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Archive for the ‘DOJ Cases, Criminal Verdicts & Fines’ Category

Germany’s Master Plan by Joseph Borkin and Charles A. Welsh – 1943. An Introduction by Thurman W. Arnold – Assistant Attorney General heading the Antitrust Division of the U.S. Department of Justice.

This book is a brilliant and arresting exposition of the results of the disease of cartelization. In all commercial civilization great industries rise out of initiative and superior efficiency. At a certain stage in their growth, hardening of the arteries takes place. Industrial leaders believe that the time has come to rationalize and stabilize production. Restricted production, high cost, and low turnover become the order of the day. To maintain that order, new industry must be kept out of production and old industry must not produce too much because, according to this order of new ideas, too much goods is not wealth but distress goods and an undesirable surplus. Prices and production become fixed at levels which will pay dividends on an existing capital structure. Industrial progress becomes sluggish and then stops. The productive capacity of the nation is curtailed. It is an order of ideas that can produce neither wealth in peace nor strength in war.

There is no short way of defining a cartel. For present purposes we may describe it briefly as a small ring of producers or distributors who have acquired control of domestic or foreign markets. That control is justified as a rationalization of industry management for the purpose of expert economic planning. It is used, however, to crush new enterprise and to prevent maximum production.

The first symptom of cartelization is an unbalanced exchange between industry which is restricting production and unorganized farmers and small businessmen who are unable to restrict production. The farmer becomes unable to buy enough industrial goods to keep factories running. Labor is laid off, thus restricting purchasing power further. Goods pile up in domestic markets because they cannot be distributed at the artificial levels maintained by the cartel. People begin to talk about over-production, even in the face of scarcity in terms of actual need.

The next symptom is the attempt of the domestic cartels to control foreign markets so that the nation can get rid of this so-called over-production, this inconvenient wealth that threatens an artificial price structure. International cartels are formed, dominated by private groups without public responsibility, who control the foreign economic policy in the interests of international scarcity. With the growth of these international cartels democracy becomes a shell which conceals the power of private groups. Political freedom cannot exist except when it is founded upon industrial freedom. If a private group controls a man’s livelihood it can control both his actions and his philosophy.

And so with the progression of the disease of cartelization. A new political philosophy arises justifying centralized planning of production and distribution. The competitive race for efficiency which is symptomatic of a young and vigorous commercial organization is denounced as waste.

Socialists eagerly advocate this new order. Their only quarrel with industrialists is in the selection of those who will manage the brave new world. Socialists want to recruit the managers from the ranks of the academic thinkers sympathetic with the underdog. Industrialists want to choose them from the cartel leaders. Both groups are ready to abandon industrial democracy. Thus a culture that is willing to embrace a political dictatorship spreads over the thinking of the Nation.

In the first stage of this struggle between socialists and cartel managers the industrialists win because they start out in the seats of power. They fail to maintain that power, however, because their policy of stabilizing prices at home prevents the distribution of goods–creating idle capital and idle labor–want in the midst of plenty. Before Hitler’s rise to power, Germany had reached a stage under private cartelization when agricultural products, though scarce, sold at ruinously low prices. Industrial products, though plentiful, could not be distributed in Germany. The wheels of industry stopped. There was a minimum of 7,000,000 unemployed.

When private industry fails to distribute goods, Government is compelled to step in. Deficit financing, subsidies, and huge relief rolls grow with alarming rapidity. In this stage the writers and thinkers of a socialistic tinge flood into Government with dreams of a new world arising out of the collapse of capitalism. But, unfortunately, for socialistic dreamers the techniques of acquiring and holding power in times of economic chaos require individuals of a tougher and less humanitarian mould. In other words, only a Hitler had the ruthlessness and cold cruel realism to consolidate a position out of the collapse of the German economic structure which the cartels brought about.

And thus the vast centralized cartel organization of Germany became a tool in the hands of a dictator who no longer operated for private profit but solely to serve a ruthless ambition. The cartels of the democracy were easy dupes. Hitler was able to aid them in restricting their own production, while Germany’s production went ahead by leaps and bounds.

The soft opulent business organizations of England and America were intent on the pursuits of their short-run policies of restricted production, high costs and low turnover. They saw in German cartels an ally, not an enemy.

To such international cartels we owe the peace of Munich. To our own cartels we owe the failure to expand American industry prior to Pearl Harbor. To the interests of these cartels in stabilizing prices and restricting production we owe our present scarcity in all basic materials.

To a large extent our present industrial unpreparedness of this war is due to the fact that Germany through international cartels built up its own production and assisted the democracies in restricting their production in electrical equipment, in drugs, in chemicals, in basic war materials such as magnesium and aluminum. International cartels with the active assistance of American interests have operated to deprive us of markets in our own hemisphere by giving them away to Germany.

We are now faced with the necessity of making our industrial democracies so efficient that we can win this war, which is essentially a war of industrial production. Our cartel structure has weakened us spiritually by introducing an alien philosophy which leads us to distrust our own economic traditions. It has weakened us materially by making us afraid of full production because it creates surpluses which cannot be distributed after the war.

We must, if we are to fight this war with enthusiasm for our own way of life, destroy both the philosophy and the private power of domestic and international cartels over foreign and domestic economic policy. At such a time this book should be read by everyone interested in the economic future of America.

No other book that I know of analyzes in such vivid detail the growth and activities of international cartels. The writers have studied the cartel problem not only from books but from first-hand information and observation. Mr. Joseph Borkin has been for many years Economic Advisor to the Antitrust Division, Department of Justice, particularly in relation to foreign international cartels. The fact that the public is now aware of the international cartel structure is in a large measure due to his work. Mr. Welsh is an authority on international trade and finance, and is a cartel expert for the Office of Price Administration. Both of them have shown exceptional ability in this particular field.

While of necessity the emphasis of this book is upon the war problem, I would suggest that the reader consider it in light of the long-run economic policy for America. We cannot turn over our future economic policy to private groups without public responsibility as we have done in the past. We not only must win the war but the peace which follows. We cannot win the peace if the cartel problem remains unsolved.

I must conclude this introduction with a caveat because of my official position. The research and conclusion the writers of this book have been done outside of their official duties in the Government. They have not been checked or approved in any official way.

Thurman W. Arnold

To read this book click here. Germany’s Master Plan

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Graph: Genealogy of the Drug Industry – Europe and America

Bottom x-axis are the names of 26 pharmaceutical companies existing in 1989. Top x-axis are the names of eight pharmaceutical companies existing in 2002. Y-axis runs from 1989 to 2002 in one year increments. This graph plots the mergers among pharmaceutical companies from 1989 to 2002, demonstrating the merger history for the following eight companies:

Pfizer, with 2002 sales of $48 billion:

– Pharmacia AG merged with Upjohn in 1995 to become Pharmacia and Upjohn.
– Pharmacia and Upjohn merged with Monsanto in 2000 to become Pharmacia.
– Warner-Lambert merged with Pfizer in 2000 to become Pfizer.
– Pfizer merged with Pharmacia in 2002 to become Pfizer.

GlaxoSmithKline, with 2002 sales of $30 billion:

– Beecham merged with SmithKline Beckman in 1989 to become SmithKline Beckman.
– Wellcome merged with Glaxo in 1995 to become Glaxo Wellcome.
– SmithKline Beckman merged with Glaxo Wellcome in 2000 to become GlaxoSmithKline.

Merck, with 2002 sales of $21 billion:

– Medco merged with Merck in 1993 to become Merck.

Bristol-Myers Squibb, with 2002 sales of $19 billion:

– Squibb merged with Bristol-Myers in 1989 to become Bristol-Myers Squibb.
– Bristol-Myers Squibb merged with DuPont Pharmaceuticals in 2001 to become Bristol-Myers – Squibb.

Novartis, with 2002 sales of $19 billion:

– Ciba-Geigy merged with Sandoz in 1996 to become Novartis.

Roche Holding, with 2002 sales of $18 billion:

– In 1990 Roche Holding acquired its initial stake in Genentech.
– Roche Holding merged with Genentech in 1995 to become Roche Holding.
– In 1999, Novartis bought stake in Roche Holding.

Aventis, with 2002 sales of $18 billion:

– Rorer merged with Rhone-Poulenc in 1990 to become Rhone-Poulenc Rorer.
– Fisons merged with Rhone-Poulenc Rorer in 1995 to become Rhone-Poulenc Rorer.
– Possibly an error in the graph: Rhone-Poulenc merged with Rhone-Poulenc Rorer in 1997 to become Rhone-Poulenc.
– Hoechst merged with Marion Merrell Dow in 1995 to become Hoechst.
– Rhone-Poulenc merged with Hoechst in 1999 to become Aventis.

Wyeth, with 2002 sales of $14 billion:

– In 1991, American Home Products buys 60% stake in Genetics Institute.
– American Cyanamid merged with American Home Products in 1994 to become American Home Products.
– American Home Products merged with Genetics Institute in 1996 to become American Home Products.
– No explanation how American Home Products became Wyeth.

To review this document at The Department of Justice click on the link below.


Graph: Genealogy of the Drug Industry – Europe and America (Corporate merger information)

Department of Justice Power Point – Corporate Mergers & Geneology

Department of Justice – Power Point Presentation (Federal Trade Commission—Department of Justice Workshop on Merger Enforcement
Non-Price Competition and Innovation
Innovation Market Analysis After Genzyme-Novazyme)

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Merck to Pay More than $650 Million to Resolve Claims of Fraudulent Price Reporting and Kickbacks

DEPARTMENT OF JUSTICE
FOR IMMEDIATE RELEASE
THURSDAY, FEBRUARY 7, 2008
WWW.USDOJ.GOV

WASHINGTON — Merck & Company has agreed to pay more than $650 million to resolve allegations that the pharmaceutical manufacturer failed to pay proper rebates to Medicaid and other government health care programs and paid illegal remuneration to health care providers to induce them to prescribe the company’s products, the Justice Department announced today. The allegations were brought in two separate lawsuits filed by whistleblowers under the qui tam, or whistleblower, provisions of the False Claims Act.

“Not only is the combined recovery in these two cases one of the largest healthcare fraud settlements ever achieved by the Justice Department,” said Attorney General Michael B. Mukasey, “it reflects our continuing effort to hold drug companies accountable for devising pricing schemes that deliberately seek to deny federal health care programs the same lower prices for drugs that are available to other commercial customers.”

H. Dean Steinke, a former Merck employee, alleged in his suit filed in Philadelphia that Merck violated the Medicaid Rebate Statute in connection with its marketing of its drugs Zocor and Vioxx. (Zocor is a cholesterol lowering drug and Vioxx, pulled from the market by Merck in September of 2004, was used for the treatment of acute pain and in the treatment of arthritis.) Merck allegedly offered deep discounts for the two drugs if hospitals used large quantities of those drugs in place of competitors’ brands.

The Medicaid Rebate Statute requires that drug manufacturers report their “best prices” and other cost information to the government in order to ensure that Medicaid obtains the benefit of the same discounts and price concessions that other purchasers enjoy. An exception to this rule allows manufacturers to exclude from the prices they report any discounted prices that are “nominal” in amount. Merck improperly termed as “nominal” the prices it offered to hospitals to boost their sales and excluded those discounts from the prices it reported to the government.

Steinke’s suit further alleged that from 1997-2001, Merck had approximately fifteen different programs used by its sales representatives to induce physicians to use its many products. These programs primarily consisted of excess payments to physicians that were disguised as fees paid to them for “training,” “consultation” or “market research.” In fact, the government alleged that these fees were illegal kickbacks intended to induce the purchase of Merck products. Merck agreed today to pay $399 million plus interest to settle the Medicaid Rebate as well as the kickback allegations.

In a separate suit filed by physician William St. John LaCorte in New Orleans, it’s alleged that Merck had established a marketing scheme in which it provided substantially reduced prices for its Pepcid products once the hospitals agreed to primarily use the drug instead of a competitor’s. (Pepcid is used to reduce stomach acid and to treat heartburn and acid reflux.) Merck allegedly offered these incentives to hospitals in order to obtain the benefit of spillover business when patients would continue to purchase Pepcid once he or she was discharged. Merck improperly termed as “nominal” the prices it offered to hospitals to boost the sales of Pepcid, excluded those discounts from the prices it reported to the government, and thus effectively denied the government the benefit of these lower prices. Merck agreed today to pay $250 million plus interest to settle these allegations.

Under the two settlement agreements, the federal government will receive more than $360 million, and forty-nine states and the District of Columbia over $290 million. In addition, Mr. Steinke will receive $44,690,000 from the federal share of the settlement amount and an additional $23.5 million from the states. Similarly, Dr. LaCorte will receive a share of the proceeds from the federal and state settlement amounts under their respective qui tam statutes.

“Our health insurance programs rely upon the integrity of health providers, including pharmaceutical manufacturers, when they report to the government programs which reimburse their products and services with scarce funds,” said Patrick L. Meehan, U.S. Attorney for the Eastern District of Pennsylvania, whose office led the investigation of the Steinke matter.

“Particularly in the wake of Hurricane Katrina, it is critical that precious government resources not be lost to fraud and abuse,” said Jim Letten, the U.S. Attorney for the Eastern District of Louisiana, whose office led the investigation of the LaCorte matter. “This office is dedicated to prosecuting pricing fraud so that healthcare dollars go to help the most vulnerable of our citizens – the disabled and the poor.”

“The Office of Inspector General has a strong record of pursuing violations in the Medicaid drug rebate program and is working closely with Federal and State law enforcement to hold accountable pharmaceutical companies engaged in illegal practices resulting in Medicaid fraud,” said Daniel R. Levinson, Inspector General of the Department of Health and Human Services.

Today’s settlement was the result of close cooperation between the Justice Department, state attorneys general and other law enforcement entities including Medicaid Fraud Control Units, and the Office of Inspector General of the Department of Health and Human Services.

As part of the resolution of these two cases, the Department of Health and Human Services Office of Inspector General (HHS-OIG) and Merck have entered into a five-year Corporate Integrity Agreement to ensure that such improper conduct does not occur in the future.

TO REVIEW THE COMPLETE REPORT CLICK ON THE LINK BELOW

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Merck Settles Clean Water Act Violations at its Montgomery County, Pennsylvania Pharmaceutical Plant

DEPARTMENT OF JUSTICE

FOR IMMEDIATE RELEASE
THURSDAY, DECEMBER 13, 2007
WWW.USDOJ.GOV

WASHINGTON—Merck, the global pharmaceutical research company, has agreed to resolve violations of federal and state water pollution control regulations arising from spills including a June 2006 spill at its pharmaceutical plant outside of Philadelphia, announced Pat Meehan, U.S. Attorney for the Eastern District of Pennsylvania, Ronald J. Tenpas, Acting Assistant Attorney General for the Justice Department’s Environment and Natural Resources Division, the Environmental Protection Agency, and the Pennsylvania Department of Environmental Protection.

In one of the most comprehensive remediation settlement agreements for the Eastern District of Pennsylvania, Merck will pay $10 million to put into place systems that will prevent future dangerous discharges at their facility. Merck will spend approximately $9 million for extensive environmental projects. A consent decree requires Merck to pay $1,575,000 in penalties and civil damages for past violations divided as follows: $750,000 to the United States; $750,000 to the Commonwealth of Pennsylvania; $75,000 to the Pennsylvania Fish and Boat Commission.

“Perhaps more than anything else, this settlement says to every company that discharges dangerous chemicals as part of its operations that it is accountable to the environment and the community,” said U.S. Attorney Meehan. “Because when you get right down to it, no one should have to wonder, when they walk into the kitchen for a glass of water, if what they are about to drink is going to make them or their children sick.”

“Merck’s actions led to an extensive fish-kill and caused the Philadelphia Water Department to temporarily shut down its drinking water operations,” said Acting Assistant Attorney General Tenpas. “This settlement ensures that Merck will take steps to prevent future illegal discharges including installing an early warning system to protect drinking water.”

The Merck facility, a pharmaceutical plant located in West Point, Pa., houses pharmaceutical and vaccine research as well as the manufacturing of pharmaceutical products and vaccines. The facility consists of approximately 400 acres, 110 buildings employing approximately 8,500 employees. Merck discharges pollutants from this facility to the Upper Gwynedd Township Publicly Owned Treatment Works (UGT POTW). The treated effluent is discharged into the Wissahickon Creek, a tributary of the Schuylkill River.

The federal court complaint, filed today, along with the settlement papers, alleges that Merck violated the Clean Water Act with several discrete discharges that caused numerous pass through and interference violations at the UGT POTW:

-On June 13, 2006, Merck discharged potassium thiocyanate (KSCN) that reacted with the chlorination at UGT POTW and after discharge caused extensive fish kills in the Wissahickon Creek on June 14th and 15th; also causing the Philadelphia Water Department to close its Schuylkill River drinking water intake on June 14th and 15th; and causing PA DEP to issue health advisories to ban all recreational uses on the Wissahickon Creek for the period June 14, 2006, through July 10, 2006.

-On Aug. 8 and 9, 2006 Merck discharged a large batch of spent substrate used for vaccine production which when treated at UGT POTW caused extensive foam discharge into the Wissahickon Creek.

-On Aug. 16, 2006, Merck discharged a large amount of cleaning agents that when treated at UGT POTW caused extensive foam discharge into the Wissahickon Creek.

The proposed consent decree includes interim measures undertaken already to: prevent discharges without pre-approval; create a tracking system for waste handling; create a task force to assess the system throughout the facility, and impose increased testing and assessment tools for waste stream. The decree contains Merck’s commitment to long term remedial measures including: a prevention program; an enhanced wastewater management program; and a chemical management accountability system for the facility. The estimated costs of these measures are in excess of $10 million.

“The resolution of this case and its special projects will bring both short and long-term environmental benefits to the community and the Wissahickon,” said Donald S. Welsh, EPA’s mid-Atlantic regional administrator. “When you consider that the source of 40 percent of Philadelphia’s drinking water is just downstream of this facility, these improvements and Merck’s environmental accountability has implications extending beyond the boundaries of its facility.”

The proposed consent decree also includes extensive environmental projects designed to improve the water quality and/or protect the Wissahickon as a source of drinking water. Merck has committed to: restoration of a segment of the Wissahickon Creek to improve the water quality of this key tributary of the Schuylkill River; creation of a wetlands on a 10 acre parcel of property adjacent to the creek; purchase and installation of an aquatic bio-monitoring system that monitors fish activity to give the Philadelphia Water Department an early warning system regarding materials in the Wissahickon Creek that may constitute a threat to the drinking water; the purchase and installation of an enhanced Automated Dissolved Oxygen Controls at the Upper Gwynedd Treatment Plant.

Each supplemental environment project, or SEP, is designed to improve water quality and/or protect the Wissahickon as a source of drinking water.

In addition the decree calls for Merck to contribute $4.5 million toward the purchase of a parcel of land adjacent to the creek that will have restricted use and open space easements in perpetuity.

The proposed consent decree is subject to a 30 day public comment period and final court approval. The case was handled by Assistant U.S. Attorney Margaret L. Hutchinson for the U.S. Attorney’s Office for the Eastern District of Pennsylvania. Martha Blasberg, Supervisory Counsel, PADEP, represented the Commonwealth of Pennsylvania. The matter was investigated by EPA Region III Water Protection Division, PADEP and the Pennsylvania Fish and Boat Commission.

To review the complete report click on the link below

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