Impro Products, Inc., a Minnesota Corporation v. John B. Herrick Babson Brothers, Co., an Illinois Corporation Richardson, Meyers and Donofrio, a Maryland Corporation Upjohn Co., a Delaware Corporation and Philips Roxane, Inc., a Delaware Corporation

Citations: 715 F.2d 1267; 1983 U.S. App. LEXIS 24994Docket: 82-2124

Court: Court of Appeals for the Eighth Circuit; August 11, 1983; Federal Appellate Court

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Impro Products, Inc. appeals a district court's summary judgment favoring defendants regarding its claims under Sections 1 and 2 of the Sherman Act, with the court concluding no evidence showed a conspiracy to suppress Impro's competition in the animal health sector. The Eighth Circuit affirms this decision. The excerpt provides background on the animal health industry, highlighting that antibiotics used in this field are regulated by the FDA under the Food, Drug, and Cosmetic Act, which applies to both interstate and intrastate commerce involving interstate components. Additionally, animal biologics, regulated by the USDA under the Virus, Serum and Toxin Act of 1913, can be marketed interstate only if licensed by the USDA; intrastate sales require FDA review but not a USDA license. The regulatory frameworks for these products are crucial for understanding their market dynamics.

Impro Products, Inc., a Minnesota corporation based in Waukon, Iowa, specializes in animal biologics featuring whey antibodies. Its products are categorized into three types: food supplements for enhancing dairy cattle milk production marketed interstate; whey blends for infection prevention in animals marketed intrastate; and teat dips without whey antibodies sold interstate. 

Dr. John Herrick, the defendant, served as a USDA extension veterinarian and a professor at Iowa State University, having previously been president of the American Veterinary Medical Association. His role involved gathering and sharing information on animal health issues with various stakeholders, including farmers and veterinarians. Between 1966 and 1976, Dr. Herrick consulted for several corporate defendants without disclosing these concurrent arrangements. He communicated with Impro about its products from 1959 to 1962, with Impro claiming he stopped assisting after a denied consulting fee request, which Dr. Herrick disputes.

The corporate defendants include:

1. **Babson Brothers Company**: An Illinois corporation that markets dairy equipment and teat dips, retaining Dr. Herrick in 1976 for consultancy roles, paying him $500 monthly plus expenses.
   
2. **Richardson, Meyers and Donofrio, Inc. (RM.D)**: A Baltimore advertising agency serving American Cyanamid, which produces livestock health products. RM.D hired Dr. Herrick in 1975 for insights into the animal health sector, compensating him with a $10,000 annual fee reimbursed by American Cyanamid.

3. **Upjohn Company**: A Delaware pharmaceutical corporation focusing on animal health antibiotics, which began consulting Dr. Herrick in 1966 for market insights, paying him $1,500 annually and engaging in related research and trade organizations.

Philips Roxane, Inc. is a Delaware corporation based in St. Joseph, Missouri, engaged in selling various animal health products, including antibiotics and biologics. Dr. Herrick, a consultant for Philips Roxane since the 1960s, provided insights on animal health developments and assisted the company's marketing and sales efforts, receiving an automobile and expense reimbursements in return. Philips Roxane has also been active in trade organizations and university research sponsorship.

Impro claims that its biological products compete with the antibiotics produced by the corporate defendants, citing benefits such as increased milk production and fewer adverse side effects compared to antibiotics. Impro alleges that the corporate defendants conspired with Dr. Herrick to undermine its competitiveness through consulting agreements, accusing Dr. Herrick of promoting their products while disparaging Impro's and influencing governmental licensing decisions against Impro.

The corporate defendants deny any conspiracy, arguing that Impro’s products do not compete with theirs and lack scientific validation. They assert that Dr. Herrick's remarks were made independently in his professional capacity.

In October 1978, Impro filed an amended complaint alleging conspiracy to restrain trade under the Sherman Act and included state law claims. The district court denied a motion to dismiss in 1979, leading to three years of discovery. In August 1982, the court granted summary judgment for the defendants, finding insufficient evidence of collusion to restrain trade or monopolization. A motion for reconsideration by Impro was denied, prompting Impro to appeal.

Summary judgment is appropriate when the moving party demonstrates there are no genuine disputes regarding material facts, and the facts are viewed favorably toward the nonmoving party. The key issue is whether a jury could reasonably infer that Dr. Herrick and certain corporate defendants conspired to harm Impro. Evidence supporting an inference of an agreement must be substantial rather than merely suggestive, and such inferences must derive from proven facts.

Impro's case has faced challenges in articulating a clear theory of antitrust liability, suggesting three potential conspiracies: a horizontal conspiracy among all defendants, a hub-and-spoke conspiracy with separate agreements between each corporate defendant and Dr. Herrick, and multiple vertical conspiracies without mutual knowledge among the corporations. The appellate review will focus on the latter two theories, as the horizontal conspiracy claim was not appealed.

A primary consideration is whether Impro's allegations constitute a valid conspiracy under the Sherman Act. The district court found in favor of this notion, agreeing that an established producer conspiring to suppress a competitor’s innovative product could create liability under Sections 1 and 2 of the Act. Specific cases cited illustrate that conspiratorial actions, such as false advertising or suppressing new products, can violate the Sherman Act if they aim to stifle competition.

Impro must demonstrate sufficient evidence for its conspiracy claims under Sections 1 and 2 of the Sherman Act to prevent summary judgment. Section 1 addresses conspiracies that restrain trade, while Section 2 focuses on conspiracies to monopolize, each requiring distinct proof elements. Both sections, however, necessitate evidence of concerted action, which involves showing that two or more parties entered into an express or implied agreement. Independent actions by individuals do not violate these provisions.

To meet the concerted action requirement, Impro must prove that the defendants shared a "unity of purpose" to engage in prohibited conduct. The district court previously granted summary judgment favoring the defendants, citing a lack of evidence showing concerted action between Dr. Herrick and the corporate defendants to harm Impro. Impro argues it provided evidence suggesting an agreement to suppress its competition in the animal health industry, which it believes is sufficient to preclude summary judgment.

Impro supports its argument with three key points: First, its products compete with those sold by the defendants, implying a motive for conspiracy. Second, each corporate defendant's agreement with Dr. Herrick, which involved substantial consulting fees, is presented as circumstantial evidence of a conspiracy opportunity and direct evidence of agreements. Third, the defendants engaged in harmful activities towards Impro, supporting the inference of concerted action based on motive and opportunity.

Dr. Herrick, a USDA veterinarian and Iowa State University professor, utilized his professional position to promote products from corporate defendants while disparaging those from Impro. He authored favorable articles about products from Babson, Philips Roxane, and American Cyanamid in publications like Dairy Illustrated and promoted Somnugen during a press conference for Philips Roxane. Additionally, he raised concerns about Impro’s biologics in a 1977 article for "Animal Nutrition and Health." 

Dr. Herrick actively sought to obstruct Impro's federal and state licensing efforts. He contacted colleagues to persuade the USDA against granting Impro a federal license, leading to an investigation termed the Beltsville test, which ultimately resulted in the revocation of Impro's interim license after the test concluded that Impro's products were ineffective. Following the investigation, the American Veterinary Medical Association published the test results at Dr. Herrick's urging.

In 1976, Dr. Herrick contributed to proposed state legislation in Iowa aimed at restricting intrastate biologics, indicating it was targeted at Impro. He also provided information about Impro to officials in various states conducting their investigations into the company’s products. Throughout the early to late 1970s, Herrick communicated regularly with USDA officials, encouraging scrutiny of Impro's efficacy and reporting potential violations of the Virus, Serum and Toxin Act.

Certain corporate defendants, such as Philips Roxane and American Cyanamid, engaged in activities detrimental to Impro by participating in trade associations and sponsoring research that opposed Impro’s products. These companies were involved in the American Health Institute's Veterinary Biologics Licensees committee, which undertook litigation and lobbying efforts aimed at curtailing the market for intrastate biologics.

Philips Roxane, Babson, and Upjohn are members of the National Mastitis Council, which includes various stakeholders such as governmental officials and veterinarians. The council promotes the use of antibiotics for mastitis treatment and states that there is no evidence supporting the use of whey antibodies for this purpose. Babson founded the council, and Upjohn has funded research for scientists on the council's mastitis publication committee. Both Babson and Upjohn have provided financial support for university research, including to Dr. Robert Bushnell, who subsequently pressured the California Department of Agriculture against Impro. Similarly, Dr. Roger Mellenberger urged the Michigan Department of Agriculture to revoke Impro's commercial feed license while receiving funding from Upjohn.

The plaintiff claims that evidence suggests a conspiracy involving Dr. Herrick and the corporate defendants to harm Impro. However, the court finds that the plaintiff must demonstrate more than just financial agreements; it must show an intent to suppress Impro as a competitor. The circumstantial evidence presented does not meet this threshold for inferring concerted action. The district court noted that all defendants denied any conspiracy under oath, and no direct evidence contradicted their statements. While a potential motive and opportunity to conspire existed, the evidence did not fulfill the necessary requirements to infer a conspiracy from parallel conduct.

Defendants provided uncontradicted sworn testimony demonstrating that the consulting agreements with Dr. Herrick do not support the plaintiff's conspiracy claims. The court found that the plaintiff failed to produce evidence for its conspiracy inference, leading to the dismissal of its complaint via summary judgment. The consulting agreements were established for legitimate business purposes and did not indicate collusion to harm Impro. Despite extensive discovery, Impro did not find evidence linking the agreements to a quid pro quo related to Herrick's negative comments on Impro. Testimony revealed that employees of the corporate defendants and their client, American Cyanamid, had no prior knowledge of Impro or its products before the lawsuit. There was no evidence indicating any corporate defendant was aware of or directed Dr. Herrick's actions against Impro, nor any evidence of a shared intent to disparage Impro. Each corporate defendant engaged Dr. Herrick for specific duties related to animal health, and the court rejected the notion that his role implicitly included harming Impro. Impro's argument for jury inference based on alleged anticompetitive activities was weakened by the long timeframe of nearly twenty years and the infrequency of the incidents, many of which predated the retention of Herrick by the defendants.

Dr. Herrick, as a USDA extension veterinarian, was required to occasionally comment on various animal health products. Although he may have acted unethically by not disclosing payments from corporate defendants while promoting their products and criticizing Impro's, this behavior does not constitute grounds for an antitrust claim. Impro argues that Herrick and certain corporate defendants were part of trade organizations that allegedly impeded the sale of Impro's products. However, the district court found these organizations served legitimate purposes consistent with their members' business interests, with no evidence to the contrary. 

Impro also noted that corporate defendants funded university research critical of its products. The court deemed such funding a common business practice and found no evidence suggesting ulterior motives. There was no indication of collusion between Herrick and the corporate defendants to suppress Impro as a competitor; their actions appeared to be independent business decisions. 

The district court concluded that Impro's circumstantial evidence did not support an inference of coordinated action, necessitating more substantial evidence to avoid summary judgment. Impro's attempts to challenge the credibility of the defendants did not suffice to create a genuine issue of material fact, as mere disbelief of the defendants' claims is insufficient to counter a summary judgment motion.

Concerted action can be established through inferences from defendants' conduct, provided the circumstances lead to a conclusion with reasonable certainty, supported by probative evidence rather than mere suspicion. The court found that there was no evidence indicating that any corporate defendant entered into an agreement with Dr. Herrick to suppress Impro as a competitor, justifying the district court's summary judgment against Impro's claims under Sections 1 and 2 of the Sherman Act.

Impro also argued for a hub-and-spoke conspiracy model, claiming that each corporate defendant had separate agreements with Dr. Herrick to harm Impro while being aware of a larger scheme. However, the court referenced the Elder-Beerman test for establishing such a conspiracy, which requires an overall unlawful plan, inferable knowledge of others’ involvement, and evidence of participation from each member. The court concluded that the absence of any agreement between the corporate defendants and Dr. Herrick, alongside a lack of communication about Impro prior to the lawsuit, negated the existence of a hub-and-spoke conspiracy.

As Impro failed to present evidence raising a material question of fact regarding the hub-and-spoke conspiracy theory, the district court's decision to grant summary judgment in favor of the defendants was affirmed.

The plaintiff, Impro, claims that a 1966 USDA report recommended using the term "whey antibody blends" for its products based on the belief that milk antibodies were the key protective factors. However, recent research suggests that nonspecific protective factors may be responsible for the products’ immunological effects. Two corporate defendants, Diamond Laboratories, Inc. and G.D. Searle Co., settled with Impro before the district court granted summary judgment for the remaining defendants. Upjohn's contracts with consultant Herrick included confidentiality clauses and required approval for consulting with other animal health firms, which Herrick violated. Impro emphasizes the competitive landscape between its biologics and the antibiotics of the corporate defendants, noting its competition with federally-licensed Philips Roxane and Babson, which sells teat dips but not antibiotics or animal biologics. The district court identified Impro's claims under Section 2 of the Sherman Act as stemming from a "market structure" rather than a "market share" theory, focusing on alleged conspiratorial actions among defendants. The court dismissed Impro's state law claims due to lack of jurisdiction following the summary judgment against its Sherman Act claims. The applicability of rule of reason or per se analysis will depend on the defendants' conduct related to the alleged conspiracies. Regarding Impro's theory of multiple vertical conspiracies, the defendants argue against finding Dr. Herrick as having conspired with each corporate entity that hired him. However, referencing Poller v. Columbia Broadcasting System, it is argued that Herrick could be considered to have conspired if he had an independent economic interest in suppressing Impro's competition. Evidence suggests that Herrick's position as a consultant could be impacted by the validity of his views on intrastate biologics.

The engineers' society, akin to Dr. Herrick, primarily focuses on accumulating and disseminating information. It was determined to have violated Section 1 of the Sherman Act when a member issued a disparaging letter about Hydrolevel's new product, influenced by an established competitor. The case involved a significant discovery process lasting over three years, during which 103 depositions were taken, and extensive documentation was exchanged, totaling over 23,000 pages. Impro Products, Inc. conducted investigations involving various governmental agencies and trade organizations, as well as utilizing materials from related lawsuits despite objections from defendants.

In 1977, Philips Roxane contacted the USDA regarding Impro's advertising, which led to the USDA ordering the withdrawal of this advertising. There was no evidence that Dr. Herrick was aware of Philips Roxane's actions. Philips Roxane's letter was protected under the Noerr-Pennington doctrine, which shields legitimate political activities from antitrust liability. Testimony from Impro's former president, Robert Collins, suggested that Philips Roxane must have been aware of Dr. Herrick’s activities because of their efficiency and competency, although he lacked concrete evidence to support this belief. Collins speculated that Philips Roxane viewed Impro as a competitive threat based on their operational proficiency.

The applicability of the conspiracy provisions in Sections 1 and 2 of the Sherman Act to hub-and-spoke conspiracies is acknowledged, supported by two federal court cases that imply such conspiracies can be actionable under the Sherman Act if sufficient evidence is presented. In Kotteakos v. United States, the Supreme Court recognized the potential for hub-and-spoke theories in civil cases, even if not suitable for criminal cases. Despite this, Impro's evidence was deemed insufficient to establish a hub-and-spoke conspiracy, negating the need to explore its applicability further. Impro's assertion that the district court did not address its hub-and-spoke theory is incorrect; the court's initial ruling was considered adequate to resolve this claim. Additionally, Impro misinterpreted the district court's application of the "conscious parallelism" doctrine, as it had consistently characterized the situation as a conspiracy among all defendants. The district court was justified in applying this doctrine to the case. The appellate court chose not to revisit the "conscious parallelism" issue since Impro did not challenge the district court's summary judgment favoring the defendants on the horizontal conspiracy theory.