 1968 when it considered the matter.

David Klingsberg:

And therefore, it would be very unreasonable and unfair and illogical to have the basic Robinson-Patman Act of 1936 applying to every government agency and the 1938 Act exempting only three.

And that’s the reason why the logical statutory scheme, rational statutory scheme would be if the original Robinson-Patman Act did not cover any governmental agencies in the 38 Act; only exempted non-profit, private, charitable, eleemosynary institutions.

John Paul Stevens:

What do you think is the strongest case or opinion supporting your position?

David Klingsberg:

If Your Honor please, I think that there has to be a conglomeration of all of the factors we have here.

Mr. Teegarden’s written statement, Representative Patman in–

John Paul Stevens:

I understand the accumulation of arguments.

You don’t think there’s one case that you can point to that really is quite persuasive, or one opinion?

David Klingsberg:

–One–

John Paul Stevens:

If you had to pick out the one authority that you wanted to really rest on, would you pick one?

David Klingsberg:

–I don’t think I could pick one more than the other, except perhaps Mr. Teagarden’s written statement.

John Paul Stevens:

But he emphasizes competition, is the problem with that.

He emphasizes the absence of injury to competition.

David Klingsberg:

He says that’s a further reason.

John Paul Stevens:

Yes.

David Klingsberg:

But I think that really–

John Paul Stevens:

He doesn’t categorically say that no sale to government could ever be covered.

David Klingsberg:

–Well, he says that eliminates the possibility, meaning there is no possibility, but I prefer to take the conglomeration of facts.

Representative Patman in 1938, the same year that the 1938 Act was passed, said in his treatise that the Robinson-Patman Act did not cover governmental purchases.

And then, 15 years later, there was the submission of the two bills which Congress failed to enact which would have expressly extended.

Byron R. White:

Could I ask you–

David Klingsberg:

Yes, Your Honor.

Byron R. White:

–what you think the limits of the exemption for sales to churches and eleemosynary institutions, do you think… an exemption for purchases that have… and use that have some relation to their function?

David Klingsberg:

I think Your Honors defined that in the Abbott case, in a very complicated way for hospitals, and I suppose if that were, contrary to the plain wording of the statute, extended to every single governmental agency–

Byron R. White:

Well, I just want to talk about the eleemosynary institution.

Take a private… take a church.

Take a church.

It decides that to make a little money we’ll go into the book business.

They start buying books very cheaply and selling them very cheaply.

David Klingsberg:

–They wouldn’t be exempt.

Byron R. White:

Why not?

David Klingsberg:

Because it wouldn’t be for own use.

Byron R. White:

Well, they are certainly using them to make some money.

David Klingsberg:

I think own use means–

Byron R. White:

So you think that that exemption then is limited to own use, the ’38 Act.

David Klingsberg:

–That’s what the statute says.

Byron R. White:

Yes, and you wouldn’t include within own use resales.

David Klingsberg:

Not for profit.

Byron R. White:

But you think the exemption for governmental institutions, which you say was pre-existent–

David Klingsberg:

Yes, Your Honor.

Byron R. White:

–covers resales as well as anything else.

David Klingsberg:

I’d say it covers everything, that it was never intended to be covered in the first place.

I said government was not intended to be… purchases by government–

Byron R. White:

Yes, yes, but why do you… but you yet have to come up with some support in the legislative history to indicate that the government exemption which you say existed from the very start covers purchases for resale as well as just purchases.

David Klingsberg:

–Yes.

I say that because Mr. Teagarden in his written brief gave two grounds, and the first ground was a matter of statutory construction, which has nothing to do with resale–

Byron R. White:

I know, but I still want you to find me some express mention of purchases for resale anywhere in the legislative history, where somebody gives the opinion that the government may decide to go into competition with private industry and purchase goods for resale and direct competition, and that that was exempt.

David Klingsberg:

–I can only–

Byron R. White:

Well, there isn’t any, is there?

David Klingsberg:

–There is not any explicitly.

No, Your Honor.

I can only infer–

Byron R. White:

Any more than there is for private institutions.

David Klingsberg:

–In the original statute?

Byron R. White:

No, under the ’38 Act.

David Klingsberg:

That’s explicit in the Act.

William H. Rehnquist:

Are you speaking, strictly speaking of an exemption in the same sense that the ’38 Act conferred an exemption on eleemosynary institutions, or are you speaking simply of a failure to include within the Act in the first place?

David Klingsberg:

The latter, Your Honor.

Byron R. White:

Although it is pretty hard to say that the literal words of the statute doesn’t cover sales to government.

You have to imply some… you have to do… you have to construe the Act not to include government.

David Klingsberg:

Yes, Your Honor.

David Klingsberg:

The Court in the past–

Byron R. White:

But the words in plain black and white–

David Klingsberg:

–The Court in the past has said, for example, in regard to the Sherman Act where there is no expression of intent one way or the other, that that would apply to cities, for example, in the Lafayette and Boulder case, but here we have a whole host of indicia which the Court has traditionally applied in terms of analyzing the purpose, context, legislative history, post-enactment history, et cetera, and–

John Paul Stevens:

–Mr. Klingsberg, may I ask you a question–

David Klingsberg:

–Yes.

John Paul Stevens:

–just give you a chance to comment on it?

I don’t know if it’s totally relevant or not, but among the amicus briefs, I don’t find a brief from the Solicitor General, and they have expressed their views on the Robinson-Patman Act in several cases recently, and generally have not been sympathetic to the statute, and their client surely has a great interest in the outcome of this case.

How do you explain that?

David Klingsberg:

I don’t know if this is proper argument, but I spoke to them… I spoke to the proper person in the Justice Department, and they said, this is a question of pure statutory intent.

We are sure you can argue it as well as we can.

There is no economic issues.

Warren E. Burger:

Within context, when–

–Not interested in the law?

If it was Mr. Patman who said it, the statement that was mentioned that this was for government purchases, is it not implicit in that kind of a statement, fairly implicit government purchases for its own use?

David Klingsberg:

Your Honor, Representative Patman stated in his book that the Attorney General of the United States has ruled that the Act does not apply to government, meaning federal government, and it may be presumed that his reasoning may also be applied to municipal and public institutions, so Representative Patman said in 1938 that he, the sponsor of this bill, the man whose name appears, did not think that it applied at all to governmental purchases.

Warren E. Burger:

That is somewhat post-legislative history, isn’t it?

David Klingsberg:

But it’s the same time, Your Honor, as the 1938 Act was proposed, and it doesn’t seem to make any sense to say that Congress in 1938 would have had a partial exemption for just three kinds of governmental entities and left the dozens of other governmental entities subject to the Act without any even own use exception, which would be a very far-reaching kind of holding, and very unfair and illogical to have in the one sense transit, parks, recreation, et cetera, et cetera, all apply without any exception at all, and to just pick these three, schools, hospitals, and libraries, and say, well, those are the only three to which we will give a partial exception.

It seems to me much more logical to say, as Mr. Teagarden indicated in his written report, that the Act didn’t apply to… the original Act didn’t apply to government at all, and the Court has said on many occasions that post-enactment history can be persuasive evidence, not conclusive, but persuasive.

Recently mentioned in the Northhaven case, statutory construction has been fully brought to the attention of Congress.

I have showed how that occurred.

In the Gulf case, Gulf against Kopp, dealing with the Robinson-Patman Act, how the failure of Congress to act is significant.

Here we not only have the failure of Congress to Act, we have specific legislation to extend coverage being proposed and that not being accepted by the Congress.

The Court has said that the positions of administrative agencies and enforcement agencies has great weight.

There has never been a case on record where the Department of Justice or the FTC, charged with the administration of this Act, have ever applied it or filed a claim against anyone selling to or any state or governmental agency purchasing.

There have been 46 years of uniform thought among commentators, all the leading commentators, Roven, Kolinowsky, Mr. Kintner, the counsel to the National Association of Retal Druggists, all believing and operating on the premise that the Robinson-Patman Act does not apply to governmental purchases, and we think under these circumstances, where the Act has been universally and long recognized as not applying, that any change–

John Paul Stevens:

May I ask you one other question that I have thought of and that is not discussed in the brief?

What about the Idaho… North Dakota, I guess it is, has the cement plant, Reeves against State.

When the government operates as a market participant and therefore avoids some of the constitutional problems that it might otherwise have, would it still not be subject to the Robinson-Patman Act in your view?

David Klingsberg:

–Yes, Your Honor, and as a matter of fact, this very point was brought to the attention of Congress at great length in the 1968 hearings.

There was testimony by numerous representatives of the drug industry.

David Klingsberg:

A year later there was testimony by wholesalers, but automotive industry people, all saying that the Robinson-Patman Act does not apply to governmental purchases, and that there are a lot of instances in a variety of industries where government competes, and Congress’s only reaction to that was to… the Subcommittee’s reaction was to render a report saying, well, it can be enforced against private charitable, eleemosynary institutions if they don’t comply with the ’38 exemption, but didn’t say anything about applying the Act to governmental purchases where they compete.

It’s a situation where, to take the words of prior Court opinions, there has been public controversy.

The controversy has been brought to the attention of the Congress, and Congress has not acted, and that is persuasive evidence, in light of all the facts that we have, under traditional criteria applied by the Court, that the Act was not intended to apply in the first place.

And taking all that into account, and combining it with the statement by Mr. Teagarden that as a matter of statutory construction Congress can be assured that the Act will not apply to governmental purchases, and that these government bodies can continue, as the Congressman expressed concern about, to have competitive bidding and to purchase at cheapest prices.

That’s what Congress was concerned about.

Mr. Teagarden said, don’t worry about it.

If you leave out the government, then they are not covered, and the issue is not whether this was correct statutory interpretation or not, as the Court recently pointed out in the Merrill Lynch and the Brown case.

The question is, how did Congress perceive this, not whether or not the statutory construction was correct, although I think that there is support which we cite and discuss in our brief for the point that this statutory construction is correct.

I should point out also that in… there have been… in two of the cases, one the Saks case, that dealt with sales to government liquor stores, and the General Shale case dealt with construction, these are both situations where the government did not compete, and this was an alternative ground of holding, but one ground of holding was that the Robinson-Patman Act did not mean to cover government sales in the first place.

I would like to also point out in answer to the question which was asked earlier of the Petitioner that hospitals doing the dispensing of pharmaceuticals and the giving of public health care is a traditional governmental function.

The district court here so found, and the Court in National League of Cities so held.

There are just two brief points that I want to make quickly that are discussed in the brief.

One is that the state has argued in its brief, and I am going to mention the point, that in order to avoid significant questions under the Tenth Amendment, that the Court should construe the statute so as not to apply to governmental purchases.

The other is that in view of the almost universally recognized inapplicability of the statute to governmental purchases for 46 years, if the Court should, and I don’t think there is basis, but if the Court should decide this issue of first impression, then there should not be a retroactive application which would upset not only the states’ allocations, cost computations, how they determine what programs to have, what prices are going to be charged, but also have a lot of treble damage liability in cases both against states and against the… sorry, strike states, buffer against the manufacturers of drugs in this particular case, but the manufacturers of every single product, every single commodity which are sold to state and governmental agencies.

And I emphasize again in conclusion that this is not a case which is limited to drugs or hospitals.

This is a very, very far-reaching case which would go to the very heart of everything that states buy, and all the cost allocations which states have made, all the programs which they have in place which are based upon the prices which they have been able to get at lower than trade levels because of the inapplicability of the Robinson-Patman Act.

Lewis F. Powell, Jr.:

May I just put one extreme example?

David Klingsberg:

Yes.

Lewis F. Powell, Jr.:

Assume that the post exchanges that are now all over the world where there are government forces stationed were proving to be modestly profitable, and the government decided to go into the supermarket business, calling them post exchanges, and opened them in competition with the chains of food supermarket stores around the United States, so that you had a Safeway and a Giant and a government PX, all open to the public.

That still, under your analysis, I suppose, would be exempt?

David Klingsberg:

Yes, Your Honor.

As a matter of fact, that’s a very hot issue.

It has been in the press.

It is the basis on which bills were offered to Congress to have the Robinson-Patman Act coverage extend to the federal government.

These post exchanges do not merely sell to military, they sell to diplomats and a whole host of other people.

That is a matter for Congress.

Lewis F. Powell, Jr.:

They do not sell to retired reserve officers.

I know that.

0 [Generallaughter.]

David Klingsberg:

But that’s the kind of issue which, like the sales to the states and political subdivisions, we suggest, involves so many far-reaching political and economic issues that that should be considered by Congress and has been considered by Congress, and not after 46 years of inapplicability be taken up and altered by the Court at the present time.

David Klingsberg:

Thank you.

Warren E. Burger:

Do you have anything further, Mr. Tucker?

Joe L. Tucker, Jr.:

Yes, Your Honor.

Mr. Klingsberg states categorically that the Non-Profit Institutions Act does not apply to government institutions.

I would point the Court to Page 34-A and Page 35-A of the Joint Appendix in this case, in which Mr. Klingsberg’s name appears of counsel.

His law firm’s name appears of counsel on behalf of Charles Pfizer and Company, and in his motion to dismiss before the district court, Paragraph Number 5 states, sales of goods… states as a ground for dismissing the case, sales of goods alleged to have been made at discriminatory prices that were lawful under 15 USC Section 13(c).

Why, then, if it does not apply, did they plead it in this case?

John Paul Stevens:

Do you think we are bound by that?

Joe L. Tucker, Jr.:

Sir?

John Paul Stevens:

Are we bound by that?

Joe L. Tucker, Jr.:

No, sir, but I think that–

John Paul Stevens:

Do you think he is bound by it?

Joe L. Tucker, Jr.:

–I think–

John Paul Stevens:

Could he withdraw that motion if he wanted to?

Joe L. Tucker, Jr.:

–I think at this point that it at least serves as an admission that–

John Paul Stevens:

Well, it is not a binding admission.

Joe L. Tucker, Jr.:

–they thought it applied at that time.

John Paul Stevens:

Whoever drafted that motion thought it applied when he filed that motion.

Joe L. Tucker, Jr.:

Yes, sir.

I would also point to the… to Page 8 and 9 of our reply brief, that tracks the legislative history, the testimony by Mr. Walter, who was the sponsor of the Non-Profit Institutions Act, and Mr. Saddle asked him,

“Does the gentleman think a county hospital or a city sanitarium wholly financed by a city, county, or state would come within the provisions of this Act. “

meaning the Non-Profit Institutions Act.

Mr. Walter responded, “Yes, I do”.

Mr. Walter was a sponsor of that Act.

Further, Mr…. as Justice Powell… Justice Stevens mentioned, Mr. Teagarden did not categorically state that the government was exempt from the Robinson-Patman Act.

He qualified it.

The question was, the federal government is not in… The statement was by Mr. Teagarden, the federal government is not in competition with other buyers from these concerns.

The federal government is saved by the same distinction, not of location, but of function.

They are not in competition with anyone else who would buy.

That is what Mr. Teagarden says with regard to that provision.

Joe L. Tucker, Jr.:

Also, I would like to mention very briefly Mr. Klingsberg’s reference to the failure of Congress to act on six subsequent proposed amendments.

Those first two proposed amendments in 1951 and ’53 were proposed for the purpose of restricting federal, state, and local governmental purchases generally and arguably would have extended to purchases by the government for their own use.

The last four bills which were proposed by Mr. Keogh did not even speak to state and local governments.

It went directly to federal agencies alone, and certainly that can’t be given any credence toward this case when those last four bills did not speak to state and local governments whatsoever, but were limited to federal concerns.

William H. Rehnquist:

Well, your argument would require us to say that the states and federal government were subject to the Act even on purchases for their own use, wouldn’t it?

Joe L. Tucker, Jr.:

No, sir.

William H. Rehnquist:

Well, because the ’38 Act just doesn’t cover the government, that one that exempted the eleemosynary institutions.

Joe L. Tucker, Jr.:

Well, the legislative history seems to believe that it… seems to say that it does cover governmental agencies.

Mr. Walter stated in his testimony before the Committee hearing that, yes, it does cover governmental hospitals.

William H. Rehnquist:

Do you think the language of the ’38 Act lends itself to that construction?

Joe L. Tucker, Jr.:

Sir?

William H. Rehnquist:

Do you think the language of the ’38 Act lends itself to that construction, that it includes the government as an eleemosynary institution?

Joe L. Tucker, Jr.:

In those areas, yes, sir, government hospitals, in the instances referred to by Justice O’Connor for health care, for the indigent, it would be covered and they would be exempt under the Non-Profit Institutions Act for that purpose, but I am not by any means trying to say that it should be applied to government institutions where they are purchasing for their own use.

That is certainly exempt.

Warren E. Burger:

Thank you, gentlemen.

Joe L. Tucker, Jr.:

Thank you.

Warren E. Burger:

The case is submitted.

The Honorable Court is now adjourned until tomorrow at 10 a.m..