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CORPORATE CRIME

in the pharmaceutical
industry
By the same author

I n e q u a l i t y , C r i m e and P u b l i c Policy
CORPORATE CRIME
in the pharmaceutical
industry

John Braithwaite

Routledge & Kegan Paul


L o n d o n , B o s t o n , M e l b o u r n e and Henley
First published in 1984
by Routledge & Kegan Paul pic
39 Store Street, London WC1E7DD, England
9 Park Street, Boston, Mass. 02108, USA
464 St Kilda Road, Melbourne.
Victoria 3004, Australia and
Broadway House, Newtown Road,
Henley-on-Thames, Oxon RG91EN, England
Photoset in 10 on 12 Times Roman by
Kelly Typesetting Ltd, Bradford-on-Avon, Wiltshire
and printed in Great Britain by
Billing and Sons, Worcester
©John Braithwaite 1984
No part of this book may be reproduced in
any form without permission from the publisher,
except for the quotation of brief
passages in criticism

Library of Congress Cataloging in Publication Data

Braithwaite, John.
Corporate crime in the pharmaceutical industry.
Bibliography: p.
Includes index.
1. Commercial crimes - Case studies. 2. Corporations -
Corrupt practices - Case studies. 3. Drug trade - United
States - Employees - Corrupt practices - Case studies.
4. Professional ethics. 5. White collar crimes.
I. Title. [DNLM: 1. Drug industry-Standards. 2. Crime.
QV773B814cJ
HV6769.B7 1983 364.1'68 83-11149

ISBN 0-7102-0049-8
Contents

Preface vii

1 I n t r o d u c t i o n : an i n d u s t r y c a s e study of c o r p o r a t e c r i m e 1

2 Bribery 11

3 Safety t e s t i n g of d r u g s : from n e g l i g e n c e to fraud 51

4 Unsafe manufacturing practices 110

5 Antitrust 159

6 T h e c o r p o r a t i o n as p u s h e r 204

7 D r u g c o m p a n i e s and t h e T h i r d W o r l d 245

8 Fiddling 279

9 S t r a t e g i e s for c o n t r o l l i n g c o r p o r a t e c r i m e 290

A p p e n d i x G e t t i n g i n t e r v i e w s with c o r p o r a t e e x e c u t i v e s 384

Notes 389

Bibliography 408

Index 428

V
Preface

T h i s b o o k is an i n d u s t r y c a s e study of c o r p o r a t e c r i m e . It a t t e m p t s
t o d e s c r i b e t h e w i d e v a r i e t y o f t y p e s o f c o r p o r a t e c r i m e which occur
w i t h i n o n e i n d u s t r y . W h e n I t a u g h t a c o u r s e on c o r p o r a t e c r i m e at
t h e U n i v e r s i t y of C a l i f o r n i a , I r v i n e , in 1979 I found that s t u d e n t s
had a n a m o r p h o u s u n d e r s t a n d i n g o f t h e subject a s a n i n c o m p r e -
h e n s i b l e evil p e r p e t r a t e d by the p o w e r f u l . They w e r e at a loss to
d e s c r i b e p a r t i c u l a r e x a m p l e s . P a r t o f t h e p u r p o s e o f this b o o k i s t o
fill this g a p b y d e s c r i b i n g m a n y e x a m p l e s o f c o r p o r a t e c r i m e ,
e x a m p l e s w h i c h s h o w t h e d e p t h a n d s e r i o u s n e s s o f the c r i m e
p r o b l e m in the p h a r m a c e u t i c a l industry.
T h e b o o k also has a n a n a l y t i c a l p u r p o s e w h i c h i s m o r e i m p o r t a n t
t h a n its d e s c r i p t i v e function. This is to use t h e p h a r m a c e u t i c a l
i n d u s t r y ' s e x p e r i e n c e t o t e n t a t i v e l y e x p l o r e t h e effectiveness o f
different t y p e s o f m e c h a n i s m s for t h e c o n t r o l o f c o r p o r a t e c r i m e .
M o s t of t h e c h a p t e r s h a v e a first s e c t i o n w h i c h d e s c r i b e s several
c o r p o r a t e c r i m e s , followed b y a n i n t e r p r e t i v e section which uses
i n f o r m a t i o n g a i n e d from i n t e r v i e w s with c o r p o r a t e e x e c u t i v e s and
o t h e r s to cast light on p o s s i b l e policy i m p l i c a t i o n s from t h e s e case
studies.
S o m e of my i n f o r m a n t s will not be p l e a s e d with t h e way I have
w r i t t e n t h e b o o k . T h e y will think it a o n e - s i d e d a c c o u n t which
f o c u s e s a t t e n t i o n o n p h a r m a c e u t i c a l i n d u s t r y a b u s e s t o the exclu-
sion of all t h e w o r t h w h i l e t h i n g s t h e i n d u s t r y has a c h i e v e d for
m a n k i n d . A f t e r all, t h e p h a r m a c e u t i c a l i n d u s t r y has b e e n r e s p o n -
sible for r e m o v i n g t u b e r c u l o s i s , g a s t r o e n t e r i t i s , and d i p h t h e r i a
from a m o n g t h e ten l e a d i n g c a u s e s o f d e a t h i n d e v e l o p e d c o u n t r i e s .
U n f o r t u n a t e l y , it is t h e j o b of c r i m i n o l o g i s t s to e x p l o r e the s e a m y

vii
Preface

side of h u m a n e x i s t e n c e . If a c r i m i n o l o g i s t u n d e r t a k e s a study of
m u g g i n g or m u r d e r , no o n e e x p e c t s a ' b a l a n c e d ' a c c o u n t which
g i v e s d u e c r e d i t to t h e fact t h a t m a n y m u g g e r s are good family m e n ,
l o v i n g f a t h e r s w h o p r o v i d e their c h i l d r e n w i t h a C h r i s t i a n u p b r i n g -
i n g , o r p e r h a p s g e n e r o u s p e o p l e w h o h a v e s h o w n a willingness t o
h e l p n e i g h b o u r s i n t r o u b l e . Y e t c r i m i n o l o g i s t s are e x p e c t e d t o
p r o v i d e such ' b a l a n c e ' w h e n t h e y s t u d y c o r p o r a t e c r i m i n a l s .
T h e fact t h a t I h a v e not e m p h a s i s e d their good d e e d s d o e s not
m e a n t h a t I am not g r e a t l y a p p r e c i a t i v e of t h e a s s i s t a n c e and hospi-
tality afforded me by i n f o r m a n t s from t h e i n d u s t r y . I o w e an intel-
lectual debt to many w h o have d o n e previous research on the
p h a r m a c e u t i c a l i n d u s t r y . It w o u l d be i m p o s s i b l e to m e n t i o n all by
n a m e . P a r t i c u l a r l y useful, h o w e v e r , h a v e b e e n the i n v e s t i g a t i v e
j o u r n a l i s m of M o r t o n M i n t z of t h e Washington Post, t h e work on
t h a l i d o m i d e of t h e I n s i g h t T e a m of The Sunday Times of L o n d o n ,
a n d t h e s c h o l a r s h i p o f M i l t o n S i l v e r m a n and G a r y Gereffi.
D i s c u s s i o n s and c o r r e s p o n d e n c e with B r e n t Fisse and Bud Loftus
w e r e influential in c h a n g i n g t h e d i r e c t i o n of my t h i n k i n g on key
d i l e m m a s . I a m also i n d e b t e d t o D a v i d B i l e s , R i c h a r d G a v e n , Bill
G i b s o n , R o y H a r v e y , K a t h e r i n e P i t t , Ivan P o t a s , P e t e r R h e i n s t e i n ,
B r u c e S w a n t o n and G r a n t W a r d l a w for critical c o m m e n t s o n e a r l i e r
drafts o f t h e m a n u s c r i p t .
V a l e r i e B r a i t h w a i t e and Gil G e i s p r o v i d e d great a s s i s t a n c e
d u r i n g t h e A m e r i c a n f i e l d w o r k stage o f t h e r e s e a r c h . A p p r e c i a t i o n
i s a l s o d u e t o J a n i n a B u n c and A n n e t t e W a t e r s for their p a i n s t a k i n g
and a c c u r a t e t y p i n g of t h e m a n u s c r i p t . I am grateful to the
A u s t r a l i a n - A m e r i c a n E d u c a t i o n a l F o u n d a t i o n for s u p p o r t with a
F u l b r i g h t F e l l o w s h i p t o c o n d u c t t h e fieldwork and t o t h e A u s t r a l i a n
I n s t i t u t e of C r i m i n o l o g y for s u p p o r t i n g t h e project in A u s t r a l i a .

vm
1 Introduction: an industry case
study of corporate crime

T h e m a j o r i t y o f p e o p l e w h o w o r k i n t h e p h a r m a c e u t i c a l industry
s u b s c r i b e to high s t a n d a r d s of integrity and do e v e r y t h i n g in their
p o w e r to stay w i t h i n t h e c o n s t r a i n t s of the law. In the c o u r s e of this
r e s e a r c h , I m e t p h a r m a c e u t i c a l e x e c u t i v e s w h o i m p r e s s e d me with
t h e s i n c e r i t y o f t h e i r c o m m i t m e n t t o t h e p u b l i c welfare m u c h m o r e
t h a n m a n y o f t h e i n d u s t r y ' s critics i n p o l i t i c s , r e g u l a t o r y a g e n c i e s ,
t h e p u b l i c i n t e r e s t m o v e m e n t , and a c a d e m i a .
Valerie B r a i t h w a i t e accompanied me to many pharmaceutical
c o m p a n i e s , forever c o n s t r a i n i n g m e from d r i v i n g o n t h e w r o n g side
o f t h e r o a d . O n e d a y , a s w e d r o v e back t o N e w Y o r k , she said: 'But
t h e s e p e o p l e a r e s o n i c e , J o h n . D o you think they really are
c o r r u p t ? ' M y initial r e s p o n s e w a s : "You've s p e n t the day being
s h o w n a r o u n d and t a k e n t o lunch b y the c o m p a n y ' s public r e l a t i o n s
staff. T h e y ' r e paid to be n i c e . S o m e p e o p l e in t h e s e c o m p a n i e s get
paid a lot of m o n e y b e c a u s e t h e y ' r e g o o d at being r u t h l e s s b a s t a r d s ,
and o t h e r s get big m o n e y t o e n t e r t a i n p e o p l e like you b e c a u s e
t h e y ' r e g o o d a t b e i n g n i c e . ' But really t h a t w a s a n i n a d e q u a t e
a n s w e r . I r r e s p e c t i v e of w h a t t h e y ' r e paid to b e . m o s t o f t h e m in fact
are principled p e o p l e .

T h e r e a r e t h r e e t y p e s o f p r i n c i p l e d p e o p l e i n the p h a r m a c e u t i c a l
i n d u s t r y . F i r s t , t h e r e a r e t h o s e w h o directly p a r t i c i p a t e i n c o m p a n y
a c t i v i t i e s w h i c h d o p u b l i c h a r m , but w h o sincerely believe the
c o m p a n y p r o p a g a n d a w h i c h tells t h e m that they are c o n t r i b u t i n g t o
t h e i m p r o v e m e n t o f c o m m u n i t y h e a l t h . S e c o n d , t h e r e are p e o p l e
w h o p e r c e i v e t h e c o m p a n y t o b e e n g a g i n g i n c e r t a i n socially
harmful p r a c t i c e s and fight t o o t h and nail w i t h i n t h e o r g a n i s a t i o n to
s t o p t h o s e p r a c t i c e s . T h i r d , t h e r e are p e o p l e w h o have n o direct

I
Introduction: an industry case study of corporate crime

c o n t a c t with socially harmful c o r p o r a t e p r a c t i c e s . T h e j o b t h e y d o


w i t h i n t h e o r g a n i s a t i o n p r o d u c e s social benefits, and they do that
j o b with integrity and dedication. Most of the principled people in
p h a r m a c e u t i c a l c o m p a n i e s are in this last c a t e g o r y . C o n s i d e r , for
e x a m p l e , t h e quality c o n t r o l m a n a g e r w h o i s e x a c t i n g i n e n s u r i n g
t h a t no d r u g l e a v e s t h e plant w h i c h is i m p u r e or o u t s i d e specifica-
t i o n s . It m i g h t be t h a t t h e d r u g itself c a u s e s m o r e h a r m t h a n good
b e c a u s e o f side-effects o r a b u s e ; b u t t h e quality c o n t r o l m a n a g e r
d o e s t h e j o b of e n s u r i n g that at least it is not a d u l t e r a t e d .
In h a s t e n i n g to p o i n t o u t t h a t not all p h a r m a c e u t i c a l e x e c u t i v e s
a r e nice g u y s , I am r e m i n d e d of o n e g e n t l e m a n w h o had a sign, ' G o
for t h e j u g u l a r ' , on t h e wall b e h i n d his desk. A n o t h e r r e s p o n d e n t ,
a r g u a b l y o n e o f t h e m o s t powerful h a l f - d o z e n m e n i n t h e A u s t r a l i a n
p h a r m a c e u t i c a l i n d u s t r y , e x c u s e d his o w n r u t h l e s s n e s s with: i n
b u s i n e s s y o u can c o m e up a g a i n s t a dirty s t i n k i n g b u n c h of c r o o k s .
T h e n you h a v e to b e h a v e like a c r o o k yourself, o t h e r w i s e you get
d o n e like a d i n n e r . "
N e v e r t h e l e s s , m o s t c o r p o r a t e c r i m e s i n the p h a r m a c e u t i c a l
i n d u s t r y c a n n o t be e x p l a i n e d by the p e r v e r s e p e r s o n a l i t i e s of their
p e r p e t r a t o r s . O n e m u s t q u e s t i o n t h e proclivity i n a n individualistic
c u l t u r e to l o c a t e t h e s o u r c e of evil d e e d s in evil p e o p l e . I n s t e a d we
s h o u l d "pay a t t e n t i o n to t h e factors t h a t lead o r d i n a r y m e n to do
e x t r a o r d i n a r y things' ( O p t o n . 1971: 51). R a t h e r than think of
c o r p o r a t e a c t o r s a s i n d i v i d u a l p e r s o n a l i t i e s , they should b e viewed
a s a c t o r s w h o a s s u m e c e r t a i n r o l e s . T h e r e q u i r e m e n t s o f t h e s e roles
a r e defined by t h e o r g a n i s a t i o n , not by t h e a c t o r ' s p e r s o n a l i t y .
U n d e r s t a n d i n g h o w ' o r d i n a r y m e n are led t o d o e x t r a o r d i n a r y
t h i n g s ' can b e g i n with r o l e - p l a y i n g e x p e r i m e n t s .

A r m s t r o n g (1977) a s k e d a l m o s t t w o t h o u s a n d m a n a g e m e n t
s t u d e n t s from t e n c o u n t r i e s to play t h e roles of b o a r d m e m b e r s of a
t r a n s n a t i o n a l p h a r m a c e u t i c a l c o m p a n y . T h e decision facing the
b o a r d w a s a real-life s i t u a t i o n which had c o n f r o n t e d t h e U p j o h n
c o m p a n y : ' s h o u l d it r e m o v e from t h e m a r k e t a drug which had b e e n
found t o e n d a n g e r h u m a n life? S e v e n t y - n i n e p e r cent o f the
m a n a g e m e n t s t u d e n t b o a r d s o f d i r e c t o r s not only refused t o with-
d r a w t h e d a n g e r o u s d r u g , but also u n d e r t o o k legal o r political
m a n o e u v r e s to forestall efforts of t h e g o v e r n m e n t to ban it.* This
w a s t h e s a m e a c t i o n a s t h e U p j o h n b o a r d itself t o o k , a n action
w h i c h 97 p e r cent o f a s a m p l e o f 7 1 r e s p o n d e n t s classified as 'socially
i r r e s p o n s i b l e ' ( A r m s t r o n g , 1977: 197). U s i n g d e l a y i n g tactics t o
k e e p a d a n g e r o u s but profitable drug on t h e m a r k e t is s o m e t h i n g

2
Introduction: an industry case study of corporate crime

t h a t o r d i n a r y p e o p l e a p p e a r willing t o d o w h e n a s k e d t o play the


role of i n d u s t r y d e c i s i o n - m a k e r s . H e n c e , w h e n p e o p l e die as a
result of t h e k i n d s of socially i r r e s p o n s i b l e m a n o e u v r e s of the
U p j o h n b o a r d in this c a s e , to s u g g e s t t h a t it h a p p e n e d b e c a u s e the
U p j o h n b o a r d i s m a d e u p o f evil m e n d o e s little t o a d v a n c e e x p l a n -
ation of the p h e n o m e n o n .
The unquestionable artificiality of l a b o r a t o r y role-playing
e x p e r i m e n t s m a y n e v e r t h e l e s s share s o m e o f t h e very artificiality
w h i c h is t h e stuff from w h i c h i m m o r a l c o r p o r a t e d e c i s i o n s are
made:

[ T ] h e usual r e s t r a i n t s on a n t i s o c i a l b e h a v i o r o p e r a t e t h r o u g h a
s e l f - i m a g e : T c a n ' t see m y s e l f d o i n g that' In an institutional
s e t t i n g , h o w e v e r , that isn't b e i n g d o n e by me but through me as an
a c t o r , a role p l a y e r in an u n r e a l ' g a m e ' t h a t e v e r y o n e is ' p l a y i n g '
( S t o n e . 1975: 2 3 5 ) .

P e o p l e in g r o u p s b e h a v e in w a y s t h a t w o u l d be i n c o n c e i v a b l e for
any o f t h e m a s i n d i v i d u a l s . G r o u p t h i n k ( J a n i s , 1971) and w h a t
A r e n d t ( 1 9 6 5 ) r e f e r r e d to as 'rule by n o b o d y ' are i m p o r t a n t in
c o r p o r a t e d e c i s i o n - m a k i n g w h i c h results i n h u m a n suffering.
B a n d u r a ( 1 9 7 3 : 213) e x p l a i n e d the basic p s y c h o l o g y o f 'rule b y
nobody'.

[ O n e ] b u r e a u c r a t i c p r a c t i c e for r e l i e v i n g s e l f - c o n d e m n a t i o n for
a g g r e s s i o n is to rely on g r o u p d e c i s i o n - m a k i n g , so that no single
i n d i v i d u a l feels r e s p o n s i b l e for w h a t is e v e n t u a l l y d o n e . I n d e e d ,
social o r g a n i s a t i o n s go to g r e a t l e n g t h s to d e v i s e s o p h i s t i c a t e d
m e c h a n i s m s for o b s c u r i n g r e s p o n s i b i l i t y for d e c i s i o n s that affect
o t h e r s a d v e r s e l y . . . . T h r o u g h division of l a b o r , division of
d e c i s i o n - m a k i n g , a n d c o l l e c t i v e a c t i o n , p e o p l e can b e
c o n t r i b u t o r s t o cruel p r a c t i c e s and b l o o d s h e d w i t h o u t feeling
p e r s o n a l l y r e s p o n s i b l e or s e l f - c o n t e m p t u o u s for their part in it.

T h e r e a r e a large n u m b e r o f p s y c h o l o g i c a l s t u d i e s d e m o n s t r a t i n g
t h a t m e m b e r s of a g r o u p will risk m o r e as g r o u p m e m b e r s t h a n they
will as i n d i v i d u a l s ( S t o n e r . 1968; W a l l a c h et al.. 1964; Bern et al..
1 9 6 5 ; W a l l a c h a n d K o g a n . 1965; B u r n s t e i n and V i n o k u r . 1973;
C a r t w r i g h t , 1 9 7 3 ; M u h l e m a n e t a l . . 1976; S h a w . 1976). P s y c h o l o -
gists call this t e n d e n c y for c a u t i o u s i n d i v i d u a l s to s u p p o r t m o r e
3
h a z a r d o u s g r o u p d e c i s i o n s t h e ' g r o u p risky shift p h e n o m e n o n ' .
T h e p h e n o m e n o n i s far from u b i q u i t o u s , h o w e v e r . W h e n c a u t i o u s
c h o i c e s a r e m o r e socially d e s i r a b l e , g r o u p p r e s s u r e s can actually

3
Introduction: an industry case study of corporate crime

p r o d u c e a c a u t i o u s shift ( M a d a r a s and B e r n . 1968; F r a s e r et a l . .


1971).
A n o t h e r v a r i a b l e w h i c h d i s t i n g u i s h e s individual from c o r p o r a t e
d e c i s i o n - m a k i n g is t h e d i s t a n c e in s p a c e and t i m e b e t w e e n the
h a z a r d o u s d e c i s i o n - m a k e r and the victim of t h e decision. W h e n a
N e w York board meeting decides to continue marketing a danger-
o u s d r u g in a T h i r d W o r l d c o u n t r y , t h e victims could h a r d l y be m o r e
r e m o t e from t h e killers. M i l g r a m ' s ( 1 9 6 5 ) e x p e r i m e n t s s h o w e d
t h a t p e o p l e w e r e m o r e willing t o a d m i n i s t e r electric s h o c k s w h e n
t h e y w e r e less likely to see or be seen by the victim of t h e shock.
A n o t h e r e x p e r i m e n t i n a s o m e w h a t m o r e n a t u r a l i s t i c setting
( T u r n e r et a l . . 1975) found t h a t victim visibility inhibited a g g r e s -
s i o n . W h i l e e x t r a p o l a t i o n from t h e r e s e a r c h o f p s y c h o l o g i s t s t o the
real w o r l d of t r a n s n a t i o n a l c o r p o r a t i o n s is p r o b l e m a t i c in the
e x t r e m e , such w o r k lays a f o u n d a t i o n for u n d e r s t a n d i n g h o w it
is p o s s i b l e for d e c e n t p e o p l e to do i n d e c e n t d e e d s . W i t h o u t offer-
ing e x p l a n a t i o n s o f p r e d i c t i v e v a l u e , t h e p s y c h o l o g i c a l l i t e r a t u r e
at least s u c c e e d s in r e n d e r i n g s e e m i n g l y i m p l a u s i b l e e v e n t s
plausible.

T h i s b o o k d o c u m e n t s a b o m i n a b l e h a r m which g r o u p d e c i s i o n -
m a k i n g i n t h e p h a r m a c e u t i c a l i n d u s t r y has caused o n m a n y o c c a s -
i o n s . T h e ' c o l l e c t i v e evil' o f m a n y p h a r m a c e u t i c a l c o m p a n i e s i s
m a n i f e s t e v e n t h o u g h s o m a n y 'nice p e o p l e ' w o r k for t h e m . H o e c h s t
and B a y e r , t h e l a r g e s t and third largest c o m p a n i e s i n world phar-
m a c e u t i c a l sales r e s p e c t i v e l y , and b o t h a m o n g the w o r l d ' s largest
t h i r t y c o r p o r a t i o n s , are d e s c e n d e d from G e r m a n y ' s I . G . F a r b e n
c o m p a n y . I . G . F a r b e n r a n k s with the S t a n d a r d Oil Trust a s o n e o f
t h e t w o g r e a t e s t c a r t e l s i n w o r l d h i s t o r y . After the S e c o n d W o r l d
W a r , t h e A l l i e s b r o k e u p I . G . into effectively t h r e e c o m p a n i e s :
4
H o e c h s t , B A S F and B a y e r . T w e l v e t o p I . G . F a r b e n e x e c u t i v e s
w e r e s e n t e n c e d t o t e r m s o f i m p r i s o n m e n t for slavery and m i s t r e a t -
m e n t offences a t t h e N u r e m b e r g w a r c r i m e s trials. I . G . built and
o p e r a t e d a m a s s i v e c h e m i c a l p l a n t at A u s c h w i t z with slave l a b o u r :
t h e I . G . facilities a t A u s c h w i t z w e r e s o e n o r m o u s that they used
m o r e e l e c t r i c i t y t h a n t h e e n t i r e city o f B e r l i n . A p p r o x i m a t e l y
300,000 concentration-camp workers passed through I.G.
A u s c h w i t z . A t least 2 5 , 0 0 0 o f t h e m w e r e w o r k e d t o d e a t h ( B o r k i n ,
1978: 127). O t h e r s d i e d i n I . G . ' s d r u g t e s t i n g p r o g r a m . T h e follow-
ing p a s s a g e in a l e t t e r from t h e c o m p a n y to the c a m p at A u s c h w i t z
d e m o n s t r a t e s t h e a t t i t u d e o f I . G . F a r b e n t o the subjects o f its d r u g
testing:

4
Introduction: an industry case study of corporate crime

In c o n t e m p l a t i o n of e x p e r i m e n t s with a n e w soporific d r u g , we
w o u l d a p p r e c i a t e y o u r p r o c u r i n g for us a n u m b e r o f w o m e n . . . .
We r e c e i v e d y o u r a n s w e r but c o n s i d e r the price of 200 m a r k s a
w o m a n e x c e s s i v e . We p r o p o s e to pay not m o r e t h a n 170 m a r k s a
h e a d . I f a g r e e a b l e , w e will t a k e p o s s e s s i o n o f t h e w o m e n . W e
n e e d a p p r o x i m a t e l y 150. . . . R e c e i v e d t h e o r d e r of 150 w o m e n .
D e s p i t e t h e i r e m a c i a t e d c o n d i t i o n , t h e y w e r e found satisfactory.
W e shall k e e p y o u p o s t e d o n d e v e l o p m e n t s c o n c e r n i n g this
e x p e r i m e n t . . . . T h e t e s t s w e r e m a d e . All subjects died. We
shall c o n t a c t you s h o r t l y on t h e subject of a n e w load ( G l o v e r .
1977: 5 8 ) .

B o r k i n ( 1 9 7 8 ) has d o c u m e n t e d i n horrifying detail h o w t o d a y ' s


l e a d e r s i n t h e i n t e r n a t i o n a l p h a r m a c e u t i c a l i n d u s t r y b r u t a l i s e d its
slave l a b o u r force in t h e i r q u e s t to build an industrial e m p i r e to
3
m a t c h H i t l e r ' s political e m p i r e . After t h e w a r , t h e A l l i e s insisted
t h a t n o n e o f t h e c o n v i c t e d w a r c r i m i n a l s b e a p p o i n t e d t o the b o a r d s
o f t h e n e w I . G . c o m p a n i e s . O n c e A l l i e d c o n t r o l l o o s e n e d , how-
e v e r , H o e c h s t i n J u n e 1955 a p p o i n t e d F r i e d r i c h J a e h n e , o n e o f the
twelve war criminals sentenced to imprisonment at N u r e m b e r g , to
its s u p e r v i s o r y b o a r d . In S e p t e m b e r of t h a t y e a r he w a s elected
C h a i r m a n . B a y e r a p p o i n t e d Fitz ter M e e r , s e n t e n c e d t o seven y e a r s
at N u r e m b e r g , as C h a i r m a n of its b o a r d in 1956.
L a t e r it will be seen h o w a n o t h e r of t h e t o p five c o m p a n i e s ,
S w i t z e r l a n d ' s H o f f m a n - L a R o c h e , built u p o n m a s s i v e profits i t
m a d e b e t w e e n t h e t w o w o r l d w a r s from sales o f h e r o i n and
m o r p h i n e t o t h e u n d e r w o r l d . I t will also b e d e m o n s t r a t e d h o w five
o f A m e r i c a ' s largest p h a r m a c e u t i c a l c o m p a n i e s laid t h e founda-
t i o n s for t h e i r i n d u s t r i a l e m p i r e s by i n t e r n a t i o n a l price-fixing
a r r a n g e m e n t s t h r o u g h o u t t h e 1950s w h i c h k e p t t h e new ' w o n d e r
d r u g s ' , the broad spectrum antibiotics, beyond the financial reach
of most of the world's population.
C o n t e m p o r a r y o b s e r v e r s o f p h a r m a c e u t i c a l c o r p o r a t i o n s offer
little s o l a c e t h a t t h e i n d u s t r y ' s p r e s e n t is m u c h less sordid t h a n its
r e c e n t p a s t . C l i n a r d et al.'s ( 1 9 7 9 : 104) c o m p r e h e n s i v e study of
c o r p o r a t e c r i m e i n A m e r i c a n b u s i n e s s found p h a r m a c e u t i c a l
c o m p a n i e s to have more than three times as many serious or
m o d e r a t e l y s e r i o u s law v i o l a t i o n s p e r firm a s o t h e r c o m p a n i e s i n the
s t u d y . I n d e e d , it will be a r g u e d t h a t t h e p h a r m a c e u t i c a l i n d u s t r y has
a w o r s e r e c o r d of i n t e r n a t i o n a l b r i b e r y and c o r r u p t i o n t h a n any
o t h e r i n d u s t r y ( C h a p t e r 3 ) , a history of fraud in t h e safety testing of

5
Introduction: an industry case study of corporate crime

d r u g s ( C h a p t e r 4 ) , and a d i s t u r b i n g r e c o r d of criminal n e g l i g e n c e in
the unsafe m a n u f a c t u r e of drugs ( C h a p t e r 5).
T h i s b o o k is not d i r e c t e d at h o w to c h a n g e p e o p l e in o r d e r to
p r e v e n t such c r i m e , but a t t r a n s f o r m a t i o n s t o institutional
a r r a n g e m e n t s and t h e law a s c r i m e - r e d u c t i o n s t r a t e g i e s . T h e unfor-
t u n a t e reality w i t h w h i t e - c o l l a r c r i m e i s t h a t c o u r t s , and s o m e t i m e s
t h e p u b l i c , t e n d to e x c u s e it b e c a u s e t h e i n d i v i d u a l s involved are
s i n c e r e a n d e l o q u e n t i n justifying t h e i r b e h a v i o u r . T h e y are often
e x c u s e d b e c a u s e they are p a r a g o n s o f s u c c e s s , pillars o f respect-
a b i l i t y w h o m a y be p r o m i n e n t in c h a r i t y w o r k or t h e c h u r c h . W h i l e
such r e a c t i o n s d e s e r v e c o n d e m n a t i o n b e c a u s e o f their class b i a s ,
q u e s t i o n s of i n d i v i d u a l b l a m e w o r t h i n e s s will not loom large here
until t h e c o n c l u d i n g c h a p t e r of t h e b o o k . T h e focus will be on the
s t r u c t u r a l p r e c o n d i t i o n s for the c r i m e r a t h e r t h a n on the c r i m i n a l .

F o l l o w i n g S u t h e r l a n d ( 1 9 4 9 ) , I t a k e t h e view t h a t to e x c l u d e civil
v i o l a t i o n s from a c o n s i d e r a t i o n of w h i t e - c o l l a r c r i m e is an a r b i t r a r y
o b f u s c a t i o n b e c a u s e for m a n y of t h e t y p e s of illegal activities dis-
c u s s e d in t h i s b o o k p r o v i s i o n exists in law for b o t h civil and c r i m i n a l
p r o s e c u t i o n o f t h e s a m e c o n d u c t . " M o r e o v e r , while s o m e o f the
p r a c t i c e s d i s c u s s e d a r e civil m a t t e r s in s o m e p a r t s of t h e w o r l d , they
a r e c r i m i n a l in o t h e r s . In g e n e r a l , t h e civil-criminal d i s t i n c t i o n is a
d o u b t f u l o n e ( F r i e b e r g , 1981). T h u s , c o r p o r a t e c r i m e i s defined
h e r e as c o n d u c t of a c o r p o r a t i o n , or of e m p l o y e e s acting on behalf
of a c o r p o r a t i o n , w h i c h is p r o s c r i b e d and p u n i s h a b l e by law. T h e
c o n d u c t c o u l d b e p u n i s h a b l e b y i m p r i s o n m e n t , p r o b a t i o n , fine,
r e v o c a t i o n o f l i c e n c e , c o m m u n i t y service o r d e r , i n t e r n a l discipline
o r d e r o r o t h e r c o u r t - i m p o s e d p e n a l t i e s discussed i n this b o o k .
T y p e s o f c o n d u c t w h i c h are subject only t o d a m a g e s a w a r d s w i t h o u t
a n y a d d i t i o n a l p u n i s h m e n t ( e . g . f i n e , p u n i t i v e d a m a g e s ) are not
w i t h i n t h e d e f i n i t i o n o f c o r p o r a t e c r i m e a d o p t e d h e r e . M o s t o f the
c o r p o r a t e c r i m e s d i s c u s s e d in this b o o k w e r e not punished by law
e v e n t h o u g h t h e y w e r e punishable.

I f o n e m e a s u r e s t h e s e r i o u s n e s s o f c r i m e a c c o r d i n g t o public
i n d i g n a t i o n a g a i n s t t h e offence in t h e c o m m u n i t y at l a r g e , t h e n this
b o o k is a b o u t s e r i o u s c r i m e . This view is c o n f i r m e d by a c r o s s -
n a t i o n a l s t u d y of a t t i t u d e s to t h e s e r i o u s n e s s of c r i m e a m o n g 1,909
r e s p o n d e n t s from eight c o u n t r i e s ( S c o t t and A l - T h a k e b , 1977). A
d r u g c o m p a n y e x e c u t i v e allowing his c o m p a n y t o m a r k e t a d r u g
" k n o w i n g t h a t it m a y p r o d u c e harmful side-effects for most indi-
v i d u a l s ' w a s r a t e d in t h e U n i t e d S t a t e s as c o m m i t t i n g a c r i m e m o r e
s e r i o u s t h a n all of t h e F B I index offences e x c e p t m u r d e r and r a p e .

6
Introduction: an industry case study of corporate crime

T h a t i s , m a r k e t i n g a d r u g with harmful side-effects w a s j u d g e d to be


a crime deserving longer t e r m s of imprisonment than robbery,
a g g r a v a t e d a s s a u l t , b u r g l a r y , larceny and a u t o m o b i l e theft. T h e
finding is s u r p r i s i n g b e c a u s e m a r k e t i n g a d r u g with d a n g e r o u s side-
effects is not e v e n an offence unless t h e p r o d u c t is actually b a n n e d
or there has been criminal negligence.
A l s o i n t e r e s t i n g w a s the f i n d i n g t h a t U S r e s p o n d e n t s w e r e
r e l a t i v e l y less p u n i t i v e t o w a r d this c o n d u c t t h a n r e s p o n d e n t s
from all of t h e r e m a i n i n g seven c o u n t r i e s . T h e US w a s the only
c o u n t r y in w h i c h m a r k e t i n g a d r u g with harmful side-effects w a s
j u d g e d a s d e s e r v i n g less p u n i s h m e n t t h a n r a p e . I n S w e d e n , e v e n
m u r d e r w a s j u d g e d as d e s e r v i n g less p u n i s h m e n t t h a n selling a d r u g
with harmful side-effects. O n a v e r a g e , U S r e s p o n d e n t s favoured
o v e r five y e a r s ' i m p r i s o n m e n t for d r u g c o m p a n y e x e c u t i v e s w h o
p e r p e t r a t e d this ' o f f e n c e ' . F o r t h o s e w h o s u p p o r t a 'just d e s e r t s '
m o d e l of c r i m i n a l s e n t e n c i n g , and 1 am not o n e of t h e m , t h e r e is
r e a s o n to f a v o u r a lot of d r u g - c o m p a n y e x e c u t i v e s b e i n g put b e h i n d
bars.

T h i s b o o k is an i n d u s t r y case study of c o r p o r a t e c r i m e which


a t t e m p t s t o u n d e r s t a n d t h e m e c h a n i c s o f t h e r a n g e o f types o f
c o r p o r a t e c r i m e c o m m o n in o n e i n d u s t r y sector. Such a study w a s
c a l c u l a t e d a s t h e sort m o s t likely t o a d v a n c e o u r u n d e r s t a n d i n g o f
c o r p o r a t e c r i m e as a social p h e n o m e n o n . Social science passes
t h r o u g h w h a t m i g h t be r o u g h l y classified as four s t a g e s after a
p r o b l e m s e r i o u s l y g r a b s t h e a t t e n t i o n o f s c h o l a r s for t h e first t i m e .
At first, s c h o l a r s h i p is limited to a r m c h a i r c o n c e p t u a l i s i n g of and
theorising about the p h e n o m e n o n . Then empirical work begins:
first w i t h q u a l i t a t i v e case s t u d i e s ; t h e n with statistical s t u d i e s (which
t h e m s e l v e s see r e f i n e m e n t t h r o u g h d e s c r i p t i v e t o c o r r e l a t i o n a l t o
c a u s a l a n a l y s e s ) ; a n d f i n a l l y , r i g o r o u s e x p e r i m e n t a l s t u d i e s are
a t t e m p t e d i n w h i c h key v a r i a b l e s a r e strictly c o n t r o l l e d .

It h a r d l y n e e d s to be a r g u e d t h a t we are not yet r e a d y for e x p e r i -


m e n t a l s t u d i e s as we c o u l d not begin to g u e s s w h i c h w o u l d be the
key v a r i a b l e s t o c o n t r o l . M o s t o b s e r v e r s w o u l d a g r e e , h o w e v e r ,
t h a t t h e o r i s i n g a b o u t c o r p o r a t e c r i m e c a n n o t a d v a n c e m u c h further
until it b e c o m e s b e t t e r i n f o r m e d by e m p i r i c a l w o r k . T h e q u e s t i o n is
w h e t h e r r e s e a r c h e r s s h o u l d b e j u m p i n g a h e a d t o statistical s t u d i e s
of c o r p o r a t e crime or if research resources should be concentrated
in q u a l i t a t i v e c a s e s t u d i e s . My view is t h a t statistical studies are
p e r h a p s a s p r e m a t u r e t o d a y a s they w e r e w h e n S u t h e r l a n d (1949)
u n d e r t o o k t h e first statistical study of c o r p o r a t e c r i m e . W i t h o u t a

7
Introduction: an industry case study of corporate crime

q u a l i t a t i v e u n d e r s t a n d i n g o f t h e c o n t o u r s o f c o r p o r a t e c r i m e s and
h o w t h e y u n f o l d , w e c a n n o t begin t o c o m p r e h e n d w h a t lies b e h i n d
t h e q u a n t i t a t i v e d e s c r i p t i o n s . M o r e o v e r , the liberal use o f q u o t e s
from p h a r m a c e u t i c a l e x e c u t i v e s t h r o u g h o u t the text will a t t e m p t to
i l l u m i n a t e t h e social c o n s t r u c t i o n o f t h e p h e n o m e n o n b y the a c t o r s
themselves.
A n i n d u s t r y - w i d e case s t u d y o f c o r p o r a t e c r i m e has b e e n c h o s e n
in p r e f e r e n c e to a m o r e d e t a i l e d study of a p a r t i c u l a r offence or
a p a r t i c u l a r c o m p a n y partly b e c a u s e t h e latter are m o r e v u l n e r a b l e
t o w i t h d r a w a l o f c o - o p e r a t i o n b y vital i n f o r m a n t s . M o r e i m p o r -
t a n t l y , at this stage of t h e i n t e l l e c t u a l d e v e l o p m e n t of the field, a
f a l t e r i n g a t t e m p t to p a i n t a b r o a d e r c a n v a s is justified so t h a t the
w o r k m i g h t h a v e r e l e v a n c e t o the i m p o r t a n t c o n c e p t u a l g r o u n d -
w o r k b e i n g laid by j u r i s t s w o r k i n g from their a r m c h a i r s . H a v i n g
c o m p l e t e d t h e s t u d y , I am m o r e c o n v i n c e d t h a n ever t h a t a s u p e r i o r
u n d e r s t a n d i n g of a p a r t i c u l a r c r i m e in a p a r t i c u l a r firm is g a i n e d
w h e n t h e r e s e a r c h e r h a s a g r a s p of h o w t h e industry w o r k s as a
whole.

The present work is international in scope. Meaningful research


on t r a n s n a t i o n a l c o r p o r a t i o n s is difficult w i t h i n o n e set of n a t i o n a l
b o u n d a r i e s . D i s p r o p o r t i o n a t e e m p h a s i s will be p l a c e d on d a t a from
t h e U n i t e d S t a t e s , w h i c h , i n a d d i t i o n t o being the largest m a n u f a c -
t u r e r of p h a r m a c e u t i c a l p r o d u c t s , is t h e d o m i c i l e for half of the
w o r l d ' s t o p fifty p h a r m a c e u t i c a l c o r p o r a t i o n s . P r i n c i p a l s o u r c e s o f
d a t a w e r e i n t e r v i e w s w i t h i n f o r m a n t s , b o t h within t h e industry and
o u t s i d e it, a n d p u b l i c d o c u m e n t s ( t r a n s c r i p t s o f e v i d e n c e a t t r i a l s ,
c o m p a n y d o c u m e n t s l o d g e d with r e g u l a t o r y a g e n c i e s , t r a n s c r i p t s o f
g o v e r n m e n t investigations of the industry). In the United States, 1
had t h e p l e a s u r e o f w a d i n g t h r o u g h s o m e 100,000 p a g e s o f C o n g r e s -
sional oversight hearings. These were goldmines of information.
Particularly valuable were the K e n n e d y S u b c o m m i t t e e transcripts.
I am i n d e b t e d to S e n a t o r K e n n e d y ' s staff for a l l o w i n g me full access
t o t h e S e n a t e J u d i c i a r y C o m m i t t e e files d u r i n g m y m o n t h i n
W a s h i n g t o n . S c o u r i n g t h e s e files, i n c o m b i n a t i o n with t h e inter-
views, e n a b l e d me to piece t o g e t h e r the organisational decision-
m a k i n g p r o c e s s e s lying b e h i n d s o m e o f t h e a b u s e s r e v e a l e d i n the
Senate hearings.

T h e o r i g i n a l s t r a t e g y for i n t e r v i e w s with e x e c u t i v e s w a s to m e e t
w i t h p e o p l e at t h e level of chief e x e c u t i v e officer or s e c o n d in
c o m m a n d of Australian subsidiaries of A m e r i c a n transnationals,
and t h e n t o i n t e r v i e w i n t h e U n i t e d S t a t e s the h e a d q u a r t e r s
Introduction: an industry case study of corporate crime

e x e c u t i v e s t o w h o m t h e A u s t r a l i a n s a n s w e r e d . O n e r e s e a r c h goal
w a s to e x p l o r e t h e diffusion of a c c o u n t a b i l i t y for law v i o l a t i o n s
b e t w e e n h e a d q u a r t e r s and s u b s i d i a r i e s i n t r a n s n a t i o n a l c o r p o r -
a t i o n s . In t h e e n d , h o w e v e r , I t o o k i n t e r v i e w s w h e r e I could get
t h e m . I n s o m e c a s e s , t h e h e a d q u a r t e r s i n t e r v i e w s w e r e d o n e first,
and s u b s i d i a r y i n t e r v i e w s later. A total of 131 i n t e r v i e w s w e r e
c o n d u c t e d - 75 in t h e U n i t e d S t a t e s , 15 in A u s t r a l i a , 10 in M e x i c o , 9
in G u a t e m a l a a n d 2 in t h e U n i t e d K i n g d o m . A l m o s t half of these
i n t e r v i e w s w e r e with e x e c u t i v e s at t h e level of chief e x e c u t i v e officer
of a s u b s i d i a r y or a m o r e s e n i o r p e r s o n at h e a d q u a r t e r s .

R e s e a r c h e r s t e n d t o o v e r e s t i m a t e t h e difficulties o f g e t t i n g inter-
v i e w s w i t h t o p e x e c u t i v e s a b o u t c o r p o r a t e c r i m e . O n e o f the
significant i n f o r m a n t s in this study w a s t h e p r e s i d e n t of a major
t r a n s n a t i o n a l w h o e n j o y e d a n a n n u a l r e m u n e r a t i o n from t h e
c o m p a n y o f o v e r U S $ 7 0 0 , 0 0 0 . M o s t i n t e r v i e w s w e r e longer t h a n a n
h o u r in d u r a t i o n , but 13 lasted for less t h a n thirty m i n u t e s . T a b l e 1.1
lists t h e l o c a t i o n s o f t h e formal i n t e r v i e w s w i t h e x e c u t i v e s .
I n a d d i t i o n t o t h e s e formal i n t e r v i e w s , a t t e m p t s w e r e m a d e t o ask
e x e c u t i v e s q u e s t i o n s after they had given e v i d e n c e b e f o r e t h e R a l p h
E n q u i r y i n t o t h e p h a r m a c e u t i c a l industry held i n A u s t r a l i a d u r i n g
1978. T h e s e fleeting q u e s t i o n and a n s w e r sessions p r o v i d e d n o
i n f o r m a t i o n o f v a l u e . M u c h m o r e v a l u a b l e w e r e t h e i n t e r v i e w s with
i n f o r m a n t s w h o had left t h e i n d u s t r y , officers in t h e P h a r m a c e u t i c a l
M a n u f a c t u r e r s A s s o c i a t i o n s [ P M A s ] i n e a c h c o u n t r y visited ( e x c e p t
G u a t e m a l a ) , p u b l i c i n t e r e s t a c t i v i s t s , and officers i n r e g u l a t o r y
a g e n c i e s i n t h e U n i t e d S t a t e s , A u s t r a l i a and t h e U n i t e d K i n g d o m .
T h e s e s u p p l e m e n t a r y i n t e r v i e w s t o g e n e r a t e leads from o t h e r
s o u r c e s w e r e a l m o s t e q u a l i n n u m b e r t o t h e formal i n d u s t r y inter-
v i e w s . N e v e r t h e l e s s , t h e industry i n t e r v i e w s w e r e t h e m o r e
i m p o r t a n t s o u r c e o f i n f o r m a t i o n . A n a p p e n d i x sets out t h e s t r a t e -
g i e s w h i c h w e r e used i n soliciting and c o n d u c t i n g t h e s e i n t e r v i e w s .
N o n e of t h e i n f o r m a n t s is identified by n a m e .

W i t h c o r p o r a t e c r i m e r e s e a r c h , it is w r o n g to a s s u m e that all o n e
m u s t do is get s e n i o r e x e c u t i v e s to ' c o m e c l e a n ' . T h e full story must
b e p i e c e d t o g e t h e r and c r o s s - c h e c k e d from m u l t i p l e s o u r c e s . N o
e x e c u t i v e , no m a t t e r h o w s e n i o r , k n o w s a n y t h i n g like the full story
o f illegal b e h a v i o u r i n t h e p h a r m a c e u t i c a l i n d u s t r y . E x e c u t i v e s
often m a k e i t t h e i r b u s i n e s s not t o k n o w a b o u t c e r t a i n t h i n g s g o i n g
on b e l o w t h e m in t h e o r g a n i s a t i o n . Often it is part of the j o b of
l o w e r - l e v e l e x e c u t i v e s t o e n s u r e that t h e i r s u p e r i o r s are not t a i n t e d
with k n o w l e d g e o f illegal c o n d u c t . M o r e o v e r , s e n i o r e x e c u t i v e s

9
Introduction: an industry case study of corporate crime

TABLE 1.1 F o r m a l i n t e r v i e w s with p h a r m a c e u t i c a l e x e c u t i v e s .


1978-80

World rank in ( Duntries


pharmaceutical in which
sales, 1977 No. of interviews
Company ( G e r e f f i . 1979) Domicile interviews conducted

Hocchst-Rousscl 1 Germany 2 Guat.


Merck 2 US 4 US. Mex.. Aust.
Bayer 3 Germany 6 US. Guat.
C'iba-Geigy 4 Switzerland 1 Aust.
Hoffman-La Roche 5 Switzerland 5 US. Aust.
Warner-Lambert 7 US 2 US. Aust.
Pfizer 8 US 1 Aust.
Sandoz 9 Switzerland 3 US
Lilly III US 12 US, Mex.
Upjohn 11 IS 2 Guat.. Aust.
Squibb 13 I s 6 Aust.
Bristol-Myers 14 us 5 US. Guat.. Aust.
Takeda 15 Japan 2 US
Schering-Plough 17 US 7 US. Aust.
Glaxo 18 UK 2 UK
Abbott 19 US 12 US. Guat.. Aust.
Johnson & Johnson 21 us 5 US. Guat.. Aust.
Cvanamid 23 us 2 US. Aust.
ICI 26 UK 1 Aust.
SmithKline 27 US 3 US
Wellcome 28 UK 3 Guat.. Aust.
G. D. Searle 29 US 9 US. Mex..Aust.
Baxter-Travenol in us 3 US. Aust.
3M 38 us 1 US
Richardson-Merrell 4(1 us 3 US, Aust.
Sterling D r u g 41 us 4 Aust.
Syntex 43 us 6 US. Mex.
A. H. R o b i n s 44 us 6 US. Aust.
American Hospital
Supply 1 nr.inked us 7 US
Allergan Unranked us 4 US. Aust.
Anabolic Unranked us 1 US
ICL Unranked us 1 us
TOTAL = 131

h a v e n e i t h e r the t i m e nor m u c h i n c e n t i v e t o s n o o p a r o u n d trying t o


find out a b o u t c r i m i n a l b e h a v i o u r within o t h e r c o m p a n i e s . H e n c e ,
this b o o k s e e k s to inform not only the g e n e r a l public but also
pharmaceutical executives.

HI
2 Bribery

A w o r l d l y - w i s e m o r a l relativism s e e m s to h a v e b e e n the r e a c t i o n
from m a n y following t h e L o c k h e e d scandal of t h e m i d - 1 9 7 0 s . If the
a c c e p t e d p r a c t i c e in S a u d i A r a b i a is to give t h e royal family a piece
of t h e a c t i o n w h e n t h e y buy s o m e aircraft from y o u , then w h o are
A m e r i c a n s or B r i t o n s to say that t h e i r w a y s of d o i n g b u s i n e s s are
m o r a l l y s u p e r i o r ? I n any c a s e , A m e r i c a n s p e r c e i v e the high
p u r p o s e s of A m e r i c a n foreign policy and n a t i o n a l security as
a d v a n c e d if fighters a r e b o u g h t from L o c k h e e d r a t h e r t h a n from a
foreign p o w e r .
B r i b e r y has a less a c c e p t a b l e gloss if its p u r p o s e is to p e r s u a d e a
h e a l t h official to a l l o w a d a n g e r o u s d r u g on to the m a r k e t ; or, failing
t h a t , to e n t i c e a c u s t o m s officer to allow t h e b a n n e d p r o d u c t into the
c o u n t r y . B r i b i n g an i n s p e c t o r to t u r n a blind eye to an u n s a n i t a r y
d r u g - m a n u f a c t u r i n g plant can hardly be r a t i o n a l i s e d as in the
n a t i o n a l i n t e r e s t . It will be s h o w n t h a t t h e s e types of b r i b e r y are
c o m m o n in the international pharmaceutical industry. Bribery is
defined as t h e giving of r e w a r d s b e y o n d t h o s e allowed by law to
e n t i c e a p e r s o n w i t h a duty of trust to p e r v e r t , c o r r u p t or c o m -
p r o m i s e t h a t t r u s t . E x t o r t i o n is defined as t h e soliciting of a b r i b e .
T h e c o n c e r n o f this c h a p t e r will not b e with m i n o r ' g r e a s e ' p a y m e n t s
to get b u r e a u c r a t s to do t h e j o b t h e y are paid for. but with what
R e i s m a n ( 1 9 7 9 : 75) h a s called "variance b r i b e s ' .

M a n y of t h e p a y m e n t s to m i n i s t e r s and officials by p h a r m a -
ceutical c o m p a n i e s are extorted by the recipients. Conversely,
r e s p o n d e n t s told o f m a n y s i t u a t i o n s w h e r e i t w a s the c o m p a n y
w h i c h initiated t h e illegal t r a n s a c t i o n . I r r e s p e c t i v e o f t h e a l l o c a t i o n
o f guilt b e t w e e n t h e t w o p a r t i e s , the point r e m a i n s t h a t h e r e w e are

11
Bribery

d e a l i n g with c o n d u c t w h i c h c a n n o t b e b e n i g n l y t o l e r a t e d a s 'cus-
t o m a r y b u s i n e s s p r a c t i c e i n foreign c o u n t r i e s ' .
N o t all forms of b r i b e r y s e e m e d to b o t h e r e x e c u t i v e s in the
p h a r m a c e u t i c a l i n d u s t r y . It w a s g e n e r a l l y a c c e p t e d that paying off
h e a l t h i n s p e c t o r s i n c e r t a i n Third W o r l d c o u n t r i e s w a s n o r m a l and
a c c e p t a b l e business practice. H o w e v e r , there was considerable
c o n c e r n o v e r t h e b r i b i n g of g o v e r n m e n t officials to get t r a d e secrets
c o n c e r n i n g m a n u f a c t u r i n g p r o c e s s e s . Such secrets arc necessarily
m a d e a v a i l a b l e t o g o v e r n m e n t s for n e w p r o d u c t a p p r o v a l . Italy was
f r e q u e n t l y m e n t i o n e d as the c o u n t r y w h e r e such b r i b e s , often of
o n l y a few t h o u s a n d d o l l a r s , w e r e passed to t h e Ministry of H e a l t h .
M a n y p i r a t e m a n u f a c t u r e r s are a l l o w e d to o p e r a t e in Italy in viola-
tion of international patent a g r e e m e n t s . ' G u a t e m a l a n executives
a l s o said it w a s c o m m o n t h e r e for g o v e r n m e n t officials to hand o v e r
n e w d r u g r e g i s t r a t i o n d'Kumentation to local firms in e x c h a n g e for a
'few h u n d r e d q u e t z a l s [ d o l l a r s ] ' . T h e local firm t h e n s u b m i t s exactly
t h e s a m e r e s e a r c h d a t a on t h e safety of t h e d r u g in o r d e r to h a v e its
p r o d u c t a p p r o v e d . T h e p r o d u c t it m a n u f a c t u r e s , possibly in a bath
t u b , m a y b e a r little r e s e m b l a n c e t o t h e p r o d u c t t o which the sub-
m i t t e d s a f e t y - t e s t i n g d a t a r e l a t e s . A n y set of d a t a w h i c h carefully
m e e t s all t h e legal r e q u i r e m e n t s will suffice to get a p e r m i t n u m b e r
to p r i n t on all b o t t l e s . In G u a t e m a l a no o n e is going to c h e c k
w h e t h e r the c o n t e n t s of the bottle c o r r e s p o n d to the information in
t h e p r o d u c t r e g i s t r a t i o n d o c u m e n t s . T o begin w i t h , t h e g o v e r n m e n t
2
d o e s not have a testing laboratory.

T h e n o f c o u r s e t h e r e i s t h e m o r e s t r a i g h t f o r w a r d kind o f i n d u s -
trial e s p i o n a g e w h e r e e m p l o y e e s sell secrets directly t o their
c o m p a n y ' s c o m p e t i t o r . On some occasions the crime is in response
to a b r i b e to t h e spy. a n d on o t h e r o c c a s i o n s t h e e m p l o y e e initiates
t h e e s p i o n a g e . A d i s g r u n t l e d e m p l o y e e of M e r c k stole the p r o c e s s
for m a k i n g a l p h a m e t h y l d o p a ( ' A l d o m e t ' ) , a n a n t i - h y p e r t e n s i v e
d r u g . T h e c o m p e t i t o r w h o w a s offered t h e p l a n s t u r n e d t h e m d o w n
a n d notified M e r c k . M o s t n o t o r i o u s a m o n g t h e p h a r m a c e u t i c a l
s p i e s w a s Dr S i d n e y M a r t i n F o x , a f o r m e r e m p l o y e e of L e d e r l e
L a b o r a t o r i e s , t h e C y a n a m i d s u b s i d i a r y . He set up a spy ring which
sold m i c r o f i l m c o p i e s of secret d o c u m e n t s and stolen c u l t u r e s of
m i c r o - o r g a n i s m s to six Italian d r u g firms ( D a v i e s , 1976). F o x and
h i s a s s o c i a t e s a r e b e l i e v e d to have b e e n paid £ 3 5 , 0 0 0 by o n e firm
a l o n e . A l o n g w i t h f i v e c o n f e d e r a t e s . Fox w a s c o n v i c t e d and im-
p r i s o n e d u n d e r t h e F e d e r a l Stolen P r o p e r t y s t a t u t e b y a N e w Y o r k
c o u r t in J a n u a r y 1966.

12
Bribery

C y a n a m i d c l a i m e d t h a t F o x ' s d e f e c t i o n h a s cost it 100 m. dollars


in lost sales a n d t h a t it s p e n t 30 m. d o l l a r s to d e v e l o p the stolen
p r o c e s s and c u l t u r e s . In 1962 C y a n a m i d had w o n a d a m a g e s suit
a g a i n s t F o x , and t h e N e w Y o r k C o u r t a t t h e criminal h e a r i n g
a s s e s s e d t h e firm's l o s s e s at f 1.78 m. ( D a v i e s , 1976: 131).

T h e c o n s e q u e n c e s o f t h e s e c o m p a n y - a g a i n s t - c o m p a n y c r i m e s are
less s e r i o u s t h a n w h e n c o n s u m e r s are t h e v i c t i m s . I t i s t h e latter t y p e
of b r i b e r y w h i c h will be t h e c o n c e r n of this c h a p t e r .

Talking to executives about bribery

I had m o r e difficulty in g e t t i n g e x e c u t i v e s to talk a b o u t b r i b e r y t h a n


any o t h e r s u b j e c t . T h e r e w e r e a c o u p l e o f s p e c t a c u l a r i n s t a n c e s o f
b e i n g e v i c t e d from offices w h e n I p u s h e d t o o hard on this sensitive
i s s u e . T h e first p r o b l e m w a s t h a t m o s t r e s p o n d e n t s g e n u i n e l y k n e w
n o t h i n g about the subject. A quality assurance manager or medical
d i r e c t o r in A u s t r a l i a or t h e U n i t e d S t a t e s typically leads a s h e l t e r e d
life, m o v i n g from office to l a b o r a t o r y to office, with o c c a s i o n a l
v e n t u r e s i n t o t h e m a n u f a c t u r i n g p l a n t . W h e n I tried to talk to t h e s e
p e o p l e a b o u t b r i b e r y all I a c h i e v e d w a s a loss of r a p p o r t for t h e
t h i n g s w h i c h t h e y c o u l d tell m e s o m e t h i n g a b o u t . E x p e r i e n c e t h e r e -
fore t a u g h t m e t o limit d i s c u s s i o n s o f b r i b e r y t o t o p m a n a g e m e n t ,
f i n a n c e , m a r k e t i n g a n d legal p e r s o n n e l . T h e p u b l i c r e l a t i o n s staff
w e r e also n o t p a r t i c u l a r l y effusive o n t h e subject.
E v e n w i t h i n this s e l e c t s u b s a m p l e I frequently d e c i d e d not to
r a i s e t h e ugly issue lest a fragile r a p p o r t be s h a t t e r e d . In t h e early
i n t e r v i e w s , t h e s u b j e c t w a s b r o a c h e d w i t h a s t a n d a r d line: 'I've read
a lot in t h e n e w s p a p e r s a b o u t L o c k h e e d and b r i b i n g foreign g o v e r n -
m e n t officials. D o y o u t h i n k m a n y o f y o u r c o m p e t i t o r s i n the
p h a r m a c e u t i c a l i n d u s t r y e n g a g e in t h a t sort of a c t i v i t y ? ' A n d I
w o u l d get a fairly s t a n d a r d a n s w e r : ' T h e p h a r m a c e u t i c a l industry
d e a l s with s e r v i n g t h e p u b l i c m o r e t h a n any o t h e r i n d u s t r y . W e ' r e i n
t h e b u s i n e s s o f saving h u m a n lives, and t h a t leads t o h i g h e r ethical
s t a n d a r d s t h a n y o u ' l l find i n any o t h e r i n d u s t r y . ' A l t e r n a t i v e l y :
' L o o k I w o n ' t d e n y t h a t t h e r e w a s a t i m e w h e n b r i b e r y did go o n , but
n o t any m o r e , not t h e r e p u t a b l e c o m p a n i e s . ' E n d o f d i s c u s s i o n .
So I followed a different a p p r o a c h , essentially a 'no b a b e in the
w o o d s ' s t r a t e g y , i k n o w t h a t m o s t o f t h e major p h a r m a c e u t i c a l
c o m p a n i e s , i n c l u d i n g y o u r o w n . h a v e d i s c l o s e d t o the S E C [Securi-
t i e s and E x c h a n g e C o m m i s s i o n ] t h e m a k i n g o f c o r r u p t p a y m e n t s i n

13
Bribery

m a n y p a r t s o f t h e w o r l d . I've s p o k e n t o p e o p l e a t the S E C w h o
i n t e r v i e w c o m p a n i e s o n such m a t t e r s and they tell m e t h a t the
p r a c t i c e s a r e still w i d e s p r e a d . W h y do large c o r p o r a t i o n s feel that
t h e y h a v e to do this sort of t h i n g ? " In o t h e r w o r d s , "I'm no b a b e in
t h e w o o d s . I k n o w y o u d o it, but w h y ? ' ' T h e a p p r o a c h almost never
failed to elicit a l e n g t h y and r e v e a l i n g d i s c u s s i o n . A m o n g t h e 27 US
e x e c u t i v e s on w h o m I tried t h e "no b a b e in t h e w o o d s ' a p p r o a c h ,
n o n e d e n i e d t h a t b r i b e r y had b e e n w i d e s p r e a d i n the past a m o n g
A m e r i c a n p h a r m a c e u t i c a l c o m p a n i e s , and only 6 d e n i e d that
b r i b e r y w a s still c o m m o n t o d a y a m o n g A m e r i c a n p h a r m a c e u t i c a l
c o m p a n i e s . Of t h e 21 w h o felt t h a t b r i b e r y still w a s c o m m o n ,
h o w e v e r , only 1 felt t h a t it w a s as c o m m o n t o d a y as it had b e e n in
t h e past. As we shall see later, t h e r e a r e g r o u n d s for s u s p e c t i n g that
o n t h e l a t t e r p o i n t t h e o t h e r 2 0 e x e c u t i v e s may h a v e b e e n d e s c r i b i n g
the situation accurately.

T h e g r e a t a d v a n t a g e o f t h e "no b a b e i n the w o o d s ' a p p r o a c h was


t h a t it g a v e r e s p o n d e n t s little to lose by s p e a k i n g truthfully. So long
as 1 did n o t select an o v e r l y sensitive m a r k , I found that it did not
e n g e n d e r aggression so much as respect: here was someone on
w h o m t h e y w e r e not w a s t i n g their t i m e , s o m e o n e w h o k n e w a little
a b o u t t h e s u b j e c t . T h e usual public r e l a t i o n s b l u r b w o u l d be a w a s t e
of t i m e , a n d t h a n k G o d for that! R e l i e v e d of the b u r d e n of having to
e x p r e s s t h e c o m p a n y l i n e , s o m e o f t h e m g e n u i n e l y enjoyed t h e rare
o p p o r t u n i t y t o talk s e r i o u s l y a b o u t a d i l e m m a w h i c h t r o u b l e d t h e m
w i t h a p e r s o n from o u t s i d e .

The extent of bribery

T h e offices o f t h e U S S e c u r i t i e s and E x c h a n g e C o m m i s s i o n ( S E C )
are g o l d m i n e s of information about "questionable p a y m e n t s ' by
A m e r i c a n c o r p o r a t i o n s . V a l e r i e B r a i t h w a i t e and I spent a n u m b e r
o f d a y s r e a d i n g and p h o t o c o p y i n g d o c u m e n t s i n the W a s h i n g t o n ,
N e w Y o r k a n d L o s A n g e l e s offices o f t h e S E C a s well a s i n t e r v i e w -
ing s e v e r a l officers. T h e m o s t c e n t r a l d o c u m e n t s relating t o each
c o m p a n y a r e listed i n T a b l e 2.1 (p. 3 1 ) , but i n s o m e c a s e s t h e s e w e r e
s u p p o r t e d b y a large n u m b e r o f a d d i t i o n a l c o m p a n y d o c u m e n t s .
R e a d e r s m a y r e q u e s t further i n f o r m a t i o n a b o u t t h e s e d o c u m e n t s b y
writing to me.
T h e w e a l t h of i n f o r m a t i o n arises largely from the S E C ' s volun-
t a r y d i s c l o s u r e p r o g r a m m e . C o m p a n i e s which p a r t i c i p a t e d i n this
p r o g r a m m e w e r e led t o u n d e r s t a n d that such p a r t i c i p a t i o n would

14
Bribery

l e s s e n t h e l i k e l i h o o d t h a t t h e o v e r l o a d e d S E C staff w o u l d p r o c e e d
w i t h e n f o r c e m e n t a c t i o n a g a i n s t t h e m . N o formal g u a r a n t e e against
p r o s e c u t i o n was given, however. U n d e r the voluntary p r o g r a m m e ,
the c o m p a n y conducts a detailed investigation of corrupt payments
by e m p l o y e e s u n d e r t h e a u s p i c e s of ' p e r s o n s not involved in the
a c t i v i t i e s i n q u e s t i o n ' , and t h e n m a k e s a v a i l a b l e t o the S E C staff'all
details c o n c e r n i n g the questionable practices uncovered' (Herlihy
a n d L e v i n e , 1976: 5 8 5 ) . I n t h e p u b l i c d i s c l o s u r e s t h e S E C g e n e r a l l y
a l l o w e d c o m p a n i e s t o p r o t e c t their b u s i n e s s c o n t a c t s b y d e s c r i b i n g
e v e n t s w h i l e w i t h h o l d i n g t h e n a m e s o f t h e r e c i p i e n t s and the coun-
tries where corrupt payments were m a d e .
A b o u t t h i r t y o t h e r c o m p a n i e s which S E C i n v e s t i g a t i o n found t o
h a v e a p a r t i c u l a r l y bad r e c o r d on q u e s t i o n a b l e p a y m e n t s w e r e
forced into c o n s e n t d e c r e e s . A m a j o r r e q u i r e m e n t of the c o n s e n t
d e c r e e s w a s a n e x t r a o r d i n a r i l y d e t a i l e d d i s c l o s u r e o f the c i r c u m -
s t a n c e s s u r r o u n d i n g s u s p e c t e d c o r r u p t p a y m e n t s . I n e x c h a n g e for
such d e t a i l e d d i s c l o s u r e and c e r t a i n r e f o r m s of the c h e c k s and
b a l a n c e s w i t h i n t h e c o m p a n y for the p r e v e n t i o n o f b r i b e r y , t h e S E C
a g r e e d n o t to p r o s e c u t e for any c r i m i n a l a c t i o n . To this end it is
a g r e e d t h a t t h e d i s c l o s u r e s i n t h e c o n s e n t d e c r e e are not t o b e
t r e a t e d as e v i d e n c e of any criminal act. As G e i s ( 1 9 7 9 : 23) has
r e m a r k e d , t h e c o r p o r a t i o n in e s s e n c e says: T d i d n ' t do it, but I
w o n ' t do it a g a i n . ' "Burglars m i g h t wish t h e y had it so g o o d ' , G e i s
p l e a d s . I n e q u i t a b l e t h o u g h i t c e r t a i n l y is, t h e reality i s that t h e S E C
d o e s n o t h a v e t h e r e s o u r c e s t o i n v e s t i g a t e every c o m p a n y s u s p e c t e d
of b r i b e r y in t h e s a m e w a y as p o l i c e d e p a r t m e n t s are able to investi-
g a t e m o s t o f f e n d e r s c a u g h t in t h e act of or s u s p e c t e d of b u r g l a r y .
T h e v o l u n t a r y d i s c l o s u r e and c o n s e n t d e c r e e p r o g r a m m e s w e r e
m e a n s o f m a k i n g t h e m o s t o f t h e s e limited r e s o u r c e s . T h e y a t least
p e r m i t t e d a c r u d e c h e c k on the e x t e n t of c o r r u p t p a y m e n t s by all of
t h e l a r g e s t A m e r i c a n c o r p o r a t i o n s . T h e S E C a t o n e t i m e looked a t
t h e foreign b u s i n e s s p r a c t i c e s of all t h e F o r t u n e 500 c o m p a n i e s .
R e s e a r c h e r s w h o h a v e e n g a g e d i n d e t a i l e d scrutiny o f t h e c o r r u p -
t i o n r e v e a l e d b y t h e S E C d i s c l o s u r e p r o g r a m m e s all a g r e e t h a t the
p h a r m a c e u t i c a l i n d u s t r y is r e v e a l e d as h a v i n g o n e of t h e w o r s t
records.

Of t h e 32 i n d u s t r i e s t h a t spent m o r e t h a n SI million in i m p r o p e r
o v e r s e a s p a y m e n t s , h a l f w e r e i n aircraft, oil, food and d r u g s .
Seven were in d r u g s , which was the most c o m m o n (Clinard et al.,
1979: 199).

15
Bribery

. . . t h e t w o l a r g e s t identifiable g r o u p s w e r e drug m a n u f a c t u r e r s
and c o m p a n i e s e n g a g e d i n p e t r o l e u m refining and r e l a t e d
s e r v i c e s ( S E C , 1976).

. . . t w e l v e [ p h a r m a c e u t i c a l ] c o m p a n i e s had m a d e v o l u n t a r y
d i s c l o s u r e s , which w a s the h i g h e s t n u m b e r for any industry equal
only to t h e oil i n d u s t r y ( K u g e l and G r u e n b e r g , 1977: 7 8 ) .

It s e e m s t h a t c e r t a i n i n d u s t r i e s are p a r t i c u l a r l y p r o n e to e n g a g e in
o v e r s e a s p a y m e n t s . H e a v y capital g o o d s i n d u s t r i e s , such a s
a e r o s p a c e , a r m s , o r t h o s e i n d u s t r i e s that are closely r e g u l a t e d b y
foreign g o v e r n m e n t a g e n c i e s , such a s p h a r m a c e u t i c a l c o m p a n i e s ,
a r e s u b j e c t to u n u s u a l l y h e a v y p r e s s u r e s for payoffs ( H e r l i h y and
L e v i n e , 1976: 5 6 6 ) .

S i m i l a r l y , K e n n e d y and S i m o n ( 1 9 7 8 ) , in a classification of c o m -
p a n i e s d i s c l o s i n g c o r r u p t p a y m e n t s a c c o r d i n g t o i n d u s t r y , found
" d r u g s ' to t o p t h e list with 10 e n t r i e s . A d a m s and R o s e n t h a l ( 1 9 7 6 ) .
in t h e i r b r e a k d o w n by i n d u s t r y , classified 22 u n d e r "drugs and
h e a l t h c a r e " , m o r e t h a n i n any o t h e r c a t e g o r y . All o f t h e s e r e v i e w s
u n d e r e s t i m a t e t h e p r o p o r t i o n o f d o c u m e n t e d d i s c l o s u r e s w h i c h are
a t t r i b u t e d t o p h a r m a c e u t i c a l c o m p a n i e s . E i t h e r t h r o u g h less t h a n
e x h a u s t i v e search of S E C files, or because the disclosures a p p e a r e d
l a t e r t h a n t h e i r d e a d l i n e s for p u b l i c a t i o n , all t h e a b o v e reviews have
m i s s e d a c o n s i d e r a b l e n u m b e r of s u b s t a n t i a l d i s c l o s u r e s by phar-
m a c e u t i c a l c o m p a n i e s . T a b l e 2. 1 lists d i s c l o s u r e s of q u e s t i o n a b l e
p a y m e n t s m a d e by 29 pharmaceutical c o m p a n i e s . Of the 20 US
c o m p a n i e s w i t h t h e highest w o r l d w i d e sales i n p h a r m a c e u t i c a l
p r o d u c t s , 19 have disclosed substantial questionable payments. No
o t h e r i n d u s t r y g r o u p has a n y t h i n g a p p r o a c h i n g this record o f d o c u -
mented corrupt payments. T h e q u a l i t a t i v e and q u a n t i t a t i v e
e v i d e n c e p r e s e n t e d i n this c h a p t e r s u s t a i n s t h e c o n c l u s i o n t h a t t h e
p h a r m a c e u t i c a l i n d u s t r y i s m o r e p r o n e t o b r i b e r y t h a n any o t h e r i n
i n t e r n a t i o n a l b u s i n e s s . P o s s i b l y this i s b e c a u s e , like a e r o s p a c e c o m -
p a n i e s , p h a r m a c e u t i c a l firms deal with big win or lose s i t u a t i o n s -
t h e n e w billion d o l l a r p r o d u c t t o b e a p p r o v e d , the ten million d o l l a r
h o s p i t a l s u p p l y c o n t r a c t t o b e w o n . M o r e o v e r , the m u l t i t u d e o f
r e g u l a t o r y d e c i s i o n s t o w h i c h p h a r m a c e u t i c a l c o m p a n i e s are s u b -
j e c t e d c r e a t e s m a n y o p p o r t u n i t i e s for b u y i n g off r e g u l a t o r s . T h e
c o m p a n y a m o n g t h e t o p 2 0 U S p h a r m a c e u t i c a l firms which did not
d i s c l o s e any q u e s t i o n a b l e p a y m e n t s w a s Eli Lilly.

The amounts involved in corrupt payments disclosed by

16
Bribery

p h a r m a c e u t i c a l c o m p a n i e s are s t a g g e r i n g especially c o n s i d e r i n g
t h a t m a n y of t h e s e a m o u n t s do not consist of o n e or t w o huge
p a y m e n t s . A u s t r a l i a n e x e c u t i v e s told m e t h a t i n s o m e A s i a n c o u n -
t r i e s d r u g r e g i s t r a t i o n s c o u l d be s e c u r e d for quite small c o r r u p t
p a y m e n t s . "Slip t h e m $100 and y o u ' r e r i g h t , ' a s one e x p l a i n e d .
I n c l u d e d in t h e m i l l i o n s of d o l l a r s d i s c l o s e d by m a n y of the
c o m p a n i e s might be some hundreds or t h o u s a n d s of bribes.
T h e c o r r u p t i o n often r e a c h e s t h e h i g h e s t levels o f g o v e r n m e n t .
T h e following i n c i d e n t ( w h i c h d o e s not a p p e a r i n t h e S E C dis-
c l o s u r e d o c u m e n t s ) w a s r e p o r t e d in the New York Times.

In Italy, according to a former c o m p a n y executive w h o worked


t h e r e for y e a r s , a d o z e n d r u g m a n u f a c t u r e r s , i n c l u d i n g s o m e
A m e r i c a n c o m p a n i e s , o n c e b a n d e d t o g e t h e r t o back a n industry-
s p o n s o r e d bill in t h e Italian P a r l i a m e n t t h a t w o u l d have allowed
m a n u f a c t u r e r s to sell their n o n p r e s c r i p t i o n p r o d u c t s in
s u p e r m a r k e t s a n d o t h e r retail o u t l e t s . T h e r e , they would n o
l o n g e r b e s u b j e c t t o price c o n t r o l .

The c o m p a n i e s were assessed $80,000 each, according to the


s o u r c e , w i t h t h e $1 million to be put into a war chest o f t h e
Christian Democratic Party.

T h e G o v e r n m e n t fell before the bill could be e n a c t e d , and it


c o u l d not b e d e t e r m i n e d definitely w h e t h e r the m o n e y actually
c h a n g e d h a n d s . B u t t h e i n f o r m a n t said it ' u n d o u b t e d l y had' (New
York Times, 21 M a r c h , 1976).

L e t u s n o w r e v i e w t h e d i s c l o s u r e s m a d e b y t h e largest c o m p a n i e s .

Merck & Co.


US r a n k in p h a r m a c e u t i c a l sales: 1.
S o m e o f t h e e x e c u t i v e s w h o i n i n t e r v i e w e x p r e s s e d a worldly-wise
a b s e n c e o f s u r p r i s e a t t h e e v i d e n c e o f w i d e s p r e a d bribing o f h e a l t h
officials b y p h a r m a c e u t i c a l c o m p a n i e s w e r e n e v e r t h e l e s s s h o c k e d t o
find M e r c k a m o n g t h o s e c o m p a n i e s with t h e worst r e c o r d s o f q u e s -
t i o n a b l e p a y m e n t s . M e r c k , like Lilly, is a c o m p a n y frequently held
up by p e o p l e in t h e i n d u s t r y as a m o d e l of e x c e l l e n c e in quality and a
p a r a g o n o f p r o p r i e t y . W h e n I a s k e d e x e c u t i v e s from o t h e r
c o m p a n i e s w h e r e I s h o u l d go to learn a b o u t effective self-regulatory
s y s t e m s , I w o u l d be told ' G o to M e r c k ' or ' G o to Lilly'.
M e r c k has r e p o r t e d $3.6 million in q u e s t i o n a b l e p a y m e n t s in 39
17
Bribery

foreign c o u n t r i e s , S2.3 million of it to third p a r t i e s w h o 'may have


p a s s e d m o n e y o n t o g o v e r n m e n t e m p l o y e e s ' . M e r c k w a s o n e o f the
few c o m p a n i e s w h i c h d i s c l o s e d p a y m e n t to a c a b i n e t - l e v e l official.
N e i t h e r t h e n a m e o f t h e p e r s o n nor t h e c o u n t r y w a s specified, but
the a m o u n t was $12,500. In one country, in which it was customary
'not t o a c k n o w l e d g e o r disclose c o r p o r a t e political c o n t r i b u t i o n s ' ,
the c o m p a n y admits that some contributions 'were made through
t h e C o m p a n y ' s Swiss s u b s i d i a r y [ M e r c k , S h a r p e & D o h m e A . G . ]
and recorded as promotional expenses'.
M e r c k c l a i m e d its q u e s t i o n a b l e p a y m e n t s a s tax d e d u c t i o n s and
c o n s e q u e n t l y has a g r e e d t o pay the U S I n t e r n a l R e v e n u e Service
a d d i t i o n a l tax o f $ 2 6 4 , 0 0 0 . T h e I R S , h o w e v e r , i s c o n t i n u i n g investi-
g a t i o n s for f u r t h e r v i o l a t i o n s o f t h e I n t e r n a l R e v e n u e C o d e .
T h e c o r p o r a t i o n b l a m e d its a u d i t o r for failing to follow up on
i n f o r m a t i o n a b o u t t h e q u e s t i o n a b l e p a y m e n t s . A special c o m m i t t e e
of o u t s i d e e x p e r t s set up by t h e M e r c k b o a r d to i n v e s t i g a t e t h e
m a t t e r c r i t i c i s e d t h e c h a i r m a n o f t h e b o a r d for i g n o r i n g w a r n i n g
signals. The M e r c k p a y m e n t s were therefore notable in that there
w a s e v i d e n c e o f t h e seniority o f b o t h r e c i p i e n t s and c o m p a n y
officials w h o had t h e k n o w l e d g e to p u t a s t o p to t h e b u s i n e s s .
T h e c o m m i t t e e r e a c h e d t h e following c o n c l u s i o n s a b o u t its
c h a i r m a n a n d c h i e f e x e c u t i v e officer, H e n r y W . G a d s d e n .

M r G a d s d e n w a s a w a r e t h a t p a y m e n t s o f t h e kind u n d e r
investigation were rather c o m m o n in the conduct of business in
s o m e foreign c o u n t r i e s , but stated t h a t p r i o r t o t h e i n v e s t i g a t i o n
he did not b e l i e v e t h a t t h e C o m p a n y or its e m p l o y e e s w e r e
i n v o l v e d in any such p a y m e n t s , e x c e p t for m i n o r g r a t u i t i e s .
B a s e d on all t h e e v i d e n c e it r e c e i v e d d u r i n g t h e c o u r s e of the
i n v e s t i g a t i o n , t h e C o m m i t t e e b e l i e v e s this i s a n a c c u r a t e
s t a t e m e n t . The C o m m i t t e e was advised, however, that in two
i n s t a n c e s p o s s i b l e w a r n i n g signals may h a v e b e e n s o u n d e d i n M r
G a d s d e n ' s p r e s e n c e w h i c h could h a v e p r o m p t e d him t o p r o b e
into t h e m a t t e r s n o w i n q u e s t i o n . M r G a d s d e n did not recall one
o f t h e s e i n c i d e n t s . H e did not p u r s u e t h e s e c o n d which o c c u r r e d
in A p r i l 1 9 7 5 ; h o w e v e r , he w a s i n f o r m e d at that t i m e t h a t line
e x e c u t i v e s had g i v e n a s s u r a n c e t h e r e w e r e and w o u l d b e n o
p r o b l e m s o f this n a t u r e a t M e r c k . M r G a d s d e n w a s a w a r e o f and
a p p r o v e d t h e m a k i n g of a s u b s t a n t i a l foreign political
c o n t r i b u t i o n , d i r e c t i n g t h a t t h e c o n t r i b u t i o n be m a d e only if it
w a s legal to do so.

18
Bribery

T h e c o m m i t t e e also r e a c h e d t h e s e c o n c l u s i o n s a b o u t R a y m o n d
E . S n y d e r ( E x e c u t i v e Vice P r e s i d e n t , A d m i n i s t r a t i o n ) :

Mr S n y d e r s t a t e d t h a t he w a s not i n v o l v e d in the a u t h o r i z a t i o n ,
a p p r o v a l o r r e c o r d i n g o f any o f the i m p r o p e r p a y m e n t s t o foreign
g o v e r n m e n t e m p l o y e e s . F u r t h e r m o r e , h e stated that a l t h o u g h h e
b e l i e v e d t h e C o m p a n y ' s foreign s u b s i d i a r i e s c o n f o r m e d to a
g e n e r a l i n d u s t r y p r a c t i c e i n s o m e foreign c o u n t r i e s o f m a k i n g
p a y m e n t s of m o d e s t s u m s of this t y p e , he k n e w of no specific
major disbursement or improper documentation. There were
r e c o l l e c t i o n s a m o n g o t h e r s i n t e r v i e w e d that [there w e r e ] o n
s e v e r a l o c c a s i o n s t r a n s a c t i o n s i n v o l v i n g possible i m p r o p e r
p a y m e n t s by foreign s u b s i d i a r i e s . . . [ a n d ] no c o r r e c t i v e s t e p s
w e r e t a k e n a t t h a t t i m e . M r S n y d e r did not r e m e m b e r such
specific d i s c u s s i o n s p r i o r to t h e w i d e publicity given to such
g e n e r a l i n d u s t r y p r a c t i c e s in 1975, a l t h o u g h he t h o u g h t it p o s s i b l e
t h a t s o m e such t r a n s a c t i o n s may h a v e b e e n involved i n r e v i e w s o f
a n u m b e r of u n u s u a l a c c o u n t i n g i t e m s , i n c l u d i n g p a y m e n t s for
w h i c h d o c u m e n t a t i o n did not a p p e a r t o b e c o m p l e t e .

The c o m m i t t e e drew three general conclusions as to the nature


and d e g r e e o f m a n a g e m e n t ' s a w a r e n e s s o f t h e p a y m e n t s and p r a c -
tices under investigation:

(i) t h e r e w a s a n a t m o s p h e r e o f a c c e p t a n c e c r e a t e d b y t h o s e
r e s p o n s i b l e for d i r e c t i n g and s u p e r v i s i n g the i n t e r n a t i o n a l and
t h e financial affairs o f t h e C o m p a n y ;
(ii) t h e r e w a s an effort by i n t e r n a t i o n a l line and c o n t r o l l e r
p e r s o n n e l to k e e p d e t a i l s with r e s p e c t to such p a y m e n t s from
c o m i n g to top m a n a g e m e n t attention on the assumption that,
d e s p i t e t h e a t m o s p h e r e o f a c c e p t a n c e , t o p m a n a g e m e n t did not
want to be involved;
(iii) t h e r e w a s an a b s e n c e of effective p r o b i n g by t o p
m a n a g e m e n t , d e s p i t e s o m e i n d i c a t i o n s t h a t such p r o b i n g w a s i n
order.

I n t h e s t a t e m e n t s t o t h e S E C , M e r c k e x c u s e d t h e b e h a v i o u r o f its
p e r s o n n e l b y p o i n t i n g o u t that:

T h e s e p a y m e n t s w e r e m a d e b e c a u s e t h e e m p l o y e e s involved
g e n e r a l l y b e l i e v e d t h a t i) t h e y w e r e b e i n g p r e s s u r e d by foreign
g o v e r n m e n t e m p l o y e e s t o m a k e such p a y m e n t s , ii) m a n a g e m e n t

19
Bribery

a c c e p t e d t h e s e p r a c t i c e s as n e c e s s a r y to a c h i e v e sales goals in
s o m e c o u n t r i e s a b r o a d , and iii) t h e y w e r e acting in t h e best
interests of the C o m p a n y .

American Home Products

US r a n k in p h a r m a c e u t i c a l sales: 2
A m e r i c a n H o m e P r o d u c t s is a much larger company than Merck,
b u t s m a l l e r in p h a r m a c e u t i c a l s , only 39 p e r cent of its sales being of
d r u g s ( G e r e f f i . 1979: 13). A total of S3.4 million in q u e s t i o n a b l e
p a y m e n t s w a s m a d e in 41 different c o u n t r i e s . A p p r o v a l s for g o v e r n -
m e n t p u r c h a s e s w o r t h S40.5 million w e r e o b t a i n e d b e t w e e n 1971
a n d 1975 by p a y i n g g o v e r n m e n t officials a c o m m i s s i o n r a n g i n g
b e t w e e n 1 per c e n t and 15 p e r cent of the value of the sale. O t h e r
p a y m e n t s w e r e m a d e "to o b t a i n action o n n e c e s s a r y g o v e r n m e n t
c l e a r a n c e s ' . A m e r i c a n H o m e P r o d u c t s disclosed that:

N o n - c o m m i s s i o n type p a y m e n t s were m a d e in a n u m b e r of
c o u n t r i e s t o foreign g o v e r n m e n t e m p l o y e e s primarily i n
c o n n e c t i o n with the granting of required g o v e r n m e n t
a p p r o v a l s . . . . T h e t o t a l s do not i n c l u d e o c c a s i o n a l n o m i n a l
g r a t u i t i e s and tips t o p e r s o n s p e r f o r m i n g r o u t i n e m i n i s t e r i a l
d u t i e s (8K form l o d g e d with S E C : F e b . 7 6 : 4 ) .

In a d d i t i o n to t h e a b o v e , t h e c o m p a n y a d m i t t e d to a legal charit-
a b l e c o n t r i b u t i o n of $ 3 8 , 0 0 0 for an ' e s s e n t i a l l y political p u r p o s e "
w h i c h w a s f a v o u r e d by a high g o v e r n m e n t official. A t t e n t i o n is
d r a w n to this only to s h o w s o m e of t h e a c t i v i t i e s which are e x c l u d e d
from t h e a g g r e g a t e f i g u r e s o n q u e s t i o n a b l e p a y m e n t s r e p o r t e d h e r e .

Warner-Lambert

US r a n k in p h a r m a c e u t i c a l s a l e s : 3
W a r n e r - L a m b e r t and its s u b s i d i a r y P a r k e - D a v i s disclosed S2.6
m i l l i o n in q u e s t i o n a b l e p a y m e n t s in 14 c o u n t r i e s . A bank a c c o u n t
n o t o n t h e c o r p o r a t e b o o k s w a s used t o pay c o m m i s s i o n s o n g o v e r n -
m e n t sales i n s o m e c a s e s , w h i l e o t h e r c o m m i s s i o n s w e r e b o o k e d a s
m a r k e t i n g e x p e n s e s . E r r o n e o u s tax d e d u c t i o n s from t h e s e pay-
m e n t s w e r e m a d e t o t h e point w h e r e t h e c o m p a n y w a s obliged t o
pay $ 3 2 5 , 8 3 9 i n a d d i t i o n a l t a x .
T u c k e d a w a y i n t h e d o c u m e n t s l o d g e d with t h e S E C i s the a d m i s -
sion t h a t p a y m e n t s w e r e m a d e t o get n e w p r o d u c t s a p p r o v e d for

20
Bribery

m a r k e t i n g : ' O t h e r p a y m e n t s w e r e m a d e t o foreign g o v e r n m e n t
e m p l o y e e s to e x p e d i t e a variety of g o v e r n m e n t a l a c t i o n s with
r e s p e c t t o p r i c e s , p r o d u c t r e g i s t r a t i o n s , d i v i d e n d s , t a x e s , and o t h e r
m a t t e r s . ' (8K: M a r . 7 6 ) .

Pfizer
US r a n k in p h a r m a c e u t i c a l sales: 4
C o m p a r e d w i t h t h e t h r e e largest c o m p a n i e s . Pfizer disclosed t h e
r e l a t i v e l y m o d e r a t e total o f $ 2 6 4 , 0 0 0 i n p a y m e n t s t o g o v e r n m e n t
e m p l o y e e s i n t h r e e c o u n t r i e s . A n a d d i t i o n a l p a y m e n t o f $22,500
h a d b e e n m a d e t o a foreign t r a d e a s s o c i a t i o n 'which p a y m e n t had
b e e n solicited with t h e i n d i c a t i o n t h a t it w o u l d be used to m a k e
c o n t r i b u t i o n s to v a r i o u s political p a r t i e s in that foreign country".
Pfizer also said t h a t it paid a further $ 2 1 , 0 0 0 as a 'professional fee',
' t h e r e c i p i e n t o f w h i c h i n d i c a t e d s o m e p o r t i o n m i g h t b e used t o
m a k e a p a y m e n t t o foreign g o v e r n m e n t e m p l o y e s [sic]' (8K: M a r ,
76).

Upjohn

US r a n k in p h a r m a c e u t i c a l sales: 6
U p j o h n has d i s c l o s e d t h e s e c o n d largest a m o u n t o f q u e s t i o n a b l e
p a y m e n t s - an a g g r e g a t e of $4.2 million. An initial d i s c l o s u r e of
$2.7 m i l l i o n in 22 c o u n t r i e s w a s soon followed by an a d m i s s i o n that
e v i d e n c e for t h e l a r g e r sum of $4.2 million in 29 c o u n t r i e s w a s
a v a i l a b l e . A n u n u s u a l e l e m e n t i n U p j o h n ' s d i s c l o s u r e i s the large
s u m w h i c h i s c o n c e d e d a s h a v i n g b e e n paid t o n o n - g o v e r n m e n t
hospital e m p l o y e e s - $474,000. No outside directors knew o f t h e
p a y m e n t s but i n s i d e d i r e c t o r s e i t h e r k n e w o f t h e p a y m e n t s o r
actually approved them.

Squibb

US r a n k in p h a r m a c e u t i c a l sales: 7
T h e d o c u m e n t e d h i s t o r y o f b r i b e r y w i t h S q u i b b goes back further
than with most of the transnational pharmaceutical corporations.
D u r i n g t h e 1960s S q u i b b w a s a s u b s i d i a r y of t h e O l i n M a t h i e s o n
C h e m i c a l C o r p o r a t i o n . T h e illegal p a y m e n t s c o n c e r n e d $1.5
m i l l i o n w o r t h o f a n t i b i o t i c s m a n u f a c t u r e d b y S q u i b b and sent t o
C a m b o d i a a n d V i e t n a m b e t w e e n 1958 and 1963 u n d e r t h e U S

21
Bribery

f o r e i g n aid p r o g r a m m e . I t w a s s h o w n t h a t the c o m p a n y ' s a g e n t had


p a i d b e t w e e n $ 3 0 , 0 0 0 and $ 4 0 , 0 0 0 into a Swiss a c c o u n t for the
benefit of a Dr A r n a u d . t h e major s h a r e h o l d e r in a C a m b o d i a n
drug-importing firm.
The a g e n t , the Phillip B a u e r C o . of N e w York, was convicted on
29 c o u n t s and fined a total of $ 2 9 , 0 0 0 . On 28 O c t o b e r , 1966 the
U n i t e d S t a t e s C o u r t o f A p p e a l s affirmed t h e c o n v i c t i o n s .
U S foreign aid r e g u l a t i o n s p r o h i b i t c o m m i s s i o n s and p r o m o -
t i o n a l a l l o w a n c e s to i m p o r t e r s for p l u g g i n g b r a n d n a m e s , and for
o t h e r i m p r o p e r benefits i n c l u d i n g k i c k b a c k s . After p r o t r a c t e d legal
conflict O l i n p l e a d e d guilty to c o n s p i r a c y to m a k e false certifica-
4
t i o n s a n d d e f r a u d t h e U n i t e d S t a t e s , plus t w o o t h e r c o u n t s . A l s o
c o n v i c t e d o f c o n s p i r a c y w e r e H e r b e r t G . Wolf. O l i n ' s former
r e g i o n a l v i c e - p r e s i d e n t i n H o n g K o n g and the F a r E a s t Inter-
n a t i o n a l C o r p . , o f w h i c h W o l f s wife w a s p r e s i d e n t and sole stock-
h o l d e r . T h e f o r m e r w a s fined $ 7 , 5 0 0 , t h e l a t t e r $ 2 1 , 0 0 0 .
O n 2 3 S e p t e m b e r , 1965 O l i n r e c e i v e d t h e m a x i m u m s e n t e n c e o f
$ 1 0 , 0 0 0 o n e a c h c o u n t . M i n t z ( 1 9 6 7 ) has p r o v i d e d a m o r e c o m p l e t e
a c c o u n t of this legal b a t t l e . He also d e s c r i b e s one i n t e r e s t i n g side-
light o f O l i n ' s c o n v i c t i o n .

It h a p p e n e d t h a t t h e r e w a s a law w h i c h said in e s s e n c e t h a t a
p e r s o n w h o had b e e n c o n v i c t e d of a felony could not t r a n s p o r t a
w e a p o n in i n t e r s t a t e c o m m e r c e . T h i s c r e a t e d a legal p r o b l e m for
O l i n , b e c a u s e it had b e e n c o n v i c t e d o f a felony, w a s in the e y e s of
t h e law a p e r s o n a n d had a division t h a t m a d e w e a p o n s for use by
the a r m e d forces. C o n g r e s s resolved the dilemma by enacting a
law t h a t , in effect, got O l i n off t h e h o o k ( M i n t z , 1967: 3 8 3 j ) .

In 1976 S q u i b b , h a v i n g cut its ties w i t h O l i n . disclosed q u e s t i o n -


a b l e p a y m e n t s of $1.9 million in 8 c o u n t r i e s b e t w e e n 1971 and 1976.

Bristol-Myers

US r a n k in p h a r m a c e u t i c a l sales: 8
Bristol-Myers have disclosed $3.0 m i l l i o n in questionable pay-
m e n t s . A n i n v e s t i g a t i o n c o m m i t t e e a p p o i n t e d b y the B r i s t o l - M y e r s
b o a r d p r o v i d e s s o m e i n t e r e s t i n g insights i n its r e p o r t a b o u t h o w t h e
p a y m e n t s , which were generally made in cash, were concealed.

T h e c a s h w a s g e n e r a t e d in t w o p r i n c i p a l w a y s : a third party would


s u b m i t a false i n v o i c e for s e r v i c e s not actually r e n d e r e d , r e c e i v e

22
Bribery

p a y m e n t , r e t a i n a p o r t i o n to c o v e r tax liability and p e r h a p s


c o m p e n s a t i o n , and d e l i v e r t h e b a l a n c e in cash e i t h e r back to a
C o m p a n y r e p r e s e n t a t i v e or to t h e i n t e n d e d b e n e f i c i a r y ; or a
C o m p a n y check would be drawn to an individual employee who
w o u l d h a v e it c a s h e d . In a few i n s t a n c e s a C o m p a n y c h e c k d r a w n
to t h e o r d e r of a C o m p a n y e m p l o y e e w a s d e p o s i t e d in that
e m p l o y e e ' s personal bank account. The e m p l o y e e thereafter
d r e w funds from his a c c o u n t for t h e p u r p o s e of m a k i n g p a y m e n t s
to a g o v e r n m e n t official or his i n t e r m e d i a r y .
T h e t r a n s f e r s of funds involved w e r e all r e c o r d e d in the
C o m p a n y ' s b o o k s , but t h e e n t r i e s did not fully disclose the
u n d e r l y i n g n a t u r e o f t h e t r a n s a c t i o n s . C o m m i s s i o n s paid t o
c o m m i s s i o n a g e n t s w e r e a c c u r a t e l y r e c o r d e d i n the C o m p a n y ' s
b o o k s , but t h e e n t r i e s did not disclose t h o s e i n s t a n c e s in w h i c h it
w a s a s s u m e d t h a t a p o r t i o n of t h e c o m m i s s i o n w o u l d u l t i m a t e l y
go to a g o v e r n m e n t official (8K: A u g 7 6 ) .

T h e i n v e s t i g a t i o n c o n c l u d e d t h a t n o m e m b e r o f the b o a r d o f
d i r e c t o r s , e m p l o y e e or n o n - e m p l o y e e , knew that payments were
being made. H o w e v e r ,

A t I n t e r n a t i o n a l D i v i s i o n h e a d q u a r t e r s i n N e w Y o r k and R o m e ,
e x e c u t i v e s i n c l u d i n g financial p e r s o n n e l had varying d e g r e e s o f
k n o w l e d g e o f t h e m a k i n g o f p a y m e n t s t o o b t a i n sales and o f
facilitating p a y m e n t s . I n t h o s e c o u n t r i e s w h e r e p a y m e n t s w e r e
m a d e , t h e g e n e r a l m a n a g e r s w e r e a w a r e o f and a u t h o r i z e d t h e
m a k i n g o f t h e p a y m e n t s . A r e a vice p r e s i d e n t s and r e g i o n a l
d i r e c t o r s g e n e r a l l y had s o m e k n o w l e d g e o f p a y m e n t s m a d e i n
t h e i r t e r r i t o r i e s (8K: A u g 7 6 ) .

T h e c o m m i t t e e r e p o r t e d o n the following d e c i s i o n o f t h e B r i s t o l -
M y e r s B o a r d , a d e c i s i o n w h i c h t h e S E C w a s a p p a r e n t l y willing t o
accept.

W h i l e this investigation was u n d e r w a y , the B o a r d was informed


t h a t p a y m e n t s o f a p p r o x i m a t e l y S148,(KX) w e r e c o n t e m p l a t e d i n
four c o u n t r i e s w h e r e t h e g e n e r a l m a n a g e r s b e l i e v e d that the
failure t o m e e t ' p r i o r c o m m i t m e n t s ' i n c o n n e c t i o n with past sales
w o u l d p l a c e e m p l o y e e s i n d a n g e r o f physical h a r m . T h e B o a r d ,
after i n q u i r y , d e c i d e d t h a t this c o n c e r n o f t h e local m a n a g e r s w a s
r e a s o n a b l e and a c q u i e s c e d i n p a y m e n t s not t o e x c e e d t h e
f o r e g o i n g a m o u n t . T h e s e p a y m e n t s are i n c l u d e d i n the f i g u r e s
g i v e n e a r l i e r i n this r e p o r t (8K: A u g 7 6 ) .

23
Bribery

Schering-Plough

US r a n k in p h a r m a c e u t i c a l sales: 9
S c h e r i n g - P l o u g h r e p o r t e d q u e s t i o n a b l e p a y m e n t s o f $1.1 million
b e t w e e n 1971 and 1976. E a r l y d i s c l o s u r e s of $0.8 million had to be
s u p p l e m e n t e d in 1977 with further r e v e l a t i o n s . T h e s e i n c l u d e d
explicit reference to p a y m e n t s to secure product registrations:

2 . I n a n o t h e r foreign c o u n t r y , p a y m e n t s o f a p p r o x i m a t e l y
$ 2 2 0 , 0 0 0 w e r e m a d e d u r i n g t h e y e a r s 1972 t h r o u g h 1976 to
private consultants engaged to secure product registrations, or
r e n e w a l s thereof, i n t h a t c o u n t r y . I n a d d i t i o n , i n t h a t s a m e
c o u n t r y , p a y m e n t s t o t a l l i n g a p p r o x i m a t e l y $ 17,000 w e r e m a d e in
the y e a r s 1972, 1975 and 1976 to c o n s u l t a n t s e n g a g e d to settle
p r o p o s e d i n c o m e t a x a s s e s s m e n t s . S e n i o r m a n a g e m e n t has b e e n
a d v i s e d t h a t all or a p o r t i o n of t h e a f o r e s a i d p a y m e n t s may have
b e e n p a s s e d on to p u b l i c officials r e s p o n s i b l e for p r o c e s s i n g the
r e g i s t r a t i o n s or tax a s s e s s m e n t s a l t h o u g h it has no direct
k n o w l e d g e o f any such p a y m e n t s .
3 . I n a n o t h e r foreign c o u n t r y , p a y m e n t s i n the a m o u n t o f
a p p r o x i m a t e l y $ 3 7 , 0 0 0 w e r e m a d e d u r i n g t h e y e a r s 1972 t h r o u g h
1976, in c o n n e c t i o n with a p p l i c a t i o n s for p r o d u c t r e g i s t r a t i o n s in
that c o u n t r y , to individuals who w e r e part-time consultants to a
g o v e r n m e n t a g e n c y r e s p o n s i b l e for issuing such r e g i s t r a t i o n s
(8K: A p r , 77).

Companies not ranked in the top 20

R a t h e r t h a n e x h a u s t i v e l y list the m i s d e e d s of all of the s m a l l e r


t r a n s n a t i o n a l s , only four of the m o r e r e v e a l i n g case s t u d i e s will be
discussed: those of the A m e r i c a n Hospital Supply C o r p o r a t i o n ,
R o r e r - A m c h e n , S y n t e x and M e d t r o n i c .

American Hospital Supply Corporation

A m e r i c a n H o s p i t a l S u p p l y ( A H S ) , a r e l a t i v e l y small c o r p o r a t i o n
c o m p a r e d w i t h s o m e o f t h o s e a b o v e ( c o n s o l i d a t e d net e a r n i n g s for
five y e a r s to J u n e 1976 w e r e $208 m i l l i o n ) , s u r p a s s e d all o t h e r
p h a r m a c e u t i c a l c o m p a n i e s with questionable p a y m e n t s a m o u n t i n g
to a s t a g g e r i n g $ 5 . 8 million. T h i s figure d o e s not i n c l u d e q u e s t i o n -
a b l e p a y m e n t s b y c o m p a n i e s i n w h i c h A H S has m i n o r i t y i n t e r e s t s
( u p t o 5 0 p e r c e n t ) . I t w a s c o n c e d e d that A H S ' h a s b e e n only

24
Bribery

p a r t i a l l y successful in i n d u c i n g t h e s e foreign c o m p a n i e s to c o r r e c t
p r a c t i c e s w h i c h v i o l a t e its P o l i c i e s ' . A H S specialises i n c o n t r a c t s t o
s u p p l y h o s p i t a l s w i t h a w i d e r a n g e of r e q u i r e m e n t s from syringes to
drugs.
T h e A H S p a y m e n t s w e r e t h e subject o f a n S E C c o n s e n t d e c r e e ,
w h i c h , a m o n g o t h e r t h i n g s , m a n d a t e d a hefty a u d i t c o m m i t t e e
r e p o r t i n t o t h e i n t e r n a l affairs o f t h e c o r p o r a t i o n .
T h e a u d i t c o m m i t t e e r e p o r t o f 2 5 F e b r u a r y 1977 r e v e a l e d that
q u e s t i o n a b l e p a y m e n t s , mainly c o m m i s s i o n s t o hospital a d m i n i s -
t r a t o r s who gave the c o m p a n y c o n t r a c t s , were m a d e in Australia.
Austria, Belgium, Brazil, Chile, France, G r e e c e , Guatemala,
India, Iran, Israel, Italy, Japan, Mexico, Norway, Peru,
P h i l i p p i n e s , Q a t a r , S a u d i A r a b i a , S o u t h K o r e a , S p a i n , T u r k e y and
V e n e z u e l a . M a n y o f t h e p a y m e n t s d i r e c t e d t o i n d i v i d u a l s i n these
c o u n t r i e s w e r e l a u n d e r e d t h r o u g h Swiss b a n k a c c o u n t s . O t h e r
intermediaries t h r o u g h w h i c h funds p a s s e d included public
r e l a t i o n s c o n s u l t a n t s , law firms and an a r c h i t e c t u r a l firm o w n e d by
hospital board m e m b e r s .

King Faisal Specialist Hospital

T h e w o r s t a l l e g a t i o n set d o w n in t h e c o n s e n t d e c r e e c o n c e r n e d a
m a j o r p r o j e c t t o e q u i p t h e n e w K i n g Faisal Specialist H o s p i t a l a t
R i y a d h , S a u d i A r a b i a , b e t w e e n 1972 and 1976. T h e c o n s e n t o r d e r
a l l e g e s t h a t S4.6 million w a s p a i d , mostly t h r o u g h a L i e c h t e n s t e i n
t r u s t , 'for t h e benefit o f p e r s o n s i n c h a r g e o f t h e p r o j e c t , p e r s o n s i n
a n affected M i n i s t r y o f t h e S a u d i g o v e r n m e n t and p e r s o n s o f p o w e r
and i n f l u e n c e with t h e Saudi g o v e r n m e n t ' .
T h e c o n s e n t d e c r e e p r o v i d e s a fascinating illustration of h o w the
b o a r d of d i r e c t o r s can be p r o t e c t e d from t h e taint of k n o w l e d g e
e v e n in a r e l a t i v e l y small c o m p a n y w h i c h is d i s p o s i n g of a very large
amount of money.

A p r o - f o r m a financial e a r n i n g s s t a t e m e n t p r o j e c t e d for t h e
H o s p i t a l c o n t r a c t , i n c l u d i n g a n e x p e n s e item identified a s
' C o m m i s s i o n s - SI,506[,000],' was submitted to A m e r i c a n
H o s p i t a l ' s board of directors by m a n a g e m e n t at the time board
a p p r o v a l for t h e e q u i p p i n g c o n t r a c t w a s s o u g h t . A l t h o u g h
A m e r i c a n H o s p i t a l policy r e q u i r e d b o a r d a p p r o v a l o f all
c o n s u l t i n g a g r e e m e n t s t h a t e x c e e d e d $ 2 5 , 0 0 0 i n fees, n o b o a r d
a p p r o v a l to e n t e r i n t o fee or c o m m i s s i o n a r r a n g e m e n t s in

25
Bribery

c o n n e c t i o n w i t h t h e subject c o n t r a c t w a s sought o r o b t a i n e d b y
m a n a g e m e n t . A m e r i c a n Hospital maintains that the personnel
w o r k i n g on t h e p r o p o s e d c o n t r a c t failed to inform t h e highest
c o r p o r a t e officers and d i r e c t o r s o f A m e r i c a n H o s p i t a l o f t h e
m a t t e r a l l e g e d i n P a r a g r a p h 1 1 h e r e i n a b o v e (p. 4 ) .

A p a r t from its H o s p i t a l D e v e l o p m e n t E x p e n s e s , the t e r m used


by A H S to d e s c r i b e p a y m e n t s to h o s p i t a l officials to secure sales of
their p r o d u c t s , many o t h e r types of questionable payments were
m e n t i o n e d in the report of the audit c o m m i t t e e .

Union payments"

In 1973 a n d 1974, A H S / M e x i c o r e l o c a t e d a factory to a n o t h e r


m a j o r city r e s u l t i n g in a layoff of w o r k e r s in its f o r m e r l o c a t i o n . In
c o n j u n c t i o n with t h a t r e l o c a t i o n , A H S / M e x i c o paid $21,600 i n
c a s h to u n i o n officials to p e r s u a d e t h e m to p r e v e n t strikes or
d e m a n d s b y u n i o n m e m b e r s for h i g h e r s e v e r a n c e pay. T h e s e
p a y m e n t s , a c c o r d i n g t o A H S / M e x i c o officials, w e r e essentially
b r i b e s t o u n i o n officials r a t h e r t h a n p a y m e n t s going t o the u n i o n
to benefit t h e u n i o n as a w h o l e ( p p . 4 3 - 4 ) .

I t w o u l d a p p e a r t h a t tax i m p l i c a t i o n s o f A H S ' s u n i o n p a y m e n t s
w e r e a s o u r c e o f g r e a t e r c o n c e r n t h a n their p r o p r i e t y .

In J u l y 1976 a w a r e h o u s e e m p l o y e e of A H S / M e x i c o w a s fired.
The e m p l o y e e p e r s u a d e d a union to picket the w a r e h o u s e in
p r o t e s t of his firing. In o r d e r to e n d t h e p i c k e t i n g , the p e r s o n n e l
m a n a g e r o f A H S / M e x i c o n e g o t i a t e d with the u n i o n official i n
c h a r g e of t h e p i c k e t s . T h a t u n i o n official offered to s t o p t h e
p i c k e t i n g in r e t u r n for a cash p a y m e n t to him. T h e A H S / M e x i c o
p e r s o n n e l m a n a g e r refused t o m a k e t h e d i r e c t p a y m e n t i n cash
b u t m a d e a $ 6 0 0 p a y m e n t to t h e p i c k e t i n g u n i o n in t h e form of a
c h e c k m a d e p a y a b l e to t h e u n i o n in r e t u r n for a receipt from the
u n i o n so t h a t t h e p a y m e n t could be d e d u c t e d for tax p u r p o s e s .
T h e r e c e i p t did not m e e t all t h e r e q u i r e m e n t s of M e x i c a n tax law
and A H S / M e x i c o ' s i n d e p e n d e n t accountants determined it to be
a nondeductible expense (pp. 45-6).

Payments to physicians

The c o n s e n t d e c r e e alleges that A H S offered personal financial

26
Bribery

r e w a r d s t o d o c t o r s w h o used c e r t a i n i m p l a n t a b l e A H S medical
devices in preference to c o m p e t i n g b r a n d s . An example of an
i m p l a n t a b l e d e v i c e w o u l d be a heart p a c e m a k e r . I n c l u d e d in a list of
q u e s t i o n a b l e p a y m e n t s , w e find i n t h e c o n s e n t d e c r e e :

c) In a t h i r d c o u n t r y , i m p r o p e r p a y m e n t s to p h y s i c i a n s or o t h e r
d e s i g n a t e d r e c i p i e n t s a m o u n t i n g t o $ 1 5 1 , 0 0 0 i n c o n n e c t i o n with
t h e p r e s c r i p t i o n by such p h y s i c i a n s for i m p l a n t s of an A m e r i c a n
H o s p i t a l subsidiary's device to meet what the c o m p a n y c o n t e n d s
w e r e p r e v i o u s l y e s t a b l i s h e d c o m p e t i t i v e p r a c t i c e s ( p . 6.).

Payments to health inspectors

The report o f t h e audit committee states:

A H S / M e x i c o in 1974 and 1975 paid a p p r o x i m a t e l y $5,000 to


h e a l t h i n s p e c t o r s w h o i n s p e c t e d A H S / M e x i c o facilities. Officials
o f t h e s u b s i d i a r y stated that t h e s e p a y m e n t s w e r e m a d e t o
c o n v i n c e t h e h e a l t h i n s p e c t o r s not t o r e p o r t the s u b s i d i a r y ' s
violations o f t h e Mexican Health Code (p. 43).

Payments to customs officials

W i t h r e s p e c t t o p h a r m a c e u t i c a l p r o d u c t s and m e d i c a l d e v i c e s ,
p a y m e n t s to c u s t o m s officials can be a s e r i o u s m a t t e r if t h e y are
m a d e t o facilitate t h e i m p o r t o f p r o d u c t s which a r e not a p p r o v e d a s
safe a n d effective by t h e c o u n t r y c o n c e r n e d . T h e r e is insufficient
i n d i c a t i o n i n t h e a u d i t c o m m i t t e e r e p o r t a s t o w h e t h e r this w o u l d b e
t h e c a s e with A H S p a y m e n t s . T h e r e p o r t simply states that A H S
m a d e p a y m e n t s to M e x i c a n c u s t o m s officials in 1975, inter alia, to
'misclassify g o o d s t o p e r m i t t h e i r i m p o r t a t i o n ' .
P a y m e n t s w e r e a l s o m a d e t o M e x i c a n c u s t o m s officials w h o
e x t o r t e d the p a y m e n t s by threats of confiscation. O t h e r p a y m e n t s
w e r e m a d e t o ' i m p o r t A H S C g o o d s a t a l o w e r c u s t o m s rate t h a n t h a t
1
m a n d a t e d b y M e x i c a n law for t h o s e p r o d u c t s ' .

Gifts to police officers

The audit c o m m i t t e e report states:

E a c h y e a r a few c u s t o m e r s affiliated w i t h the M e x i c a n


g o v e r n m e n t w e r e g i v e n C h r i s t m a s o r b i r t h d a y gifts o f several

27
Bribery

h u n d r e d d o l l a r s c a s h . T h e s e c u s t o m e r s r a n g e d from g o v e r n m e n t
officials a n d c u s t o m s officials to o r d i n a r y city p o l i c e m e n (p. 4 4 ) .

Rorer-Amchen

T h e R o r e r - A m c h e n d i s c l o s u r e d o c u m e n t s are v a g u e c o n c e r n i n g
h o w m u c h w a s a c t u a l l y involved i n q u e s t i o n a b l e p a y m e n t s . Cer-
t a i n l y , a sum of $ 8 3 7 , 0 0 0 in p a y m e n t s for several specific p u r p o s e s
w a s m e n t i o n e d . T h e a d d i t i o n a l 8 K R e p o r t for M a r c h 1976 says that
' T h e g r e a t e s t p o r t i o n o f the p a y m e n t s t o g o v e r n m e n t officials and
e m p l o y e e s d e s c r i b e d in P a r a g r a p h A [$336,000 in an u n n a m e d
s u b s i d i a r y b e t w e e n 1971 and 1976] w a s m a d e to e x p e d i t e the regis-
t r a t i o n of n e w p r o d u c t s . // appears that such payments were made in
connection with the registration of all products registered during the
period covered by the investigation' (p. 7, e m p h a s i s a d d e d ) .
We a r e also told t h a t 'a p a y m e n t of a p p r o x i m a t e l y $49,(KX) to a
t r a d e a s s o c i a t i o n , a p p a r e n t l y w i t h the u n d e r s t a n d i n g that t h e
p a y m e n t , a l o n g w i t h p a y m e n t s from o t h e r c o m p a n i e s i n t h e s a m e
b u s i n e s s , w o u l d be paid to o n e or m o r e political p a r t i e s in recog-
n i t i o n o f p r i o r g o v e r n m e n t a l a c t i o n a l l o w i n g price i n c r e a s e s ' ( p .
4 - 5 ) . ' O t h e r p a y m e n t s w e r e m a d e t o o b t a i n f a v o r a b l e and e x p e d i -
t i o u s tax s e t t l e m e n t s for 1972 a n d 1973 and to c a u s e the t e r m i n a t i o n
of a fiscal i n s p e c t i o n ' (p. 8 ) . In a n o t h e r e x a m p l e :

T h e p a y m e n t t o p e r m i t t h e use o f j o i n t p r o d u c t i o n facilities
e n a b l e d t h e s u b s i d i a r y t o m o v e its o p e r a t i o n s t o a n o t h e r plant
w i t h o u t c o m p l y i n g with g o v e r n m e n t a l r e g u l a t i o n s r e l a t i n g t o
such m o v e ( p . 8 ) .

T h e R o r e r - A m c h e n d i s c l o s u r e t o t h e S E C e x p l a i n s h o w its slush
fund w a s m a i n t a i n e d :

T h e w i t h d r a w a l of t h e funds w a s a c c o u n t e d for e i t h e r by f i c t i t i o u s
e n t r i e s on t h e b o o k s of t h e s u b s i d i a r y or as t h e p a y m e n t of
i n v o i c e s p r o v i d e d b y third p e r s o n s w h o p r o v i d e d n o g o o d s o r
s e r v i c e s t o t h e s u b s i d i a r y . C h a r g e s w e r e m a d e o n the b o o k s o f t h e
s u b s i d i a r y for t h e g o o d s or services d e s c r i b e d on the i n v o i c e s and
t h e a m o u n t s d e d u c t e d for local i n c o m e tax p u r p o s e s . U p o n
p a y m e n t the supplier o f t h e invoice d e d u c t e d a commission
( w h i c h a p p e a r s t o h a v e r a n g e d from 6 % t o 15%) and a p p l i c a b l e
t a x e s , and r e t u r n e d the balance to a senior executive o f t h e
s u b s i d i a r y (8K A l : M a r . 7 6 : 4 ) .

28
Bribery

Syntex

W h i l e S y n t e x d i s c l o s e d only t h e relatively small a m o u n t o f $225,000


i n q u e s t i o n a b l e p a y m e n t s , s o m e o f t h e q u a l i t a t i v e i n f o r m a t i o n i n its
6 K r e p o r t a b o u t o t h e r p r a c t i c e s i s i n t e r e s t i n g . T h e d o c u m e n t tells o f
a r e g i o n a l sales m a n a g e r in a s u b s i d i a r y w h o left t h e c o m p a n y to
w o r k a s a n i n d e p e n d e n t sales a g e n t . I n his ' i n d e p e n d e n t ' s t a t u s
S y n t e x w a s 'his p r i m a r y i f not his only principal". B e t w e e n J a n u a r y
1974 and J u n e 1976 he w a s paid $ 2 2 1 , 0 0 0 in c o m m i s s i o n s by S y n t e x .
an e x t r a o r d i n a r y a m o u n t for a m a n w h o had been e a r n i n g b e t w e e n
$ 1 1 , 5 0 0 and $ 1 6 , 5 0 0 in t h e y e a r s p r e c e d i n g his d e p a r t u r e from t h e
company. Further:

D u r i n g t h e p e r i o d o f his e m p l o y m e n t b y t h e s u b s i d i a r y , t h e
p e r s o n is u n d e r s t o o d to have p r o v i d e d gifts to and e n t e r t a i n m e n t
for g o v e r n m e n t officials w h o p a r t i c i p a t e d in p u r c h a s i n g
d e c i s i o n s , and t o h a v e m a d e c e r t a i n p a y m e n t s t o e x p e d i t e
g o v e r n m e n t p a y m e n t o f i n v o i c e s for p r o d u c t s p u r c h a s e d (6K:
Oct, 76).

T h e S y n t e x r e p o r t also tells of an official of a g o v e r n m e n t agency


h a v i n g r e g u l a t o r y a u t h o r i t y o v e r S y n t e x p r o d u c t s from w h o m t h e
c o m p a n y r e n t e d a 'small facility". S u d d e n l y in O c t o b e r 1975 t h e
m o n t h l y r e n t a l w a s i n c r e a s e d by t h e c o m p a n y from $120 to $920.
' $ 1 2 0 w a s paid in r e n t and a c c o u n t e d for as s u c h , the b a l a n c e having
b e e n paid to s u p p l i e r s of g o o d s and services to the o w n e r and
i m p r o p e r l y classified a s m a i n t e n a n c e and repair charges on the
corporate accounting records.'
T h e r e p o r t also s t a t e s t h a t :

D u r i n g t h e five y e a r s e n d e d July 3 1 , 1976, a foreign s u b s i d i a r y of


t h e C o m p a n y p a i d a p p r o x i m a t e l y $6,500 i n costs o f
t r a n s p o r t a t i o n and l o d g i n g for r e p r e s e n t a t i v e s of a g o v e r n m e n t -
o w n e d m a r k e t i n g o r g a n i z a t i o n i n a foreign c o u n t r y . T h e p u r p o s e
o f such p a y m e n t w a s t o a l l o w t h e s e r e p r e s e n t a t i v e s t o visit
d i s t r i b u t i o n and m a n u f a c t u r i n g facilities o f t h e C o m p a n y and s o
far a s i s k n o w n t o m a n a g e m e n t , t h e r e w a s n o t h i n g i m p r o p e r w i t h
r e s p e c t t o t h e s e a r r a n g e m e n t s (6K: O c t . 7 6 ) .

The practice o f o v e r i n v o i c i n g and p a y i n g t h e s u r p l u s price t o


p e o p l e w h o m a d e t h e p u r c h a s i n g d e c i s i o n w a s also u n c o v e r e d i n the
Syntex investigation.

29
Bribery

D u r i n g t h e c o u r s e o f t h e r e v i e w i t w a s also n o t e d t h a t , a t t i m e s
d u r i n g t h e five y e a r s e n d e d July 3 1, 1976, with r e s p e c t to c e r t a i n
n o n - g o v e r n m e n t c u s t o m e r s l o c a t e d o u t s i d e the W e s t e r n
h e m i s p h e r e in s u b s t a n t i a l l y all c a s e s , v a r i o u s p r a c t i c e s w e r e used
w h i c h i n v o l v e d i n v o i c i n g i n a m o u n t s h i g h e r t h a n actual sales
p r i c e s a n d s u b s e q u e n t l y refunding t h e difference a s r e q u e s t e d
and d i r e c t e d b y t h e c u s t o m e r s (6K: O c t . 7 6 ) .

Medtronic

M e d t r o n i c is a m e d i c a l d e v i c e c o m p a n y which is t h e largest
m a n u f a c t u r e r o f h e a r t p a c e m a k e r s i n the w o r l d . T h e c o m p a n y i s
i n c l u d e d h e r e b e c a u s e o f t h e c o n s i d e r a b l e a t t e n t i o n d e v o t e d t o the
p a c e m a k e r i n d u s t r y i n this b o o k and b e c a u s e o f t h e e v i d e n c e from
M e d t r o n i c o f d i r e c t e n t i c e m e n t s being offered t o p h y s i c i a n s t o use
t h e i r p r o d u c t . A t o t a l of $ 3 2 3 , 5 6 3 in q u e s t i o n a b l e p a y m e n t s w a s
d i s c l o s e d . All b u t $ 6 7 , 0 0 0 of this w a s d i r e c t e d to p h y s i c i a n s :

I n o n e c o u n t r y c e r t a i n p r a c t i c e s w e r e found that w e r e
q u e s t i o n a b l e o r i m p r o p e r u n d e r t h e laws o f t h a t c o u n t r y
c o n s i s t i n g of p a y m e n t of e x p e n s e s for t r i p s for p h y s i c i a n s not
r e l a t e d to b u s i n e s s p u r p o s e ; p a y m e n t of e x p e n s e s of t h e wife or
family of a p h y s i c i a n to a c c o m p a n y him w h e n on M e d t r o n i c
r e i m b u r s e d t r a v e l ; and t h e d o n a t i o n o f e q u i p m e n t t o p h y s i c i a n s
(8K: F e b . 77: 3).

I n t h i s s a m e c o u n t r y , p a y m e n t s o f $8,262 w e r e m a d e t o two
physicians who in return provided research papers of no
substance.

In a n o t h e r c o u n t r y , a sales c o m m i s s i o n o f 2 5 % w a s paid to an
individual who was characterized as a distributor. H e , in turn,
p a s s e d on a m a j o r p o r t i o n of this c o m m i s s i o n to t h e p h y s i c i a n
p l a c i n g o r d e r s . P a y m e n t s , t o t a l i n g $ 4 8 , 5 0 0 , r e l a t e d t o $194,000 o f
sales over a p p r o x i m a t e l y two y e a r s , which was approximately
1 5 % o f t h e total sales i n t h a t c o u n t r y (8K: F e b . 7 7 : 4 ) .

Summary of SEC disclosures and related documents

T h e w e l t e r o f d o c u m e n t s a v a i l a b l e i n t h e offices o f t h e S E C confirm
t h e c o n c l u s i o n from t h e i n t e r v i e w s w i t h i n d u s t r y e x e c u t i v e s : b r i b e r y
is r o u t i n e and w i d e s p r e a d in the international pharmaceutical

30
Bribery

T A B L E 2.1 S u m m a r y o f q u e s t i o n a b l e p a y m e n t s disclosed t o the


S E C in the 1970s by US p h a r m a c e u t i c a l c o m p a n i e s

US rank in Amount of
pharmaceutical questionable
sales, 1977 payments Years of Major
Company ( G e r e f f i , 1979) disclosed payments sources

M e r c k <& Co. 1 $3,603,635 1968-75 8K: D e c . 75


F e b . 76
Apr. 76
10K: 76
10K: 77
American Home
Products 2 $3,442,000 1971 -5 8K: F e b . 76
Warner-Lambert 3 $2,256,200 1971 -5 8K: M a r . 76
Pfizer 4 $307,000 8K: Mar. 76
Upjohn 6 $4,245,949 1971 -5 8K: Mar. 7 6
8 K A 1 : M a r . 76
Squibb 7 $1,919,000 1 9 7 1 -6 8K: Jul. 76
Bristol-Myers 8 $3,034,570 1 9 7 1 -6 8K: A u g . 76
Schering-Plough 9 $1,094,702 1971 -6 8K: F e b . 76
Jul. 76
A p r . 77
Abbott Laboratories 10 $774,000 1 9 7 3 -6 S7 (No. 2-56852)
Johnson & Johnson 11 $990,000 1 9 7 1 -5 8K: F e b . 76
Cyanamid 12 $1,225,000 1971 -5 8K: F e b . 76
SmithKline 13 $712,700 1 9 7 1 -6 8K: M a y . 76
G. D. Searle 14 $1,303,000 1 9 7 3 -5 8K: J a n . 7 6
Baxter-Travenol 15 $2,160,220 1 9 7 0 -6 8K: F e b . 76
Revlon 16 $189,600 1 9 7 1 -6 8K: M a y . 76
Sept. 76
Dow 17 $197,000 1970-6 S07 R e g s t .
2-58671, Apr. 77
3M 18 $3,127,341 1970-5 8K: N o v . 75
Richardson-Merrell 19 $1,243,000 1971-5 P r o x y : Sept. 7 6
Sterling D r u g 21) $1,806,000 1970-5 8K: F e b . 7 6
D e c . 76
Syntex 22 $225,OCX) 1972-6 6K: O c t . 76
A. H. R o b i n s 23 $228,000 1972-5 8K: D e c . 7 6
Miles 24 $400,000 1971-5 10K: D e c . 75
American Hospital
Supply Unranked -6 All 8 K s : 7 6 - 7 8
$5,800,000 1971
Litigation: Feb. 77
Rorer-Amchen Unranked over$837,000 1 9 7 1 -6 8 K A 1 : M a r . 76
Morton-Norwich Unranked $245,000 1 9 7 1 -6 8K: A p r . 77
Carter-Wallace Unranked $631,150 Kennedy & Simon
(1978:27)
Becton-Dickinson Unranked $182,000 — 8K: S e p t . 76
Alcon Unranked $359,933 1971-6 8K: O c t . 76
Allergan Unranked $51,899 1971-5 8K: M a r . 76
Medtronic $323,563 1973-7 8K: F e b . 77

31
Bribery

i n d u s t r y , and large a m o u n t s o f m o n e y are involved. A l m o s t every


t y p e o f p e r s o n w h o can affect t h e i n t e r e s t s o f t h e industry has b e e n
the subject of bribes by pharmaceutical companies: doctors,
hospital a d m i n i s t r a t o r s , c a b i n e t m i n i s t e r s , health i n s p e c t o r s ,
c u s t o m s officers, tax a s s e s s o r s , d r u g r e g i s t r a t i o n officials, factory
i n s p e c t o r s , p r i c i n g officials, and political p a r t i e s .
O b v i o u s l y , the matter of greatest concern is the widespread
p r a c t i c e of q u e s t i o n a b l e p a y m e n t s to m i n i s t e r s or officials to secure
t h e r e g i s t r a t i o n or a p p r o v a l for sale of p r o d u c t s . In a d d i t i o n to t h e
d i s c l o s u r e s o f this t y p e d o c u m e n t e d a b o v e , C y a n a m i d , R i c h a r d s o n -
M e r r e l l , S e a r l e , S t e r l i n g , A . H . R o b i n s and A l c o n r e v e a l e d
p a y m e n t s t o s e c u r e g o v e r n m e n t p e r m i s s i o n for the m a r k e t i n g o f
p r o d u c t s . A Washington Post r e p o r t of 8 F e b r u a r y 1976 c l a i m e d
t h a t S e a r l e a s s u r e d c o n t i n u e d g o v e r n m e n t a p p r o v a l o f its birth
c o n t r o l pills in I r a n by giving gifts to t h e r e l a t i v e s o f t h e d e c i s i o n -
m a k i n g official.

A l m o s t e q u a l l y d i s t u r b i n g i s t h e kind o f p a y m e n t r e v e a l e d b y
B e c t o n - D i c k i n s o n w h e r e "a r e p r e s e n t a t i v e of a local g o v e r n m e n t
h e a l t h official w a s paid $ 1 2 , 0 0 0 in cash to forestall the t h r e a t o f t h e
g o v e r n m e n t official t o close o n e o f t h e C o m p a n y ' s p l a n t s ' (8K: Sept
7 6 : 2 ) . T h e r e is a sad s e q u e l to the A m e r i c a n H o s p i t a l Supply
d i s c l o s u r e t h a t M e x i c a n h e a l t h i n s p e c t o r s w e r e paid off 'not to
r e p o r t the subsidiary's violations o f t h e Mexican H e a l t h C o d e ' . In
1979, n i n e M e x i c a n w o m e n died i n t h e M o n t e r e y h o s p i t a l m a t e r n i t y
w a r d after b e i n g g i v e n c o n t a m i n a t e d i n t r a v e n o u s solution m a n u -
f a c t u r e d b y A H S M e x i c o . T h e c a u s e o f d e a t h w a s ' t r a u m a t i c shock'
d u e t o viral c o n t a m i n a t i o n . T h e A H S i n t r a v e n o u s solution w a s
f o u n d t o b e ' c o n t a m i n a t e d with g r a m n e g a t i v e b a c t e r i a s , staphy-
l o c o c c u s , a n d p r o b a b l y m o l d ' (La Prensa, 25 O c t o b e r 1979).
C r i m i n a l c h a r g e s a g a i n s t A H S e x e c u t i v e s are p r o c e e d i n g .

E n g l i s h - s p e a k i n g p e o p l e s s o m e t i m e s t o o readily a s s u m e that
t h e i r s t a n d a r d s of c o r r u p t i b i l i t y are far h i g h e r t h a n t h o s e of non-
W e s t e r n c o u n t r i e s w h i c h have a t t r a c t e d m o s t a t t e n t i o n i n t h e
b r i b e r y s c a n d a l s . W i t h i n t h e U n i t e d S t a t e s t h e state o f N e v a d a
fulfils a s i m i l a r r o l e to s o m e T h i r d W o r l d c o u n t r i e s which are h a v e n s
from p h a r m a c e u t i c a l r e g u l a t i o n . A Los Angeles Times article on the
free a v a i l a b i l i t y o f t h e ' y o u t h d r u g ' G e r o v i t a l i n N e v a d a m a d e the
following points.

F o r e x a m p l e , t h e s a m e bill t h a t legalized G e r o v i t a l legalized


l a e t r i l e , a s c r i b e d by m a n y p e r s o n s as a c a n c e r t r e a t m e n t , and it

32
Bribery

w a s d i s c l o s e d t h a t t h e bill's a u t h o r w a s r e n t i n g a c o n d o m i n i u m at
T a h o e from a m a n on trial for s m u g g l i n g l a e t r i l e .

A N e v a d a i n v e s t i g a t i o n is p e n d i n g a g a i n s t t h e chief s t o c k h o l d e r
of R o m - A m e r P h a r m a c e u t i c a l C o . , the Las Vegas-based
c o m p a n y t h a t m a k e s G e r o v i t a l , a n d t w o o t h e r m e n for allegedly
b r i b i n g a s t a t e a s s e m b l y m a n to push a bill last M a y t h a t w o u l d
h a v e m a d e G e r o v i t a l a v a i l a b l e i n t h e state w i t h o u t a p r e s c r i p t i o n
(Los Angeles Times, 13 N o v . 1979; P a r t I, 2 0 ) .

I t i s t r u e t h a t U S F o o d and D r u g A d m i n i s t r a t i o n i n s p e c t o r s have
a r e m a r k a b l e r e p u t a t i o n for i n t e g r i t y . In spite of this they are
offered b r i b e s from t i m e t o t i m e . F u l l e r ( 1 9 7 2 : 3 0 0 - 1 ) r e c o u n t s t h e
s t o r y of an F D A i n s p e c t o r w h o w a s offered $10,000 by a small d r u g
m a n u f a c t u r e r w h o he w a s t r y i n g to close d o w n . T h i s w a s a case of
b o t h a t t e m p t e d b r i b e r y and b l a c k m a i l . T h e m a n u f a c t u r e r had
o p e n e d a savings a c c o u n t for t h e i n s p e c t o r , w i t h o u t t h e i n s p e c t o r ' s
k n o w l e d g e , a n d had b e e n r e g u l a r l y d e p o s i t i n g several h u n d r e d
d o l l a r s a m o n t h in t h e a c c o u n t . T h e m a n u f a c t u r e r a t t e m p t e d to give
t h e i n s p e c t o r a c h o i c e b e t w e e n t a k i n g t h e $ 1 0 , 0 0 0 quietly and not
p r o s e c u t i n g , o r h a v i n g t o e x p l a i n t h e b a n k a c c o u n t t o his s u p e r i o r s .
T a k i n g his c h a n c e s o n t h e l a t t e r o p t i o n , t h e i n s p e c t o r successfully
convicted the m a n u f a c t u r e r .

O n e F D A e m p l o y e e told o f a n i n s t a n c e o f a k i c k b a c k w i t h i n the
US p h a r m a c e u t i c a l i n d u s t r y w i t h very s e r i o u s i m p l i c a t i o n s . A
p h a r m a c e u t i c a l c o m p a n y e m p l o y e e with r e s p o n s i b i l i t y for a n i m a l
t o x i c o l o g y s t u d i e s w a s r e c e i v i n g illegal c o m m i s s i o n s from an
o u t s i d e t e s t i n g l a b o r a t o r y t o which h e w a s s e n d i n g w o r k . T h e
t e s t i n g l a b o r a t o r y w a s said by my F D A i n f o r m a n t to be o n e of
n o t o r i o u s l y low s t a n d a r d s . T o t h e c r e d i t o f the p h a r m a c e u t i c a l
c o m p a n y , i t r e p o r t e d t h e b e h a v i o u r o f its e m p l o y e e t o the F D A .
T h e F D A successfully p r o s e c u t e d t h e c o n t r a c t t e s t i n g l a b o r a t o r y
a n d w o u l d h a v e a l s o p r o s e c u t e d t h e d r u g c o m p a n y e m p l o y e e had h e
not d i e d s o o n after i n v e s t i g a t i o n s b e g a n .

The extent of the d o c u m e n t a t i o n of questionable payments by


US c o m p a n i e s a s s e m b l e d in this c h a p t e r is a t r i b u t e to t h e relative
o p e n n e s s o f U S g o v e r n m e n t a l p r o c e s s e s . T h i s should not lead t o the
a s s u m p t i o n that A m e r i c a n c o m p a n i e s are more corrupt than com-
p a n i e s o f o t h e r n a t i o n a l i t i e s . O n t h e c o n t r a r y , m o s t o f t h e execu-
t i v e s o f U S c o m p a n i e s i n t e r v i e w e d w e r e o f t h e o p i n i o n that their
c o l l e a g u e s w e r e less p r o n e t o b r i b e r y t h a n E u r o p e a n p h a r m a -
ceutical executives. N o n e ofthe E u r o p e a n executives, in contrast.

33
Bribery

m a i n t a i n e d t h a t t h e y w e r e less c o r r u p t t h a n the A m e r i c a n s . A n d o f
c o u r s e b o t h A m e r i c a n and E u r o p e a n t r a n s n a t i o n a l e x e c u t i v e s
m a i n t a i n e d t h a t t h e i r r e l u c t a n c e t o b r i b e w a s m u c h g r e a t e r t h a n that
of indigenous pharmaceutical companies in Third-World countries.
P e r h a p s t h e s e o p i n i o n s b e a r s o m e r e l a t i o n s h i p t o the reality;
p e r h a p s they do not.
T w o g o v e r n m e n t p h a r m a c e u t i c a l b u y e r s have b e e n i m p r i s o n e d i n
K e n y a after c o n v i c t i o n for a c c e p t i n g b r i b e s of $14,000 from
H o f f m a n - L a R o c h e , t h e Swiss d r u g c o m p a n y , for allegedly favour-
ing t h e i r p r o d u c t s w h e n s p e n d i n g the g o v e r n m e n t ' s m e d i c i n e
b u d g e t ( H e l l e r , 1977: 5 6 ) . Y u d k i n ( 1 9 7 8 : 811) claims that t h e t w o
h e a l t h officials had b o u g h t sufficient q u a n t i t i e s of an a n t i b a c t e r i a l
a g e n t a n d a t r a n q u i l l i s e r from H o f f m a n - L a R o c h e to last the n a t i o n
for m o r e t h a n ten y e a r s - n o t a h e a l t h y s i t u a t i o n with p r o d u c t s
h a v i n g a shelf-life of only a c o u p l e of y e a r s .

How bribes are passed

T h e S E C d i s c l o s u r e s manifest c o n s i d e r a b l e differences b e t w e e n
c o m p a n i e s i n t h e e x t e n t t o w h i c h t o p m a n a g e m e n t i n the U S had
d e t a i l e d k n o w l e d g e o f t h e p a y m e n t s . I n s o m e they clearly did: i n
o t h e r s t h e r e w a s no way of k n o w i n g . W h a t is clear is that in most
c a s e s t h e t o p p e r s o n i n t h e s u b s i d i a r y had d e t a i l e d k n o w l e d g e . This
fits w i t h e v i d e n c e from my i n t e r v i e w s . T h e S E C d i s c l o s u r e s give a
m i s l e a d i n g p i c t u r e of t h e n a t u r e of b r i b e r y in the i n t e r n a t i o n a l
p h a r m a c e u t i c a l i n d u s t r y with r e s p e c t to the s e n i o r i t y of t h e
r e c i p i e n t s o f p a y m e n t s . M e r c k w a s t h e only p h a r m a c e u t i c a l
c o m p a n y w h i c h d i s c l o s e d a p a y m e n t to a c a b i n e t - l e v e l official.

It is c o m m o n knowledge that in Latin A m e r i c a ministers respon-


sible for h e a l t h are a l m o s t i n v a r i a b l y rich with w e a l t h which c o m e s
l a r g e l y from t h e i n t e r n a t i o n a l p h a r m a c e u t i c a l i n d u s t r y . F o r this
r e a s o n such m i n i s t r i e s a r e a m o n g t h e most avidly s o u g h t b y
p o l i t i c i a n s . A p a y m e n t to a m i n i s t e r is often quite a s t r a i g h t f o r w a r d
m a t t e r . O n e i n f o r m a n t w h o had left t h e industry to w o r k with an
i n t e r n a t i o n a l a g e n c y after m a n y y e a r s i n several Latin A m e r i c a n
countries explained what happens.

T h e g e n e r a l m a n a g e r o f t h e L a t i n A m e r i c a n subsidiary t a k e s t h e
h e a l t h m i n i s t e r - usually he is called a m i n i s t e r for social s e c u r i t y -
t o d i n n e r . M a y b e h e gets 1 5 p e r c e n t . T h e g e n e r a l m a n a g e r gives
him an e n v e l o p e w i t h $ 1 0 , 0 0 0 or $ 1 5 , 0 0 0 in it and say 'My

34
Bribery

c o m p a n y will be l o d g i n g a p e r m i t to m a r k e t a n e w drug next


w e e k . I h o p e t h a t you will be able to see t h a t the a p p l i c a t i o n is
considered speedily."

T h e g e n e r a l m a n a g e r would not ask t h e m i n i s t e r to m a k e sure a


n e w p r o d u c t w a s a p p r o v e d . T h e i n t e r a c t i o n i s m o r e subtle t h a n
t h a t . C e r t a i n l y i t w o u l d b e u n w i s e t o m e n t i o n that t h e r e w e r e s o m e
p r o b l e m s , t h a t s o m e p e o p l e had d o u b t s a b o u t t h e safety o f t h e d r u g .
The m i n i s t e r w o u l d r a t h e r not k n o w , p e r h a p s i n s o m e cases b e c a u s e
it a v o i d s u n c o m f o r t a b l e feelings of guilt. I s p o k e to o n e former
L a t i n A m e r i c a n h e a l t h m i n i s t e r , w h o , w h i l e not a d m i t t i n g t h a t h e
h i m s e l f had a c c e p t e d such p a y m e n t s , c o n f i r m e d that the a b o v e
d e s c r i p t i o n m a t c h e d his u n d e r s t a n d i n g o f h o w i t w a s d o n e .
G e t t i n g m o n e y to put in t h e e n v e l o p e w i t h o u t leaving a scent for
a u d i t o r s r e q u i r e s i n g e n u i t y . S E C d i s c l o s u r e s a r e rich with informa-
tion w h i c h s h o w s t h e v a r i e t y of w a y s this can be d o n e . If t h e
s e c r e t a r y of a h o s p i t a l b o a r d o w n s an a r c h i t e c t u r a l firm, a law firm,
or a p u b l i c r e l a t i o n s firm t h e n you can hire h i s / h e r firm, p e r h a p s
e v e n get s o m e g e n u i n e s e r v i c e s from it, but pay e x t r a v a g a n t l y for
such s e r v i c e s . Y o u can e v e n rent a p r o p e r t y from t h e p e r s o n con-
cerned at an unusually remunerative rental.
O n e e x e c u t i v e told me of a s c h e m e for g e t t i n g cash for a slush
fund w h i c h w a s beautiful in its simplicity. A c o n s i d e r a b l e q u a n t i t y
of t i m b e r g r o w i n g on t h e c o m p a n y ' s p r o p e r t y w a s sold for cash
w h i c h w e n t i n t o t h e secret a c c o u n t . Since d e a l i n g i n t i m b e r w a s not
p a r t of t h e c o m p a n y ' s n o r m a l b u s i n e s s t h e r e w a s little risk in not
e n t e r i n g t h e m o n e y s o n t h e b o o k s . W i t h small p a y m e n t s , for
e x a m p l e t o h e a l t h i n s p e c t o r s , e x e c u t i v e s can have their e x p e n s e
a c c o u n t s i n c r e a s e d o n t h e u n d e r s t a n d i n g t h a t t h e s e m o n e y s will b e
u s e d for b r i b e s .
T h e p h a r m a c e u t i c a l d i s c l o s u r e s s h o w t h a t p a y i n g o n a n invoice t o
t h e c o m p a n y for s e r v i c e s not actually r e n d e r e d , or o v e r i n v o i c i n g by
t h e c o m p a n y so t h a t an e x c e s s can be put a s i d e for the recipient of
t h e b r i b e h a v e b e e n t h e m o s t c o m m o n l y r e p o r t e d p r a c t i c e s i n the
p h a r m a c e u t i c a l i n d u s t r y . W h e n a m o u n t s are large i t has often b e e n
f o u n d n e c e s s a r y to s u b s t i t u t e a n u m b e r e d Swiss b a n k a c c o u n t for
the plain e n v e l o p e .
In G u a t e m a l a I w a s not told any s t o r i e s of g e n e r a l m a n a g e r s
m e e t i n g with m i n i s t e r s t o get p r o d u c t s a p p r o v e d . W h e r e a s i n
M e x i c o t h e a t t i t u d e s e e m s t o b e t h a t foreign b u s i n e s s should pay for
e v e r y t h i n g i t g e t s , i n G u a t e m a l a t h e a t t i t u d e o f t h e military r e g i m e

35
Bribery

is r a t h e r ' w h a t ' s g o o d for foreign b u s i n e s s is good for G u a t e m a l a ' .


T h u s , t r a n s n a t i o n a l s g e n e r a l l y get w h a t t h e y w a n t w i t h o u t p a y i n g ,
or e v e n a s k i n g for t h a t m a t t e r . A b u r e a u c r a t w h o put t o o m a n y
o b s t a c l e s in t h e way of an A m e r i c a n c o m p a n y might well b e c o m e a
v i c t i m o f t h e h a p p y n e x u s a m o n g A m e r i c a n b u s i n e s s , t h e C I A . and
t h e G u a t e m a l a n m i l i t a r y r u l e r s . ' P h a r m a c e u t i c a l c o m p a n i e s d o not
h a v e to buy off p l a n t i n s p e c t o r s b e c a u s e t h e r e are no i n s p e c t i o n s .
D u r i n g its first five y e a r s of m a n u f a c t u r i n g in G u a t e m a l a a t r a n s -
n a t i o n a l d o e s not n e e d to pay tax a s s e s s o r s b e c a u s e t h e r e is no tax.
D u r i n g t h e s e c o n d five y e a r s half t h e n o r m a l c o m p a n y tax rate
a p p l i e s . W h e n e v e r a n e w m a c h i n e is p u r c h a s e d its total value is
d e d u c t i b l e , and in e a c h o f t h e s u c c e e d i n g 10 years a 10 p e r c e n t
d e p r e c i a t i o n can be d e d u c t e d . At t h e end of a d e c a d e 200 p e r c e n t of
t h e v a l u e o f t h e m a c h i n e has b e e n d e d u c t e d . C o m b i n e this with a n
u n r e s t r a i n e d c a p a c i t y t o split i n c o m e a m o n g m a n y different h o l d i n g
c o m p a n i e s , and t o c h a r g e w h a t e v e r transfer prices i t w i s h e s , and the
n e e d t o r e g a r d tax a s s e s s o r s a s a d v e r s a r i e s d i s a p p e a r s .

T h e c o n t r a s t b e t w e e n M e x i c o and G u a t e m a l a i s also vivid o n the


n e e d to pay social s e c u r i t y officials to e x p e d i t e price i n c r e a s e s . In
M e x i c o this form of b r i b e r y s e e m s to have involved t h e largest sums
and attracted the greatest public o u t r a g e . Companies in
G u a t e m a l a , h o w e v e r , can e x p e c t a l m o s t a u t o m a t i c i n c r e a s e s each
y e a r to k e e p p r i c e s up to a 20 per cent e x c e s s o v e r p r o d u c t i o n costs
( w i t h p r o d u c t i o n c o s t s s u p p l i e d b y t h e c o m p a n i e s , and n e v e r , i n the
r e c o l l e c t i o n of my i n f o r m a n t s , b e i n g s u b j e c t e d to critical scrutiny by
t h e g o v e r n m e n t ) . T h e a p p r o v a l p r o c e s s b e c o m e s less t h a n a u t o -
m a t i c o n l y w h e n t h e c o m p a n y a s k s for m o r e . P r e s u m a b l y b r i b e r y
m i g h t t h e n b e c o m e a possibility.

To s u g g e s t t h a t t h e plain e n v e l o p e is less a feature of G u a t e m a l a n


t h a n M e x i c a n r e g u l a t o r y i n s t i t u t i o n s is not to say that dirty m o n e y
n e v e r g e t s i n t o t h e h a n d s o f G u a t e m a l a n r e g u l a t o r s . D r u g regis-
t r a t i o n a p p l i c a t i o n s a r e m a d e t h r o u g h a g e n t s w h o m u s t b e regis-
t e r e d G u a t e m a l a n p h a r m a c i s t s . O n e A m e r i c a n c o m p a n y told m e
t h a t its o u t s i d e p h a r m a c i s t w a s on a m o n t h l y r e t a i n e r of U S S 3 0 0 to
p e r f o r m p e r f u n c t o r y d u t i e s i n p u t t i n g his n a m e o n the r e g i s t r a t i o n
d o c u m e n t and l o d g i n g it. N o n e of t h e c o m p a n i e s I i n t e r v i e w e d
c o u l d recall a p r o d u c t of t h e i r s not b e i n g a p p r o v e d , nor could t h e y
r e c a l l any o t h e r t r a n s n a t i o n a l h a v i n g a p r o d u c t r e g i s t r a t i o n
r e j e c t e d . O n e d o e s w o n d e r , t h e r e f o r e , w h e t h e r s o m e o f this
U S S 3 0 0 . a lot in a p o o r c o u n t r y , finds its way into the h a n d s o f t h e
a p p r o v i n g officer.

36
Bribery

O n e of the most interesting aspects of reading through the docu-


m e n t s o n q u e s t i o n a b l e p a y m e n t s a t t h e S E C i s t h e length t o w h i c h
s o m e c o m p a n i e s h a v e g o n e in o r d e r to s e c u r e tax d e d u c t i b i l i t y for
their questionable payments. American Home Products, Merck,
W a r n e r - L a m b e r t , S q u i b b , B r i s t o l - M y e r s . J o h n s o n and J o h n s o n ,
C y a n a m i d . S t e r l i n g , a n d C a r t e r - W a l l a c e all t r e a t e d q u e s t i o n a b l e
p a y m e n t s as d e d u c t i b l e expenses. In defence ofthe pharmaceutical
i n d u s t r y , h o w e v e r , i t m u s t b e p o i n t e d out that i t c a n n o t m a t c h s o m e
o f t h e l e n g t h s t o r e d u c e tax liability o f o t h e r i n d u s t r i e s . O n e
c o m p a n y , r e p o r t e d l y t h e subject o f a n I R S i n v e s t i g a t i o n , c a r r i e d its
slush fund on its b o o k s as an i n v e s t m e n t in a L i b y a n l e a s e . H a v i n g
u s e d t h e m o n e y i t t h e n r e p o r t e d t h e e x p r o p r i a t i o n o f t h e lease b y
t h e L i b y a n g o v e r n m e n t and c l a i m e d a loss on its tax r e t u r n ( H e r l i h y
a n d L e v i n e , 1976: 5 9 6 - 7 ) !
T h e a c c o u n t in t h i s s e c t i o n and in the f o r e g o i n g e x t r a c t s from
d o c u m e n t s lodged with the SEC on how bribery is executed is
u n d o u b t e d l y o v e r s i m p l i f i e d . F i n d i n g the right p e r s o n t o give t h e
p l a i n e n v e l o p e to is often not as simple as m a k i n g a d i n n e r a p p o i n t -
m e n t w i t h t h e m i n i s t e r . T h i s p r o b l e m i s delightfully i l l u s t r a t e d b y
R e i s m a n ( 1 9 7 9 : 140). R e i s m a n tells of a n o w - d e c e a s e d US s e n a t o r
w h o e x p l o d e d in fury w h e n a y o u n g m a n from his h o m e s t a t e ,
s e e k i n g a f a v o u r , offered an o u t r i g h t p a y m e n t .

' Y o u n g m a n , I o u g h t to kick you right out o f m y office. I o u g h t to


kick y o u t h r o u g h t h e hall and right d o w n t h e stairs. Y o u k n o w ,
I've got a m i n d to kick you right a c r o s s P e n n s y l v a n i a A v e n u e .
W h a t a n e r v e . I o u g h t to kick you to - M a s s a c h u s e t t s A v e n u e and
u p t o r o o m 4 0 6 , w h e r e m y old law p a r t n e r w o r k s . N o w get o u t
b e f o r e I really get a n g r y . '

A Mexican crusade against bribery

T h e early m o n t h s o f 1977 saw i n M e x i c o t h e m o s t d r a m a t i c c r u s a d e


a g a i n s t c o r r u p t i o n i n t h e history o f t h e i n t e r n a t i o n a l p h a r m a c e u t i c a l
i n d u s t r y . O n e night m a n y of the m o s t powerful figures in the
M e x i c a n p h a r m a c e u t i c a l i n d u s t r y c a m e h o m e t o find their h o m e s ,
a s o n e i n f o r m a n t d r a m a t i c a l l y d e s c r i b e d it, ' s u r r o u n d e d b y soldiers
w i t h m a c h i n e g u n s ' . E i g h t w e r e a r r e s t e d and t h r o w n into jail while
m a n y o t h e r s w h o w e r e t i p p e d off after t h e e a r l i e r a r r e s t s a v o i d e d
c a p t u r e b y not r e t u r n i n g t o t h e i r h o m e s . A m o n g t h o s e j a i l e d w a s
t h e m o s t powerful i n d i v i d u a l i n t h e i n d u s t r y , J u a n L o p e z S i l a n e s ,

37
Bribery

the P r e s i d e n t of the National Industrial C h a m b e r of Chemical


a n d I n d u s t r i a l L a b o r a t o r i e s ( t h e C a m a r a ) . T h e C a m a r a has a
u n i q u e l y powerful role in t h e M e x i c a n political and e c o n o m i c
s y s t e m . M e m b e r s h i p of t h e C a m a r a is o b l i g a t o r y in law for any
c o m p a n y which wishes to undertake chemical or pharmaceutical
p r o d u c t i o n in t h e c o u n t r y , and t h e g o v e r n m e n t is r e q u i r e d to
i n c l u d e it in c e r t a i n of its d e c i s i o n - m a k i n g p r o c e s s e s . A n u m b e r of
g e n e r a l m a n a g e r s o f large t r a n s n a t i o n a l p h a r m a c e u t i c a l c o m p a n i e s
w e r e a l s o j a i l e d , i n c l u d i n g the g e n e r a l m a n a g e r o f Lilly, t h e only
m a j o r U S c o m p a n y not t o disclose q u e s t i o n a b l e p a y m e n t s t o t h e
SEC.

T h e a r r e s t s w e r e t h e b e g i n n i n g s of a c r u s a d e by the newly e l e c t e d
P o r t i l l o g o v e r n m e n t a g a i n s t c o r r u p t r e l a t i o n s h i p s b e t w e e n the
p h a r m a c e u t i c a l i n d u s t r y and officers of its I n s t i t u t e of Social
S e c u r i t y ( I M S S ) . A n u m b e r of s e n i o r officials with r e s p o n s i b i l i t y for
a p p r o v i n g p r i c e i n c r e a s e s for p h a r m a c e u t i c a l sales t o t h e g o v e r n -
m e n t w e r e d i s m i s s e d by t h e n e w D i r e c t o r of Social Security amid a
flurry of a l l e g a t i o n s t h a t they had b e e n a c c e p t i n g b r i b e s from the
i n d u s t r y . A f t e r a m a t t e r of only d a y s , w e e k s in a c o u p l e of c a s e s , the
i m p r i s o n e d d e f e n d a n t s w e r e r e l e a s e d on bail. Bail w a s set at t h e
s t a g g e r i n g figure of a l m o s t o n e million p e s o s (SO.44 m i l l i o n ) e a c h .
T h e C a m a r a held a m e e t i n g with P r e s i d e n t P o r t i l l o on 15 M a r c h
1977, in w h i c h it u p b r a i d e d t h e P r e s i d e n t t h a t "the d e n o u n c i n g and
t h e o p i n i o n s a r o u n d i t had w i t h o u t r h y m e o r r e a s o n c a u s e d great
1
h a r m t o t h e e n t i r e p h a r m a c e u t i c a l i n d u s t r y ' . S o m e m o n t h s later
t h e g o v e r n m e n t d r o p p e d t h e c h a r g e s a g a i n s t t h e eight d e f e n d a n t s .

T h e s e c r e t a r y o f t h e C a m a r a , and o t h e r industry e x e c u t i v e s t o
w h o m I s p o k e , w e r e o f t h e view t h a t t h e g o v e r n m e n t n e v e r b e l i e v e d
it had t h e e v i d e n c e to convict t h e d e f e n d a n t s of b r i b e r y , or "fraud,
falsification o f d o c u m e n t s and a t t e m p t s a g a i n s t the p u b l i c e c o n o m y '
as t h e c h a r g e r e a d , and n e v e r i n t e n d e d to c o n s u m m a t e its legal
t h r e a t s a g a i n s t such powerful f i g u r e s . P r o b a b l y they w e r e right. A s
t h e 1977 A n n u a l R e p o r t o f t h e C a m a r a a r g u e d : ' T h i s raid w a s i n
r e a l i t y a i m e d at l a u n c h i n g a m o r a l i z i n g c a m p a i g n to t u r n into reality
t h e a i m s set forth by t h e n e w G o v e r n m e n t of the R e p u b l i c at
Inauguration Day.'

A n u n d e r s t a n d i n g o f t h e g o v e r n m e n t ' s p u r p o s e can b e g a i n e d
from t h e a c c o u n t b y t h e g e n e r a l m a n a g e r o f o n e t r a n s n a t i o n a l
c o n c e r n i n g w h a t h a p p e n e d w h e n h e and t h e g e n e r a l m a n a g e r s o f
t h e o t h e r l a r g e c o r p o r a t i o n s , w e r e called t o g e t h e r b y t h e n e w
D i r e c t o r o f Social S e c u r i t y .

38
Bribery

He told t h e m . . . in so m a n y w o r d s . . . t h a t if they could afford


to pay 10 p e r c e n t to his officials on Social Security c o n t r a c t s ,
t h e n all c o n t r a c t s from t h e n on w o u l d be subject to a 10 per cent
special d e d u c t i o n , a n d t h e y should s t o p p a y i n g b r i b e s . T o this day
we still pay t h e 10 p e r cent d e d u c t i o n . N o w t h e y pay 20 p e r c e n t -
10 p e r cent d e d u c t i o n and 10 p e r cent b r i b e , [ l a u g h t e r ] N o t
r e a l l y . O n l y s o m e o f t h e c o m p a n i e s still pay t h e b r i b e s .

T h r o w i n g t h o s e powerful p e o p l e in jail w a s not for d e t e r r e n c e ,


i n c a p a c i t a t i o n , r e t r i b u t i o n , r e h a b i l i t a t i o n , o r any o t h e r r e c o g n i s e d
a i m o f c r i m i n a l law. B u t w h a t h a p p e n e d w a s c e r t a i n l y b o u n d u p
w i t h c r i m e p r e v e n t i o n . ' It w a s an a t t e m p t to signal a new m o r a l i t y ,
t o a n n o u n c e w i t h a s m u c h d r a m a a s possible that what had b e e n
a c c e p t e d in t h e past m i g h t no l o n g e r be a c c e p t a b l e in t h e future.
W h e t h e r it w a s a successful a t t e m p t is difficult to say.
T h e t e n t a c l e s o f c o r r u p t i o n are s o d e e p l y e m b e d d e d i n M e x i c a n
c u l t u r e t h a t any a t t e m p t t o root t h e m o u t i s b o u n d t o m e e t with
m i x e d s u c c e s s . T h e r e are s o m e small signs o f i m p r o v e m e n t , h o w -
e v e r . O n e M e x i c a n q u a l i t y a s s u r a n c e d i r e c t o r said: 'It used t o b e
s t a n d a r d t o b r i b e t h e m [ i n s p e c t o r s ] . B u t not any m o r e . M a n y now
go to t h e F D A for t r a i n i n g and c o m e b a c k w i t h a m o r e professional
attitude.'
A n o t h e r q u a l i t y a s s u r a n c e d i r e c t o r t h o u g h t t h a t t h e s i t u a t i o n had
i m p r o v e d m a r g i n a l l y since P o r t i l l o c a m e t o p o w e r , especially
b e c a u s e P o r t i l l o , u n l i k e f o r m e r p r e s i d e n t s , did not h a v e a long
h i s t o r y of g o v e r n m e n t office d u r i n g w h i c h he was c o r r u p t e d by the
M e x i c a n system of patronage.

P e o p l e b r o u g h t u p i n t h e g o v e r n m e n t are i n c o m p e t e n t and
c o r r u p t . But t h i n g s are c h a n g i n g . T h e y are n o w getting s o m e
p e o p l e [inspectors] w i t h 10 y e a r s or m o r e p h a r m a c e u t i c a l
i n d u s t r y e x p e r i e n c e . T h e s e p e o p l e k n o w their stuff. T h e y k n o w
w h a t q u e s t i o n s t o ask. T h e y k n o w w h e r e t o look. A l s o b e c a u s e
t h e y a r e not b r o u g h t up in t h e g o v e r n m e n t they have not l e a r n t so
much corrupt ways.

I r r e s p e c t i v e of w h a t t h e effect on c r i m e of this M e x i c a n c r u s a d e
w a s , i t d o e s t h r o w u p a n a p p r o a c h t o t h e p r o b l e m unfamiliar, and
perhaps abhorrent, to Western reformers. This approach
r e c o g n i s e s t h a t in t h e a p p l i c a t i o n of law to t h e i n t e r n a t i o n a l phar-
m a c e u t i c a l i n d u s t r y in a c o u n t r y like M e x i c o t h e r e is no j u s t i c e . If
t h e s t a t e a t t e m p t s to use law as a tool of j u s t i c e , p o w e r and m o n e y

39
Bribery
will s u b v e r t t h e a t t e m p t . But the s t a t e can effectively use the
a p p a r a t u s of law e n f o r c e m e n t for d r a m a t i c g e s t u r e s , to d e l i v e r a
s h o r t s h a r p s h o c k in w h i c h no o n e is d o n e t e r r i b l e h a r m . Such
g e s t u r e s c a n n o t b e s u s t a i n e d for long b e c a u s e o n c e the i n t e r n a t i o n a l
b u s i n e s s c o m m u n i t y recoils from t h e s h o c k and r e g r o u p s , it is a
w o r t h y a d v e r s a r y t o t h e state i n i n s t i t u t i o n a l p o w e r . T h e p o i n t ,
h o w e v e r , is not to sustain t h e s h o c k , but simply to jolt the b u s i n e s s
c o m m u n i t y into a c c e p t i n g n e w , m o r e l a w - a b i d i n g r e l a t i o n s h i p s with
government.

The US crusade against bribery

T h e U S c r u s a d e a g a i n s t b r i b e r y b e g a n i n e a r n e s t with the L o c k h e e d
s c a n d a l . It led to t h e F o r e i g n C o r r u p t P r a c t i c e s A c t of 1977. which
p r o h i b i t s U S c o m p a n i e s from p a y i n g b r i b e s e v e n w h e n t h e pay-
m e n t s a r e m a d e o u t s i d e t h e U n i t e d S t a t e s . Such e x t r a t e r r i t o r i a l
a p p l i c a t i o n of US law is not e x t r a o r d i n a r y , having p r e c e d e n t s in tax,
a n t i t r u s t , t r a d e m a r k and t r a d i n g w i t h t h e e n e m y laws. A b o u t thirty
c o n s e n t d e c r e e s h a v e also b e e n struck b e t w e e n the S E C and com-
p a n i e s d i s c l o s i n g q u e s t i o n a b l e p a y m e n t s . I n t h e case o f t h e
A m e r i c a n H o s p i t a l S u p p l y c o n s e n t d e c r e e discussed e a r l i e r , t h e
c o m p a n y , inter alia, a g r e e d to p u b l i s h t h e results of a d e t a i l e d
i n v e s t i g a t i o n into its affairs by an audit c o m m i t t e e , to refrain in
future from any political c o n t r i b u t i o n s , legal or illegal, and only
r e a c h w r i t t e n a r r a n g e m e n t s w i t h c o n s u l t a n t s w h o must have a n
e s t a b l i s h e d p l a c e o f b u s i n e s s and o t h e r clients o r c u s t o m e r s , [be]
i n d e p e n d e n t o f t h e p r o s p e c t i v e A H S C c u s t o m e r and its m a n a g e -
1 0
m e n t p e r s o n n e l , a n d r e n d e r b o n a fide s e r v i c e s t o A H S C ' .

C r i t i c s o f t h e c r u s a d e a r g u e t h a t it has had the effect of h a m s t r i n g -


ing A m e r i c a n b u s i n e s s w h i l e G e r m a n c o m p e t i t o r s , for e x a m p l e ,
c a n c o n t i n u e t o m a k e c o r r u p t p a y m e n t s and claim t h e m a s tax
d e d u c t i b l e e v e n w h e r e t h e y violate foreign laws. O t h e r c r i t i c s , most
n o t a b l y R e i s m a n ( 1 9 7 9 ) , have a r g u e d t h a t t h e c r u s a d e has not
c h a n g e d c o r r u p t b u s i n e s s p r a c t i c e s . B e q u a i ( 1 9 7 6 ) tells u s that the
S E C h a s b e e n firing b l a n k s :

W h o g e t s hurt in c o n s e n t s e t t l e m e n t s ? T h e S E C gets a n o t c h in its


g u n . T h e law firm gets m o n e y , t h e p u b l i c i s h a p p y b e c a u s e they
r e a d ' f r a u d ' i n t h e n e w s p a p e r and t h i n k c r i m i n a l i t y right a w a y .
T h e c o m p a n y n e i t h e r a d m i t s n o r d e n i e s a n y t h i n g . It's t h e perfect
a c c o m m o d a t i o n . A n d it's all o n e big c h a r a d e .

40
Bribery

W h i l e B e q u a i ' s view is not w i t h o u t a grain of t r u t h , t h e value of


c o n s e n t d e c r e e s for i n c a p a c i t a t i n g t h e offending c o r p o r a t i o n should
n o t be f o r g o t t e n . W h e n I s p o k e to l a w y e r s at t h e A m e r i c a n H o s p i t a l
S u p p l y C o r p o r a t i o n , I w a s p l e a s e d not to be in their s h o e s . If,
a n y w h e r e in t h e w o r l d , A H S r e t a i n s a c o n s u l t a n t w h o is not "inde-
p e n d e n t o f t h e p r o s p e c t i v e A H S C c u s t o m e r and its m a n a g e m e n t
p e r s o n n e l ' t h e c o m p a n y can be c o n v i c t e d c r i m i n a l l y for b r e a c h of
t h e d e c r e e . T h e U S g o v e r n m e n t d o e s not have t o p r o v e that the
c o n s u l t a n t did a n y t h i n g i m p r o p e r . V a r i o u s p r o v i s i o n s o f t h i s sort i n
t h e c o n s e n t o r d e r m a k e it a relatively s t r a i g h t f o r w a r d m a t t e r for the
S E C to c o n v i c t t h e c o m p a n y on any future o c c a s i o n w h e n it has
g r o u n d s to s u s p e c t t h a t a b r i b e has b e e n paid.
Of course corrupt practices continue among many A m e r i c a n
c o r p o r a t i o n s w h i c h are not u n d e r c o n s e n t d e c r e e s . A u s t r a l i a n
p h a r m a c e u t i c a l e x e c u t i v e s r e p e a t e d l y told me t h a t a c o m p a n y
cannot do business in Indonesia without making corrupt payments.
A n A u s t r a l i a n e x e c u t i v e o f a n A m e r i c a n c o m p a n y with respon-
s i b i l i t i e s for this r e g i o n said: ' T h e y m a k e all of these rules which
c a n ' t really be a d h e r e d to but if we b r e a k t h e m w e ' r e on o u r own
a n d t h e y will c o m e d o w n u p o n u s . ' A p e r s o n to w h o m this
A u s t r a l i a n a n s w e r s at US h e a d q u a r t e r s of the same company made
a s i m i l a r c o m m e n t , w h i l e t a k i n g a m o r e c h a r i t a b l e view of t h e
p r o t e c t i o n s afforded t h e individual b y t h e c o m p a n y : "Subsidiary
m a n a g e r s m u s t sign a d o c u m e n t saying no law v i o l a t i o n s o c c u r r e d to
his k n o w l e d g e . B u t e v e r y o n e u n d e r s t a n d s that signing this
d o c u m e n t i s o n e o f t h e r i s k s you t a k e . T h e c o r p o r a t i o n will try t o
s t a n d b e h i n d y o u if it can. But t h e r e ' s a c h a n c e t h a t it w o n ' t be able
to.'
Yet a n o t h e r senior h e a d q u a r t e r s executive of the corporation
d i s p l a y s t h e g a m e o f cat a n d m o u s e t h a t i s p l a y e d b e t w e e n the U S
a n d t h e p e r i p h e r y o n this q u e s t i o n .

I've only o n c e had o n e o f t h e s u b s i d i a r i e s c o m e to me with the


q u e s t i o n of w h e t h e r a b r i b e should be paid to a g o v e r n m e n t
official. He said to me t h a t it will t a k e 18 m o n t h s to get the d r u g
r e g i s t e r e d if we d o n ' t pay t h e b r i b e and 6 m o n t h s i f w e d o . Of
c o u r s e I had to a d v i s e him not to pay it. P r o b a b l y he had no
i n t e n t i o n of p a y i n g it b u t w a s l o o k i n g to be a b l e to b l a m e
h e a d q u a r t e r s for not g e t t i n g t h e d r u g r e g i s t e r e d quick e n o u g h . I f
he h a d any i n t e n t i o n to pay t h e b r i b e he n e v e r would have
m e n t i o n e d it to me in t h e first p l a c e .

41
Bribery

M o s t of the A m e r i c a n executives interviewed believed that the


F o r e i g n C o r r u p t P r a c t i c e s A c t had s o m e , t h o u g h not necessarily a
t o t a l , i n h i b i t i n g effect on t h e w i l l i n g n e s s of e m p l o y e e s to pass
c o r r u p t p a y m e n t s , and t h a t i t t h e r e f o r e d i s a d v a n t a g e d A m e r i c a n
b u s i n e s s i n c o m p e t i t i o n with E u r o p e a n a n d i n d i g e n o u s c o m p a n i e s .
O n e c o n t r a r y view on t h e l a t t e r w a s e x p r e s s e d by a m a n a g e r in the
Mexican subsidiary of an American corporation:

O u r c o m p a n y policy i s not t o pay b r i b e s . B u t s o m e t i m e s i f you


w a n t a p r i c e i n c r e a s e it is n e c e s s a r y . S o m e of t h e m they do ask for
e x t r a m o n e y . T h i s is an unofficial p o s i t i o n , b u t the
p h a r m a c e u t i c a l i n d u s t r y has t o pay b r i b e s like e v e r y o n e e l s e .
J. B.: Do you think that American companies are disadvantaged
compared to local firms!
N o , i t i s local c o m p a n i e s which are d i s a d v a n t a g e d b e c a u s e they
do n o t h a v e so m u c h m o n e y to pay b r i b e s . W i t h a large c o m p a n y
it is e a s i e r to h a v e large a m o u n t s of m o n e y floating a r o u n d which
is not r e c o r d e d in t h e b o o k s .

E v e n in t h e m o s t c o r r u p t of e n v i r o n m e n t s it is p o s s i b l e , with
d e t e r m i n a t i o n , t o resist c o r r u p t p a y m e n t s . M a n y e x e c u t i v e s
c a n n o t , h o w e v e r , b e b o t h e r e d w i t h such d e t e r m i n a t i o n .

I w o r k e d in M e x i c o for y e a r s and I l e a r n e d that you d o n ' t have to


pay t h e i n f a m o u s m o r d i t a . Y o u m a k e t h e g r o u n d - r u l e s clear with
t h e b u r e a u c r a t s from t h e b e g i n n i n g . Y o u tell t h e m t h a t you w o n ' t
pay t h e m a n d hold firm to that line a l w a y s . Y o u k e e p ringing
t h e m u p a b o u t w h a t you w a n t d o n e . Y o u k e e p o n their b a c k s until
t h e y ' r e so fed up t h a t t h e y a g r e e to get you out of their hair so that
t h e y h a v e m o r e t i m e t o w o r k o n p e o p l e w h o will pay.

O n e executive explained an even more arduous alternative to


c o r r u p t p a y m e n t s i n M e x i c o . W h e n w o r d w a s out that a n i n s p e c t o r
w a s on his way to d e m a n d a p a y m e n t or t h e c l o s u r e of t h e p l a n t ,
e v e r y o n e w o u l d go h o m e for t h e a f t e r n o o n so that no o n e w a s t h e r e
to t a l k to h i m . A M e x i c a n e x e c u t i v e of Lilly, w h i c h , we have s e e n ,
d o e s s e e m t o h a v e m a n a g e d t o avoid c o r r u p t p a y m e n t s m o r e t h a n
m o s t A m e r i c a n c o m p a n i e s , e x p l a i n e d a third a l t e r n a t i v e .

T h e y k n o w w e a r e f o r b i d d e n t o pay b r i b e s . I n s t e a d w e h a v e t o
rely on f r i e n d s h i p with t h e m . We t a k e t h e m to the very best
r e s t a u r a n t s . . . . A n d good w i n e . We h o p e t h a t they will g r a n t us
a p p r o v a l s b e c a u s e w e are friends.

42
Bribery

T h e r e is no q u e s t i o n t h a t in the five c o u n t r i e s w h e r e this study w a s


c o n d u c t e d - G u a t e m a l a , M e x i c o , A u s t r a l i a , G r e a t B r i t a i n and t h e
U n i t e d S t a t e s - c o r r u p t i o n can be successfully resisted. W h e t h e r
t h i s w o u l d be t r u e of I n d o n e s i a , t h e P h i l i p p i n e s , Saudi A r a b i a , or a
n u m b e r of o t h e r c o u n t r i e s i n f a m o u s for t h e i r c o r r u p t i o n is a m o r e
difficult q u e s t i o n .
W h a t n e e d s to be o v e r c o m e is t h e sense of nihilism c o n v e y e d by
w r i t e r s such a s R e i s m a n (1979) a b o u t t h e impossibility o f con-
t r o l l i n g c o r r u p t i o n . We often lose sight of the fact t h a t b u s i n e s s
p e o p l e do not g e n e r a l l y like to pay b r i b e s . C e r t a i n l y , m i n o r "facili-
t a t i n g p a y m e n t s ' m i g h t often be seen as t h e only way o f t u r n i n g the
w h e e l s o f s o m e h o p e l e s s l y clogged b u r e a u c r a c i e s . B u t a s well a s
p r o d u c i n g c e r t a i n b e n e f i t s , bribery e n t a i l s definite costs. I n m a n y
c i r c u m s t a n c e s it is p o s s i b l e for p u b l i c policy i n t e r v e n t i o n s to
m a r g i n a l l y i n c r e a s e t h e costs o f b r i b e r y t o the point w h e r e t h e s e
c o s t s a r e no l o n g e r p e r c e i v e d as less t h a n the benefits. I n d e e d in
s o m e c i r c u m s t a n c e s this has a l r e a d y h a p p e n e d .
First, let us c o n s i d e r t h e s e c o s t s . R e i s m a n (1979) himself has
c o n c e d e d t h a t c o n t r a c t s w o n b y b r i b e s are less secure t h a n t h o s e
h o n e s t l y w o n b e c a u s e a n e w r e g i m e s w e p t to p o w e r in a c a m p a i g n
a g a i n s t t h e c o r r u p t i o n of its p r e d e c e s s o r m i g h t feel justified in
r e n e g i n g . S o m e p h a r m a c e u t i c a l c o m p a n i e s will find i t very m u c h
h a r d e r t h a n o t h e r s t o r e s t a r t o p e r a t i o n s i n I r a n , and s o m e may
n e v e r get in. T h e s e a r e m a t t e r s o f g r e a t m o m e n t t o the c o m p a n i e s .
T h e r e h a v e e v e n b e e n s u g g e s t i o n s t h a t c o r r u p t i o n i n the phar-
m a c e u t i c a l i n d u s t r y w a s a c o n t r i b u t i n g factor, albeit a m i n o r o n e , to
t h e r e v o l u t i o n i n I r a n . P r i o r t o t h e r e v o l u t i o n , I r a n ' s former
M i n i s t e r o f H e a l t h , D r S h a i k o l E s l a m i z a d e h , t o g e t h e r with his
d e p u t y - m i n i s t e r and p e r s o n a l a s s i s t a n t , w a s a r r e s t e d o n c h a r g e s o f
c o r r u p t i o n . T h e i n t e r n a t i o n a l p h a r m a c e u t i c a l industry n e w s h e e t
S C R I P r e p o r t e d a t t h e t i m e (23 S e p t e m b e r 1978):

T h e f o r m e r m i n i s t e r , w h o r e s i g n e d several m o n t h s a g o , i s said t o
h a v e h e l p e d c o n t r i b u t e t o t h e c o u n t r y ' s r e c e n t social d i s c o n t e n t
b y his h a n d l i n g o f t h e n a t i o n a l h e a l t h i n s u r a n c e s c h e m e .
A c c o r d i n g t o n e w s p a p e r r e p o r t s , h e i s a l l e g e d t o have a c c e p t e d
b r i b e s in r e t u r n for limiting t h e r a n g e of d r u g s which d o c t o r s
c o u l d p r e s c r i b e , and p u b l i c i n d i g n a t i o n a t this alleged c o r r u p t i o n
is r e p o r t e d to be o n e o f t h e c a u s e s o f t h e r e c e n t riots in T e h e r a n .

M o r e s i m p l y , b r i b e s eat into profits, e v e n p e r s o n a l e x p e n s e


a c c o u n t s , in t h e s a m e way as any cost of d o i n g b u s i n e s s . In the

43
Bribery

p h a r m a c e u t i c a l i n d u s t r y we h a v e seen that b r i b e s can be as high as


20 p e r c e n t of t h e total price for a c o n t r a c t . T h i s is not a trivial
c o n s i d e r a t i o n c o n s i d e r i n g that tax is (or s h o u l d be) also paid on the
a m o u n t . If d i s c o v e r e d , b r i b e s can t a r n i s h the p u b l i c image of a
c o r p o r a t i o n , not j u s t in a small T h i r d - W o r l d m a r k e t w h e r e the bribe
is p a i d , but i n t e r n a t i o n a l l y , and most i m p o r t a n t l y , in the biggest
m a r k e t o f t h e m all. t h e U n i t e d S t a t e s . I t i s r i d i c u l o u s t o a r g u e that
t r a n s n a t i o n a l c o r p o r a t i o n s are not c o n c e r n e d a b o u t their public
i m a g e s , b e c a u s e t h e y all s p e n d small f o r t u n e s on a t t e m p t s to
e n h a n c e t h e m . W e see t h e e x t r e m e m a n i f e s t a t i o n o f t h i s with Lilly,
w h i c h has s h u n n e d c e r t a i n c o r r u p t m a r k e t s i n the T h i r d W o r l d
r a t h e r t h a n risk c o m p r o m i s i n g that r e p u t a t i o n for p r o p r i e t y and
e x c e l l e n c e w h i c h i n m a n y y e a r s has m a d e i t n u m b e r o n e o r n u m b e r
t w o i n p h a r m a c e u t i c a l sales within t h e U S . "
F o r t h e e x e c u t i v e w h o has b e e n t r a i n e d t o find t h e m o s t efficient,
l e a s t risky w a y of a c h i e v i n g a g o a l , b r i b e r y is, for all o f t h e r e a s o n s
c o n s i d e r e d a b o v e , a distasteful last r e s o r t . Little w o n d e r that w h e n
Fortune Magazine ( O c t . 1977: 128-96) p u b l i s h e d an 'investability
i n d e x ' for A s i a n c o u n t r i e s o n e o f t h e n e g a t i v e factors i n t h e index
w a s a five-point scale e s t i m a t i n g d e g r e e of c o r r u p t i o n .
B e c a u s e t h e c o s t s o f c o r r u p t i o n are s u b s t a n t i a l w h e n m e a s u r e d
a g a i n s t its b e n e f i t s , t h e F o r e i g n C o r r u p t P r a c t i c e s A c t of 1977
p e r h a p s has i n s o m e m a r k e t s t i p p e d t h e b a l a n c e o f costs o v e r
12
b e n e f i t s . N o c o r p o r a t i o n w a n t s t h e publicity o f a n early s h o w c a s e
p r o s e c u t i o n u n d e r t h e A c t . P e r h a p s t h e risk o f t h i s i s s m a l l , but i t
still l o o m s large in t h e subjective cost-benefit c a l c u l a t i o n s of
e x e c u t i v e s . M o r e i m p o r t a n t has b e e n t h e i m p a c t o n i n d i v i d u a l s w h o
h a v e b e e n r e n d e r e d v u l n e r a b l e by the r e q u i r e m e n t t h a t they sign a
s t a t e m e n t e a c h y e a r t h a t n o p a y m e n t s have b e e n m a d e . T h e y k n o w
t h i s sets t h e m up as s c a p e g o a t s for t h e c o r p o r a t i o n , so that e v e n
w h e r e t h e benefits o f b r i b e r y for t h e c o r p o r a t i o n e x c e e d the c o s t s ,
t h e s u b s i d i a r y m a n a g e r m i g h t well d e c i d e t h a t for him or her per-
s o n a l l y t h e b e n e f i t s d o not e x c e e d the c o s t s . O f c o u r s e m a n a g e r s can
only afford this ' i r r a t i o n a l ' c h o i c e if t h e i r o w n sales p e r f o r m a n c e is
1 2
h e a l t h y a n d not u n d e r q u e s t i o n b y h e a d q u a r t e r s . A s u b s i d i a r y
m a n a g e r t h r e a t e n e d w i t h d i s m i s s a l , loss of a p e r f o r m a n c e b o n u s , or
m i s s i n g a p r o m o t i o n m i g h t d e c i d e t h a t a bribe is w o r t h the risk
p e r s o n a l l y , e v e n t h o u g h for t h e c o r p o r a t i o n the benefit d o e s not
justify this risk. B u t e v e n in this l a t t e r situation t h e s t a t e m e n t to be
s i g n e d is still likely to be s o m e d i s i n c e n t i v e against t a k i n g such a
c o u r s e . E v e r y e x e c u t i v e with w h o m I d i s c u s s e d this m a t t e r felt

44
Bribery

signing that piece of paper increased their personal vulnerability to


some extent.
P e o p l e in t h e i n t e r n a t i o n a l d i v i s i o n s of b o t h an A m e r i c a n and a
E u r o p e a n c o m p a n y , w h o s e j o b i t i s t o k e e p i n t o u c h with such
m a t t e r s , told m e t h a t i n c e r t a i n m a r k e t s w h e n the E u r o p e a n c o m -
p a n i e s had seen t h e A m e r i c a n s begin to refuse to pay b r i b e s w i t h o u t
d r a s t i c c o n s e q u e n c e s , they had struck a g r e e m e n t that for c e r t a i n
t y p e s of p a y m e n t s all t h e t r a n s n a t i o n a l s w o u l d a d o p t a uniform
s t a n d in refusing to pay b r i b e s . O n e w o u l d have to go to t h e s e
c o u n t r i e s and c h e c k t h e s i t u a t i o n o n t h e g r o u n d before a c c e p t i n g
t h a t this really w a s h a p p e n i n g . N e v e r t h e l e s s , even in M e x i c o , I w a s
told t h a t w h e n s o m e A m e r i c a n c o m p a n i e s t o o k a stand against
c e r t a i n p a y m e n t s , such a s t o i n s p e c t o r s , s o m e E u r o p e a n c o m p a n i e s
followed suit. T h e g e n e r a l m a n a g e r o f o n e t r a n s n a t i o n a l i n M e x i c o
e x p r e s s e d c y n i c i s m , h o w e v e r , a b o u t o v e r t u r e s which had b e e n
m a d e t o h i m c o n c e r n i n g t h e a d o p t i o n o f a n o r g a n i s e d front a g a i n s t
bribery by the transnationals.

P e o p l e will a l w a y s b r e a k r a n k s . We all a g r e e d h e r e in M e x i c o not


to sell to t h e g o v e r n m e n t at less t h a n cost. T h a t s e e m s to be in
e v e r y o n e ' s i n t e r e s t . B u t I had t h r e e t o n s of [a c e r t a i n d r u g ] w h i c h
w a s d u e for e x p i r y . I had to u n l o a d it by selling b e l o w cost or
d e s t r o y it. T h e o t h e r c o m p a n i e s got very a n g r y with me for
b r e a k i n g t h e r u l e s . B u t w h a t could I d o . I w o u l d have had to
destroy the three tons.

I give y o u a n o t h e r e x a m p l e . I sell [a c e r t a i n d r u g ] at b e l o w cost to


t h e g o v e r n m e n t s o g o v e r n m e n t d o c t o r s will p r e s c r i b e o u r
[ p r o d u c t ] for t h e i r p a t i e n t s . I f t h e p a t i e n t feels t h e drug helps him
to get b e t t e r he will ask for o u r t r a d e n a m e a g a i n from t h e
p h a r m a c i s t or t a k e t h e b o t t l e to the p h a r m a c i s t . Y o u see I w a s
selling b e l o w cost for p r o m o t i o n .

In a s t a t e m e n t w h i c h w a s also i n t e r e s t i n g from an a n t i t r u s t view-


p o i n t , he w e n t on to a r g u e t h a t no m a t t e r h o w strongly in the
i n t e r e s t s o f t h e c o m p a n i e s a uniform stand is, t h e r e will a l w a y s be
i n d i v i d u a l c o m p a n i e s w h o will have e v e n s t r o n g e r c o m m e r c i a l
r e a s o n s for b r e a k i n g t h e a g r e e m e n t .
In c o n c l u s i o n , t h e US c r u s a d e against b r i b e r y in the 1970s must be
j u d g e d t o have had s o m e positive effects. T h e claims o f s o m e W a s h -
i n g t o n l o b b y i s t s t h a t t h e c r u s a d e has lost A m e r i c a n industry m a n y
billions of dollars to overseas c o m p e t i t o r s is exaggerated because:

45
Bribery

( a ) T h e d e t e r r e n t effects o f t h e c r u s a d e w e r e r e a l , but not a s


great as that.
(b) A g r e a t p r o p o r t i o n o f t h e d o c u m e n t e d cases o f b r i b e r y
i n v o l v e d b r i b e s b y o n e A m e r i c a n t r a n s n a t i o n a l t o take
b u s i n e s s a w a y from a n o t h e r A m e r i c a n t r a n s n a t i o n a l .
(c) M a n y o t h e r p a y m e n t s w e r e not t o a t t r a c t b u s i n e s s from o n e
c o m p a n y t o a n o t h e r but t o get g o v e r n m e n t a p p r o v a l s , bribe
p o l i t i c i a n s , r e d u c e t a x e s , etc. I n d e e d , t h e r e h a v e b e e n m a n y
c a s e s w h e r e A m e r i c a n and E u r o p e a n c o m p a n i e s have p o o l e d
t h e i r b r i b e s to a c h i e v e s o m e collective p u r p o s e for the
i n d u s t r y as a w h o l e . "
(d) To the extent that A m e r i c a n c o m p a n i e s have adopted new
s t a n d a r d s , E u r o p e a n c o m p a n i e s have a t least i n s o m e
m e a s u r e followed t h e i r lead.
( e ) T h e v a r i o u s costs o f b r i b e r y discussed i n this c h a p t e r m e a n
t h a t in m a n y c a s e s b r i b e s c o n f e r only a m a r g i n a l benefit on
t h e c o m p a n y . I n s o m e cases b r i b e s which w o u l d not have
b e e n i n t h e l o n g - t e r m i n t e r e s t o f t h e c o m p a n y may e v e n have
b e e n d e t e r r e d . All c o m p a n i e s h a v e an i n t e r e s t in not h a v i n g
to pay b r i b e s .

I t s h o u l d also b e p o i n t e d out that t r a n s n a t i o n a l c o m p a n i e s , and


t h a t m e a n s A m e r i c a n c o m p a n i e s m a i n l y , h a v e a peculiar interest i n
s t r e n g t h e n i n g t h e w h o l e w o r l d e c o n o m y . B r i b e r y w e a k e n s econ-
o m i e s . I t t e n d s t o k e e p c o r r u p t b u r e a u c r a t s and p o l i t i c i a n s i n p o w e r
a h e a d o f c o m p e t e n t o n e s . " I t confers b u s i n e s s a d v a n t a g e t o the
c o m p a n y w h i c h pays t h e biggest b r i b e r a t h e r t h a n t o the c o m p a n y
w h i c h is m o s t efficient. To t h e e x t e n t that efficiency r e p l a c e s
c o r r u p t n e s s as t h e c r i t e r i o n of success in b o t h b u s i n e s s and g o v e r n -
m e n t a d m i n i s t r a t i o n , e c o n o m i c g r o w t h will result. This may b e one
r e a s o n w h y t h e m o s t c o r r u p t c o u n t r i e s o f t h e world r e m a i n a m o n g
the most impoverished.'"

T h e U S c r u s a d e a g a i n s t b r i b e r y has p r o m p t e d m o r e stringent
s c r u t i n y of s t a n d a r d s of c o r p o r a t e p r o p r i e t y in a wide r a n g e of a r e a s
b e y o n d j u s t b r i b e r y . T h i s influence has also b e e n w o r l d w i d e r a t h e r
t h a n limited t o t h e U n i t e d S t a t e s . T h e s e t w o p o i n t s w e r e b o r n e o u t
in t h e following c o m m u n i c a t i o n I r e c e i v e d from a s e n i o r m a n a g e r in
one of A u s t r a l i a ' s largest c o m p a n i e s :

T h e s t r o n g e s t s u p p o r t t h a t i n t e r n a l audit has r e c e i v e d i n r e c e n t
t i m e s has b e e n t h e e n a c t m e n t i n the U S o f t h e F o r e i g n C o r r u p t
P r a c t i c e s A c t of 1977. T h i s A c t , which I am sure you have

46
Bribery

studied, requires a m o n g other things that companies maintain a


s y s t e m o f i n t e r n a l c o n t r o l s and that t h e r e are m e c h a n i s m s i n place
t o e n s u r e t h a t d i r e c t o r s are able t o a s s u r e t h e m s e l v e s t h a t
r e g u l a t i o n s for w h i c h they a r e r e s p o n s i b l e a r e , in fact, being
carried out.

T o m e e t any o b l i g a t i o n s u n d e r this A c t , m o s t U S c o m p a n i e s
h a v e , on a c o s t / b e n e f i t b a s i s , d e c i d e d to s t r e n g t h e n their internal
a u d i t f u n c t i o n s and e n s u r e g r e a t e r c o - o p e r a t i o n b e t w e e n t h e
i n t e r n a l a u d i t and e x t e r n a l a u d i t o r s . T h i s has m e a n t t h a t internal
a u d i t o r o r g a n i s a t i o n s have had to look to i n c r e a s i n g their
standards of professional practice.

The UN crusade against bribery

T h e U S and S w e d e n are e n t i t l e d t o feel s o m e r e s e n t m e n t t h a t they


a p p l y t h e i r laws a g a i n s t c o r r u p t i o n e x t r a t e r r i t o r i a l l y while t h e rest
o f t h e w o r l d d o e s n o t . " T h e U n i t e d N a t i o n s r e s p o n s e has b e e n t o
try to p r e v e n t t h e US from r e t r e a t i n g from its p o s i t i o n of l e a d e r s h i p
a g a i n s t c o r r u p t i o n b y a t t e m p t i n g t o p u s h t h e s t a n d a r d s o f t h e rest o f
t h e w o r l d u p t o t h o s e o f t h e U S . H e n c e w e have seen t h e c u r i o u s
a l l i a n c e o f t h e T h i r d W o r l d , w h o c o r r e c t l y see t h e m s e l v e s a s t h e
m a j o r v i c t i m s o f c o r r u p t i o n , being s u p p o r t e d b y t h e U S a g a i n s t
o p p o s i t i o n from E u r o p e a n n a t i o n s in its efforts to i n s t i t u t e a
m e a n i n g f u l i n t e r n a t i o n a l A g r e e m e n t o n Illicit P a y m e n t s .

W o r k o n t h e a g r e e m e n t has b e e n t h e r e s p o n s i b i l i t y o f t h e U n i t e d
Nations Commission on Transnational Corporations ( E C O S O C ,
1979; A s a n t e , 1979). J o i n t l y with t h i s , t h e C o m m i s s i o n i s w o r k i n g
o n a w i d e r ' C o d e o f C o n d u c t for T r a n s n a t i o n a l C o r p o r a t i o n s ' which
will p r o b a b l y i n c l u d e p r o v i s i o n s on n o n - i n t e r f e r e n c e in internal
p o l i t i c a l affairs, a b s t e n t i o n from c o r r u p t p r a c t i c e s , transfer p r i c i n g ,
r e s t r i c t i v e b u s i n e s s p r a c t i c e s , c o n s u m e r p r o t e c t i o n and e n v i r o n -
mental protection (UN Commission on Transnational Corpora-
tions, 1978,1979).
A crucial q u e s t i o n is w h e t h e r t h e s e i n t e r n a t i o n a l a g r e e m e n t s can
d o m u c h m o r e t h a n d e p e n d o n i n d i v i d u a l n a t i o n s t o e n f o r c e the
a g r e e m e n t . T h e y c a n , o f c o u r s e , foster m u t u a l assistance i n investi-
g a t i o n , e x t r a d i t i o n , a n d o t h e r m e a s u r e s t o e n s u r e t h a t every act o f
i n t e r n a t i o n a l b r i b e r y is p u n i s h a b l e u n d e r s o m e set of n a t i o n a l laws
r a t h e r t h a n b e i n g a l l o w e d t o fall b e t w e e n t h e i n t e r s t i c e s a m o n g
t h e m . M a n y h o p e , h o w e v e r , particularly with the broader Code of

47
Bribery

C o n d u c t , t h a t p r o v i s i o n will be m a d e for a c t i o n by the i n t e r n a t i o n a l


c o m m u n i t y as a w h o l e against a t r a n s n a t i o n a l c o r p o r a t i o n in viola-
tion o f t h e c o d e .
T h e r e has b e e n significant s u p p o r t for t h e p r o p o s i t i o n that s t a t e s ,
t r a d e u n i o n s , c o n s u m e r g r o u p s and o t h e r b o d i e s should b e able t o
b r i n g c o m p l a i n t s a g a i n s t a t r a n s n a t i o n a l c o r p o r a t i o n to a U n i t e d
H
N a t i o n s p a n e l . U n d e r the w e a k e s t o p t i o n , t h e panel w o u l d simply
r e a c h a d e t e r m i n a t i o n on the c o m p l a i n t . If it w e r e d e c i d e d that the
t r a n s n a t i o n a l c o r p o r a t i o n had v i o l a t e d t h e c o d e , t h e panel w o u l d
w i d e l y p u b l i c i s e this fact in t h e h o p e t h a t such a d v e r s e publicity
w o u l d act as a d e t e r r e n t . T h e p a n e l could issue a call for the
b l a c k l i s t i n g ' o f c e r t a i n activities o r p r o d u c t s o f t h e c o r p o r a t i o n b y
m e m b e r states, the international trade union m o v e m e n t or the
i n t e r n a t i o n a l c o n s u m e r m o v e m e n t . A call could be issued for t h e
d e n i a l of t h e validity of all c o n t r a c t s of a c e r t a i n form with the
t r a n s n a t i o n a l . P a r t i e s w h i c h r e n e g e d o n such c o n t r a c t s could t h e n
p o s s i b l y be e x e m p t e d from liability.
U n d e r s t r o n g e r o p t i o n s n a t i o n a l a u t h o r i t i e s could b e asked b y the
p a n e l t o i m p o s e s a n c t i o n s w h i c h w o u l d r a n g e from "penal s a n c t i o n s ,
t o w i t h d r a w a l o f g o v e r n m e n t p r i v i l e g e s ( n o c o n t r a c t i n g , e t c . ) . t o tax
and regulatory m e a s u r e s ' ( U N Commission on Transnational
C o r p o r a t i o n s , D e c e m b e r 1978).

A n a p p r o p r i a t e legal link w o u l d h a v e t o b e e s t a b l i s h e d b e t w e e n
t h e d e c i s i o n at the i n t e r n a t i o n a l level and its e x e c u t i o n
( a d m i n i s t r a t i o n of s a n c t i o n s ) at t h e n a t i o n a l level. A legally
b i n d i n g u n d e r t a k i n g b y t h e S t a t e s a d o p t i n g t h e C o d e would b e
t h e m o s t effective such link. An u n d e r t a k i n g on a n o n - b i n d i n g
b a s i s w o u l d p r o b a b l y be h o n o u r e d by S t a t e s in a large n u m b e r of
c a s e s , b u t t h e c e r t a i n t y o f t h e link b e t w e e n decision and s a n c t i o n
would diminish (UN Commission on Transnational
C o r p o r a t i o n s , D e c e m b e r 1978: 2 3 ) .

I n m a n y s i t u a t i o n s s t a t e s a d o p t i n g t h e c o d e w o u l d i g n o r e non-
b i n d i n g u n d e r t a k i n g s . H o w e v e r , i t i s not u n r e a l i s t i c t o e x p e c t that
p o l i t i c a l l y a s t u t e r e c o m m e n d a t i o n s for s a n c t i o n w o u l d be acted
u p o n . I m a g i n e , for e x a m p l e , i f U n i t e d B r a n d s had b e e n b r o u g h t
b e f o r e a UN p a n e l in c o n n e c t i o n with its a g r e e m e n t to pay a S2.5
million bribe to the H o n d u r a n Finance Minister. The purpose of
t h i s c e l e b r a t e d c o r r u p t p a y m e n t w a s t o e n t i c e the F i n a n c e M i n i s t e r
t o u n d e r c u t t h e tax r a t e o n b a n a n a s p r e v a i l i n g a m o n g the U n i o n d e
P a i s e s E x p o r t a d o r e s d e B a n a n o ( U P E B ) . O n e w o u l d expect that a

48
Bribery

r e c o m m e n d a t i o n by a UN panel that the U P E B countries


( H o n d u r a s , C o s t a R i c a , P a n a m a , G u a t e m a l a , and C o l o m b i a )
s a n c t i o n U n i t e d B r a n d s by all i n c r e a s i n g their b a n a n a tax by a
c e r t a i n p e r c e n t a g e w o u l d have b e e n well r e c e i v e d b y t h o s e coun-
t r i e s . S a n c t i o n s w h i c h m a k e m o n e y for g o v e r n m e n t s are b o u n d t o
b e m o r e a t t r a c t i v e t h a n t r a d e b a n s w h i c h only hurt the victim
further.
R e i s m a n ( 1 9 7 9 : 157) reflects t h e cynicism a b o u t the U N c r u s a d e
w h i c h i s w i d e s p r e a d a m o n g W e s t e r n i n t e l l e c t u a l s w h e n h e says: A n
i n t e r n a t i o n a l p r o s e c u t o r and a n i n t e r n a t i o n a l court w h o s e writ ran
t o all c o r n e r s o f t h e w o r l d could m a k e a n i n t e r n a t i o n a l a g r e e m e n t
e f f e c t i v e ; but n e i t h e r exists n o r is likely to be c r e a t e d . . . . ' S u r e l y it
c a n n o t b e a c c e p t e d t h a t i n t e r n a t i o n a l initiatives against A p a r t h e i d
or acts of a g g r e s s i o n are i n e v i t a b l y ineffective if they fall short of "a
c o u r t w h o s e writ ran to all c o r n e r s of t h e w o r l d ' . I n t e r n a t i o n a l
affairs is such a c o m p l e x b u s i n e s s t h a t it is naive to limit the possi-
b i l i t i e s for c o n s t r u c t i v e i n t e r v e n t i o n to w h o l e s a l e legal h e g e m o n y .
A UN p a n e l c o n s t i t u t e d as a c o u n t e r v a i l i n g force against the o c c a s -
ional v i o l a t i o n s of a c o d e by t r a n s n a t i o n a l c o r p o r a t i o n s c o u l d , if its
m e m b e r s w e r e s o p h i s t i c a t e d d i p l o m a t s , c o n s t r u c t i v e l y affect the
c o u r s e of e v e n t s . T h e n e e d for such a p a n e l is part of a w i d e r n e e d
for an i n t e r n a t i o n a l i s a t i o n of t r a d e u n i o n i s m and an i n t e r n a t i o n a l -
i s a t i o n of c o n s u m e r i s m as c o u n t e r v a i l i n g forces against t h e inter-
n a t i o n a l i s a t i o n of c a p i t a l . It is of c o u r s e foolish to expect that such
i n t e r n a t i o n a l i n s t i t u t i o n s o f c o u n t e r v a i l i n g p o w e r w o u l d signifi-
cantly turn the course o f t h e world e c o n o m i c system. N e v e r t h e l e s s ,
s u b t l e and small c o n t a i n m e n t s o f t h e a b u s e o f e c o n o m i c p o w e r
might be achieved.

A UN p a n e l w h i c h had only t h e p o w e r of publicity w o u l d have


v a l u e . I n d e e d a c a s e can be s u s t a i n e d t h a t a d v e r s e publicity is a
m o r e effective c o n s t r a i n t o n c o r p o r a t e a b u s e s than law (see F i s s e ,
1 9 7 1 ; B r a i t h w a i t e , 1979a). C e r t a i n l y this i s t h e view o f b u s i n e s s
p e o p l e t h e m s e l v e s . In a s u r v e y of 531 t o p and m i d d l e US m a n a g e r s ,
t h e O p i n i o n R e s e a r c h C o r p o r a t i o n found that 9 2 per cent o f t h e
r e s p o n d e n t s did not b e l i e v e t h a t legislation w o u l d effectively stop
b r i b e r y of foreign officials, b u t t h e r e w a s c o n s i d e r a b l e s u p p o r t for
t h e p r e v e n t a t i v e e f f e c t i v e n e s s o f publicity ( O p i n i o n R e s e a r c h Cor-
p o r a t i o n . 1975; A l l e n . 1976).
A Harvard Business Review survey of r e a d e r s ( B r e n n e r and
M o l a n d e r . 1977) found t h a t a m o n g r e s p o n d e n t s w h o t h o u g h t that
e t h i c a l s t a n d a r d s in b u s i n e s s had i m p r o v e d o v e r the past fifteen

49
Bribery

y e a r s , t h e t h r e e factors which w e r e most often listed as c a u s i n g


higher standards were, in order of importance:

P e r c e n t a g e of
respondents
listing factor
Public disclosure: publicity; media coverage;
better communication 31

Increased public c o n c e r n ; public a w a r e n e s s ,


c o n s c i o u s n e s s , and s c r u t i n y ; b e t t e r informed
p u b l i c ; societal p r e s s u r e s 20

G o v e r n m e n t r e g u l a t i o n , l e g i s l a t i o n , and
i n t e r v e n t i o n ; federal c o u r t s 10

F o r m e r F o r d P r e s i d e n t , Arjay M i l l e r o n c e a r g u e d that the calcu-


l a t i n g , p r o f i t - m a x i m i s i n g b u s i n e s s m a n w o u l d be irrational to be
o v e r l y w o r r i e d a b o u t t h e c o n s t r a i n t s i m p o s e d b y t h e law w h e n h e
offered t h e a d v i c e ; ' D o t h a t w h i c h you w o u l d feel c o m f o r t a b l e
e x p l a i n i n g o n t e l e v i s i o n ' ( q u o t e d b y B y r o n . 1977). W h a t the U n i t e d
N a t i o n s C o m m i s s i o n o n T r a n s n a t i o n a l C o r p o r a t i o n s can realistic-
ally h o p e t o a c h i e v e i s p u t t i n g t r a n s n a t i o n a l c o r p o r a t e c r i m e o n
world television.

50
3 Safety testing of drugs:
from negligence to fraud

SOME CASE STUDIES

E a c h y e a r in t h e U n i t e d S t a t e s a q u a r t e r of a million p e o p l e and
m a n y m i l l i o n s o f a n i m a l s a r e e x p e r i m e n t e d u p o n with new d r u g s
( S u b c o m m i t t e e on H e a l t h , 1976a: P a r t I I , 3 3 6 ) . T h e great cost of
t h i s e x p e r i m e n t a t i o n in suffering and m o n e y can only be justified if
d a t a c o l l e c t i o n and i n t e r p r e t a t i o n a r e h o n e s t and o b j e c t i v e . R e g r e t -
t a b l y , r e s e a r c h e r s r e t a i n e d b y t h e p h a r m a c e u t i c a l industry have not
a l w a y s m e t t h e s e s t a n d a r d s . All o f f o r m e r F D A C o m m i s s i o n e r
G o d d a r d ' s s u c c e s s o r s have r e p e a t e d before C o n g r e s s i o n a l h e a r i n g s
t h e c o n c e r n s o v e r r e s e a r c h e r d i s h o n e s t y first e x p r e s s e d b y G o d d a r d
at a P h a r m a c e u t i c a l M a n u f a c t u r e r s A s s o c i a t i o n M e e t i n g in 1966
( S u b c o m m i t t e e o n H e a l t h , 1976: P a r t I I , 157).

I h a v e b e e n s h o c k e d at t h e m a t e r i a l s that c o m e in. In a d d i t i o n to
t h e p r o b l e m o f q u a l i t y , t h e r e i s t h e p r o b l e m o f d i s h o n e s t y i n the
i n v e s t i g a t i o n a l n e w d r u g u s a g e . I will a d m i t t h e r e are grey a r e a s
i n t h e I N D s i t u a t i o n , but t h e c o n s c i o u s w i t h h o l d i n g o f
u n f a v o r a b l e a n i m a l clinical d a t a is not a grey m a t t e r . T h e
d e l i b e r a t e c h o i c e o f clinical i n v e s t i g a t o r s k n o w n t o b e m o r e
c o n c e r n e d a b o u t i n d u s t r y friendships t h a n i n d e v e l o p i n g good
d a t a is not a grey a r e a m a t t e r . T h e p l a n t i n g in j o u r n a l s of articles
t h a t b e g i n to c o m m e r c i a l i z e w h a t is still an i n v e s t i g a t i o n a l n e w
d r u g is not a grey m a t t e r a r e a . T h e s e a c t i o n s run c o u n t e r to the
law a n d t h e efforts [sic] g o v e r n i n g d r u g i n d u s t r y .

Dr Ley. G o d d a r d ' s i m m e d i a t e successor at the helm o f t h e F D A .


told h e a r i n g s before t h e U S S e n a t e ( U S S e n a t e . 1969) o f o n e spot

51
Safety testing of drugs: from negligence to fraud

c h e c k w h i c h t u r n e d up the c a s e of an a s s i s t a n t professor of m e d i c i n e
w h o had r e p u t e d l y t e s t e d t w e n t y - f o u r d r u g s for nine different
c o m p a n i e s . " P a t i e n t s w h o died while o n clinical trials w e r e not
r e p o r t e d to the sponsor', an audit revealed. 'Dead people were
listed as s u b j e c t s of t e s t i n g . P e o p l e r e p o r t e d as subjects of t e s t i n g
w e r e not in t h e h o s p i t a l at t h e t i m e of t h e t e s t s . P a t i e n t c o n s e n t
f o r m s b o r e d a t e s i n d i c a t i n g t h e y w e r e signed b y t h e subjects after
t h e s u b j e c t s d i e d . ' A c o m m e r c i a l d r u g - t e s t i n g firm which had
o s t e n s i b l y w o r k e d on 82 d r u g s for 28 s p o n s o r s was the subject of
a n o t h e r audit.

P a t i e n t s w h o d i e d , left t h e h o s p i t a l o r d r o p p e d out o f t h e study


w e r e r e p l a c e d by o t h e r p a t i e n t s in t h e tests w i t h o u t notification in
the records. Forty-one patients reported as participating in
s t u d i e s w e r e d e a d or not in t h e h o s p i t a l d u r i n g the s t u d i e s . . . .
R e c o r d - k e e p i n g , s u p e r v i s i o n and o b s e r v a t i o n o f p a t i e n t s i n
g e n e r a l w e r e grossly i n a d e q u a t e .

L e t t e r s from clinical i n v e s t i g a t o r s t o their s p o n s o r i n g drug c o m -


p a n i e s r e v e a l s o m e t h i n g o f t h e way c o m m e r c i a l factors i n t r u d e into
w h a t s h o u l d b e i n d e p e n d e n t o b j e c t i v e r e s e a r c h . T h e following
l e t t e r w a s sent by a d r u g - t e s t i n g d o c t o r to Dr N e l s o n C a n t w e l l of
Merck:

Dear Nelson,
T h e e n c l o s e d l e t t e r is from a very fine p a t i e n t . I t h o u g h t
y o u w o u l d be i n t e r e s t e d in h e r very vivid and a r t i c u l a t e
d e s c r i p t i o n o f t h e a d v e r s e s y m p t o m s she e n c o u n t e r e d with
Indomethacin.
I w o u l d e m p h a s i z e t h a t t h e s e do not a l a r m me nor i n d i c a t e any
e v i d e n c e of o r g a n i c d a m a g e but 1 am afraid t h e y will offer s o m e
p r a c t i c a l p r o b l e m s i n m a r k e t i n g this d r u g .
N e e d l e s s to say, I am very grateful for all o f y o u r kind efforts in
r e g a r d to my trip to J a p a n .
I'll look f o r w a r d to s e e i n g y o u on my r e t u r n . I think we m u s t
get t o g e t h e r and p l a n o n p u b l i s h i n g s o m e o f t h e d a t a which w e
h a v e c o l l e c t e d . B e s t r e g a r d s a l w a y s ( U S S e n a t e , 1969: P a r t 8 ,
3453).

T h e f o l l o w i n g d o c t o r , with his 'fingers c r o s s e d ' h o p i n g for results


f a v o u r a b l e to t h e c o m p a n y , also s e e m s to manifest a b i a s e d a t t i t u d e
in his l e t t e r to M e r c k :

52
Safety testing of drugs: from negligence to fraud

Dear Dr Cantwell:
I r e c e i v e d y o u r l e t t e r this m o r n i n g and w a n t to t h a n k you for
s u g g e s t i n g a g r a n t for t h e r h e u m a t o l o g y s e c t i o n at t h e U n i v e r s i t y
of [a large s t a t e u n i v e r s i t y ] .
Since you w e r e h e r e we h a v e s t a r t e d a n u m b e r of n e w p a t i e n t s
o n i n d o m e t h a c i n ( t h e L X c a p s u l e s ) . A t least t h r e e o f t h e p a t i e n t s
c o m p l a i n e d of s e v e r e e p i g a s t r i c d i s t r e s s within 30 m i n u t e s after
t a k i n g t h e c a p s u l e . T h e r e f o r e , in t h e next few subjects we started
t h e m o u t on 1 c a p s u l e twice a day i n c r e a s i n g 1 c a p s u l e daily until
t h e y r e a c h e d t h e m a x i m u m 6 c a p s u l e s and b e l i e v e it or not we
e n c o u n t e r e d no d i s t r e s s . This is t h e m e t h o d we will follow for t h e
t i m e b e i n g , w i t h o u r f i n g e r s c r o s s e d (US S e n a t e , 1969: P a r t II.
461).

D r S t a n l e y W . J a c o b o f t h e U n i v e r s i t y o f O r e g o n M e d i c a l School
w a s h i r e d b y R e s e a r c h I n d u s t r i e s I n c . t o m o n i t o r t w o safety tests o n
a n e w d r u g for i n f l a m m a t i o n o f t h e b l a d d e r . In 1979, w h e n t h e F D A
i n v e s t i g a t e d i r r e g u l a r i t i e s in t h e d a t a c o l l e c t e d in t h e s e s t u d i e s , it
was found that Dr J a c o b owned about $600,000 w o r t h of R e s e a r c h
I n d u s t r i e s stock ( M c T a g g a r t , 1980: 176).
I n t h e t h r e e y e a r s 1977-80 t h e F D A c l a i m s t o h a v e d i s c o v e r e d a t
least 6 2 d o c t o r s w h o had s u b m i t t e d m a n i p u l a t e d o r d o w n r i g h t
falsified clinical d a t a . Dr R o n a l d C. S m i t h , a p s y c h i a t r i s t , w a s hired
by six p h a r m a c e u t i c a l c o m p a n i e s b e t w e e n 1971 and 1978, i n c l u d i n g
S a n d o z , U p j o h n a n d C y a n a m i d , t o test a t least a d o z e n p s y c h o -
t r o p i c d r u g s . A n F D A scientist s a y s , ' W e l e a r n e d from a n office
a s s i s t a n t . . . t h a t t h e way t h e d o c t o r got t h e pill c o u n t to c o m e out
c o r r e c t w a s t o c o u n t t h e c o r r e c t n u m b e r o f pills the p a t i e n t should
h a v e t a k e n and t h e n t o flush t h e m d o w n t h e t o i l e t ' ( M c T a g g a r t ,
1980: 177). An F D A c h e c k found t h a t only 3 or 4 out of 60 p a t i e n t s
listed as h a v i n g b e e n t e s t e d by S m i t h had actually b e e n given t h e
drugs.
S o m e p h y s i c i a n s h a v e b e e n t h e subject o f t e r r i b l e m i s f o r t u n e s o n
t h e e v e o f F D A i n v e s t i g a t i o n s into t h e q u a l i t y o f t h e d a t a they have
c o l l e c t e d for s u b m i s s i o n to t h e a g e n c y in s u p p o r t of n e w d r u g
a p p l i c a t i o n s . Dr J a m e s Scheiner, an o r t h o p e d i c surgeon of Fairfax,
V i r g i n i a , w h o had d o n e several e x p e r i m e n t s for J o h n s o n and
J o h n s o n , had his office v a n d a l i z e d t h e n i g h t before an F D A audit of
his r a w d a t a . T h e m i n d l e s s v a n d a l s d u m p e d all t h e r e c o r d s r e l a t i n g
to t h e s t u d i e s to be a u d i t e d into a w h i r l p o o l b a t h . J u s t before his
n e x t s c h e d u l e d F D A audit Dr S c h e i n e r had a fire in his office. A n d

53
Safety testing of drugs: from negligence to fraud

t h e n i g h t b e f o r e t h a t i n s p e c t i o n w a s r e s c h e d u l e d , D r S c h e i n e r was
v i c i o u s l y m u g g e d by an a s s a i l a n t w h o w i e l d e d a p a p e r w e i g h t from
his office. A n o t h e r d o c t o r , F r a n c o i s S a v e r y , w h o had e a r n e d a
f o r t u n e t e s t i n g e x p e r i m e n t a l d r u g s for H o f f m a n - L a R o c h e and
o t h e r l e a d i n g c o m p a n i e s , suffered t h e m i s f o r t u n e o f a c c i d e n t a l l y
d r o p p i n g his d a t a o v e r b o a r d w h i l e out in a r o w b o a t . A US court did
n o t b e l i e v e h i m ; he w a s s e n t e n c e d to five y e a r s ' p r o b a t i o n for felony
fraud.
T h e p r o b l e m is t h a t m o s t fraud in clinical trials is unlikely to e v e n
b e d e t e c t e d . M o s t c a s e s which d o c o m e t o public a t t e n t i o n only d o
so b e c a u s e of e x t r a o r d i n a r y c a r e l e s s n e s s by the criminal p h y s i c i a n ,
as in t h e following i l l u s t r a t i o n :

In e a r l y July 1978, an a m b u l a n c e r u s h e d J u n e F r o m a n to a
hospital in N e w York City. F r o m a n , a patient of Dr J e r o m e
R o t s t e i n , had b e e n t r e a t e d for a s e v e r e case of a r t h r i t i s with an
e x p e r i m e n t a l d r u g called S u d o x i c a n , m a n u f a c t u r e d b y Pfizer
C o m p a n y . R o t s t e i n w a s s u p p o s e d t o b e m o n i t o r i n g F r o m a n ' s use
of S u d o x i c a n carefully in late J u n e and early J u l y , and w a s
s u p p o s e d to r e p o r t any u n u s u a l r e a c t i o n s to federal officials.
I n s t e a d o f c o n d u c t i n g m o n i t o r i n g t e s t s , h o w e v e r , R o t s t e i n went
o n v a c a t i o n i n E u r o p e . B y t h e t i m e h e r e t u r n e d , F r o m a n had
a l r e a d y b e e n a d m i t t e d t o t h e h o s p i t a l , her liver dissolved b y
S u d o x i c a n . 'In no w a y could she be s a v e d , no m a t t e r w h a t we did
for h e r , ' R o t s t e i n told F D A officials later. B u t R o t s t e i n p o i n t e d
t h e finger of b l a m e for h e r d e a t h at Pfizer C o m p a n y officials,
c l a i m i n g t h e y hid t h e d r u g ' s s e r i o u s a d v e r s e side effects from him
and t r i e d t o c o n v i n c e him not t o r e p o r t t h e d e a t h t o F e d e r a l
a u t h o r i t i e s , it is a killer d r u g , ' R o t s t e i n said, i killed a p a t i e n t
b e c a u s e I d i d n ' t k n o w t h e d r u g c a u s e d h e p a t i c toxicity. I was led
d o w n a blind alley by p e o p l e w h o s h o u l d have k n o w n b e t t e r . ' . . .
A l e r t e d by news of F r o m a n ' s d e a t h , F D A investigators reviewed
r e p o r t s t h a t Pfizer had s u b m i t t e d t o t h e F D A . S t r a n g e l y , t h e s e
r e p o r t s i n c l u d e d r e s u l t s , p u r p o r t e d l y from F r o m a n ' s c a s e ,
r e c o r d e d u p t o several d a y s before her h o s p i t a l i z a t i o n , t h a t
s h o w e d ' e s s e n t i a l l y n o r m a l clinical s t u d i e s ' . After i n v e s t i g a t o r s
e x a m i n e d t h e clinical s t u d i e s closely t h e y found t h a t R o t s t e i n had
b e e n o u t o f t h e c o u n t r y and had n e v e r d o n e any o f t h e s t u d i e s . I f
F r o m a n had n o t d i e d , t h e F D A m i g h t well h a v e a c c e p t e d t h e
falsified S u d o x i c a n t e s t s , and millions of A m e r i c a n s could have
b e e n e x p o s e d to h e r fate (Mother Jones, J u n e 1982, p. 4 7 ) .

54
Safety testing of drugs: from negligence to fraud

T h e r e a r e an infinite v a r i e t y of w a y s s h o r t of o u t r i g h t falsification
w h i c h can be used by an i n v e s t i g a t o r w h o is a c a p t i v e of industry
i n t e r e s t s . A s o n e B r i t i s h e x p e r t has n o t e d :

T h e p r o b l e m of s u p p r e s s i o n of facts is w i d e s p r e a d . A typical
c a s e o c c u r s a l o n g t h e following l i n e s ; a t o x i c o l o g i c a l study has
b e e n c o n d u c t e d and gives an e q u i v o c a l r e s u l t , or a result
u n f a v o u r a b l e to t h e p r o d u c t . A s e c o n d s t u d y is c o n d u c t e d and at
t i m e s e v e n a t h i r d in w h i c h t h e d o s e levels are adjusted or the
p r o t o c o l s modified in such a way that e v e n t u a l l y a result
f a v o u r a b l e t o t h e a p p l i c a n t ' s p r o d u c t i s o b t a i n e d . O n l y the result
f a v o u r a b l e t o t h e a p p l i c a n t ' s p r o d u c t i s s u b m i t t e d t o the
r e g u l a t o r y a u t h o r i t y . . . . M i c r o s c o p i c a l e x a m i n a t i o n s of
h i s t o p a t h o l o g i c a l slides m a y b e m a d e b y m o r e t h a n o n e
p a t h o l o g i s t e a c h o f w h o m m a y h a v e c o m e t o different
c o n c l u s i o n s , yet only the c o n c l u s i o n s f a v o u r a b l e t o t h e d r u g are
submitted to the regulatory authority. On one occasion where
such a s i t u a t i o n has b e e n d e t e c t e d t h e a p p l i c a n t w i t h a dismissive
g e s t u r e said ' t h a t i n v e s t i g a t o r gives t h e w r o n g r e s u l t s , w e will not
use him a g a i n ' . [This a t t i t u d e r e v e a l s t h e c o m m e r c i a l p r e s s u r e
t h a t can be b r o u g h t to b e a r on an i n v e s t i g a t o r by t h e t h r e a t of loss
o f f u t u r e w o r k . ] . . . A case can be cited w h e r e s o m e d r a m a t i c
falls in h a e m o g l o b i n o f t h e o r d e r of 3-4 g/100 ml in t w o a n i m a l s
w e r e a t t e m p t e d to be hidden by p r e s e n t i n g the haematological
d a t a a s m e a n s and s t a n d a r d e r r o r s and c o m m e n t i n g i n the text
t h a t o v e r a l l t h e m e a n h a e m o g l o b i n levels w e r e only slightly
r e d u c e d w h e n b e f o r e a n d after t r e a t m e n t v a l u e s w e r e c o m p a r e d
(Griffin, 1 9 7 7 : 2 9 , 3 1 ) .

T h e b o u n d a r i e s b e t w e e n fraud, c r i m i n a l n e g l i g e n c e and civil


negligence are obviously blurred. Concealing unfavourable
e v i d e n c e on t h e safety of a d r u g h a s rarely b e e n t h e subject of
c r i m i n a l a c t i o n , t h o u g h in civil p r o d u c t liability m a t t e r s it often
b e c o m e s a central issue. The charges of involuntary manslaughter
against e x e c u t i v e s of G r u n e n t h a l in G e r m a n y concerning the
s u p p r e s s i o n of d a n g e r o u s effects of t h a l i d o m i d e is o n e e x c e p t i o n to
t h e p a t t e r n o f civil r a t h e r t h a n c r i m i n a l a c t i o n s . ' This p a t t e r n w o u l d
also h a v e c h a n g e d i n t h e U n i t e d S t a t e s i f C o n g r e s s m a n C o n y e r s and
his S u b c o m m i t t e e on C r i m e had s u c c e e d e d in its bid to have failure
to r e p o r t k n o w n d a n g e r o u s effects of c o n s u m e r p r o d u c t s a specific
2
criminal offence.

There are many cases of drug companies concealing and

55
Safety testing of drugs: from negligence to fraud

m i s r e p r e s e n t i n g d a n g e r o u s effects o f d r u g s n o t e d b y their own


s c i e n t i s t s . In 1959 W a l l a c e and T i e r n a n put a n e w t r a n q u i l l i s e r ,
D o r n w a l , o n t h e m a r k e t d e s p i t e t h e s t r e n u o u s o b j e c t i o n s o f its own
m e d i c a l d i r e c t o r . O t h e r c o m p a n y e x p e r t s w a r n e d that D o r n w a l
c o u l d c a u s e s e r i o u s a n d p o s s i b l y fatal b l o o d d a m a g e . T h e y w e r e
r i g h t . W a l l a c e and T i e r n a n failed to s e n d to t h e F D A r e p o r t s of
side-effects w h i c h i n c l u d e d nine c a s e s o f b o n e m a r r o w d i s e a s e and
t h r e e d e a t h s from using the d r u g ( J o h n s o n , 1976). T h e c o m p a n y
w a s f o u n d guilty on c r i m i n a l c h a r g e s and fined $40,000 ( S i l v e r m a n
a n d L e e , 1974: 9 7 ) .
O n e c o u l d list a n u m b e r of similar t y p e s of c a s e s . J o h n s o n and
J o h n s o n ' s s u b s i d i a r y , M c N e i l L a b o r a t o r i e s , w a s d e n o u n c e d b y the
F D A for c o n c e a l i n g i n f o r m a t i o n on side-effects of Flexin which
a c c o r d i n g t o J o h n s o n ( 1 9 7 6 ) i n c l u d e d the drug being a s s o c i a t e d
w i t h 1 5 d e a t h s from liver d a m a g e . S u c h m o r e b l a t a n t cases are
m e r e l y t h e tip of an i c e b e r g of selective m i s i n f o r m a t i o n .
T h e m o s t d r a m a t i c r e c e n t case has b e e n the d i s c l o s u r e s i n t h e
B r i t i s h P a r l i a m e n t and U S C o n g r e s s t h a t Eli Lilly and C o . k n e w o f
t h e d a n g e r s o f O p r e n , a n a n t i - a r t h r i t i c d r u g a s s o c i a t e d with 7 4
d e a t h s i n B r i t a i n a l o n e , 1 5 m o n t h s before t h e d r u g was w i t h d r a w n
(Sunday Times, 27 F e b r u a r y 1983). M o r e o v e r , a l m o s t a year before
t h e d r u g w a s w i t h d r a w n from t h e w o r l d m a r k e t , a n i n v e s t i g a t o r with
t h e F D A ' s Clinical I n v e s t i g a t i o n s office had r e c o m m e n d e d c r i m i n a l
p r o s e c u t i o n of Lilly for failing to r e p o r t a d v e r s e r e a c t i o n s to four of
its d r u g s , i n c l u d i n g O p r e n . A c c o r d i n g to t h e i n v e s t i g a t o r , 65 of 173
a d v e r s e r e a c t i o n s s u b m i t t e d to Lilly by d o c t o r s had not b e e n
r e p o r t e d to F D A at all, and not all o f t h e side effects m e n t i o n e d in
a n initial a p p l i c a t i o n t o F D A w e r e m e n t i o n e d i n its f i n a l s u b m i s -
s i o n , a n d n o t all o f t h e side effects m e n t i o n e d in its final s u b m i s s i o n
had b e e n m e n t i o n e d i n t h e initial a p p l i c a t i o n . T h e alleged c o m -
b i n e d effect w a s t o h a v e e a c h d o c u m e n t grossly u n d e r s t a t i n g t h e
p r o b l e m (Wall Street Journal, 4 A u g u s t 1982).

T h e p r o b l e m i s not r e s t r i c t e d t o A n g l o - S a x o n c o u n t r i e s . I n
November 1982, a J a p a n e s e c o m p a n y , N i p p o n C h e m i p h a r ,
a d m i t t e d to p r e s e n t i n g bogus data to the J a p a n e s e G o v e r n m e n t
w i t h its a p p l i c a t i o n to m a r k e t a p a i n - k i l l e r and a n t i - i n f l a m m a t i o n
drug u n d e r the brand n a m e of N o r v e d a n . The company submitted
c o o k e d up data to the G o v e r n m e n t in the name of Dr H a r c i o
S a m p e i , c h i e f o f plastic s u r g e r y a t N i p p o n U n i v e r s i t y . T h e good
d o c t o r had a c c e p t e d 2.4 million Y e n in cash from the c o m p a n y in
r e t u r n for p e r m i s s i o n t o use his n a m e . M o r e d i s t u r b i n g are similar

56
Safety testing of drugs: from negligence to fraud

allegations on a n o t h e r N i p p o n C h e m i p h a r product. The company


d e n i e s c o o k i n g d a t a o n this s e c o n d p r o d u c t . But t h e w o r r y i n g a s p e c t
o f t h e s e c o n d s c a n d a l is t h a t a f o r m e r c o m p a n y r e s e a r c h e r c l a i m s to
h a v e s u b m i t t e d a w r i t t e n r e p o r t a l l e g i n g fraud in d r u g t e s t i n g by
N i p p o n C h e m i p h a r t o t h e J a p a n e s e H e a l t h and W e l f a r e M i n i s t r y :
M i n i s t r y officials, he a l l e g e s , c h o s e to i g n o r e the r e p o r t (Japan
Times, 2 3 , 2 4 , 2 5 N o v e m b e r 1982).
D a t a f a b r i c a t i o n is so w i d e s p r e a d in t h e p h a r m a c e u t i c a l industry
as to s u p p o r t an a r g o t - t h e p r a c t i c e is called ' m a k i n g ' in t h e
J a p a n e s e i n d u s t r y , ' g r a p h i t i n g ' o r 'dry l a b e l l i n g ' i n t h e U n i t e d
States.

The pioneering work of Morton Mintz


M o r t o n M i n t z , in his m o n o g r a p h The Therapeutic Nightmare, later
r e v i s e d as By Prescription Only ( 1 9 6 7 ) , w a s t h e first to p r o v i d e a
d e t a i l e d c a s e - s t u d y a p p r o a c h to fraud in drug t e s t i n g .
T h e first c a s e s t u d y w a s of R e g i m e n t a b l e t s , a n o n - p r e s -
c r i p t i o n ' r e d u c i n g pill' o n w h i c h A m e r i c a n s spent $16 million
b e t w e e n 1957 and 1963. S l o g a n s such as i lost 25 p o u n d s in 30 days
t a k i n g R e g i m e n T a b l e t s w i t h o u t d i e t i n g ' w e r e t h e basis o f these
sales.

I n 1962 t h e F o o d and D r u g A d m i n i s t r a t i o n m a d e m u l t i p l e
seizures of R e g i m e n Tablets on charges of misbranding. In
c o n n e c t i o n w i t h t h i s , t h e g o v e r n m e n t t o o k d e p o s i t i o n s from t w o
p h y s i c i a n s w h o had b e e n e n g a g e d t o c o n d u c t clinical t e s t s with
t h e d r u g ( p h e n y l p r o p a n o l a m i n e h y d r o c h l o r i d e ) , which i s n o
longer on the m a r k e t . Dr Ernest C. Brown of Baltimore, whose
fee w a s $ 1 0 0 0 , a d m i t t e d in his d e p o s i t i o n , F D A said in a l e t t e r
t o S e n a t o r H u m p h r e y , t h a t 3 0 o f t h e 4 3 c h a r t s h e had s u b m i t t e d
on 50 patients 'were fabricated'. Dr Kathleen E. R o b e r t s of
San F r a n c i s c o a n d later T o l e d o , w h o w a s paid $ 4 0 0 0 ,
a c k n o w l e d g e d in h e r d e p o s i t i o n t h a t her r e p o r t w a s ' u n t r u e in its
entirety'. Her charts on 57 of 75 patients 'were complete
f a b r i c a t i o n s ' , t h e a g e n c y told H u m p h r e y . O f t h e r e m a i n d e r , 'only
t h e p a t i e n t s ' initials a n d s t a r t i n g w e i g h t s w e r e c o r r e c t ' ( M i n t z
1967: 3 2 6 ) .

In J a n u a r y 1964 a B r o o k l y n g r a n d j u r y r e t u r n e d an i n d i c t m e n t
a g a i n s t t h e R e g i m e n a d v e r t i s i n g a g e n c y for p r e p a r i n g false copy for
a d r u g p r o d u c t at t h e d i r e c t i o n of a client.

57
Safety testing of drugs: from negligence to fraud

An u n n a m e d p h y s i c i a n w a s said in t h e i n d i c t m e n t to have b e e n
i n d u c e d to ' c h a n g e t h e c o n c l u s i o n of a clinical test he had
p e r f o r m e d w i t h t h e t a b l e t s ' . E n d o r s e r s o f t h e pills, t h e i n d i c t m e n t
a s s e r t e d , w e r e s h o w n b e i n g w e i g h e d each w e e k , the scales
r e g i s t e r i n g w e i g h t losses e a c h t i m e . A c t u a l l y , t h e b e f o r e - a n d -
after m o d e l s w e r e on strict diets a n d . said the i n d i c t m e n t , had
b e e n t a k i n g p r e s c r i p t i o n d r u g s u n d e r s u p e r v i s i o n of a physician
( M i n t z , 1967: 3 2 7 ) .

K a s t o r , H i l t o n , C h e s l e y , Clifford and A t h e r t o n . the R e g i m e n


a d v e r t i s i n g a g e n c y , w a s fined $ 5 0 , 0 0 0 . J o h n A n d r e , sole stock-
h o l d e r in the D r u g R e s e a r c h C o r p o r a t i o n , marketer of R e g i m e n ,
w a s also fined $ 5 0 , 0 0 0 and s e n t e n c e d to e i g h t e e n m o n t h s in p r i s o n .
T h e c o r p o r a t i o n itself was fined $53,(XK). On 1 S e p t e m b e r , 1966, the
U n i t e d S t a t e s C o u r t o f A p p e a l s i n N e w Y o r k City affirmed the
c o n v i c t i o n s . A p e t i t i o n of r e v i e w w a s s u b s e q u e n t l y d e n i e d by the
3
Supreme Court.
I n J u n e 1964 D r B e n n e t t A . R o b i n w a s c o n v i c t e d o n five c o u n t s o f
c a u s i n g p h a r m a c e u t i c a l firms t o s u b m i t e r r o n e o u s r e p o r t s o n new
d r u g s b y s u p p l y i n g t h e m with f r a u d u l e n t clinical r e s u l t s . T h e
g o v e r n m e n t successfully a r g u e d that R o b i n had n e v e r e x a m i n e d
p a t i e n t s o n w h o m h e p u r p o r t e d l y w a s t e s t i n g the five p r o d u c t s
m e n t i o n e d in the indictment. One product which was released to
t h e m a r k e t b y t h e F D A , p a r t l y o n t h e basis o f e v i d e n c e from R o b i n ,
w a s H o f f m a n - L a R o c h e ' s T i g a n ( t r i m e t h o b e n z a m i d e ) . I n the
December 1960 issue of t h e Maryland State MedicalJournal, R o b i n
h a d r e p o r t e d on a c o m p a r i s o n b e t w e e n Tigan and a p l a c e b o with
r e s p e c t t o n a u s e a and v o m i t i n g . ' T i g a n ® effectively relieved the
s y m p t o m s . . . w i t h i n an a v e r a g e of 80 m i n u t e s in 94 of % p a t i e n t s ' ,
he said.

T h e R o b i n c a s e study w a s s t a g g e r i n g b e c a u s e m a n y o f t h e most
r e p u t a b l e c o m p a n i e s i n t h e p h a r m a c e u t i c a l industry had used him
for clinical t r i a l s at s o m e s t a g e . R o b i n had ' t e s t e d ' 45 p r o d u c t s for 22
firms, p u r p o r t e d l y on a total of 6,400 p a t i e n t s . E x p o s u r e of R o b i n
c a n be t r a c e d to a statistical analysis of his p a p e r s by Dr J o h n
N e s t o r , a n F D A scientist. I n a n i n t e r n a l F D A c o m m u n i c a t i o n
N e s t o r said t h a t his a n a l y s i s ' i n d i c a t e s t h a t , in g e n e r a l , his results
a r e i m p o s s i b l e ' , and t h a t he 'is a fraud'. T h i s led S e n a t o r H u m p h r e y
to r a i s e a n u m b e r of q u e s t i o n s in t h e S e n a t e at t h e t i m e as to why the
d r u g c o m p a n i e s had not also found t h e r e s u l t s ' i m p o s s i b l e ' .

A n o t h e r c a s e w a s that o f D r L e o J . C a s s , d i r e c t o r o f t h e H a r v a r d

58
Safety testing of drugs: from negligence to fraud

L a w S c h o o l H e a l t h S e r v i c e . F D A s u s p i c i o n s w e r e first a r o u s e d b y
t h e e x t r a o r d i n a r i l y large n u m b e r o f i n v e s t i g a t i o n s ' that C a s s
R e s e a r c h A s s o c i a t e s had m a d e 'in a short p e r i o d of t i m e ' . M o s t of
t h e m a j o r c o m p a n i e s had r e t a i n e d C a s s ' s c o m p a n y . H e had u n d e r -
t a k e n 84 r e s e a r c h p r o j e c t s for t e s t i n g i n v e s t i g a t i o n a l d r u g s and 25
p r o j e c t s for p r o d u c t m a r k e t i n g a p p l i c a t i o n s .

On M a y 6, 1966, t h e F D A initiated a c t i o n to halt the sale of


N o r g e s i c . In C a m b r i d g e , Cass R e s e a r c h acknowledged 'certain
deficiencies' in r e c o r d - k e e p i n g , blamed them on the observers
[the c o m p a n y ] r e t a i n e d " , and said i t w a s n o w out o f t h e
d r u g - t e s t i n g b u s i n e s s . T h e ' c e r t a i n d e f i c i e n c i e s ' w e r e spelled out
l a t e r b y F D A i n t h e F e d e r a l R e g i s t e r w h e n i t acted t o t a k e
M e a s u r i n a n d S t e n d i n off t h e m a r k e t . It t u r n e d out that C a s s
R e s e a r c h had b e e n quick with t h e d e a d : A n u m b e r of p a t i e n t s
r e p o r t e d to h a v e b e e n t r e a t e d in its s t u d i e s , t h e agency said, 'in
fact w e r e not so t r e a t e d . . . t h e s e p e r s o n s w e r e d e c e a s e d or not
h o s p i t a l i z e d at t h e i n s t i t u t i o n [ L o n g I s l a n d H o s p i t a l in B o s t o n ]
w h e r e t h e i n v e s t i g a t i o n s w e r e a l l e g e d l y c o n d u c t e d . ' F D A said
C a s s R e s e a r c h also had s u p p l i e d i t with o t h e r ' u n t r u e
s t a t e m e n t s ' , i n c l u d i n g c l a i m s t h a t t r e a t e d p a t i e n t s had c e r t a i n
m e d i c a l c o n d i t i o n s w h i c h i n v e s t i g a t i o n s h o w e d they did not h a v e
( M i n t z , 1967: 3 3 8 d ) .

I n his p e r s u a s i v e d o c u m e n t a t i o n o f t h e w i d e s p r e a d fraud i n t h e
clinical t e s t i n g o f d r u g s , M i n t z also relied o n t h e r e v e a l i n g c o n t e n t s
o f c o n f i d e n t i a l d o c u m e n t s such a s t h e following internal F D A
m e m o r a n d u m ( M i n t z . 1967: 3 3 4 ) .

For many years Dr ' c o l l a b o r a t e d ' with D o c t o r s and


in 'clinical s t u d i e s ' w h i c h we s t r o n g l y suspect w e r e
c o n d u c t e d by t h e " g r a p h i t e ' m e t h o d [that is, by i n v e n t i o n with a
p e n c i l , r a t h e r t h a n b y actual t e s t i n g ] .
W i t h Dr 's d e a t h a y e a r or so a g o . we had h o p e s that t h e
c o m b i n a t i o n had b e e n d i s r u p t e d for g o o d .
We have learned recently, h o w e v e r , that has gained new
a l l i e s , and t h e c o m b i n a t i o n is b a c k in t h e 'clinical s t u d y ' b u s i n e s s .
T h e s e allies a r e :
,M.D.
N e w Y o r k C i t y , N . Y . , and
, M.D.
Brooklyn, N.Y.

59
Safely testing of drugs: from negligence to fraud

I n q u i r i e s , s t u d i e s , d a t a , etc. from t h e s e m e n should r e c e i v e


extremely careful c o n s i d e r a t i o n and s c r u t i n y .
R. C. B R A N D E N B U R G

A n o t h e r f a s c i n a t i n g c o m m u n i c a t i o n is from a p h y s i c i a n to a
m a n u f a c t u r e r . T h e p h y s i c i a n s e e m s t o b e h a p p y t o have t h e d r u g
c o m p a n y w r i t e his p a p e r for him w i t h o u t so m u c h as seeing t h e d a t a .

I had a talk w i t h Dr [ n a m e of clinical i n v e s t i g a t o r ] , and w h i l e he


g a v e m e t h e i m p r e s s i o n t h a t h e had a l r e a d y d o n e e n o u g h w o r k o n
t h e n e w s u b j e c t to i n d i c a t e t h a t t h e study w o u l d be f a v o r a b l e , t h e
p u b l i c a t i o n o f t h e r e s u l t s b o t h e r s him.
He c a n ' t s e e m to figure o u t h o w he can write such a p a p e r
w i t h o u t a p p e a r i n g r i d i c u l o u s . D o you h a v e i d e a s o n it? I f s o , why
d o n ' t you w r i t e a p a p e r t h a t w o u l d fit t h e c o n c e p t and let me go on
from t h e r e . I am not a s k i n g you to do my w o r k . I j u s t w a n t to be
s u r e t h a t t h e m a n u s c r i p t will c o m e as close to w h a t y o u w a n t as
p o s s i b l e ( M i n t z , 1967: 3 3 6 ) .

MER/29

T h e m o s t s h o c k i n g c a s e of fraud in t h e safety testing of d r u g s w a s


w i t h M E R / 2 9 ( t r i p a r a n o l ) , a n a g e n t i n t e n d e d t o r e d u c e blood
c h o l e s t e r o l levels. The sponsoring c o m p a n y was William S.
Merrell, a subsidiary o f t h e Richardson-Merrell transnational. An
e s t i m a t e d 3 0 0 , 0 0 0 A m e r i c a n s used M E R / 2 9 d u r i n g its first twelve
m o n t h s on t h e m a r k e t in 1960-61 ( S i l v e r m a n , 1976: 9 1 ) . Soon after
r e l e a s e t o t h e m a r k e t r e p o r t s b e g a n flooding i n a b o u t side-effects
w h i c h i n c l u d e d b a l d n e s s , skin d a m a g e , c h a n g e s i n the r e p r o d u c t i v e
o r g a n s a n d t h e b l o o d , and s e r i o u s eye d a m a g e i n c l u d i n g the p r o -
d u c t i o n of c a t a r a c t s . On 12 A p r i l t h e d r u g was w i t h d r a w n from t h e
m a r k e t . B u t t h a t w a s only t h e b e g i n n i n g o f t h e M E R / 2 9 story.
M r s B e u l a h J o r d a n had quit M e r r e l l , w h e r e she had w o r k e d a s a
l a b o r a t o r y t e c h n i c i a n o n t h e safety t e s t i n g o f M E R / 2 9 , after b e i n g
dissatisfied a t t h e i n t e g r i t y o f t h e scientific w o r k u n d e r t a k e n b y t h e
c o m p a n y . W h e n i n early 1962 t h e d a n g e r s o f M e r r e l l ' s a n t i -
c h o l e s t e r o l drug was in the n e w s p a p e r s , Mrs J o r d a n ' s husband
m e n t i o n e d h e r d o u b t s t o a m e m b e r o f his car pool w h o h a p p e n e d t o
b e a n F D A i n s p e c t o r . T h i s led t o a n F D A i n s p e c t i o n w h i c h un-
c o v e r e d t h e s o r d i d d e t a i l o f t h e M E R / 2 9 affair.
C r u c i a l M E R / 2 9 t e s t i n g had b e e n d o n e o n m o n k e y s . M r s
J o r d a n ' s a t t e n t i o n w a s d r a w n t o t h e d e t e r i o r a t i n g c o n d i t i o n o f her

60
Safety testing of drugs: from negligence to fraud

•pet' l a b o r a t o r y m o n k e y . A f t e r a few m o n t h s on M E R / 2 9 , it w a s
u n a b l e to j u m p o n t o the w e i g h i n g p a n , a simple trick all t h e
m o n k e y s had b e e n t r a i n e d t o p e r f o r m . A c c o r d i n g t o M r s J o r d a n ,
t h e m o n k e y 'got very m e a n , t h e r e w a s a loss of w e i g h t , and it
c o u l d n ' t see well e n o u g h t o hit t h e pan . . . i n o u r o p i n i o n , this
m o n k e y w a s sick d u e to a r e a c t i o n from this d r u g . '
M r s J o r d a n r e p o r t e d this t o h e r s u p e r v i s o r , ' D r ' W i l l i a m King (it
w a s later d i s c o v e r e d t h a t he had not yet b e e n a w a r d e d his m e d i c a l
d e g r e e ) , w h o i n t u r n informed M e r r e l l ' s d i r e c t o r o f biological
s c i e n c e s , D r E v e r t van M a a n e n :

D r van M a a n e n , w i t h t h e c o n c u r r e n c e o f D r K i n g , then d e c i d e d
t o t h r o w o u t t h e sick male drug m o n k e y m e n t i o n e d a b o v e from
the e x p e r i m e n t a n d s u b s t i t u t e a n o t h e r c o n t r o l m o n k e y i n his
p l a c e w h i c h had n e v e r b e e n o n M E R / 2 9 .
A f t e r this d e c i s i o n , D r van M a a n e n called M r s J o r d a n into his
office a n d i n s t r u c t e d her to m a k e this s u b s t i t u t i o n in w o r k i n g up
t h e w e i g h t c h a r t s . . . . M r s J o r d a n r e s e n t e d b e i n g a s k e d to . . .
r e n d e r a false r e p o r t , and refused to sign her c h a r t s . Dr K i n g
o r d e r e d h e r t o n e v e r m e n t i o n t h e s u b s t i t u t i o n . She w a s told t h a t
this w a s t h e w a y t h e C o m p a n y w a n t e d it and to forget it. She w a s
told t h a t t h i s o r d e r had c o m e from h i g h e r u p and t h e r e w a s
n o t h i n g she c o u l d do a b o u t it but obey t h e o r d e r and do as t h e
' h i g h e r - u p s ' w a n t e d ( R i c e , 1969).

Invoking the authority of a n o n y m o u s 'higher-ups' made it


difficult for M r s J o r d a n to go o v e r K i n g ' s head to r e p o r t the fraud
up the line. H e n c e , no c o m p a n y directors b e c a m e aware of the
fraud.
I n t o t a l M r s J o r d a n w a s told t o c h a n g e t h e f i g u r e s o n eight
m o n k e y s . I t w a s also r e v e a l e d t h a t o t h e r e m p l o y e e s had b e e n
i n s t r u c t e d t o r e v i s e c h a r t s w h i c h did not i n d i c a t e t h e d e s i r e d
r e s u l t s - to ' s m o o t h o u t d a t a ' as this r e v i s i o n p r o c e s s w a s called at
Merrell.
V a r i o u s b l o o d d y s c r a s i a s w e r e n o t e d i n b l o o d s m e a r s t a k e n from
m o n k e y s t h a t had b e e n t e s t e d o n M E R / 2 9 ; n o n e w e r e o b s e r v e d i n
t h e c o n t r o l m o n k e y s . ' M e r r e l l had tried t o c h a n g e t h e r e c o r d s s o
t h a t i t a p p e a r e d t h a t all m o n k e y s w e r e s u p p o s e d t o have had t h e s e
a n o m a l i e s ' ( F u l l e r , 1972: 9 0 ) . S o m e o f t h e test m o n k e y s had b e e n
o n M E R / 2 9 for only eight m o n t h s , a l t h o u g h they w e r e listed i n t h e
s u b m i s s i o n s to t h e F D A as h a v i n g t a k e n t h e d r u g for a full c o u r s e of
1 6 m o n t h s a n d d o n e well.

61
Safety testing of drugs: from negligence to fraud

T h e l e n g t h s t o w h i c h R i c h a r d s o n had b e e n p r e p a r e d t o g o t o get
t h e d r u g o n t h e m a r k e t are r e v e a l e d i n the c h a r g e s . C o u n t t h r e e ,
for e x a m p l e , d e a l t w i t h R i c h a r d s o n - M e r r e l l ' s r e p o r t s of a c h r o n i c
t o x i c i t y s t u d y i n m o n k e y s . T h e c o m p a n y had r e p o r t e d that
m o n k e y N o . 51 w a s given M e r 29 at o n e d o s e level for six m o n t h s
a n d at a l o w e r d o s e level for a further ten m o n t h s , but w h a t the
F D A i n s p e c t o r s u n c o v e r e d was t h a t t h e h i g h e r d o s e o f M E R 2 9
had n e v e r b e e n a d m i n i s t e r e d t o m o n k e y 5 1 and t h e lower d o s e
had b e e n a d m i n i s t e r e d for a s h o r t e r t i m e t h a n c l a i m e d . In toto,
t h e e x p e r i m e n t had lasted for 7 m o n t h s and 26 days and not t h e 16
m o n t h s s t a t e d i n t h e a p p l i c a t i o n t o t h e F D A . M o n k e y 3 5 , o n the
o t h e r h a n d , had b e e n d e s i g n a t e d a c o n t r o l for t h e '16 m o n t h
s t u d y , ' a l t h o u g h in fact for t h e first 6 m o n t h s . N o . 35 had b e e n
g i v e n a d r u g similar to M e r 29 and had not b e e n used as a c o n t r o l
a t all. T h e c o m p a n y ' s a p p l i c a t i o n t o t h e F D A c l a i m e d that
m o n k e y s had not lost b o d y w e i g h t w h e n in fact t h e y h a d , and t h a t
a m o n k e y had suffered no liver or gall b l a d d e r d a m a g e w h e n in
fact it had ( K n i g h t l e y et a l . , 1979: 6 7 ) .

T h e r e w e r e a b u s e s in o t h e r s t u d i e s . In a dog s t u d y , a n i m a l s which
d i e d w e r e r e p l a c e d with t h r e e a d d i t i o n a l d o g s t o i m p r o v e the
f i g u r e s . ' A m o n g b e a g l e d o g s , M e r r e l l c o v e r e d u p the fact that
p o r t i o n s o f t h e g o n a d s had u n d e r g o n e " m a r k e d t u b u l a r and inter-
stitial a t r o p h y " ' ( F u l l e r , 1972: 9 0 ) . T h e r e w a s also a c o v e r - u p of
i r r e p a r a b l e eye d a m a g e t o the lab a n i m a l s . I n s o m e cases the lenses
o f t h e e y e s w e r e c l o u d e d s o m u c h t h a t t h e retina could not b e
o b s e r v e d . T h e s e a n d o t h e r eye i n f e c t i o n s led o n e p a t h o l o g i s t t o
c o m m e n t in his r e p o r t t h a t he had ' n e v e r seen such an i n v o l v e m e n t
o f t h e l e n s ' ( F u l l e r , 1972: 9 0 ) .

M e r r e l l s t a t e d t h a t all t h e female rats i n v o l v e d in o n e e x p e r i m e n t


had s u r v i v e d , w h e n in fact they had all died. D a t a s u b m i t t e d on
t h e i r w e i g h t and b l o o d v a l u e s w e r e totally fabricated. M e r r e l l ,
foolishly a s i t t u r n e d o u t , had e n c o u r a g e d o t h e r c o m p a n i e s t o d o
c o m p a r a t i v e s t u d i e s o n M E R / 2 9 . B o t h M e r c k and U p j o h n r e p o r t e d
t o M e r r e l l t h a t t h e d r u g had c a u s e d eye d a m a g e t o its e x p e r i m e n t a l
a n i m a l s . T h e s e findings w e r e not p a s s e d o n t o the F D A b y M e r r e l l .
T h e c o v e r - u p on a n i m a l t e s t i n g w a s followed by a c o v e r - u p on
h u m a n t e s t i n g . U n g a r ( 1 9 7 3 : 101-2) has d o c u m e n t e d the c a l c u l a t e d
nature ofthis deceit.

M c M a s t e r [ A s s o c i a t e D i r e c t o r o f Clinical R e s e a r c h ] had
r e s p o n d e d to a d o c t o r in O m a h a w h o had c o m p l a i n e d t h a t his

62
Safety testing of drugs: from negligence to fraud

p a t i e n t s o n M E R / 2 9 suffered from eye d i s c h a r g e and swelling:


' M o s t o f t h e side effects you h a v e r e p o r t e d have b e e n u n u s u a l
o n e s i n t h a t t h e y h a v e not b e e n r e p o r t e d b y o t h e r
i n v e s t i g a t o r s . . . . I s i t p o s s i b l e t h a t [ t h e y ] could have b e e n
c o i n c i d e n t a l with t h e a d m i n i s t r a t i o n o f d r u g s o t h e r t h a n M E R / 2 9
c o n c u r r e n t l y ? ' T h i s same line o f r e b u t t a l w a s n o w r e c o m m e n d e d
t o M e r r e l l ' s e n t h u s i a s t i c d r u g s a l e s m e n a s well. O n e
m e m o r a n d u m issued to t h e m a d v i s e d : "When a d o c t o r says y o u r
d r u g c a u s e s a side effect, t h e i m m e d i a t e reply is: " D o c t o r , w h a t
o t h e r d r u g i s t h e p a t i e n t t a k i n g ? " E v e n i f you k n o w y o u r drug can
c a u s e t h e side effect m e n t i o n e d , c h a n c e s a r e e q u a l l y g o o d t h e
s a m e side effect is b e i n g c a u s e d by a s e c o n d d r u g ! Y o u let y o u r
d r u g t a k e t h e b l a m e w h e n you c o u n t e r with a defensive a n s w e r . '

O n t h e very day t h a t D r T a l b o t o f t h e F D A issued his a p p r o v a l


of M E R / 2 9 , M c M a s t e r learned of a California doctor whose
r e s u l t s with M E R / 2 9 , w e r e ' r a t h e r e q u i v o c a l i f not c o m p l e t e l y
n e g a t i v e . ' T h e C a l i f o r n i a n w a s not r e a d y t o give u p , h o w e v e r ,
a n d s o u g h t M e r r e l l ' s financial s u p p o r t for an e x t e n s i o n of his
s t u d i e s t o o t h e r p a t i e n t s . ' A l t h o u g h i t b e g i n s t o a p p e a r that any
r e p o r t from this s t u d y m a y be a n e g a t i v e o n e , ' M c M a s t e r w r o t e to
a c o l l e a g u e at M e r r e l l , 'we m a y find t h a t we are m o n e y a h e a d to
k e e p Dr E n g e l b e r g busy at it for a w h i l e l o n g e r r a t h e r than to take
a c h a n c e on his r e p o r t i n g n e g a t i v e l y on so few p a t i e n t s . . . . My
p e r s o n a l r e c o m m e n d a t i o n is t h a t t h e [S500] g r a n t - i n - a i d be
a p p r o v e d only to k e e p Dr E n g e l b e r g o c c u p i e d for a while l o n g e r . '

A M e r r e l l i n t e r d e p a r t m e n t a l m e m o r a n d u m noted t h a t a p a p e r
s i g n e d by a N e w J e r s e y p h y s i c i a n - ' p r e p a r e d for t h e most part by
u s ' - had b e e n a c c e p t e d by t h e Journal of the Medical Society of New
Jersey. A n o t h e r internal m e m o r a n d u m r e c o m m e n d e d continued
p a y m e n t of a p e r s o n a l c o n s u l t a t i o n fee to a p h y s i c i a n , mainly on the
g r o u n d s t h a t t h e c o m p a n y could not afford t o risk a l i e n a t i o n o f t h e
d o c t o r at t h a t t i m e . ' P e r h a p s ' , it w a s o p t i m i s t i c a l l y noted by a
M e r r e l l e m p l o y e e , i s h o u l d n ' t r e g a r d this a s b l a c k m a i l ' (US
S e n a t e , 1969: P a r t 1 0 3 9 7 2 ) . A n early a p p r o a c h t o military h o s p i t a l s
w a s justified as follows: ' W e w e r e not t h i n k i n g h e r e so m u c h of
h o n e s t clinical w o r k as we w e r e of a p r e - m a r k e t i n g softening prior
t o t h e i n t r o d u c t i o n o f t h e p r o d u c t ' ( U S S e n a t e , 1969: P a r t 1 0 , 3 9 7 1 ) .

B y M a r c h o f l 9 6 1, M c M a s t e r - a l t h o u g h still w r i t i n g o t h e r w i s e to
d o c t o r s w h o c o m p l a i n e d - c o n c l u d e d p r i v a t e l y t h a t ' t h e r e can b e
n o d o u b t o f t h e a s s o c i a t i o n o f M E R / 2 9 t h e r a p y with [hair]

63
Safety testing of drugs: from negligence to fraud

c h a n g e s . ' He drafted a p r o p o s e d a d d i t i o n to t h e w a r n i n g on the


d r u g p a c k a g e , citing ' c h a n g e s i n c o l o r , t e x t u r e o r a m o u n t ' o f hair
as p o s s i b l e side effects. T h a t w o r d i n g w a s v e t o e d on its way
t h r o u g h the c o r p o r a t e power s t r u c t u r e , however, as 'rather
frightening.'
"After a l l , ' o b j e c t e d D r R o b e r t T . S t o r m o n t , w h o v e t o e d the
l a n g u a g e , ' n o n e o f t h o s e c a s e s d e v e l o p e d g r e e n , pink o r l a v e n d e r
hair, I h o p e . '
T h e w a r n i n g w a s e d i t e d t o say simply ' t h i n n i n g o f t h e hair'
( U n g a r , 1973: 103).

T h e u p s h o t o f t h e i n v e s t i g a t i o n w a s t h a t M e r r e l l , the p a r e n t
R i c h a r d s o n - M e r r e l l , ' D r ' K i n g , D r V a n M a a n e n and M e r r e l l vice-
p r e s i d e n t W e r n e r all p l e a d e d 'no c o n t e s t ' to a variety of c r i m i n a l
fraud c o u n t s . I n t h e w o r d s o f M a t t h e w F . M c G u i r e , t h e n Chief
J u d g e o f t h e U S D i s t r i c t C o u r t for t h e District o f C o l u m b i a , t h e
p l e a s w e r e ' t a n t a m o u n t to a plea of g u i l t y ' . F i n e s of $60,000 and
$20,000 were levied against M e r r e l l and R i c h a r d s o n - M e r r e l l
respectively. The three individual defendants were each sentenced
t o m e r e l y six m o n t h s ' p r o b a t i o n . I f c o r p o r a t i o n s are r a t i o n a l , profit-
m a x i m i s i n g c r e a t u r e s , a total fine of $80,000 w o u l d have to be
r e g a r d e d as a j u s t i f i a b l e risk given t h a t R i c h a r d s o n - M e r r e l l esti-
m a t e d t h e p o t e n t i a l m a r k e t for M E R / 2 9 as $4.25 billion a year
( K n i g h t l e y et a l . , 1979: 6 5 ) .

T h e m a i n r e a s o n for t h e n o - c o n t e s t p l e a s w a s t h a t M e r r e l l w a s
w o r r i e d t h a t t h e trial r e c o r d c o u l d be used to a d v a n t a g e by victims
of M E R / 2 9 in civil s u i t s . R e g a r d l e s s , t h e civil suits did follow,
a l m o s t 500 of t h e m . R i c h a r d s o n - M e r r e l l is believed to h a v e paid out
a b o u t $200 m i l l i o n in d a m a g e s mostly settled out of c o u r t . T h i s has
b e e n a s e v e r e b u r d e n , e v e n for a F o r t u n e 500 c o m p a n y .
B e f o r e leaving t h e M E R / 2 9 case study it is w o r t h m e n t i o n i n g s o m e
o f t h e m o r e trivial a b u s e s w h i c h t e n d t o b e forgotten w h e n c o m p a r e d
w i t h t h e s e r i o u s c r i m e s m e n t i o n e d a b o v e . A s discussed earlier i t i s
t h e m o r e s u b t l e a b u s e s w h i c h are p r o b a b l y m o r e w i d e s p r e a d and
c o n s e q u e n t l y d o m o r e h a r m . C o n s i d e r t w o perfectly legal acts o f
social i r r e s p o n s i b i l i t y u n c o v e r e d b y t h e M E R / 2 9 i n v e s t i g a t i o n s .

W h e n d o c t o r s a t t h e M a y o C l i n i c i n M i n n e s o t a a s k e d for t h e
n e c e s s a r y f o r m s to r e p o r t to C i n c i n n a t i a b o u t side effects,
M c M a s t e r sent a l o n g only t w o ; t h e d o c t o r s a t M a y o w r o t e b a c k
a s k i n g for a t least t h r e e m o r e . ' Y o u have u n d e r - e s t i m a t e d u s , '
t h e y told M c M a s t e r j o k i n g l y ( U n g a r , 1973: 103).

64
Safety testing of drugs: from negligence to fraud

G i v e n w h a t is k n o w n a b o u t h o w easy it is to d i s c o u r a g e d o c t o r s
from m a k i n g a d v e r s e d r u g r e a c t i o n r e p o r t s , * this m i n o r act of social
i r r e s p o n s i b i l i t y c a n be a small part of a p a t t e r n of neglect. T h e same
c o u l d be said o f t h e following perfectly legal, and on its own trivial,
abuse.

At about the same t i m e , the name o f t h e man who supervised


M e r r e l l ' s s a l e s m e n in t h e field b e g a n to be d e l e t e d from t h e list of
p e o p l e r e c e i v i n g interoffice c o r r e s p o n d e n c e a l l u d i n g t o t h e
p o s s i b l e harmful c o n s e q u e n c e s o f M E R / 2 9 . T h e M e r r e l l official
w h o left t h e n a m e off said he did so b e c a u s e t h e i n f o r m a t i o n
' m i g h t be a little d i s c o u r a g i n g ' to t h e sales s u p e r v i s o r ( U n g a r ,
1 9 7 3 : 104).

Thalidomide

A b o u t 8000 t h a l i d o m i d e c h i l d r e n are alive t o d a y i n 4 6 c o u n t r i e s


a r o u n d t h e w o r l d . P e r h a p s twice t h a t n u m b e r died at birth as a
result o f t h e d r u g . S o m e o f t h e t h a l i d o m i d e c h i l d r e n h a v e n o a r m s ,
j u s t flippers from t h e s h o u l d e r s ; o t h e r s are w i t h o u t legs as well -
l i m b l e s s t r u n k s , j u s t a h e a d and a b o d y . T h e physical h o r r o r of
t h a l i d o m i d e was in some ways matched by horrible impacts on the
social fabric of so m a n y families. M o t h e r s in p a r t i c u l a r w e r e tragic
v i c t i m s . O n e h u s b a n d told his wife: i f you bring t h a t m o n s t e r
h o m e , I l e a v e . ' She d i d , and he left h e r , like m a n y o t h e r thali-
d o m i d e fathers.

' T h e y d i d n ' t a l l o w me to see h i m , b e c a u s e they said I w a s t o o ill,'


says F l o r e n c e E v a n s , w h o s e son L i a m is blind and has no a r m s .
" W h e n t h e y gave him to m e , his face w a s split, h a n g i n g a p a r t like
on a b u t c h e r ' s s l a b . T h e d o c t o r w a s crying and said my baby
w o u l d n ' t live. B u t h e d i d , and t w o w e e k s later t h e y sent him h o m e
w i t h his face s t i t c h e d u p . He w a s my o w n flesh and b l o o d and had
to be c a r e d for. I d i d n ' t cry o u t w a r d l y , b u t inside I s c r e a m e d . E v e
n e v e r left t h e h o u s e on my own from t h a t day s i n c e ' ( K n i g h t l e y et
a l . , 1979: 114).

T h e l e s s o n s from t h a l i d o m i d e a r e m a n y . T h e m o s t i m p o r t a n t o f
all c o n c e r n s t h e n e e d for i n t e r n a t i o n a l e x c h a n g e of i n f o r m a t i o n on
a d v e r s e r e a c t i o n and t h e a b o l i t i o n o f t r a d e n a m e s for d r u g s . I n t h e
early 1960s w h e n t h e a d v e r s e effects of t h a l i d o m i d e w e r e b e i n g
discussed, so i n a d e q u a t e was the international c o m m u n i c a t i o n

65
Safety testing of drugs: from negligence to fraud

a m o n g d r u g r e g u l a t o r y a g e n c i e s t h a t c o m p a n i e s could for s o m e
t i m e i s o l a t e bad n e w s a b o u t a d r u g to t h e c o u n t r y w h e r e t h e
u n t o w a r d r e s e a r c h a p p e a r e d . H e n c e several h u n d r e d t h a l i d o m i d e
b a b i e s w e r e b o r n in J a p a n d u r i n g t h e p e r i o d of o v e r a y e a r w h e n
sales c o n t i n u e d t h e r e after t h e p r o d u c t had b e e n w i t h d r a w n from
t h e m a r k e t i n E u r o p e . I n Italy t h a l i d o m i d e r e m a i n e d o n the m a r k e t
for ten m o n t h s after w i t h d r a w a l in t h e rest of E u r o p e , and in
C a n a d a for t h r e e m o n t h s .
T h e m o r e t h a n fifty different t r a d e n a m e s u n d e r w h i c h thali-
d o m i d e w a s m a r k e t e d i n different c o u n t r i e s w a s the single most
i m p o r t a n t factor in d e l a y i n g an i m m e d i a t e halt to sales ( T a u s s i g ,
1963). Dr P e r O l a v L u n d b e r g w r o t e in an article in t h e Swedish
Medical Journal, 1965:

At t h e e n d o f N o v e m b e r 1961 s o m e of my c o l l e a g u e s at t h e
A c a d e m i c H o s p i t a l ( U p p s a l a ) w e r e sitting r e a d i n g a small notice
in a S t o c k h o l m n e w s p a p e r c o n c e r n i n g a G e r m a n drug called
C o n t e r g a n , w h i c h at a r e c e n t c o n g r e s s had b e e n r e p o r t e d to have
a p o s s i b l e t e r a t o g e n i c a c t i o n . We n a t u r a l l y w a n t e d to k n o w if this
w a s s o m e t h i n g to r e m e m b e r and if t h e d r u g in q u e s t i o n existed in
S w e d e n . A t e l e p h o n e call to a c h e m i s t r e s u l t i n g in an i n t e n s i v e
s t u d y o f t h e l i t e r a t u r e gave u s t h e a n s w e r : n e i t h e r C o n t e r g a n nor
any s i m i l a r d r u g s e e m e d t o exist i n o u r c o u n t r y . U n f o r t u n a t e l y ,
this w a s not t r u e ( S j o s t r o m and N i l s s o n , 1972: 132).

T h a l i d o m i d e , w h i c h had b e e n m a r k e t e d a s C o n t e r g a n i n
G e r m a n y , w a s sold i n S w e d e n a s N e u r o s e d y n and N o x i d y n . W h e n
t h a l i d o m i d e w a s w i t h d r a w n i n S w e d e n , t h e a u t h o r i t i e s did not w a r n
m o t h e r s a g a i n s t using pills a l r e a d y r e l e a s e d . C o n s e q u e n t l y a t least
five b a b i e s w e r e b o r n n e e d l e s s l y c r i p p l e d . T h e S w e d i s h m a n u -
f a c t u r e r of t h a l i d o m i d e a l l o w e d t h e p r o d u c t to be sold in A r g e n t i n a
for t h r e e m o n t h s after it had b e e n w i t h d r a w n in S w e d e n .
In a b o o k p u b l i s h e d in July 1976 T e f f a n d M u n r o r e p o r t e d that as
r e c e n t l y as M a r c h 1976 thirty t h a l i d o m i d e t a b l e t s had t u r n e d up in a
West Sussex c a m p a i g n to return unused medicines. Investigative
j o u r n a l i s t s p l a y e d a m o r e i m p o r t a n t role t h a n h e a l t h r e g u l a t o r y
a u t h o r i t i e s in m a n y p a r t s of the w o r l d in saving c h i l d r e n from
thalidomide.

A n a l e r t B r a z i l i a n r e p o r t e r had a s u s p i c i o n t h a t t h a l i d o m i d e w a s
b e i n g sold in p h a r m a c i e s in his o w n large city, Sao P a u l o , b e c a u s e
h e h a d s u d d e n l y b e c o m e a w a r e o f n u m b e r s o f limbless n e w b o r n s .

66
Safety testing of drugs: from negligence to fraud

U p o n i n q u i r y , h o w e v e r , h e w a s told b y a u t h o r i t i e s t h a t
t h a l i d o m i d e w a s n o t b e i n g sold in Sao P a u l o . He p e r s i s t e d in his
q u e s t i o n i n g , a n d d i s c o v e r e d that t h a l i d o m i d e w a s i n d e e d b e i n g
w i d e l y sold b u t t h a t it w a s k n o w n to t h e p u b l i c and t h e
' a u t h o r i t i e s ' only b y its b r a n d n a m e s : Slip®. O n d a s i l ® . V e r d i l ® .
S e d i n ® . a n d S e r a l i s ® . W h e n this w a s m a d e k n o w n , 2.5 million
t a b l e t s c o n t a i n i n g t h a l i d o m i d e i n p h a r m a c i e s and p h a r m a c e u t i c a l
factories in Sao P a u l o w e r e confiscated by officials. C o u n t l e s s
c h i l d r e n and t h e i r p a r e n t s m u s t a l w a y s be grateful to that
i n q u i s i t i v e r e p o r t e r ( B u r a c k , 1976: 7 0 - 1 ) .

L e t u s r e t u r n t o t h e b e g i n n i n g o f t h e t h a l i d o m i d e story. T h e d r u g
w a s d i s c o v e r e d i n t h e 1950s b y t h e G e r m a n c o m p a n y , C h e m i e
G r u n e n t h a l . T h a l i d o m i d e w a s basically t o b e used a s a n h y p n o t i c
( s l e e p i n g pill) a n d t r a n q u i l l i s e r . E a r l y clinical trials w e r e u n s a t i s -
factory a n d t h e r e w e r e n o d o u b l e blind t e s t s ( w h e r e n e i t h e r d o c t o r
nor p a t i e n t k n o w s w h a t d r u g t r e a t m e n t t h e p a t i e n t i s r e c e i v i n g ) .
I n s t e a d i t s e e m s t h a t t h e c o m p a n y relied o n w h a t w e r e i m p r e s s i o n -
istic t e s t i m o n i a l s from clinicians such as Dr J u n g :

Dr J u n g w a s on a r e t a i n e r of a b o u t DM 2 0 0 a m o n t h ( t h e n a b o u t
$ 6 0 ) from G r u n e n t h a l . In a clinic in C o l o g n e , he had given
t h a l i d o m i d e to t w e n t y p a t i e n t s , for only four w e e k s . Yet his
a d m i r a t i o n for t h e d r u g a p p e a r e d o v e r w h e l m i n g .
He h a d , for e x a m p l e , used it on four y o u t h s w h o w e r e suffering
from m o r a l t e n s i o n as t h e result of m a s t u r b a t i o n . In confidential
c h a t s , t h e y had r e v e a l e d t o him t h a t after t a k i n g t h a l i d o m i d e their
d e s i r e t o m a s t u r b a t e had d e c r e a s e d , t h e i r m o r a l t e n s i o n had
e v a p o r a t e d , and t h e y felt m u c h b e t t e r . A l s o , said D r J u n g ,
t h a l i d o m i d e had cured p r e m a t u r e ejaculation in a n u m b e r of
married patients w h o s e wives were reported to have expressed
g r e a t s a t i s f a c t i o n w i t h t h e r e s u l t s . On t h e basis of his t r i a l s , Dr
J u n g r e p o r t e d t o G r u n e n t h a l a t t h e b e g i n n i n g o f J u n e 1955 t h a t
he c o n s i d e r e d t h a l i d o m i d e ready to be m a r k e t e d (Knightley et
al., 1979:26).

Y e t , as G r u n e n t h a l g a t h e r e d its g l o w i n g t e s t i m o n i a l s from s u b -
s e r v i e n t d o c t o r s , o t h e r p h y s i c i a n s w e r e informing t h e c o m p a n y ,
e v e n b e f o r e t h e d r u g w a s p l a c e d o n t h e m a r k e t , o f side-effects
which included giddiness, nausea, constipation, a 'hangover',
w a k e f u l n e s s a n d an allergic r e a c t i o n . In spite of t h i s , G r u n e n t h a l
l a u n c h e d t h a l i d o m i d e with a n a d v e r t i s i n g c a m p a i g n a i m e d a t selling

67
Safety testing of drugs: from negligence to fraud

it over the c o u n t e r in p h a r m a c i e s rather than by prescription.


P r o m o t i o n a l m a t e r i a l p o i n t e d out t h a t t h a l i d o m i d e w a s "completely
n o n - p o i s o n o u s . . . safe . . . a s t o n i s h i n g l y safe . . . n o n - t o x i c . . .
fully h a r m l e s s . . .' a n d e v e n that it c o u l d be t a k e n in h i g h e r d o s e s
t h a n r e c o m m e n d e d w i t h o u t any d a n g e r ( K n i g h t l e y e t a l . , 1 9 7 9 : 2 8 ) .
It w a s G r i i n e n t h a l ' s claim to h a v e m a d e a scientific b r e a k t h r o u g h
in p r o d u c i n g a ' c o m p l e t e l y safe* s e d a t i v e w h i c h p r o d u c e d s t a g g e r i n g
s a l e s . N o s e d a t i v e had e v e r b e e n called ' c o m p l e t e l y safe'. C o m p a n y
s a l e s staff w e r e i n s t r u c t e d to use lines such as in h o s p i t a l s , r e g u l a r
t e s t s on p a t i e n t s of t h a l i d o m i d e are s u p e r f l u o u s . ' B e t w e e n 1958 and
1960 d o c t o r s b e g a n r e p o r t i n g a m u c h m o r e s e r i o u s side-effect of
5
t h a l i d o m i d e - p e r i p h e r a l n e u r i t i s . G n i n e n t h a l scientists lied in
t h e i r r e p l i e s t o p h y s i c i a n s w h o w r o t e i n with r e p o r t s o f p e r i p h e r a l
n e u r i t i s . T o D r G u s t a v S c h m a l t z i n D e c e m b e r 1958 the c o m p a n y
r e p l i e d , ' W e feel o b l i g e d to say that this is t h e first t i m e such side
effects h a v e b e e n r e p o r t e d to us. . . . ' T o Dr Ralf V o s s in O c t o b e r
1959, ' H a p p i l y we can tell you t h a t such d i s a d v a n t a g e o u s effects
h a v e n o t b e e n b r o u g h t t o our n o t i c e ' ( K n i g h t l e y e t al., 1 9 7 9 : 2 8 - 3 0 ) .

By e a r l y 1960 t h e v o l u m e of c o m p l a i n t s from p h y s i c i a n s and sales


r e p r e s e n t a t i v e s in t h e field w a s such t h a t G r i i n e n t h a l w a s c o m i n g to
g r i p s w i t h t h e fact t h a t the a d v e r s e effects w o u l d have to be
r e s p o n d e d t o i n a m o r e formal w a y . A n i n t e r n a l m e m o r a n d u m
w a r n e d : ' S o o n e r or l a t e r we will not be able to stop p u b l i c a t i o n of
t h e side effects of C o n t e r g a n . We are t h e r e f o r e a n x i o u s to get as
many positive pieces ofwork as possible.'

O n M a r c h 3 0 , 1960, a G r i i n e n t h a l r e p r e s e n t a t i v e r e p o r t e d that
initial a p p r o a c h e s to a d o c t o r in I r a n had b e e n unsuccessful.
' H o w e v e r , since t h e I r a n i a n d o c t o r is very m a t e r i a l i s t i c in his
o u t l o o k , c o n c r e t e r e s u l t s should b e f o r t h c o m i n g s o o n . ' . . . w h a t
G r i i n e n t h a l w a n t e d a b o v e all w a s quick r e s u l t s . T h e c o m p a n y
s p e l l e d o u t its policy on trials in a letter to t h e P o r t u g u e s e
l i c e n s e e , F i r m a P a r a c e l s i a , o f O p o r t o : ' T o b e quite clear a b o u t it:
a q u i c k p u b l i c a t i o n , p e r h a p s in t h r e e m o n t h s , with the r e p o r t s of
fifteen t o t w e n t y successful c a s e s w h o h a v e t o l e r a t e d the d r u g
w e l l , is m o r e i m p o r t a n t to us t h a n a b r o a d l y b a s e d , large w o r k
t h a t will not a p p e a r for eight t o t w e l v e m o n t h s . F r o m t h i s , you
can see w h a t kind of t e s t e r s we h a v e in m i n d . '

T h e e x p e r i e n c e o f t h e d o c t o r i n c a r r y i n g out clinical trials


s e e m e d t o m a t t e r little. O n e , D r K o n r a d L a n g , had n e v e r
p r e v i o u s l y t e s t e d a d r u g before it c a m e on t h e m a r k e t but

68
Safety testing of drugs: from negligence to fraud

u n d e r t o o k to try t h a l i d o m i d e on c h i l d r e n at t h e U n i v e r s i t y C l i n i c ,
B o n n . F o r t y c h i l d r e n , m o s t o f w h o m had brain d a m a g e , w e r e
g i v e n t h e d r u g u n d e r Dr L a n g ' s s u p e r v i s i o n for p e r i o d s of up to
n i n e w e e k s without the permission or knowledge of their parents.
The doses w e r e ten to twenty times higher than Griinenthal's
r e c o m m e n d e d d o s e for a d u l t s . O n e child had a c i r c u l a t o r y
c o l l a p s e , o n e child died from a c o n g e n i t a l h e a r t d e f e c t , a t w e n t y -
o n e - m o n t h - o l d b a b y w i t h c o n v u l s i v e d i s o r d e r s lost her vision
t e m p o r a r i l y , and a t h r e e - m o n t h - o l d baby died from h e a r t failure.
D r L a n g c o n s i d e r e d i t very q u e s t i o n a b l e t h a t any o f t h e s e
r e a c t i o n s w a s c o n n e c t e d with t h a l i d o m i d e , and r e p o r t e d t o t h e
c o m p a n y : in g e n e r a l t e r m s C o n t e r g a n could be d e s c r i b e d as a
r a p i d - a c t i n g s e d a t i v e p a r t i c u l a r l y suited for use with c h i l d r e n '
( K n i g h t l e y e t a l . , 1979: 3 4 - 5 ) .

V e r y different t r e a t m e n t a w a i t e d d o c t o r s w h o p l a n n e d t o publish
unfavourable reports about thalidomide. One company memor-
a n d u m s h o w e d h o w a r e p o r t o n p e r i p h e r a l n e u r i t i s from t h a l i d o -
m i d e s u b m i t t e d b y o n e d o c t o r w a s held u p : ' T h e friendly c o n n e c t i o n
w i t h [ t h e e d i t o r o f t h e j o u r n a l ] c o n t r i b u t e d t o t h e delay i n t r e a t m e n t
o f t h e s u b m i t t e d m a n u s c r i p t . ' W h e n t h e possibility o f legal c o n s e -
q u e n c e s from t h e p r o m o t i o n o f t h e i r ' c o m p l e t e l y safe' d r u g b e c a m e
c l e a r , t h e g a m e o f h a r a s s i n g clinicians w h o p r o d u c e d u n f a v o u r a b l e
r e p o r t s b e g a n in e a r n e s t . G r i i n e n t h a l hired a p r i v a t e d e t e c t i v e to
r e p o r t on hostile physicians. The detective m a d e notes on the
p r i v a t e lives a n d family c i r c u m s t a n c e s o f c e r t a i n p h y s i c i a n s . O n e
r e p o r t says: ' T h e father o f D r B . i s a n e x - c o m m u n i s t and n o w a d a y s
a m e m b e r o f S E D ' ( S j o s t r o m and N i l s s o n , 1972: 6 9 ) .

D i s t i l l e r s b o u g h t t h e licence t o m a r k e t t h a l i d o m i d e i n G r e a t
B r i t a i n . T h e c o m p a n y w a s p r i m a r i l y a h u g e spirits and liquor m a n u -
f a c t u r e r . K n o w l e d g e o f side-effects from t h a l i d o m i d e c a m e later t o
D i s t i l l e r s ' a t t e n t i o n t h a n with G r i i n e n t h a l . B u t w h e n a n a w a r e n e s s
did b e g i n , it w a s s u p p r e s s e d , j u s t as in t h e c a s e of G r u n e n t h a l . By
F e b r u a r y 1961 d o z e n s o f c a s e s o f p e r i p h e r a l n e u r i t i s had b e e n
b r o u g h t to Distillers' attention. The company began to consider
p u t t i n g 'a little m 6 r e e m p h a s i s ' on t h e risk of p e r i p h e r a l n e u r i t i s 'in
t h e h o p e t h a t t h e n u m b e r o f cases will d i m i n i s h i f d o c t o r s are a w a r e
o f t h e p o s s i b i l i t y ' . D i s t i l l e r s ' sales p e o p l e w e r e not a l t o g e t h e r
e n t h u s i a s t i c a b o u t this idea. O n e sales e x e c u t i v e , J . P a t o n , w r o t e :
it is not o u r j o b to e d u c a t e t h e m e d i c a l p r o f e s s i o n how to look out
for v a r i o u s c o n d i t i o n s . F r o m a sales p r o m o t i o n point of v i e w , t h e

69
Safety testing of drugs: from negligence to fraud

m o r e we w r i t e on this side effect, the m o r e it is likely to get out of


p e r s p e c t i v e . ' S o t h e sales r e p r e s e n t a t i v e s w e r e i n s t r u c t e d : ' [ T h e ]
p o s s i b l e o c c u r r e n c e of p e r i p h e r a l n e u r i t i s is a r e m o t e o n e and in no
way d e t r a c t s from t h e m a i n selling p o i n t of D i s t a v a l . . . . It has a
t o x i c effect of w h i c h you s h o u l d be a w a r e . . . but t h e r e is no need to
a l a r m t h e m e d i c a l p r o f e s s i o n or d i s c u s s t h e m a t t e r unless it is
raised.'
It w a s in t h e A u s t r a l i a n subsidiary of D i s t i l l e r s t h a t the g r e a t e s t
o p p o r t u n i t y t o curtail t h e t h a l i d o m i d e d i s a s t e r w a s m i s s e d . B y early
1961 a y o u n g S y d n e y o b s t e t r i c i a n , Dr W i l l i a m M c B r i d e , w a s con-
v i n c e d of a c o n n e c t i o n b e t w e e n t h a l i d o m i d e and bizarre birth
d e f e c t s . By July 1961 at least t w o and possibly six A u s t r a l i a n
Distillers' e m p l o y e e s knew that Dr M c B r i d e suspected thalidomide
of causing deformed births. Yet no word ofthis reached the L o n d o n
h e a d office o f D i s t i l l e r s until 2 1 N o v e m b e r , m o r e t h a n four m o n t h s
l a t e r . I n t e r e s t i n g l y , o n e o f t h e six A u s t r a l i a n D i s t i l l e r s ' e m p l o y e e s
w h o k n e w a b o u t t h e M c B r i d e findings w a s J o h n B i s h o p , a sales
r e p r e s e n t a t i v e in S o u t h A u s t r a l i a . B i s h o p had b e e n told by o n e of
his s u p e r i o r s in m i d - 1 9 6 1 t h a t ' W e ' v e had a r e p o r t from a d o c t o r in
S y d n e y a b o u t D i s t a v a l a b n o r m a l i t i e s i n t h e f o e t u s . ' B i s h o p recalls
t h a t his s u p e r i o r ' w a s clearly w o r r i e d . H e w a s not t a k i n g the m a t t e r
l i g h t l y ' ( K n i g h t l e y e t a l . , 1979: 9 0 ) . N o r w a s B i s h o p t a k i n g t h e
m a t t e r lightly, b e c a u s e h e had given t h a l i d o m i d e t o calm the n e r v e s
of his p r e g n a n t wife.

A m o n t h l a t e r B i s h o p ' s child w a s b o r n w i t h six digits on o n e h a n d .


B o t h h a n d s w e r e a t a n u n e v e n angle a t t h e wrist j o i n t , t u r n i n g
i n w a r d s a c r o s s t h e b o d y . B i s h o p m a d e t h e link b e t w e e n t h a l i d o -
m i d e a n d t h e d e f o r m i t i e s w h e n h e r e c a l l e d t h e earlier c o n v e r s a t i o n
w i t h his s u p e r i o r . T h e child later b e c a m e a r e c i p i e n t of c o m p e n s a -
tion from D i s t i l l e r s . In spite o f t h i s kind of p e r s o n a l i n t e r e s t , h e a d -
q u a r t e r s w a s not i n f o r m e d for four m o n t h s .
W h e n w o r d o f t h e M c B r i d e f i n d i n g s finally did g o t o L o n d o n i n
N o v e m b e r 1 9 6 1 , t h e r e c i p i e n t o f t h e bad n e w s a t h e a d q u a r t e r s w a s
a n e x p o r t m a n a g e r for A u s t r a l i a , J o h n F l a w n . F l a w n also had given
his p r e g n a n t wife t h a l i d o m i d e t o h e l p h e r s l e e p .

A l e x a n d e r F l a w n , b o r n o n J a n u a r y 9 , 1962, w a s o n e o f t h e
w o r s t - d a m a g e d t h a l i d o m i d e c h i l d r e n in B r i t a i n . He had a
d e f o r m e d and s h o r t e n e d a r m w i t h a h a n d w i t h o u t a t h u m b . T h e
o t h e r h a n d had o n e e x t r a finger. H i s p a l a t e had a g a p i n g hole in it.
H i s face w a s p a r a l y s e d o n o n e side. O n e ear w a s c o m p l e t e l y

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Safety testing of drugs: from negligence to fraud

m i s s i n g , t h e o t h e r grossly d e f o r m e d . F o r t h e first e i g h t e e n
m o n t h s of his life, he v o m i t e d his food a c r o s s t h e r o o m with
p r o j e c t i l e - l i k e f o r c e . It soon b e c a m e c l e a r that his brain w a s
d a m a g e d , t h a t he w a s d e a f and d u m b , and had p o o r vision in his
left e y e . ' W h e n A l e x w a s b o r n , I was frightfully b r a v e , ' said
J u d i t h F l a w n . i cut off all my feelings. T h i s w a s a t e r r i b l e m i s t a k e
b e c a u s e I d i d n ' t c o m e alive a g a i n for s e v e n y e a r s ' ( K n i g h t l e y et
a l . , 1979: 112).

That certain organisational actors in the events which delayed the


w i t h d r a w a l of t h a l i d o m i d e were personal victims o f t h e tragedy is
i n s t r u c t i v e . I n d i v i d u a l s in t h e i r o r g a n i s a t i o n a l r o l e s can be part of a
w h o l e , w h i c h t h e y w o u l d in no way c h o o s e to p a r t i c i p a t e in w e r e
that whole apparent to them.
T h e m a n y h u n d r e d s o f f o e t u s e s d a m a g e d d u r i n g the second half
of 1961 m i g h t h a v e b e e n saved w e r e it not for a n o t h e r u n f o r t u n a t e
c i r c u m s t a n c e . M c B r i d e ' s crucial p a p e r o n t h a l i d o m i d e and birth
d e f o r m i t i e s had b e e n s u b m i t t e d t o t h e p r e s t i g i o u s British j o u r n a l .
The Lancet. In S e p t e m b e r t h e p a p e r w a s r e t u r n e d - by surface mail!
(a discourtesy A u s t r a l i a n academics frequently have to tolerate
from i n t e r n a t i o n a l j o u r n a l s . ) 'A c o v e r i n g l e t t e r d a t e d July 13 and
s i g n e d b y t h e a s s i s t a n t e d i t o r said t h a t a l t h o u g h M c B r i d e ' s t h e o r y
about t h a l i d o m i d e was interesting, pressure to publish important
p a p e r s w a s such t h a t t h e r e w a s no s p a c e for this c o n t r i b u t i o n . . .
( M c B r i d e ' s p a p e r w a s e v e n t u a l l y p u b l i s h e d , a s part o f a n o t h e r , i n
1963 in t h e Medical]ournal ofAustralia.X ( K n i g h t l e y et a l . , 1979:
91).

O n t h e o t h e r side o f t h e w o r l d , P r o f e s s o r L e n z o f H a m b u r g
U n i v e r s i t y had r e a c h e d t h e s a m e c o n c l u s i o n s a s M c B r i d e . O n 2 6
N o v e m b e r 1961 t h e m a s s c i r c u l a t i o n n e w s p a p e r Welt am Sonntag
t o o k u p L e n z ' s f i n d i n g s with t h e h e a d l i n e : M A L F O R M A T I O N S
F R O M T A B L E T S - A L A R M I N G SUSPICION OF PHYSI-
CIAN'S GLOBALLY DISTRIBUTED DRUG. Grunenthal
a t t a c k e d L e n z a n d t h e Welt am Sonntag article as s e n s a t i o n a l i s t , yet
w i t h d r e w t h a l i d o m i d e from t h e G e r m a n m a r k e t ' B e c a u s e press
r e p o r t s h a v e u n d e r m i n e d t h e basis of scientific d i s c u s s i o n . . . .'
T h a l i d o m i d e w a s n e v e r a p p r o v e d for m a r k e t i n g i n t h e U n i t e d
S t a t e s t h a n k s t o t h e c a u t i o n o f F D A scientist D r F r a n c e s K e l s e y ,
w h o w a s h o n o u r e d b y P r e s i d e n t K e n n e d y for saving t h e n a t i o n from
t h e d i s a s t e r . C a u t i o u s r e g u l a t o r s in F r a n c e and Israel also refused to
a p p r o v e the drug.

71
Safety testing of drugs: from negligence to fraud

In spite of t h e fact t h a t t h a l i d o m i d e was not a p p r o v e d in the


U n i t e d S t a t e s , t h e A m e r i c a n c o m p a n y w h i c h w a s licensed b y
G r i i n e n t h a l Richardson-Merrell of M E R / 2 9 fame, distributed two
a n d a half million t a b l e t s to 1,267 d o c t o r s , w h o gave t h e m to s o m e
20.(MX) p a t i e n t s . T h i s w a s s u p p o s e d l y all part of R i c h a r d s o n -
M e r r e l l ' s clinical t e s t i n g p r o g r a m m e i n t h e U n i t e d S t a t e s . A l t h o u g h
t h e m e d i c a l d e p a r t m e n t had t h e right o f v e t o , t h e d o c t o r s t o b e
offered t h a l i d o m i d e w e r e c h o s e n b y t h e sales r e p r e s e n t a t i v e s .
S a l e s m e n w e r e told not to offer p l a c e b o s , only to p r o v i d e t h e m if
t h e d o c t o r r e q u e s t e d t h e m . W h a t this a d d s u p t o i s t h a t R i c h a r d s o n -
M e r r e l l w a s not i n t e r e s t e d in g e n u i n e clinical t e s t i n g but in soften-
ing up t h e m a r k e t by i n t e r e s t i n g influential p h y s i c i a n s in t h e
p r o d u c t . T h e s t r a t e g y w a s t o flatter key d o c t o r s b y telling t h e m that
t h e y had b e e n specially selected to pilot the m i r a c l e new p r o d u c t .
T h e y w e r e told t h a t it really did not m a t t e r very m u c h if they did not
k e e p r e c o r d s o f t h e i r clinical trials.

A t least t e n t h a l i d o m i d e c h i l d r e n w e r e b o r n i n the U n i t e d S t a t e s .
The m o r e sophisticated Richardson-Merrell pharmacologists were
guilty of m a n y sins of o m i s s i o n . T h e y k n e w that a drug like thali-
d o m i d e c o u l d c r o s s the p l a c e n t a l b a r r i e r . "Yet k n o w i n g that thali-
d o m i d e might affect t h e f o e t u s , R i c h a r d s o n - M e r r e l l did no a n i m a l
r e p r o d u c t i o n t e s t s o r c o n t r o l l e d clinical trials o n m o t h e r s d u r i n g t h e
s e n s i t i v e p e r i o d of p r e g n a n c y to see w h e t h e r in fact it did'
( K n i g h t l e y et a l . , 1979: 7 2 ) . T h e r e w e r e sins of c o m m i s s i o n as well.
T h e clinical d a t a w h i c h w e r e p r e s e n t e d to F D A in its s u b m i s s i o n for
a p p r o v a l of t h a l i d o m i d e w e r e m i s l e a d i n g and c o n c o c t e d in a variety
o f w a y s . O n e crucial p a p e r w r i t t e n b y i n d e p e n d e n t p h y s i c i a n , D r
R a y O. N u l s e n of O h i o , w a s in fact w r i t t e n by t h e m e d i c a l d i r e c t o r
of R i c h a r d s o n - M e r r e l l .

By D e c e m b e r 1 9 6 1 , t h e law, so it s e e m e d , had b e g u n to catch up


w i t h G r u n e n t h a l . T h e public p r o s e c u t o r ' s office i n A a c h e n .
G e r m a n y , b e g a n a n i n v e s t i g a t i o n w h i c h lasted four y e a r s , t o d e t e r -
m i n e w h e t h e r c r i m i n a l c h a r g e s should be laid. On 2 S e p t e m b e r 1965
t h e p r o s e c u t o r d r e w up a p r e l i m i n a r y bill of i n d i c t m e n t c h a r g i n g
n i n e G r u n e n t h a l e x e c u t i v e s with i n t e n t t o c o m m i t bodily h a r m and
i n v o l u n t a r y m a n s l a u g h t e r . T h e full bill of i n d i c t m e n t t o o k a n o t h e r
two years to compile.
On 27 M a y 1968 t h e trial b e g a n w i t h G r u n e n t h a l d e f e n d i n g its
e x e c u t i v e s b y a r g u i n g t h a t u n d e r G e r m a n law a n u n b o r n baby had
no legal p r o t e c t i o n e x c e p t in c o n n e c t i o n with c r i m i n a l a b o r t i o n .
P r e d i c t a b l y , it w a s also able to p r o d u c e a string of e x p e r t w i t n e s s e s

72
Safety testing of drugs: from negligence to fraud

w h o a r g u e d t h a t t h e r e w a s n o c o n c l u s i v e p r o o f that t h a l i d o m i d e
c a u s e d birth deformities.
T h e trial a n d its a t t e n d a n t publicity w a s bitter. On 26 M a y 1970
t h e p r o s e c u t i o n c o m p l a i n e d t o t h e c o u r t t h a t five j o u r n a l i s t s had
b e e n t h r e a t e n e d w i t h ' r e p r i s a l s ' b y G r u n e n t h a l for w r i t i n g stories
w h i c h did not m e e t with the c o m p a n y ' s a p p r o v a l . I t b e g a n t o a p p e a r
t h a t t h e trial w o u l d go on for ever. T h i s suited G r u n e n t h a l . T h e i r
t a c t i c w a s t o s u g g e s t ( c o r r e c t l y ) that the p r o t r a c t e d criminal pro-
ceedings were holding up out-of-court settlement of compensation
c l a i m s for t h e t h a l i d o m i d e families. G r u n e n t h a l d e c l a r e d : i f w e
w a i t to see w h e r e t h e trial gets us, we shall still be sitting here in ten
y e a r s ' t i m e a n d t h e c h i l d r e n will h a v e n o t h i n g . I f w e are forced t o ,
we shall fight to t h e e n d , and t h a t , of c o u r s e , will diminish the
r e s o u r c e s a v a i l a b l e for any p a y m e n t b y t h e c o m p a n y . "

A m i d a t t a c k s from t h e p r e s s o f ' j u s t i c e for sale", on 18 D e c e m b e r


1970, t w o y e a r s a n d s e v e n m o n t h s after t h e trial had b e g u n , a
b a r g a i n w a s s t r u c k . T h e c o u r t , w i t h t h e explicit a g r e e m e n t o f t h e
p r o s e c u t i o n , s u s p e n d e d t h e c r i m i n a l h e a r i n g and G r u n e n t h a l
a g r e e d to pay $31 million in c o m p e n s a t i o n to the G e r m a n thali-
d o m i d e c h i l d r e n . T h e c o m p a n y and its officers had b e e n n e i t h e r
a c q u i t t e d nor found guilty.
T h e G e r m a n s e t t l e m e n t set t h e p a t t e r n for t h e rest o f t h e w o r l d .
In spite of all t h e w r o n g d o i n g a s s o c i a t e d with t h e t h a l i d o m i d e affair,
n o t h i n g a n y w h e r e i n t h e w o r l d w a s e v e r , t o this w r i t e r ' s k n o w l e d g e ,
s e t t l e d in a c o u r t of c r i m i n a l or civil j u r i s d i c t i o n . No o n e could put a
figure o n t h e m a n y h u n d r e d s o f millions o f d o l l a r s w h i c h h a v e b e e n
p a i d a r o u n d t h e w o r l d i n o u t - o f - c o u r t s e t t l e m e n t s . O n e r e a s o n for
t h i s i s t h a t p h a r m a c e u t i c a l c o m p a n i e s often i m p o s e d the c o n d i t i o n
t h a t t h e s e t t l e m e n t r e m a i n s e c r e t . T h e p u r p o s e o f such a c o n d i t i o n
w a s to k e e p o t h e r victims in the dark about what was possible. In
Q u e b e c R i c h a r d s o n - M e r r e l l s e e m e d t o have a c h i e v e d a great
v i c t o r y t h r o u g h its i m p o s i t i o n of a s e c r e t i v e n e s s c o n d i t i o n u p o n all
s e t t l e m e n t s . T h e p a r e n t s o f 2 6 t h a l i d o m i d e victims i n Q u e b e c did
n o t b e c o m e a w a r e of t h e possibility of civil action against the
c o m p a n y until after t h e t w e l v e m o n t h s ' s t a t u t e o f l i m i t a t i o n s
o n p e r s o n a l - i n j u r y c a s e s i n Q u e b e c had e x p i r e d . F o r t u n a t e l y ,
h o w e v e r , s o m e i n t e r n a t i o n a l legal m a n o e u v r e s by a lawyer
r e p r e s e n t i n g t h e s e c l i e n t s e n t i c e d R i c h a r d s o n - M e r r e l l t o settle with
them.

It would seem that the c o m p a n i e s ' strategy of quiet, out-of-court


s e t t l e m e n t has b e e n p r u d e n t . I n t h e only t h a l i d o m i d e case e v e r t o

73
Safety testing of drugs: from negligence to fraud

go to a j u r y d e c i s i o n , R i c h a r d s o n - M e r r e l l w a s found negligent and


t h e j u r y a w a r d e d t h e plaintiff $ 5 5 0 , 0 0 0 m o r e t h a n her lawyers had
a s k e d for." R i c h a r d s o n - M e r r e l l set in train an a p p e a l , and ultimately
t h i s c a s e w a s also r e s e t t l e d o u t - o f - c o u r t for an u n d i s c l o s e d s u m .
T h e c o m p a n i e s i n v o l v e d h a v e suffered significant s e t b a c k s as a
r e s u l t o f t h e i r i n v o l v e m e n t with t h a l i d o m i d e . C h e m i e G r u n e n t h a l
has n e v e r r e c o v e r e d t h e i m p o r t a n t p o s i t i o n i t had i n the G e r m a n
p h a r m a c e u t i c a l i n d u s t r y p r i o r t o t h e t r a g e d y . Distillers pulled out o f
t h e p h a r m a c e u t i c a l b u s i n e s s in 1962. selling its a s s e t s to Eli Lilly.
R i c h a r d s o n - M e r r e l l s t o c k s p l u m m e t e d o n the N e w Y o r k stock
e x c h a n g e a t t h e t i m e o f t h e M E R / 2 9 and t h a l i d o m i d e c r i s e s , and
b e t w e e n 1961 and 1964 its profit levels r e m a i n e d on a p l a t e a u . But
from 1965 o n w a r d s it e x p e r i e n c e d t h e steady rise in profitability
w h i c h it had e n j o y e d p r i o r to t h e crisis. F o r a F o r t u n e 500 c o m p a n y
p e r h a p s any legal s e t b a c k is likely to be o v e r c o m e in t h e long t e r m .
B u t for R i c h a r d s o n - M e r r e l l the s e t b a c k did last for a n u m b e r of
y e a r s . D u r i n g 1962 t h e c o m p a n y ' s stock prices w e r e m o r e t h a n
h a l v e d (from $98 in F e b r u a r y and M a r c h to $44 in S e p t e m b e r and
O c t o b e r ) . R i c h a r d s o n - M e r r e l l s t o c k s did not r e t u r n to the prices of
e a r l y 1962 until m o m e n t a r i l y in S e p t e m b e r 1967 and p e r m a n e n t l y in
O c t o b e r 1968.

T h e story o f M o r a g M c C a l l u m i l l u s t r a t e s t h a t w h a t e v e r the
t h a l i d o m i d e s e t t l e m e n t s could b e c o n s t r u e d a s c o n s t i t u t i n g , i t
w o u l d not b e called j u s t i c e .

F o r M o r a g M c C a l l u m n o sum o f m o n e y could give h e r t h e world


she will n e v e r k n o w . She is b l i n d , deaf, and d u m b . O n e side o f h e r
b o d y is p a r a l y s e d so t h a t she c a n n o t smile. She is severely
r e t a r d e d , and t h e r e i s little h o p e o f b r e a k i n g t h r o u g h t o her d a r k ,
silent m i n d . She b o a r d s at a special school for t h e deaf, fifty miles
from w h e r e she lives in S t i r l i n g s h i r e , S c o t l a n d , but she will soon
b e s i x t e e n . T h e n t h e e d u c a t i o n a l a u t h o r i t i e s will n o l o n g e r b e
r e s p o n s i b l e for h e r , and her m o t h e r has not b e e n able to find a
p l a c e w i l l i n g t o a c c e p t her. M r s M c C a l l u m s a y s , " S o m e b o d y has
to be w i t h h e r all t h e t i m e . Y o u n e v e r k n o w what will h a p p e n .
S h e ' s j u s t a wild a n i m a l . T h e r e is no c o m m u n i c a t i o n with her at
all.'
M o r a g ' s s a v a g e , d i s t u r b i n g p r e s e n c e d i s r u p t s all family life and
d e m a n d s g r e a t e n d u r a n c e from her p a r e n t s , b r o t h e r , and two
s i s t e r s . M o r a g w a s b o r n as a n o n - i d e n t i c a l twin (her b r o t h e r
suffered n o d a m a g e ) . ' F o r t h e first t h r e e y e a r s n o o n e c a m e t o

74
Safety testing of drugs: from negligence to fraud

h e l p us," says M r s M c C a l l u m . ' T h e n w h e n a d o c t o r did c o m e , he


had a p i e c e of p a p e r w h i c h I could sign to put M o r a g a w a y into a
m e n t a l h o s p i t a l . 1 refused."
A l e x a n d e r M c C a l l u m . a n a c c i d e n t - r e p a i r m e c h a n i c for b u s e s ,
has b e e n e v e n m o r e upset by his d a u g h t e r ' s fate. A f t e r her b i r t h ,
he b e c a m e a p s y c h i a t r i c o u t p a t i e n t and n o w , after further health
p r o b l e m s , is an invalid and never likely to w o r k again. T h e
M c C a l l u m s are b o t h angry for having a g r e e d to t h e low
s e t t l e m e n t in 1968. ' M o r a g got only £ 1 6 . 0 0 0 and yet a boy with
s h o r t a r m s but n o r m a l i n t e l l i g e n c e and likely to be able to e a r n his
living got £ 2 . 0 0 0 m o r e ' ( K n i g h t l e y et a l . , 1979: 2 1 9 ) .

O n e c o u p l e from L i e g e . B e l g i u m , p o i s o n e d t h e i r e i g h t - d a y - o l d
t h a l i d o m i d e d a u g h t e r . T h e y w e r e c h a r g e d with m u r d e r , but
a c q u i t t e d to t h e wild a c c l a i m of a t h o u s a n d p e o p l e w h o had c r u s h e d
i n t o t h e c o u r t r o o m for t h e w e e k - l o n g trial. H a d they b e e n c o n v i c t e d
w h i l e s o m a n y c u l p a b l e c o m p a n y e x e c u t i v e s r o a m e d free, w e would
h a v e w i t n e s s e d o n e of the m o r e t e r r i b l e ironies in t h e history of
criminal justice.

G. D. Searle
T h e t h a l i d o m i d e d i s a s t e r r e s u l t e d in a g e n e r a l t i g h t e n i n g of drug
r e g u l a t o r y laws i n m o s t d e v e l o p e d c o u n t r i e s a r o u n d t h e g l o b e .
A n o t h e r fiasco in t h e m i d - 1 9 7 0 s i n v o l v i n g t h e G. D. Searle cor-
p o r a t i o n p r o d u c e d d r a m a t i c r e g u l a t o r y c h a n g e i n t h e m o r e specific
a r e a o f t h e safety t e s t i n g o f d r u g s .
S e a r l e , o n e o f t h e largest A m e r i c a n p h a r m a c e u t i c a l c o m p a n i e s
w a s s u b j e c t e d to a b a r r a g e of a l l e g a t i o n s before S e n a t o r E d w a r d
K e n n e d y ' s S u b - c o m m i t t e e on Health of the Senate Judiciary
C o m m i t t e e b e t w e e n 1975 and 1977. K e n n e d y and t h e F D A w e r e
c o n v i n c e d t h a t b o t h fraud and i n c o m p e t e n c e w e r e w i d e s p r e a d i n
t h e S e a r l e safety t e s t i n g p r o g r a m m e . F D A h e a d S c h m i d t testified t o
p a r t i c u l a r c o n c e r n o v e r t h e testing o f w h a t w a s t o b e c o m e S e a r l e ' s
top-selling line, A l d a c t o n e .

T h i s r e p o r t clearly i n d i c a t e d a d o s e - r e l a t e d i n c r e a s e in the
f r e q u e n c y o f liver and t e s t i c u l a r t u m o r s and r e c o m m e n d e d that
t h e s e findings be a n a l y z e d for statistical significance.
Although F D A regulations require 'alarming findings'to be
s u b m i t t e d t o t h e A g e n c y p r o m p t l y , this had not b e e n d o n e .
I n t h e c o u r s e o f o u r r e v i e w o f t h e 7 8 - w e e k study o n r a t s , w e

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Safety testing of drugs: from negligence to fraud

h a v e found a variety of o t h e r p r o b l e m s and q u e s t i o n a b l e practices.


F o r e x a m p l e , tissue m a s s e s w e r e e x c i s e d from t h r e e live a n i m a l s
d u r i n g t h e s t u d y , a n d t h e a n i m a l s w e r e a l l o w e d t o c o n t i n u e i n the
s t u d y . T w o o f t h e s e t u m o r s w e r e m a l i g n a n t and w e r e not
r e p o r t e d t o F D A ( S u b c o m m i t t e e o n H e a l t h . 1976a: Part I I , 9 ) .
It is d i s c o n c e r t i n g t h a t e v e n t o d a y , after t h r e e s e p a r a t e r e v i e w s
b y S e a r l e p e r s o n n e l o f t h e s a m e d a t a from the 7 8 - w e e k rat s t u d y ,
w e a r e c o n t i n u i n g t o d i s c o v e r e r r o r s t h a t c o m p l i c a t e review o f this
study.
R e v i e w of a 104-week rat study on A l d a c t o n e c o n d u c t e d at
H a z l e t o n L a b o r a t o r i e s [ a c o n t r a c t l a b o r a t o r y ] also r e v e a l e d
p r o b l e m s . O n l y 7 0 p e r c e n t o f t h e t i s s u e s s c h e d u l e d for
h i s t o p a t h o l o g i c a l e x a m i n a t i o n i n t h e p r o t o c o l w e r e actually
e x a m i n e d . I n a d d i t i o n , s o m e a n i m a l s with gross lesions w h i c h ,
a c c o r d i n g to the study protocol, required histopathological
e x a m i n a t i o n , w e r e not s o e x a m i n e d .

A n o t h e r t o p seller, F l a g y l , which had b e e n t h e subject of a


c o n c e r t e d c a m p a i g n b y N a d e r ' s H e a l t h R e s e a r c h G r o u p for with-
d r a w a l from t h e m a r k e t o n g r o u n d s o f alleged c a r c i n o g e n i c i t y , had
its t e s t i n g d a t a s u b j e c t e d to stinging criticism by C o m m i s s i o n e r
S c h m i d t . O n e c r i t i c i s m i l l u s t r a t e s nicely h o w a c o m p a n y can use
s e l e c t i v i t y of scientific i n f o r m a t i o n to a d v a n t a g e .

A m o n g a d d i t i o n a l m a j o r findings o f t h e i n v e s t i g a t i o n o f this study


a r e : (1) F o r s e v e r a l o f t h e a n i m a l s , i t w a s noted that the
m i c r o s c o p i c e x a m i n a t i o n of tissue slides had b e e n c o n d u c t e d by
t w o different p a t h o l o g i s t s a t S e a r l e w h o r e p o r t e d different
findings. R a t h e r t h a n s u b m i t t i n g b o t h r e p o r t s , or having a third
p a t h o l o g i s t r e v i e w slides o n w h i c h t h e first two d i s a g r e e d , Searle
s u b m i t t e d only t h e s e c o n d p a t h o l o g i s t ' s r e p o r t , which i n our view
a p p e a r s s u b s t a n t i a l l y m o r e f a v o r a b l e t o t h e d r u g : and (2) S e a r l e
e m p l o y e e s w e r e u n a b l e t o explain m a n y o f t h e p r o c e d u r e s b y
w h i c h m i c r o s c o p i c f i n d i n g s w e r e r e c o r d e d , e d i t e d and verified
p r i o r to t h e i n c l u s i o n in t h e r e p o r t of this s t u d y ; most r e c o r d s of
o b s e r v a t i o n s of m i c r o s c o p i c f i n d i n g s w e r e not d a t e d or signed.
T h e y w e r e a l s o u n a b l e t o a c c o u n t for t h e differences i n r a w d a t a
a n d t h e final r e p o r t s s u b m i t t e d t o F D A ( S u b c o m m i t t e e o n
H e a l t h . 1976a: P a r t I I . 1 3 - 1 4 ) .

S i m i l a r a l l e g a t i o n s w e r e m a d e by S c h m i d t with r e s p e c t to the
sweetening ingredient. Aspartame.

76
Safety testing of drugs: from negligence to fraud

O n e final e x a m p l e with r e g a r d t o A s p a r t a m e : O u r i n v e s t i g a t o r s
found t h a t a p a t h o l o g i s t ' s s u m m a r y w a s e d i t e d in such a m a n n e r
as to a l t e r , g e n e r a l l y in a f a v o r a b l e d i r e c t i o n , s o m e o f t h e
p a t h o l o g i s t ' s s u m m a r i z e d f i n d i n g s . T h e original r e p o r t w a s not
s u b m i t t e d ( S u b c o m m i t t e e o n H e a l t h . 1976a: P a r t I I , 15).

F u r t h e r , on t h e q u e s t i o n of s e l e c t i v i t y , t h e S e a r l e case study gives


an i n d i c a t i o n o f t h e p o s s i b i l i t i e s for c o m p l e t e l y rejecting a study for
r e a s o n s w h i c h m i g h t or m i g h t not be l e g i t i m a t e . A 4 6 - w e e k h a m s t e r
s t u d y o n A s p a r t a m e w a s ' d i s c o n t i n u e d b e c a u s e o f "wet t a i l " , ( a
d i s e a s e o f h a m s t e r s ) but n o n e o f t h e s y m p t o m s o f t h e d i s e a s e are
reflected i n daily o b s e r v a t i o n r e c o r d s ' ( S u b c o m m i t t e e o n H e a l t h ,
1976a: P a r t I I . 3 5 ) .
O n e c o u l d g o o n and o n listing t h e m y r i a d o f F D A a l l e g a t i o n s
s p r e a d o v e r t h o u s a n d s o f p a g e s o f t e s t i m o n y b e f o r e the S e n a t e . I n a
52-rat study of N o r p a c e there were alleged to be ' i n a d e q u a t e ante-
m o r t e m o b s e r v a t i o n s : e.g. a n i m a l s r e p o r t e d i n good c o n d i t i o n w e r e
a c t u a l l y d e a d , i n a d e q u a t e r e p o r t i n g o f tissue m a s s e s ' ( S u b c o m -
m i t t e e o n H e a l t h , 1976a: P a r t I I , 3 9 ) . T h e m o s t s e r i o u s t y p e o f
p r o b l e m w h i c h t h e F D A c l a i m e d w a s c o m m o n t o m a n y Searle
studies was: 'Because ofthe perfunctory nature ofthe observations,
t i s s u e m a s s e s c o m e and g o and a n i m a l s die m o r e t h a n o n c e '
( S u b c o m m i t t e e on H e a l t h , 1976a: P a r t I I , 4 1 ) . In fact s o m e rats
listed a s d e a d l a t e r w e r e r e c o r d e d a s a l i v e , t h e n d e a d , t h e n
r e s u r r e c t e d o n c e o r e v e n twice m o r e . A n o t h e r bad m o m e n t for
S e a r l e w a s w h e n its f o r m e r p r i n c i p a l p a t h o l o g i s t , J o h n W . S a r g a t z ,
testified t h a t in 1968 and 1969, o v e r his o b j e c t i o n s , he had b e e n
i n s t r u c t e d t o w r i t e r e a s s u r i n g c o m m e n t s o n p o s t - m o r t e m s o f rats
w h i c h d i e d in 1967, b e f o r e he j o i n e d t h e firm in M a y 1968.
F D A G e n e r a l - C o u n s e l ' s office w a s o f t h e view that Searle should
be p r o s e c u t e d c r i m i n a l l y for its p a t t e r n of c o n d u c t with r e s p e c t to
drug testing. The Justice D e p a r t m e n t , however, was equally
s t r o n g l y o f t h e view t h a t a c r i m i n a l c a s e should not p r o c e e d . T h e i r
v i e w w a s t h a t t h e scientific c o m p l e x i t y of t h e case w o u l d be an
e x c e s s i v e b u r d e n o n limited g o v e r n m e n t p r o s e c u t o r i a l r e s o u r c e s ,
t h a t w h i l e it m i g h t be p o s s i b l e to c o n v i c t a few low-level c o m p a n y
o p e r a t i v e s , guilt on t h e p a r t of s e n i o r e x e c u t i v e s could not be
d e m o n s t r a t e d beyond reasonable doubt. Justice was averse to a
r e s u l t w h i c h m i g h t lay all b l a m e at t h e d o o r of a c o u p l e of j u n i o r
s c a p e g o a t s . M o r e o v e r , t h e J u s t i c e D e p a r t m e n t w a s o f t h e view that
S e a r l e ' s a l l e g e d m i s d e e d s w e r e not i n t h e n a t u r e o f clearly definable

77
Safety testing of drugs: from negligence to fraud

specific a c t s , but r a t h e r a c u m u l a t i v e p a t t e r n o f c o n d u c t . T h e F D A
itself had a d m i t t e d t h a t this w a s t h e case t h r o u g h t h e w o r d s of its
t a s k force t o i n v e s t i g a t e t h e c o n d u c t o f S e a r l e ' s a n i m a l s t u d i e s .

W h i l e a single d i s c r e p a n c y , e r r o r , or i n c o n s i s t e n c y in any given


s t u d y m a y not be significant in and of itself, the cumulative
f i n d i n g s o f p r o b l e m s w i t h i n and a c r o s s t h e s t u d i e s w e i n v e s t i g a t e d
r e v e a l a p a t t e r n of c o n d u c t which c o m p r o m i s e s t h e scientific
i n t e g r i t y o f t h e s t u d i e s ( S u b c o m m i t t e e o n H e a l t h , 1976a: Part I I I ,
4).

L a t e r in this b o o k we will r e t u r n to the t h e m e that o n e of the


d e f i c i e n c i e s of e x i s t i n g c r i m i n a l ( a n d civil) law for d e a l i n g with
c o r p o r a t e m i s c o n d u c t is t h a t it is g e a r e d to d e a l i n g w i t h a specific act
p e r p e t r a t e d at o n e p o i n t of t i m e r a t h e r t h a n with a p a t t e r n of
b e h a v i o u r a c r o s s t i m e w h i c h u l t i m a t e l y h a s anti-social effects.
It w a s t h e J u s t i c e D e p a r t m e n t ' s v i e w which held sway in a
r e p u t e d l y c l o s e G r a n d J u r y d e c i s i o n not t o r e t u r n a n i n d i c t m e n t
a g a i n s t S e a r l e or any of its e x e c u t i v e s . T h e c o m p a n y felt v i n d i c a t e d
a n d w a s a b l e to c l a i m , as o n e S e a r l e e x e c u t i v e put it to m e : ' W h i l e
t h e r e m i g h t h a v e b e e n a little d i s h o n e s t y h e r e and t h e r e , basically it
w a s a p r o b l e m o f i n c o m p e t e n c e and p o o r r e c o r d k e e p i n g a m o n g o u r
r e s e a r c h staff.'
I n spite o f t h e d r o p p i n g o f criminal c h a r g e s , the a d v e r s e publicity
from t h e K e n n e d y h e a r i n g s had i m p o r t a n t c o n s e q u e n c e s for S e a r l e .
S e v e r a l S e a r l e e x e c u t i v e s with w h o m I s p o k e said t h a t c o m p a n y
m o r a l e , a n d h e n c e p r o d u c t i v i t y , w a s at a d e p r e s s e d level d u r i n g t h e
i n v e s t i g a t i o n s . In p a r t i c u l a r , S e a r l e r e s e a r c h g r o u n d to a halt
b e c a u s e s e n i o r e x e c u t i v e s w e r e d o i n g little else but r e s p o n d t o the
o n g o i n g d e m a n d s of t h e i n v e s t i g a t i o n s into their affairs. A total
r e o r g a n i s a t i o n o f t h e c o m p a n y was t h e u p s h o t . T h e P r e s i d e n t w a s
replaced by Donald Rumsfeld, one-time Defence Secretary, White
H o u s e C h i e f of Staff, a n d i n c u m b e n t of o t h e r s e n i o r p o s i t i o n s in the
a d m i n i s t r a t i o n s o f N i x o n and F o r d .

S e a r l e also g a v e a b l a n k c h e q u e to R i c h a r d H a m i l l from B a x t e r -
T r a v e n o l to set up a s o p h i s t i c a t e d c o r p o r a t e c o m p l i a n c e g r o u p
w h i c h w o u l d t r a v e l t h e w o r l d d o i n g c o m p l i a n c e a u d i t s t o e n s u r e that
all s u b s i d i a r i e s in all a r e a s of t h e c o r p o r a t i o n ' s o p e r a t i o n s w e r e
m e e t i n g b o t h c o m p a n y and legal s t a n d a r d s . H a m i l l ' s key a p p o i n t -
m e n t s i n t h e c o m p l i a n c e g r o u p w e r e also from o u t s i d e S e a r l e . A s
S e a r l e ' s G r o u p M a n a g i n g D i r e c t o r for the S o u t h - E a s t A s i a n
Region complained to me:

7S
Safety testing of drugs: from negligence to fraud

W e h a v e t h r e e b o s s e s t o w o r k for n o w , w h e r e a s local c o m p a n i e s
h a v e only o n e . F i r s t l y , we m u s t follow local l a w s , like the local
C o r p o r a t e Affairs C o m m i s s i o n . S e c o n d l y , w e have got t o have
t h e S e c u r i t i e s and E x c h a n g e C o m m i s s i o n a s a boss. A n d t h i r d l y ,
w e h a v e t o h a v e t h e i n t e r n a l c o r p o r a t i o n c o n t r o l s which o u r
c o m p a n y has set u p since t h e K e n n e d y h e a r i n g s . W i t h t h r e e
different k i n d s o f c h e c k s on our b e h a v i o u r t h e r e is far less c h a n c e
t h a t a n A m e r i c a n m u l t i n a t i o n a l c o m p a n y will b r e a k the law
c o m p a r e d with an A u s t r a l i a n c o m p a n y .

It is difficult to a s s e s s t h e e x t e n t o f t h e financial i m p a c t o f t h e bad


p u b l i c i t y from t h e K e n n e d y h e a r i n g s . S e a r l e s h a r e v a l u e s w e r e
e n j o y i n g c o n s i s t e n t l y rising v a l u e s d u r i n g t h e first four years o f t h e
1970s. T h i s w a s followed by d e c l i n e in t h e m i d - 1 9 7 0 s (the p e r i o d of
t h e crisis) and a p l a t e a u at t h e s e l o w e r s h a r e v a l u e s for the
r e m a i n d e r o f t h e d e c a d e . S e a r l e profitability b e g a n t o d e c l i n e i n
1973 and s h o w e d a d e c r e a s e e v e r y y e a r until 1977, in which the
c o r p o r a t i o n r e c o r d e d a l o s s . ' M o s t o b s e r v e r s s e e m t o a g r e e that the
publicity p r o b l e m with which the c o m p a n y was confronted during
this period was c o m p o u n d e d by poor m a n a g e m e n t . It would there-
fore be foolish to a s s u m e t h a t t h e K e n n e d y h e a r i n g s had a d r a m a t i c
effect o n t h e c o r p o r a t i o n ' s f i n a n c i a l p e r f o r m a n c e . N e v e r t h e l e s s ,
t h e r e c a n b e little d o u b t t h a t t h e r e w a s s o m e effect.

H a z l e t o n L a b o r a t o r i e s also claim t h a t being n a m e d i n the K e n n e d y


h e a r i n g as h a v i n g d o n e w o r k on c o n t r a c t for Searle (work which was
q u e s t i o n e d ) cost t h e small c o m p a n y o v e r a million dollars in business.
M o s t d r a m a t i c o f all, h o w e v e r , w e r e t h e c o n s e q u e n c e s for the
r e g u l a t o r y a p p a r a t u s . T h e F D A set a b o u t d r a w i n g u p a d e t a i l e d
c o d e o f G o o d L a b o r a t o r y P r a c t i c e s ( G L P s ) for drug t e s t e r s , viola-
t i o n of w h i c h could c o n s t i t u t e a c r i m i n a l offence. It w o u l d n o w be
m u c h e a s i e r t o c o n v i c t a c o m p a n y guilty o f t h e k i n d s o f m i s d e e d s
a l l e g e d t o h a v e b e e n p e r p e t r a t e d b y S e a r l e . I n t e r e s t i n g l y , Searlc
p l a y e d a c o n s t r u c t i v e role in d r a w i n g up a draft set of G L P regula-
t i o n s , m u c h o f w h i c h w a s t a k e n u p b y t h e F D A . E v e n m o r e interest-
ing w a s t h e fact t h a t S e a r l e d i s s o c i a t e d itself from all of the o t h e r
c o r p o r a t i o n s w h o t h r o u g h the P h a r m a c e u t i c a l Manufacturers
A s s o c i a t i o n a r g u e d t h a t t h e G L P s should b e g u i d e l i n e s r a t h e r t h a n
s a n c t i o n a b l e r u l e s . S e a r l e insisted t h a t v i o l a t i o n o f G L P s s h o u l d b e
a c r i m i n a l m a t t e r . T h e F D A also set up a large B i o r e s e a r c h
M o n i t o r i n g b u r e a u c r a c y o f i n s p e c t o r s t o e n s u r e c o m p l i a n c e with
the G L P s .

79
Safety testing of drugs: from negligence to fraud

T h e i m p a c t o f t h e K e n n e d y S e a r l e h e a r i n g s has b e e n inter-
n a t i o n a l , a s m a n y d e v e l o p e d c o u n t r i e s are n o w e n a c t i n g G L P s
similar to those o f t h e United States.

Biometric Testing Inc. and Industrial Bio-Test Laboratories

O n e o f t h e issues r a i s e d b y t h e S e a r l e i n v e s t i g a t i o n s w a s t h e rela-
t i o n s h i p b e t w e e n c o n t r a c t l a b o r a t o r i e s and large p h a r m a c e u t i c a l
c o m p a n i e s . C a n p h a r m a c e u t i c a l c o m p a n i e s use their c o m m e r c i a l
p o w e r to i m p o s e a set of e x p e c t a t i o n s on c o n t r a c t l a b o r a t o r i e s
w h e r e b y u n f a v o u r a b l e r e s u l t s c a u s e t h e l a b o r a t o r y t o b e l i e v e that i t
will be u n l i k e l y to get future c o n t r a c t s ? C a n a c o m p a n y w h i c h w a n t s
to p u s h t h r o u g h a q u i c k and dirty s t u d y , yet which w a n t s to m a i n t a i n
its o w n s t a n d a r d s for r e s e a r c h e x c e l l e n c e , get a c o n t r a c t lab to do
s h o d d y w o r k for it? T h e o p i n i o n of F D A officers I s p o k e w i t h w a s
t h a t c e r t a i n c o n t r a c t labs have f l o u r i s h e d b y u n d e r c u t t i n g r e s p o n -
sible l a b o r a t o r i e s on price and m a k i n g a profit by fabricating d a t a
a n d c u t t i n g c o r n e r s o n scientific r i g o u r .

A b r o g a t i o n o f r e s p o n s i b i l i t y i n o n e case ( B i o m e t r i c T e s t i n g I n c . )
d i s c u s s e d i n t h e K e n n e d y h e a r i n g s w a s t w o steps r e m o v e d from the
m a n u f a c t u r e r . H e r e t h e c o n t r a c t l a b o r a t o r y had widely used s u b -
contractors.

D R S C H M I D T . M a n y o f t h e laboratory d e t e r m i n a t i o n s are
s u b c o n t r a c t e d with l i t t l e , i f a n y , m o n i t o r i n g o f t h e p e r f o r m a n c e
o f t h e s e s u b c o n t r a c t o r s . I n this c o n n e c t i o n , i t c a m e t o o u r
a t t e n t i o n last w e e k t h a t former e m p l o y e e s o f o n e o f t h e s e
s u b c o n t r a c t o r s h a v e c h a r g e d t h a t t h e y w e r e i n s t r u c t e d to falsify
d a t a by t h e i r e m p l o y e r . . . .
S o m e o f t h e l a b o r a t o r y d e t e r m i n a t i o n s alleged t o have b e e n
c a r r i e d o u t w e r e found b y t h e F D A i n v e s t i g a t o r s not t o have b e e n
c a r r i e d o u t at all.
S E N A T O R K E N N E D Y . W h a t d o e s this m e a n , t h a t n o n e x i s t e n t
experiments were reported?
D R S C H M I D T . Y e s , sir, i t i s c o m m o n l y called ' d r y - l a b e l i n g ' b y
some.
( S u b c o m m i t t e e o n H e a l t h , 1976a: P a r t I I I , 13).

L a t e i n 1979 t w o f o r m e r v i c e - p r e s i d e n t s o f B i o m e t r i c T e s t i n g Inc.
p l e a d e d guilty to c h a r g e s of c o n s p i r i n g to falsify r e p o r t s of a n i m a l
tests on certain drug products in order to show them harmless when

SO
Safety testing of drugs: from negligence to fraud

in fact t h e t e s t s had not b e e n c a r r i e d o u t . In t h e w a k e o f t h e i n c i d e n t


the c o m p a n y is now bankrupt.
The most c e l e b r a t e d discussion c o n c e r n i n g a contract testing
l a b o r a t o r y c e n t r e d o n I n d u s t r i a l B i o t e s t ( I B T ) , o n e o f t h e largest.
A g a i n t h e forum for t h e laying of a l l e g a t i o n s a g a i n s t I B T w a s the
K e n n e d y h e a r i n g s . T h e most s e r i o u s a l l e g a t i o n m a d e b y the F D A
w a s t h a t I B T had p r o v i d e d false i n f o r m a t i o n to t h e m by failing to
r e p o r t i n s t a n c e s o f test a n i m a l s w h i c h had d e v e l o p e d t u m o u r s and
g e n e r a l l y u n d e r s t a t i n g t h e n u m b e r o f a n i m a l s with t u m o u r s . A s a
result o f t h e i r i n v e s t i g a t i o n s the F D A i n s t i t u t e d p r o c e e d i n g s t o
r e m o v e N a p r o s y n , t h e largest selling p r o d u c t o f the S y n t e x cor-
p o r a t i o n , from t h e m a r k e t . A m o n g t h e a l l e g a t i o n s o n the I B T
testing o f N a p r o s y n were:

. . . m a n y a n i m a l w e i g h t s w e r e r e c o r d e d as having b e e n c o l l e c t e d
w h i l e t h e a n i m a l s w e r e alive o n d a t e s s u b s e q u e n t t o their d a t e s o f
d e a t h ; s e v e r a l a n i m a l s w e r e r e c o r d e d a s having died o n m o r e
t h a n o n e d a t e , u s u a l l y with different v e r s i o n s o f gross post
m o r t e m findings; e x t r e m e variations in body weight were noted
b o t h d u r i n g s u c c e s s i v e w e i g h i n g s o f t h e s a m e a n i m a l s and within
a n y g r o u p o f a n i m a l s w e i g h e d a t t h e s a m e t i m e , e v e n t h o u g h all
a n i m a l s w e r e r e p o r t e d t o have r e c e i v e d s t a n d a r d care and d r u g
a d m i n i s t r a t i o n ( S u b c o m m i t t e e o n H e a l t h , 1977: P a r t I V , 144).

F D A officers w e r e a n g e r e d by t h e fact that I B T s h r e d d e d a


n u m b e r o f d o c u m e n t s r e q u i r e d for their i n v e s t i g a t i o n . S h r e d d e d
d o c u m e n t s i n c l u d e d ' X - r a y s and E K G ' s , a n u m b e r o f b o o k s o f d a t a ,
1
and s o m e l o o s e d a t a i n f o l d e r s . ' D r M a r i o n F i n k e l , A s s o c i a t e
D i r e c t o r for N e w D r u g E v a l u a t i o n , w r o t e in a r e p o r t on I B T of 14
J a n u a r y 1977:

I t t u r n s o u t t h a t n o t only w a s highly m a t e r i a l i n f o r m a t i o n shielded


from o u r k n o w l e d g e , a c t u a l l y d o w n r i g h t false i n f o r m a t i o n of an
e n o r m o u s e x t e n t w a s s u b s t i t u t e d for it; this w a s d o n e , i n m y view,
t o a s s u r e t h e d e l i b e r a t e d e c e p t i o n p r o c e s s i n which I B T a n d / o r its
a g e n t s e n g a g e d ( S u b c o m m i t t e e o n H e a l t h , 1977: P a r t I V , 177).

F D A h a v e a c c e p t e d a s u b s e q u e n t S y n t e x i n - h o u s e r e p l i c a t i o n for
N a p r o s y n a s d e m o n s t r a t i n g t h e safety o f t h e p r o d u c t . A t t h e t i m e o f
w r i t i n g , t h e I B T fiasco is still s o m e t h i n g of a legal m u d d l e . A
C h i c a g o g r a n d j u r y h a s r e t u r n e d c r i m i n a l i n d i c t m e n t s against four
f o r m e r I B T e m p l o y e e s . S e c u r i t i e s class action suits have b e e n filed
a g a i n s t S y n t e x to t h e benefit of all p e r s o n s w h o b o u g h t Syntex

81
Safety testing of drugs: from negligence to fraud

c o m m o n stock or o p t i o n s b e t w e e n 13 O c t o b e r 1975 and 6 A u g u s t


1976. T h e suits a l l e g e t h a t S y n t e x k n e w o r should h a v e k n o w n o f t h e
d e f i c i e n c i e s i n t h e 1BT r e s e a r c h and d r a w n t h e c o n t r a c t l a b o r a t o r y ' s
a t t e n t i o n t o t h e m . O u t o f c o u r t I B T h a v e a g r e e d t o pay $ 1 , 8 0 0 , 0 0 0
t o w a r d s a s e t t l e m e n t fund for t h e class a c t i o n suits.
T h e c o n s e q u e n c e s of the affair for I B T have b e e n c a t a s t r o p h i c .
F D A d i s c o n t e n t w i t h I B T w o r k led the a g e n c y t o write t o m o s t o f
t h e m a j o r d r u g c o m p a n i e s informing t h e m that any d a t a collected
by I B T w o u l d in future be s u b j e c t e d to p e c u l i a r l y careful F D A
c h e c k i n g . T h i s b e i n g a n extra b u r d e n which most c o m p a n i e s w e r e
not willing t o b e a r , I B T s t o p p e d g e t t i n g b u s i n e s s from major d r u g
c o m p a n i e s . A t t h e t i m e o f w r i t i n g , I B T , formerly t h e largest
c o n t r a c t l a b o r a t o r y in t h e U n i t e d S t a t e s , is facing b a n k r u p t c y . In
effect t h e F D A has d e l i v e r e d it a c o r p o r a t e d e a t h s e n t e n c e w i t h o u t
going to court.

Surveys of safety testing violations

As p o i n t e d out in C h a p t e r 1, t h e study of c o r p o r a t e c r i m e is still at


t h e c a s e study s t a g e , a n d rarely can w e have r e c o u r s e t o statistical
i n f o r m a t i o n on t h e f r e q u e n c y of v i o l a t i o n s of a p a r t i c u l a r t y p e . In
t h e a r e a o f G o o d L a b o r a t o r y P r a c t i c e s t w o limited surveys o f levels
o f c o m p l i a n c e h a v e b e e n c o n d u c t e d b y t h e F D A ( B l o z a n , 1977;
C o o k , 1979). T h e s u r v e y s w e r e o f G L P v i o l a t i o n s u n c o v e r e d b y
B i o r e s e a r c h M o n i t o r i n g Staff i n s p e c t o r s i n l a b o r a t o r i e s c o n d u c t i n g
safety t e s t i n g o n h u m a n biological p r o d u c t s , food and c o l o u r
a d d i t i v e s , and h u m a n and a n i m a l d r u g s .
In t h e first study ( B l o z a n , 1977) t h e level of c o m p l i a n c e with
different G L P r e g u l a t i o n s v a r i e d from 32 per cent to 98 per cent
a m o n g t h e 3 9 l a b o r a t o r i e s i n t h e s t u d y . A s o n e w o u l d p r e d i c t from
t h e f o r e g o i n g d i s c u s s i o n of h o w c o n t r a c t labs can be used by
s p o n s o r s t o a b r o g a t e r e s p o n s i b i l i t y for quality r e s e a r c h , c o n t r a c t
labs w e r e found to h a v e a w o r s e r e c o r d of G L P v i o l a t i o n s t h a n
s p o n s o r l a b s . T h e w o r s t r e c o r d o f all, h o w e v e r , w a s with university
l a b o r a t o r i e s . O n e m u s t b e e x t r e m e l y c a u t i o u s a b o u t this f i n d i n g
s i n c e t h e r e w e r e only five u n i v e r s i t y l a b o r a t o r i e s i n the study.
N e v e r t h e l e s s , i t m u s t u n d e r m i n e any a u t o m a t i c a s s u m p t i o n that
u n i v e r s i t y r e s e a r c h e r s , with t h e i r s u p p o s e d d e t a c h m e n t from the
profit m o t i v e , a r e u n l i k e l y t o cut c o r n e r s o n r e s e a r c h s t a n d a r d s . '

T h e w o r s t a r e a s of c o m p l i a n c e (all with less t h a n 50 per cent


c o m p l i a n c e rate overall) were:

82
Safety testing of drugs: from negligence to fraud

* QUALITY A S S U R A N C E UNIT
G L P r e g u l a t i o n s r e q u i r e that l a b o r a t o r i e s had a quality
a s s u r a n c e unit as a s e l f - r e g u l a t o r y c h e c k t h a t s t a n d a r d s are
b e i n g m a i n t a i n e d w i t h i n the l a b . M o s t did not have o n e .
* RECORD RETENTION
M a n y l a b o r a t o r i e s had r e c o r d s w h i c h w e r e s o i n a d e q u a t e t h a t
f i n d i n g o u t e x a c t l y w h a t w a s g o i n g o n and d e m o n s t r a t i n g guilt
in any c r i m i n a l p r o c e e d i n g a g a i n s t t h e m w o u l d be difficult.
* TEST SUBSTANCE CONTROL
L a c k of t e s t i n g for e a c h b a t c h of test s u b s t a n c e - c a r r i e r mix for
r a t e o f r e l e a s e and h o m o g e n e i t y o f mix w e r e the most p r e v a l e n t
problems.
* EQUIPMENT
L a c k o f w r i t t e n s t a n d a r d o p e r a t i n g p r o c e d u r e s ( S O P s ) for the
c l e a n i n g , c a l i b r a t i o n , m a i n t e n a n c e and r e p a i r functions w a s the
main problem.

T h e C o o k ( 1 9 7 9 ) study o f 2 8 l a b o r a t o r i e s c o n c l u d e d that i n t h e
t w o y e a r s b e t w e e n t h e s t u d i e s , a p e r i o d d u r i n g which t h e B i o -
r e s e a r c h M o n i t o r i n g Staff s w u n g into effective o p e r a t i o n , t h e
a v e r a g e c o m p l i a n c e rate over the 86 G L P s c o m m o n to both studies
i m p r o v e d from 6 0 p e r cent t o 8 7 p e r c e n t . E v e n t h o u g h t h e r e w e r e
p r o b l e m s of comparability b e t w e e n the two studies, three
i m p r o v e m e n t s s e e m e d q u i t e clear.

* T h e p e r c e n t of labs h a v i n g an o p e r a t i o n a l Q A U [Quality
Assurance Unit] i n c r e a s e d from 32 to 79 p e r c e n t o v e r the t w o -
year period.
* T h e p e r c e n t of labs i n c o m p l i a n c e w i t h t h e r e q u i r e m e n t for
a r c h i v a l s t o r a g e o f d a t a with a d e q u a t e i n d e x i n g i n c r e a s e d from
58 to 82 p e r c e n t .
* F i n a l l y , t h e a v e r a g e lab had 48 p e r c e n t of r e q u i r e d S O P ' s in
1977 c o m p a r e d to 78 p e r c e n t in 1979 ( C o o k , 1979: viii).

In spite of t h e s e i m p r o v e m e n t s w h i c h might r e a s o n a b l y be
a t t r i b u t e d to the Bioresearch M o n i t o r i n g P r o g r a m , problems
r e m a i n e d . O n e lab in t h e 1979 study had as m a n y as 42 G L P
v i o l a t i o n s . A d m i t t e d l y , m a n y o f t h e s e w e r e relatively trivial m a t t e r s
in t h e m s e l v e s , b u t t h e y do add up to a d i s t u r b i n g p a t t e r n of
n e g l i g e n c e . A m a z i n g l y , i n the a f t e r m a t h o f t h e Searle and I B T
fiascos, we find in b o t h s t u d i e s a r e l a t i v e l y low level of c o m p l i a n c e
with regulations c o n c e r n i n g the 'handling of d e a d / m o r i b u n d

83
Safety testing of drugs: from negligence to fraud

a n i m a l s ' . T h e c o m p l i a n c e r a t e w a s 68 per cent in 1977 and 78 per


c e n t in 1979.
E v e n m o r e d i s t u r b i n g , the 1979 s t u d y r e v e a l e d 9 i n s t a n c e s from 5
d i f f e r e n t l a b o r a t o r i e s o f i n a c c u r a t e l y r e p o r t e d study r e s u l t s . I n
s o m e c a s e s t h e deficiencies w e r e relatively m i n o r (for e x a m p l e , o n e
l a b o r a t o r y r e p o r t e d i n c o r r e c t l y the n u m b e r o f a n i m a l s h o u s e d p e r
c a g e ) . H o w e v e r , t h e r e w e r e a n u m b e r o f s e r i o u s deficiencies:

* O n e lab i n c o r r e c t l y i n d i c a t e d t h a t clinical o b s e r v a t i o n s w e r e
m a d e daily.
* T h e s a m e lab i n a c c u r a t e l y r e p o r t e d t h e c o m p o s i t i o n o f t h e
control substance.
* A n o t h e r lab did not p o i n t out readily a p p a r e n t and statistically
significant d i f f e r e n c e s in test and c o n t r o l a n i m a l s .
* A n o t h e r lab r e p o r t e d t h a t histological e x a m i n a t i o n s (with
p r e s u m a b l y negative findings) were m a d e on specimens, which
w e r e in fact not m a d e .
* F i n a l l y , a fourth lab did not r e p o r t clinically significant
o b s e r v a t i o n s ( e x c e s s i v e salivation of d o g s ) in its final study
r e p o r t ( C o o k , 1979: 19).

I n spite o f t h e w i d e s p r e a d p r o b l e m s w i t h a n i m a l d a t a , most
o b s e r v e r s w o u l d a g r e e w i t h t h e view o f Griffin (1977: 29) that:
' F a b r i c a t i o n of r e s u l t s is not as c o m m o n in toxicity studies [with
a n i m a l s ] as it is at t h e clinical trial [with h u m a n s ] s t a g e . ' B e t w e e n
1972 a n d 1974 t h e F D A did a survey of c o m p l i a n c e a m o n g 155
clinical i n v e s t i g a t o r s w o r k i n g for 15 s p o n s o r s , most t r a n s n a t i o n a l s
( S u b c o m m i t t e e o n H e a l t h , 1975). S e v e n t y - f o u r p e r c e n t (115) failed
to c o m p l y with o n e or m o r e of t h e r e q u i r e m e n t s of t h e law for
clinical i n v e s t i g a t o r s .
T h i r t y - f i v e p e r cent o f t h e clinicians in t h e s a m p l e failed to o b t a i n
p r o p e r c o n s e n t from t h e i r p a t i e n t s , a n a r e a o f a b u s e w h i c h will
be d i s c u s s e d in t h e next s e c t i o n . Fifty p e r cent failed to k e e p
a c c u r a t e r e c o r d s o f t h e a m o u n t o f d r u g s r e c e i v e d from t h e s p o n s o r
a n d d i s t r i b u t e d to test s u b j e c t s . T h i s is a s e r i o u s m a t t e r , as Mr
G r e g o r y A h a r t o f t h e G e n e r a l A c c o u n t i n g Office testified before
the Senate.

I f t h e i n v e s t i g a t o r d o e s not k e e p t r a c k o f t h e d r u g s , i t i s p o s s i b l e
h e has g i v e n t h e m t o p e o p l e w h o a r e not t r a i n e d clinical
i n v e s t i g a t o r s o r t h a t h e h a s given t h e m t o p a t i e n t s o u t s i d e t h e
control study.

84
Safety testing of drugs: from negligence to fraud

If he d o e s not k e e p r e c o r d s of w h e r e t h e y w e n t , and t h e r e is any


a d v e r s e r e a c t i o n from t h e d r u g , or you n e e d to follow up with
p a t i e n t s t h a t r e c e i v e d it so t h e y get p r o p e r m e d i c a l care and
m o n i t o r i n g , you c a n n o t t r a c e t h e d r u g t o t h e p a t i e n t s that w e r e
s u b j e c t e d to t h e d r u g and give t h e m follow up c a r e
( S u b c o m m i t t e e o n H e a l t h , 1976a: P a r t I I , 3 3 9 ) .

T w e n t y - e i g h t p e r cent o f t h e s a m p l e o f c l i n i c i a n s failed t o a d h e r e
t o s t u d y p r o t o c o l s . T w e n t y - t h r e e p e r c e n t failed t o m a i n t a i n r e c o r d s
w h i c h a c c u r a t e l y reflect t h e c o n d i t i o n s o f the p a t i e n t b e f o r e , d u r i n g
a n d after t h e s t u d y , and 22 p e r c e n t did not retain case r e c o r d s as
required.
T h i s survey did not i n c l u d e s t u d i e s c o n d u c t e d i n - h o u s e by the
s p o n s o r and s t u d i e s r e g u l a t e d b y t h e F D A ' s B u r e a u o f B i o l o g i e s .
T h e F D A w a s r e q u e s t e d b y t h e G e n e r a l A c c o u n t i n g Office t o d o
f u r t h e r s u r v e y s to a s s e s s the levels of c o m p l i a n c e in t h e s e a r e a s .
A m o n g 3 5 clinical i n v e s t i g a t i o n s c o n d u c t e d i n - h o u s c b y the
s p o n s o r , all 35 failed to c o m p l y with o n e or m o r e of the F D A
r e g u l a t i o n s ( S u b c o m m i t t e e o n H e a l t h . 1976a: Part I I , 3 4 2 ) . T h e
r e c o r d for s t u d i e s s u b m i t t e d t o t h e B u r e a u o f B i o l o g i e s w a s b e t t e r .
T w e n t y - e i g h t of t h e 48 clinical i n v e s t i g a t o r s i n s p e c t e d satisfied all
F D A regulations.
T h e p r o b l e m c o n t i n u e s . I n t h e 1978 h e a r i n g s before the K e n n e d y
S u b c o m m i t t e e t h e f r a u d u l e n t p r a c t i c e s w h i c h had raised such a
f u r o r e y e a r s b e f o r e w e r e still a p p a r e n t . Clinical d a t a w e r e still being
' g r a p h i t e d ' ; a c a s e had recently a p p e a r e d of a clinical i n v e s t i g a t o r
w i t h a forged m e d i c a l l i c e n s u r e c e r t i f i c a t e ; d a t a c o l l e c t e d on o n e
p r o d u c t w a s b e i n g s u b m i t t e d for a n o t h e r ; and s o on. C o m m i s s i o n e r
D o n a l d K e n n e d y c a t a l o g u e d a long list of a b u s e s w h i c h r e m a i n e d of
major concern.

* C a s e r e p o r t s on f i c t i t i o u s s u b j e c t s , and on subjects w h o w e r e
n e v e r a d m i n i s t e r e d the i n v e s t i g a t i o n a l d r u g . O b v i o u s l y ,
d e p e n d e n c e o n such s p u r i o u s d a t a m i g h t result i n e x p a n d e d
t e s t i n g o f a d r u g or in t h e p o s s i b l e a p p r o v a l of a drug for use in a
c o n d i t i o n w h e r e it w a s , in fact, ineffective.
* C a s e r e p o r t s c o n t a i n i n g t h e r e s u l t s of clinical l a b o r a t o r y w o r k
w h i c h w a s not a c t u a l l y p e r f o r m e d . T h e p u r p o s e o f such
l a b o r a t o r y w o r k is to assess t h e safety o f t h e drug in h u m a n
s u b j e c t s - for e x a m p l e , ifa d r u g is toxic to t h e liver, and t e s t s of
liver function a r e not p e r f o r m e d , t h e n t h e drug might not be
w i t h d r a w n i n t i m e t o p r e v e n t p e r m a n e n t liver d a m a g e o r d e a t h .

85
Safety testing of drugs: from negligence to fraud

False representation of Institutional Review Board approval of


a s t u d y . A layer of subject p r o t e c t i o n is r e m o v e d if
u n i n f o r m a t i v e c o n s e n t forms w e r e u s e d , or if a study o f t h e t y p e
d o n e s h o u l d not h a v e b e e n d o n e i n t h e i n s t i t u t i o n i n q u e s t i o n .
M i s r e p r e s e n t a t i o n o f p a t i e n t d i a g n o s i s and d e m o g r a p h i c data.
If a p a t i e n t d o e s not have t h e d i s e a s e to be t r e a t e d with t h e
i n v e s t i g a t i o n a l d r u g , t h e n any r e p o r t of efficacy o f t h a t drug is
obviously spurious.
C o n s e n t o f t h e clinical subject not o b t a i n e d . C o n s e n t m e a n s
informed c o n s e n t . L a c k i n g n e c e s s a r y i n f o r m a t i o n , t h e subject
m i g h t e n t e r a s t u d y w h i c h he w o u l d not have e n t e r e d if he
had b e e n i n f o r m e d o f t h e d a n g e r s as well as the possible
benefits.
D r u g d o s e s g i v e n , far e x c e e d p r o t o c o l l i m i t a t i o n s . This could
be d a n g e r o u s , since p r o t o c o l s often specify d o s e s at the u p p e r
limit of w h a t has b e e n j u d g e d to be safe.
D r u g s g i v e n t o i n a p p r o p r i a t e s u b j e c t s . T h i s could b e d a n g e r o u s
if d r u g s a i m e d at t h e g e n e r a l l y h e a l t h y a d u l t p o p u l a t i o n are
g i v e n to c h i l d r e n or t h e aged w h e r e their m e t a b o l i s m might be
different. Of p a r t i c u l a r i m p o r t a n c e is t h e a d m i n i s t r a t i o n of
d r u g s t o p r e g n a n t w o m e n w h e r e fetal a b n o r m a l i t i e s might b e
caused.
Serial use of i n v e s t i g a t i o n a l d r u g s to t h e e x c l u s i o n of a c c e p t e d
t h e r a p y . T h i s m a k e s t h e subject n o t h i n g but a g u i n e a p i g , and
his best i n t e r e s t m i g h t not be s e r v e d .
A d m i n i s t r a t i o n to s u b j e c t s of t w o or m o r e i n v e s t i g a t i o n a l d r u g s
a t t h e s a m e t i m e a n d t h e a d m i n i s t r a t i o n o f o t h e r significant and
p e r h a p s i n t e r f e r i n g d r u g s with t h e i n v e s t i g a t i o n a l d r u g . H e r e
t h e i n f o r m a t i o n o b t a i n e d is v a l u e l e s s , a n d the subject has b e e n
put at n e e d l e s s risk.
I n a d e q u a t e m e d i c a l a t t e n t i o n t o the test p o p u l a t i o n t h r o u g h
e x c e s s i v e d e l e g a t i o n of a u t h o r i t y , lack of f o l l o w u p , e t c .
O b v i o u s l y , this i s d a n g e r o u s t o t h e s u b j e c t .
R e p r e s e n t a t i o n of investigational drugs as marketed
p r o d u c t s a n d / o r t h e sale of such d r u g s . In this situation the
s u b j e c t c a n n o t h a v e b e e n i n f o r m e d o f t h e n a t u r e o f t h e drug
a n d is s o m e t i m e s i n a p p r o p r i a t e l y c h a r g e d for it. T h e
i n v e s t i g a t o r m a y profit h u g e l y by his "exclusive franchise'
e s t a b l i s h e d by his being an i n v e s t i g a t o r of a p r o d u c t not
a v a i l a b l e to all p h y s i c i a n s ( S u b c o m m i t t e e on H e a l t h , 1978: Part
V. 76-9).

86
Safety testing of drugs: from negligence to fraud

In spite o f t h e fact t h a t such a b u s e s are w i d e s p r e a d , in the entire


h i s t o r y o f t h e F D A only 3 5 clinical i n v e s t i g a t o r s have b e e n dis-
qualified from d o i n g further testing for s u b m i s s i o n s to t h e a g e n c y .

The rights of subjects


M a n y o f t h e p a t i e n t s w h o are e x p e r i m e n t e d o n with u n t r i e d d r u g s
suffer t e r r i b l e a d v e r s e r e a c t i o n s . T h e i r suffering is not always
n e c e s s a r y . I n d e e d t h e g r e a t m a j o r i t y o f n e w p r o d u c t s which are
a p p r o v e d for m a r k e t i n g are not m e d i c a l a d v a n c e s . Wolfe and
G o r d o n ( 1 9 7 8 ) p o i n t e d out that of 171 n e w p r o d u c t s marketed
b e t w e e n O c t o b e r 1975 and D e c e m b e r 1977 only 6.4 per cent w e r e
classified b y F D A a s offering " i m p o r t a n t t h e r a p e u t i c g a i n s ' , and
fewer t h a n 1 per c e n t of d r u g s tested on h u m a n s p r o v i d e d i m p o r t a n t
t h e r a p e u t i c g a i n . S e v e n t y - s e v e n p e r c e n t o f d r u g s m a r k e t e d had the
F D A classification 'little o r n o t h e r a p e u t i c g a i n ' . M o s t new p r o d u c t s
a r e m i n o r m o l e c u l a r m a n i p u l a t i o n s o f existing p a t e n t e d d r u g s
w h i c h e n a b l e a m a n u f a c t u r e r to have its o w n p a t e n t in a lucrative
m a r k e t w i t h o u t offering p a t i e n t s a d v a n t a g e s o v e r existing t h e r a -
p i e s . A d m i t t e d l y , a c o m p a n y which sets o u t to get a slice of a good
m a r k e t b y a n a p p a r e n t l y i n c o n s e q u e n t i a l m a n i p u l a t i o n o f the
m o l e c u l a r structure of an existing product can occasionally produce
a result w h i c h d o e s h a v e s o m e t h e r a p e u t i c a d v a n t a g e s over its
parent. "

T h e q u e s t i o n is w h e t h e r it is t o l e r a b l e to subject p a t i e n t s to risk
w h e n t h e goal i s m e r e l y t o r e p l i c a t e s o m e t h i n g a l r e a d y a v a i l a b l e ,
e v e n t h o u g h o n o c c a s i o n s s o m e t h i n g s u p e r i o r t o existing t h e r a p i e s
m i g h t r e s u l t . Is it not a r e a s o n a b l e p r i n c i p l e to subject p e o p l e to risk
only w h e n t h e goal is explicitly to p r o d u c e s o m e t h i n g b e t t e r for
p e o p l e ? T h i s is t h e p o s i t i o n i m p l i e d in C l a u s e 5 o f t h e D e c l a r a t i o n of
Helsinki on ethics in biomedical research: ' 5 . Every biomedical
r e s e a r c h project involving h u m a n subjects should be preceded by
careful a s s e s s m e n t of p r e d i c t a b l e risks in c o m p a r i s o n with fore-
s e e a b l e b e n e f i t s to t h e subject or to o t h e r s . . . .'

U n f o r t u n a t e l y , v i c t i m s of drug t e s t i n g are not a w e l l - k n i t p r e s s u r e


g r o u p a n d such d e c l a r a t i o n s a r e r h e t o r i c yet t o b e t r a n s l a t e d into
r e a l i t y . T h e issues are difficult. In F r a n c e t h e r e is a r e l u c t a n c e to
find j u s t i f i a b l e t h e t r e a t m e n t of any p a t i e n t w h o has a g e n u i n e
h e a l t h p r o b l e m w i t h a p l a c e b o (an inert p i l l ) . " O n e can accept t h e
use of p l a c e b o s for t h e a d v a n c e m e n t of m e d i c a l s c i e n c e , but not for
a s t u d y u n d e r t a k e n to h e l p a c o r p o r a t i o n get a r o u n d p a t e n t laws.

87
Safety testing of drugs: from negligence to fraud

M o s t o f t h e suffering o f p a t i e n t s w h o a r e g i v e n e x p e r i m e n t a l d r u g s ,
or w h o a r e given a p l a c e b o w h e n t h e y m i g h t have b e e n t r e a t e d by
o t h e r m e a n s , i s w a s t e d , i n the 1960s F o o d and D r u g C o m m i s s i o n e r
G o d d a r d e s t i m a t e d t h a t only one i n t e n d r u g s t h a t w e r e investi-
g a t i o n a l l y s t u d i e d w o u l d e v e n t u a l l y b e a p p r o v e d for m a r k e t i n g '
( S h a p o , 1979: 4 8 ) . T h e law has a role to play in c u t t i n g u n n e c e s s a r y
suffering to a m i n i m u m .
One reported decision (Hyman v. Jewish Chronic Disease
Hospital)'" i l l u s t r a t e s h o w a w e s o m e t h e m o r a l q u e s t i o n s can be. Dr
C h e s t e r S o u t h a m , a p r e s t i g i o u s c a n c e r r e s e a r c h e r , had u n d e r t a k e n
t o build u p o n p r e v i o u s r e s e a r c h w h i c h had s h o w n that h e a l t h y
p e o p l e w i t h o u t c a n c e r reject foreign c a n c e r cells w h i c h are injected
into t h e m m u c h m o r e quickly t h a n c a n c e r p a t i e n t s . S o u t h a m now
w o n d e r e d w h e t h e r p e o p l e w h o w e r e d e b i l i t a t e d but not suffering
from c a n c e r w o u l d r e a c t with t h e s p e e d of rejection of h e a l t h y
p e o p l e , o r o f p e o p l e with existing c a n c e r s . T w e n t y - t w o aged
p e r s o n s from t h e J e w i s h C h r o n i c D i s e a s e H o s p i t a l w e r e selected for
a s t u d y to a n s w e r this q u e s t i o n .

T h e p a t i e n t s w e r e n o t told that t h e i r injections c o n t a i n e d c a n c e r


c e l l s . R a t h e r , t h e i n j e c t i o n s w e r e p o r t r a y e d as a skin test for
i m m u n i t y or r e s p o n s e . The researchers predicted that a lump would
a p p e a r and then gradually disappear doing no harm to the patients.
H e n c e t h e y d e c i d e d not t o stir u p w h a t t h e y t h o u g h t w o u l d b e
unnecessary anxiety.

S o u t h a m had d e c l a r e d t h a t t h e r e w a s essentially 'no risk' i n the


p r o c e d u r e . I t s h o u l d b e n o t e d , h o w e v e r , that h e w a s q u o t e d a s
e x p l a i n i n g his o w n r e l u c t a n c e to v o l u n t e e r for c a n c e r cell
i n j e c t i o n s on a n o t h e r o c c a s i o n by saying t h a t a l t h o u g h he 'did not
r e g a r d t h e e x p e r i m e n t as d a n g e r o u s . . . [ljet's face it, t h e r e are
r e l a t i v e l y few skilled c a n c e r r e s e a r c h e r s , and it s e e m e d stupid to
t a k e e v e n t h e little risk' ( S h a p o , 1979: 3 5 - 6 ) .

M o r e o v e r , t h e r e w a s a t least s o m e m e d i c a l o p i n i o n that i n c e r t a i n
c a s e s c a n c e r o u s t u m o u r s w o u l d form and s p r e a d . A s i t t u r n e d o u t ,
t h e y did n o t . T h e e l d e r l y p a t i e n t s t h r e w off t h e injected cells as
p r o m p t l y a s h e a l t h y p a t i e n t s . T h i s result had i m p o r t a n t m e d i c a l
i m p l i c a t i o n s . It s u g g e s t e d t h e possibility t h a t t h e b o d y might possess
d e f e n c e m e c h a n i s m s a g a i n s t c a n c e r w h i c h could b e a r o u s e d t o fight
t h e d i s e a s e . T h e r i g h t s and w r o n g s o f t h e r e s e a r c h e r ' s b e h a v i o u r are
t r o u b l i n g p r e c i s e l y b e c a u s e t h e e x p e r i m e n t w a s not a trivial o n e .
B u t it m u s t be p o i n t e d o u t that in spite o f t h e intrinsic difficulties of

S8
Safety testing of drugs: from negligence to fraud

d r a w i n g m o r a l b o u n d a r i e s i n this a r e a , t h e r e are certain r e c u r r e n t


a b u s e s w h i c h are b e y o n d any s t a n d a r d o f a c c e p t a b l e b e h a v i o u r .
O n e e x a m p l e i n v o l v e d t h e purposeful w i t h h o l d i n g of a beneficial
d r u g in t h e P h i l i p p i n e s ( L a n t i n et a l . , 1963). C h l o r a m p h e n i c o l is of
d e m o n s t r a t e d v a l u e i n the t r e a t m e n t o f t y p h o i d . T h e c o n c e r n o f t h e
researchers was to discover whether relapses were more c o m m o n
a m o n g t h o s e t r e a t e d w i t h c h l o r a m p h e n i c o l . O f 4 8 0 t y p h o i d cases i n
t h e c a r e of t h e r e s e a r c h e r s , 251 w e r e given t h e a n t i b i o t i c and 157
had i t w i t h h e l d . A m o n g t h e t r e a t e d g r o u p 2 8 ( 6 8 % ) had a r e l a p s e ,
n o n e of t h e m s e r i o u s , while in t h e n o n - t r e a t e d g r o u p only six
( 3 . 8 % ) had a r e l a p s e , a g a i n , n o n e b e i n g s e r i o u s . H e n c e i t was
d e m o n s t r a t e d t h a t a n o n - s e r i o u s c o m p l i c a t i o n w a s m o r e likely to
o c c u r in p a t i e n t s t r e a t e d w i t h t h e a n t i b i o t i c . ' B u t the price paid for
t h i s i n f o r m a t i o n w a s t h a t w h e r e a s t h e m o r t a l i t y w a s only t w e n t y
( 7 . 9 7 % ) in t h e t r e a t e d series it w a s thirty six ( 2 2 . 9 3 % ) in the
u n t r e a t e d . I n o t h e r w o r d s , a b o u t t w e n t y p e o p l e died t o d e m o n -
s t r a t e a c o m p a r a t i v e l y m i n o r d i s a d v a n t a g e of c h l o r a m p h e n i c o l
t h e r a p y i n t y p h o i d ' ( P a p p w o r t h , 1967: 181).

T h e U n i t e d S t a t e s d o e s not h a v e a g o o d historical r e c o r d on
subjecting powerless groups to d a n g e r o u s medical experimenta-
t i o n . T h e r e a r e m a n y e x a m p l e s t o m a t c h the infamous denial o f
p e n i c i l l i n to A l a b a m a b l a c k s suffering from syphilis to o b s e r v e the
l o n g - t e r m effects of t h e d i s e a s e . O f t e n they have involved
p r i s o n e r s . I t i s t e l l i n g t h a t s o m e o f t h e G e r m a n d o c t o r s o n trial a t
N u r e m b e r g a t t e m p t e d to defend t h e m s e l v e s by citing a n u m b e r of
A m e r i c a n s t u d i e s o n p r i s o n e r s . A m o n g t h o s e cited w a s the w o r k o f
Colonel Strong (later Professor of Tropical Medicine at Harvard).
W i t h o u t t h e k n o w l e d g e o f t h e victims he infected with plague a g r o u p
of p r i s o n e r s c o n d e m n e d to d e a t h . L a t e r he did an e x p e r i m e n t in
w h i c h p r i s o n e r s w e r e r e w a r d e d with t o b a c c o for being given beri-
b e r i . O n e died as a result o f t h e e x p e r i m e n t ( P a p p w o r t h , 1967: 6 1 ) .

Time m a g a z i n e on 12 J u l y , 1963 d e s c r i b e d a n u m b e r of horrifying


c a s e s o f t h e use o f p r i s o n e r s i n m e d i c a l e x p e r i m e n t a t i o n . B e l o w i s
one example.

T h u s t h e O h i o S t a t e P e n i t e n t i a r y i n C o l u m b u s has p r o v i d e d
v o l u n t e e r s for c a n c e r r e s e a r c h e x p e r i m e n t s . T h e s e men w e r e
g i v e n i n j e c t i o n s o f live c a n c e r cells. ( N o n e o f t h e m d e v e l o p e d
c a n c e r . ) A t C o o k C o u n t y jail i n C h i c a g o p r i s o n e r - v o l u n t e e r s
w e r e i n j e c t e d w i t h b l o o d from p a t i e n t s w h o had l e u k e m i a . ( N o n e
of these c o n t r a c t e d the disease either.) W h a t is important.

89
Safety testing of drugs: from negligence to fraud

however, is the purpose ofthe experiment, which was to see


whether either disease could be transmitted to others.Be/bre
these experiments the possibility that they could have been was
quite definite.

Gettinger and Krajick (1979) also provided a variety of examples


of questionable pharmacological experimentation on prisoners.
Here are two examples:

* In 1963 at the Kansas State Penitentiary, 43 men were


injected with a radioactive substance and their brains were
X-rayed, a procedure that is generally reserved for
emergencies.
* From 1963 to 1971. the Atomic Energy Commission sponsored
tests on scores of inmates in Oregon and Washington in which
prisoners* testicles were exposed to massive doses of X-rays. In
1964. eight inmates at the Oregon State Penitentiary who
previously had had vasectomies had their testicles implanted
with steroids and sex hormones to see what effect these
substances had on sperm production (Gettinger and Krajick,
1979: 11).

Finally the Kennedy hearings in 1975 (Subcommittee on Health.


1975) received affidavits from prisoners who were told by doctors
that dangerous drugs had no side-effects, who were allowed to
continue taking the experimental drug for a considerable time after
serious side-effects had appeared, who were left unsupervised in a
prison with no medical staff over a weekend while suffering from
such side-effects. The prisoners were enticed into the experiments
with small financial rewards.
One could tell almost equally unsavoury stories of institution-
alised children and mental retardates in drug testing, going back to
Queen Caroline, wife of George IV. who used "half a dozen ofthe
charity children belonging to St James' parish' to experiment with a
smallpox vaccination before submitting her own children to it
(Sloane, 1755). The situation has improved everywhere, particu-
larly in the United States.
The doctrine of informed consent in FDA regulations today
affords patients many protections they did not previously have.

The subject's consent may be obtained only while he or she is so


situated as to be able to comprehend fully the information
presented, and the subject's consent must be obtained under
90
Safety testing of drugs: from negligence to fraud

circumstances that minimize the possibility of undue influence or


coercion. In addition, the information given must be in the
primary language of either the subject or the subject's legal
representative. No exculpatory language may be included in
either written or oral consent (Federal Register, v. 44 (158). Aug
14, 1979, p. 47720).

Influential in the formulation of the FDA principles of informed


consent were the deliberations of the New York Board of Regents
following the Southam cancer injection case mentioned above. The
Board of Regents recognised the right of a patient to refuse to
participate in an experiment no matter how 'irrational' or
•emotional' the reasons for such refusal might seem to be. More-
over, 'the physician, when he is acting as experimenter, cannot
claim those rights of doctor-patient relationships that do permit
him. in a therapeutic situation, to withhold information when he
judges it to be in the best interests of his patient' (Human Experi-
mentation Hearings on s.9741 93d Cong., lstscss., 1138(1973)).
An FDA survey of compliance with informed consent require-
ments in 238 clinical studies found that in the majority of cases there
was at least one violation of informed consent regulations:

Violations disclosed by the inspections included failure to obtain


consent and the use of forms containing exculpatory language. In
addition, some forms were deficient in that they:
Failed to provide the subject with a fair explanation of
pertinent information as to what or how long additional tests or
examinations would be required in connection with the use ofthe
experimental drug.
Failed to inform the subject ofthe results of pertinent animal
and/or previous clinical studies with the drug to enable the
subject to exercise free power of choice.
Failed to state what steps would be taken to prevent or
minimize the possible risks and hazards associated with the drug.
Failed to use simple language rather than medical
terminology when explaining the details concerning the proposed
study.
Failed to inform the subjects that some would serve as
inoculated control subjects who would receive either a placebo
substance or an alternative drug, rather than the investigational
new drug under study (Subcommittee on Health. 1976a: Part II.
350).
91
Safety testing of drugs: from negligence to fraud

N o t w i t h s t a n d i n g the i m p r o v e m e n t s , the problems of medical


e x p e r i m e n t a l a b u s e s will n e v e r g o a w a y . T h e locus o f a b u s e s has
p e r h a p s shifted from p r i s o n s t o l o c k e d - d o o r nursing h o m e facilities
for t h e a g e d . I n s t i t u t i o n a l R e v i e w B o a r d s are c e r t a i n l y p r o t e c t i o n s
in t h a t t h e y s u b j e c t clinicians to p e e r r e v i e w of their t r e a t m e n t of
3
i n s t i t u t i o n a l i s e d p a t i e n t s . ' But the w o r s t a b u s e s have o c c u r r e d i n
i n s t i t u t i o n s w h i c h h a v e flouted the legal r e q u i r e m e n t s for Insti-
tutional Review Boards. More fundamentally, knowledge is power
in a clinical s i t u a t i o n . F o r m a l r e g u l a t i o n s c a n n o t c o n c e i v a b l y cover
all t h e s u b t l e w a y s t h a t a p h y s i c i a n can r e p r e s e n t an e x p e r i m e n t a l
d r u g as m o r e safe and efficacious t h a n it is in fact k n o w n to be.
D o c t o r - p a t i e n t i n t e r a c t i o n i s simply not a m e n a b l e t o r i g o r o u s
regulation.

AN INTERPRETATION OF THE CASE STUDIES

The sources of fraud

W h e n t h e officers of a c o m p a n y e n g a g e in a fraud which victimises


c o n s u m e r s t h e e x p l a n a t i o n usually i n v o k e d i s the profit m o t i v e .
T r u e , fraud in t h e t e s t i n g of d r u g s u n d o u b t e d l y is often the result of
c o m p a n i e s s t r i v i n g to get a profitable p r o d u c t on the m a r k e t r e g a r d -
less of its safety or efficacy. Since scientific p r o o f of h a z a r d s is
a l w a y s a difficult a n d p r o t r a c t e d p r o c e s s , the e c o n o m i c risks of
u n s c r u p u l o u s c o n d u c t t o get t h e p r o d u c t m a r k e t e d are often less
t h a n t h e e c o n o m i c b e n e f i t s . T h e q u e r y : ' W h y w o u l d they d o i t w h e n
t h e y k n o w t h e m a r k e t will e v e n t u a l l y c a t c h up with t h e m ? ' can be a
naive question.
N o t all a c t o r s w h o c o n t r i b u t e to t h e fraud, h o w e v e r , do so with
t h e i n t e n t o f serving t h e i n t e r e s t s o f profit. M a n y lower-level o r g a n -
i s a t i o n a l a c t o r s p e r f o r m their r e s e a r c h r e s p o n s i b i l i t i e s with g r e a t
i n t e g r i t y and h o n e s t y only to h a v e t h e i r w o r k used for d i s h o n e s t
p u r p o s e s b y p e o p l e m o r e s e n i o r i n t h e o r g a n i s a t i o n . Several
r e s e a r c h p e r s o n n e l i n t e r v i e w e d for this study c o m p l a i n e d o f
i n s t a n c e s w h e r e t h e i r s u p e r i o r s had e i t h e r i g n o r e d o r twisted
r e s e a r c h f i n d i n g s w h i c h reflected badly on a c o m p a n y p r o d u c t .
M o s t p h a r m a c e u t i c a l c o m p a n i e s w a n t their r e s e a r c h e r s t o con-
d u c t r e s e a r c h h o n e s t l y and r i g o r o u s l y . I f t h e r e a r e p r o b l e m s , t h e n
t h e c o m p a n y g e n e r a l l y will w a n t t o k n o w a b o u t t h e m . A d r u g w h i c h
p r o d u c e s a flood of p r o d u c t liability suits is less likely to be c o m -
m e r c i a l l y v i a b l e . Safety is t h e r e f o r e a factor in a rational m a r k e t i n g

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Safety testing of drugs: from negligence to fraud

d e c i s i o n . T h e r e will b e c a s e s , h o w e v e r , w h e r e the i n d e t e r m i n a t e
risk of a legal b a c k l a s h from lack of safety is far o u t w e i g h e d by t h e
e x t r a o r d i n a r y sales p r o s p e c t s for a d r u g . In t h e s e cases senior
e x e c u t i v e s m a y c h o o s e t o i g n o r e o r d i s t o r t the a d v i c e o f p e o p l e
w h o m t h e y pay t o give t h e m o b j e c t i v e d a t a o n d r u g s . C o m p a n i e s
m a y . a s i n t h e S e a r l e a n d t h a l i d o m i d e case s t u d i e s , seek i n f o r m a t i o n
from a n u m b e r of scientists but only r e p o r t to the h e a l t h a u t h o r i t i e s
t h e f i n d i n g s o f t h o s e w h o say good t h i n g s a b o u t t h e p r o d u c t . U S
c o m p a n i e s often c o m m i s s i o n clinical s t u d i e s i n m a n y c o u n t r i e s , but
only r e p o r t t o t h e F D A t h e d a t a from t h o s e c o u n t r i e s which
p r o d u c e f a v o u r a b l e r e s u l t s . T h e r e s e a r c h e r s involved may b e
h o n e s t and o b j e c t i v e , in no way c o n n i v i n g to satisfy t h e c o m p a n y ' s
p r o f i t - m a k i n g i n t e r e s t s . It is j u s t t h a t t h e i r d a t a are used selectively
for t h a t p u r p o s e .
T h e r e is a r a n g e of w a y s t h a t fraud can o c c u r . S e n i o r e x e c u t i v e s
c a n set o u t to be d i s h o n e s t by h a v i n g d i s h o n e s t r e s e a r c h e r s w o r k for
t h e m , or t h e y can be d i s h o n e s t by t w i s t i n g t h e w o r k of h o n e s t
r e s e a r c h e r s . T h e n t h e r e i s t h e p r o b l e m o f c o m p a n i e s which set out
t o b e h o n e s t , but w h i c h p e r p e t r a t e fraud b e c a u s e , u n b e k n o w n t o
t h e m , t h e y h a v e d i s h o n e s t r e s e a r c h e r s w o r k i n g for t h e m . Possibly
t h e l a t t e r is t h e m o s t c o m m o n kind of fraud, b u t it is unlikely to
b e c o m e p u b l i c l y k n o w n b e c a u s e a c o m p a n y which d i s c o v e r s that
o n e of its officers had b e e n fudging d a t a will be e m b a r r a s s e d by its
failure t o p r e v e n t this from h a p p e n i n g u n d e r its n o s e .
T h r e e research directors interviewed were open enough to admit
t h a t t h e y had found i n s t a n c e s o f p e o p l e w h o w o r k e d for t h e m
fudging d a t a . I n n o n e o f t h e s e cases had t h e p r o b l e m g o n e p u b l i c .
W h y do e m p l o y e e s p r o d u c e d i s h o n e s t d a t a for a c o m p a n y w h i c h
d e m a n d s honesty of them?
T o b e g i n t o a p p r e c i a t e the a n s w e r t o this q u e s t i o n w e must h a v e
a n u n d e r s t a n d i n g o f t h e i n t e n s i t y o f c o m m i t m e n t o f m a n y scientists
t o t h e i r w o r k . T h e a b s o r p t i o n ' s y m b o l i z e d b y t h e idealized p o r t r a i t
o f t h e scientist g r a b b i n g c a t n a p s i n his l a b o r a t o r y while p u r s u i n g t h e
n e w e s t l e a d , rival t h e i m a g e s o f t h e g r e a t a r t i s t s ' ( S h a p o , 1979: 9 ) .
O n e A m e r i c a n e x e c u t i v e c h a r a c t e r i s e d t h e a t t i t u d e o f his scientists
as follows: ' T h e c h e m i s t w h o s y n t h e s i s e s a new c o m p o u n d is very
p o s s e s s i v e a b o u t it. It is his offspring, and he d e f e n d s it like a son or
d a u g h t e r . A l s o t h e p h a r m a c o l o g i s t w h o s h o w s t h a t this new c o m -
p o u n d has c e r t a i n effects of t h e r a p e u t i c v a l u e sees it as his b a b y . It is
n o t so m u c h t h a t t h e y will lie and c h e a t to defend it, but t h e y will be
b i a s e d . ' T h e line b e t w e e n bias and fraud is of c o u r s e a fine o n e , and

93
Safety testing of drugs: from negligence to fraud

t h e s a m e s e n s e o f o v e r c o m m i t m e n t which p r o d u c e s bias can lead t o


fraud. S u c h p r e s s u r e s for fraud are likely to be g r e a t e s t w h e r e a
s c i e n t i s t h a s b e e n p r o m o t e d or has built his or her prestige as "the
p e r s o n w h o d i s c o v e r e d X ' . P e r h a p s a scientist has m a d e p r e d i c t i o n s
a b o u t t h e safety of a d r u g b a s e d on early d a t a and t h e c o m p a n y has
i n v e s t e d a l a r g e a m o u n t of m o n e y on t h e s t r e n g t h of this p r e d i c t i o n .
F u r t h e r d a t a w h i c h s h o w t h e p r e d i c t i o n to be in e r r o r might be seen
as t h r e a t e n i n g a f o r t h c o m i n g d e c i s i o n on the p r o m o t i o n of the
scientist.
It is difficult to i m a g i n e h o w d e p r e s s i n g it m u s t be for scientists to
h a v e s p e n t m a n y y e a r s of their lives and m i l l i o n s of their c o m p a n y * s
m o n e y on a p r o d u c t to find t h a t it has b e e n a c o m p l e t e w a s t e . A p a r t
from this p s y c h o l o g i c a l p r e s s u r e , t h e r e is often a p r e s s u r e d e r i v i n g
from o r g a n i s a t i o n a l g o a l - s e t t i n g . T a k e the s i t u a t i o n of R i k e r , a
p h a r m a c e u t i c a l s u b s i d i a r y o f t h e 3 M c o r p o r a t i o n . I n o r d e r t o foster
i n n o v a t i o n , 3M i m p o s e s on R i k e r a goal t h a t e a c h y e a r 25 per cent
of g r o s s sales s h o u l d be of p r o d u c t s i n t r o d u c e d in t h e last five y e a r s .
N o w if R i k e r ' s r e s e a r c h division w e r e to have a long dry spell
t h r o u g h no fault of its o w n , but b e c a u s e all of its c o m p o u n d s had
t u r n e d o u t t o h a v e toxic effects, t h e o r g a n i s a t i o n w o u l d b e u n d e r
p r e s s u r e t o c h u r n s o m e t h i n g o u t t o m e e t t h e goal i m p o s e d b y
h e a d q u a r t e r s . R i k e r w o u l d not h a v e t o yield t o this p r e s s u r e . I t
c o u l d p r e s u m a b l y go to 3M and e x p l a i n t h e r e a s o n s for its run o f b a d
luck. T h e fact t h a t such goal r e q u i r e m e n t s do put r e s e a r c h d i r e c t o r s
u n d e r p r e s s u r e was well illustrated b y o n e A m e r i c a n e x e c u t i v e w h o
e x p l a i n e d t h a t r e s e a r c h d i r e c t o r s often forestall criticism of long dry
spells by s p r e a d i n g out d i s c o v e r i e s - s c h e d u l i n g t h e p r o g r a m m e so
that s o m e t h i n g new is always on the horizon.

S o m e t i m e s t h e goal p e r f o r m a n c e c r i t e r i o n w h i c h c r e a t e s p r e s s u r e
for f r a u d / b i a s is not for t h e p r o d u c t i o n of a c e r t a i n n u m b e r of
w i n n e r s but s i m p l y for c o m p l e t i n g a p r e d e t e r m i n e d n u m b e r of
e v a l u a t i o n s in a given y e a r . O n e m e d i c a l d i r e c t o r told me t h a t o n e
of his staff had run 10 trials which s h o w e d a d r u g to be clear on a
c e r t a i n t e s t , t h e n f a b r i c a t e d d a t a o n t h e r e m a i n i n g 9 0 trials t o s h o w
t h e s a m e r e s u l t . T h e fraud had b e e n p e r p e t r a t e d by a scientist w h o
w a s falling b e h i n d in his w o r k l o a d and w h o had an o b l i g a t i o n to
c o m p l e t e a c e r t a i n n u m b e r of e v a l u a t i o n s for t h e y e a r .
T h e p u r p o s e of this s e c t i o n has b e e n to s h o w that it is an overly
s i m p l i s t i c m o d e l o f c o r p o r a t e m i s c o n d u c t w h i c h a s s u m e s that all
fraud is m o t i v a t e d by t h e d e s i r e for profit. F r a u d can be an illegiti-
m a t e m e a n s to a c h i e v i n g any o n e of a w i d e r a n g e of o r g a n i s a t i o n a l

94
Safety testing of drugs: from negligence to fraud

a n d p e r s o n a l g o a l s w h e n l e g i t i m a t e m e a n s t o goal a t t a i n m e n t are
b l o c k e d ( G r o s s , 1978).

The problem of regulating subtleties

N o r e g u l a t o r y s c h e m e can ever effectively c o n t r o l t h e quality and


i n t e g r i t y of s c i e n c e . It is simply not p o s s i b l e to write a rule to
p r o h i b i t e v e r y t y p e o f a b u s e o f scientific o b j e c t i v i t y . C o n s i d e r the
following s t a t e m e n t by E p s t e i n ( 1 9 7 8 : 67) w h i c h gives an i m p r e s -
sion o f t h e infinity of sins of o m i s s i o n p o s s i b l e in t e s t i n g for c a n c e r in
animals.

O n e o f t h e most poorly conducted areas of animal cancer


r e s e a r c h i s t h e identification o f t h e c a n c e r i n t h e a n i m a l s ' b o d i e s .
T h e p r o c e s s of finding a c a n c e r in t h e fresh c a r c a s s of a m o u s e or
rat is different from t h e d i s c o v e r y of c a n c e r in a h u m a n by a
d o c t o r . T h e r o d e n t c a n n o t c o m p l a i n o f painful s y m p t o m s before
d e a t h . A l s o , since c a r c i n o g e n s may c a u s e c a n c e r in any of a wide
r a n g e o f o r g a n s , t h e e n t i r e b o d y o f t h e a n i m a l must b e
m e t i c u l o u s l y s e a r c h e d . T h i s is n o t p o s s i b l e if, t h r o u g h n e g l e c t or
p o o r h u s b a n d r y , t h e a n i m a l has b e e n a l l o w e d t o die and
d e c o m p o s e b e f o r e a n a d e q u a t e a u t o p s y , a s i s often t h e c a s e .

E p s t e i n later p o i n t s o u t five specific p l o y s which are a v a i l a b l e to


r e s e a r c h e r s w h o d o not w a n t t o find c a n c e r i n a n i m a l s yet w h o
w o u l d s h u d d e r a t t h e p r o s p e c t o f o u t r i g h t fraud.

1. U s i n g t o o few a n i m a l s [for a c a n c e r w h i c h t h e r e s e a r c h e r has


g r o u n d s to s u s p e c t will have only a low r a t e of i n c i d e n c e in
animals].
2. E x p o s u r e in excess o f t h e maximally tolerated dose, resulting
i n p r e m a t u r e a n i m a l d e a t h s before o n s e t o f c a n c e r .
3. D o s e s t o o low for the size o f t h e a n i m a l test g r o u p , r e s u l t i n g in
failure to o b t a i n a statistically significant i n c i d e n c e of t u m o r s .
4. D e l i b e r a t e p r e m a t u r e sacrifice of a n i m a l s for o t h e r "studies'
d u r i n g t h e c o u r s e o f t h e m a i n t e s t , t h u s d e p l e t i n g the n u m b e r o f
a n i m a l s r e m a i n i n g alive and at risk for c a n c e r .
5 . P r e m a t u r e t e r m i n a t i o n o f t h e test before sufficient t i m e has
e l a p s e d for t h e a n i m a l s t o d e v e l o p t u m o r s ( E p s t e i n . 1978: 3 0 1 ) .

Such abuses c a n n o t be regulated out of existence. The case


s t u d i e s i n this c h a p t e r h a v e b e g u n t o i l l u s t r a t e h o w existing criminal
l a w , d e s i g n e d to s a n c t i o n specific h e i n o u s a c t s , is at a loss to deal

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Safety testing of drugs: from negligence to fraud

w i t h a n i r r e s p o n s i b l e p a t t e r n o f c o n d u c t , n o individual e l e m e n t o f
w h i c h is s a n c t i o n a b l e in its o w n right. H e a l t h a u t h o r i t i e s can
e l i m i n a t e specific g r o s s a b u s e s , but in t h e final analysis the public is
a t t h e m e r c y o f t h e s c i e n t i s t ' s i n t e g r i t y . C l e a r l y s o m e scientists and
s o m e d r u g c o m p a n i e s h a v e m o r e i n t e g r i t y t h a n o t h e r s . T h e medical
d i r e c t o r of an A m e r i c a n c o m p a n y told of an instance w h e n a
c o n t r a c t lab had d o n e only r i g h t - a n g l e d s e c t i o n s o n t h e o r g a n s o f
sacrificed a n i m a l s . He insisted on o b l i q u e s e c t i o n s as well to
i n c r e a s e t h e p r o b a b i l i t y of finding a p r o b l e m w h i c h he had r e a s o n to
s u s p e c t m i g h t exist. R e g u l a t i o n s can n e v e r force scientists to go the
e x t r a m i l e w h e n t h e r e i s r e a s o n t o d o so. I n d e e d , o n e o f t h e d a n g e r s
of o v e r - r e g u l a t i o n is t h a t it can e n g e n d e r an a t t i t u d e t h a t p e o p l e
h a v e no r e s p o n s i b i l i t y b e y o n d t h a t w h i c h is set d o w n in the r e g u l a -
t i o n s . A t least this w a s t h e view o f s o m e r e s p o n d e n t s a b o u t the
i m p a c t o f ' o v e r - r e g u l a t i o n ' o n their w o r k a t t i t u d e s and t h o s e o f
their employees.

S u c h an a t t i t u d e , like o t h e r costs of r e g u l a t i o n , is not an inevit-


a b l e c o n s e q u e n c e of r e g u l a t i o n . It can be a v o i d e d by a b a l a n c e d
a p p r e c i a t i o n o f t h e limits o f r e g u l a t i o n , and a n a p p r o p r i a t e mix o f
e n f o r c e m e n t o f s t a n d a r d s and e d u c a t i o n a s t o social r e s p o n s i b i l i -
t i e s . L e t u s c o n s i d e r s o m e o t h e r a v o i d a b l e costs o f r e g u l a t i o n . O n e
o f t h e m o s t telling criticisms from i n d u s t r y o f t h e F D A ' s G L P
r e g u l a t i o n s w a s t h a t t h e y would stultify m e t h o d o l o g i c a l i n n o v a t i o n
in t o x i c o l o g i c a l r e s e a r c h . T h e d a n g e r w a s t h a t a set of rules w o u l d
be w r i t t e n w h i c h e m b o d i e d t h e state of t h e art of toxicological
e x p e r i m e n t a t i o n in 1978. T h a t state o f t h e art w o u l d be frozen for
d e c a d e s b e c a u s e t o e x p e r i m e n t w i t h n e w s t a n d a r d s w o u l d b e illegal.
T h e p r o b l e m w a s solved w h e n t h e F D A a g r e e d t o e x c l u d e ' s t u d i e s
t o d e v e l o p n e w m e t h o d o l o g i e s for t o x i c o l o g y e x p e r i m e n t a t i o n '
from t h e s c o p e o f t h e G L P r e g u l a t i o n s .

A r e a l i s t i c a p p r a i s a l leads to t h e c o n c l u s i o n that t h e F D A .
p e r h a p s unlike many other US regulatory agencies, has done more
to foster m e t h o d o l o g i c a l i n n o v a t i o n t h a n to stultify it. A n u m b e r of
i n t e r v i e w r e s p o n d e n t s p o i n t e d o u t t h a t w h e n a n F D A i n s p e c t o r sees
a g o o d n e w idea in t h e c o u r s e of an i n s p e c t i o n , h e / s h e will tell
c o l l e a g u e s and o t h e r c o m p a n i e s w h o h a v e not c a u g h t o n t o the
i m p r o v e m e n t . S i n c e F D A r e g u l a t i o n s are b a s e d o n the c u r r e n t state
o f t h e a r t , t h e i n n o v a t i o n m a y in t i m e c o m e to be r e g a r d e d as such
an i m p o r t a n t s a f e g u a r d as to d e s e r v e m a n d a t o r y status as a regula-
t i o n . T h i s role of t h e F D A in fostering i n n o v a t i o n is a m a t t e r of
c o n s i d e r a b l e c o n c e r n t o c o m p a n i e s , and p e r i o d i c a t t e m p t s are

96
Safety testing of drugs: from negligence to fraud

m a d e to pull into line c o m p a n i e s w h i c h m a k e a habit of i n t r o d u c i n g


n e w safety m e a s u r e s w h i c h u l t i m a t e l y b e c o m e a n i n d u s t r y - w i d e
b u r d e n . T h e R e g u l a t o r y Affairs D i r e c t o r o f a n A m e r i c a n c o r p o r -
a t i o n justified this n e e d to c o n t r o l safety i n n o v a t i o n by c o m p e t i t o r s
b y s a y i n g : ' C o m p a n i e s d o n ' t w a n t t o leap-frog t h e m s e l v e s into
bankruptcy.'
It is i m p o r t a n t to realise t h a t r e g u l a t i o n s do entail costs. It should
b e i n c u m b e n t u p o n r e g u l a t o r y a g e n c i e s t o p r e p a r e cost o f regu-
l a t i o n i m p a c t s t a t m e n t s before r u s h i n g i n w i t h new r e q u i r e m e n t s .
A t t h e s a m e t i m e , t h e r e i s n o need t o s u c c u m b t o a s s u m p t i o n s that
all such c o s t s a r e i n e v i t a b l e . T h i s is t h e t r a p w h i c h industry i d e o -
l o g u e s foster. T a k e t h e following s t a t e m e n t i n a n A b b o t t L a b o r a -
t o r i e s d o c u m e n t o n t h e costs o f r e g u l a t i o n :

It is r i d i c u l o u s to try to explain to a l a y m a n i n v e s t i g a t o r from t h e


F D A w h y y o u d a r e d to use a p a t i e n t w h o s e urine specific gravity
w a s 1.008, b e c a u s e t h e n o r m a l in y o u r lab is 1.010 to 1.025. He
p r o b a b l y had a n e x t r a glass o f w a t e r t h a t m o r n i n g that c h a n g e s
it."

T h e p o i n t is t h a t t h i s d o e s seem so difficult to e x p l a i n . M o r e o v e r ,
t h e i m p r e s s i o n c o m m u n i c a t e d by m o s t of t h e o p e r a t i n g staff of
c o r p o r a t i o n s i n t e r v i e w e d was t h a t t h e great majority o f g o v e r n m e n t
i n s p e c t o r s were o p e n to persuasion w h e n they a t t e m p t e d to impose
scientifically i r r a t i o n a l r e g u l a t o r y r e q u i r e m e n t s . R e g u l a t o r y Affairs
staff, h o w e v e r , fairly c o n s i s t e n t l y e s p o u s e d the view that r e g u l a -
t i o n s i n e v i t a b l y p r o d u c e d i r r a t i o n a l i t y . R e g u l a t i o n s s o m e t i m e s are
i m p o s e d a r b i t r a r i l y and i r r a t i o n a l l y b y c e r t a i n g o v e r n m e n t in-
s p e c t o r s , b u t a r b i t r a r i n e s s and i r r a t i o n a l i t y are not a n i n e v i t a b l e
c o n s e q u e n c e of r e g u l a t i o n per se. T h e s o l u t i o n is not to do away
w i t h r e g u l a t i o n , but t o d i s m i s s (or transfer t o o t h e r d u t i e s ) irrational
i n s p e c t o r s , a n d to be on g u a r d against r e g u l a t i o n s w h i c h in p r a c t i c e
p r o v e c o s t - i n e f f e c t i v e . T h e a n t i - r e g u l a t o r y i d e o l o g y is seen at its
worst in the same A b b o t t document:

Of course there are going to be rare occasions w h e r e investigators


will b e d i s h o n e s t . H u m a n e x p e r i e n c e m a k e s i t perfectly clear t h a t
t h e r e a r e p e r s o n s w i t h less t h a n t h e o p t i m u m d e g r e e o f integrity
in e v e r y walk of life. T h e q u e s t i o n is w h e t h e r t h e a t t e m p t to
t r i p - u p this small g r o u p by an e v e r i n c r e a s i n g n u m b e r of
r e g u l a t o r y h u r d l e s is w o r t h t h e price paid. . . . T h e r e are nearly
13,000 i n d i v i d u a l clinical i n v e s t i g a t o r s a c c o r d i n g to t h a t d i v i s i o n ' s

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Safety testing of drugs: from negligence to fraud

c o m p u t e r listing, o f w h i c h a total o f 2 8 have b e e n disqualified and


a r e n o l o n g e r eligible t o w o r k o n I N D ' s o r N D A ' s . C a n 0 . 2 % o f
the clinical i n v e s t i g a t o r s d o e n o u g h h a r m t o w a r r a n t s o m u c h
a t t e n t i o n ? It is a l w a y s n e c e s s a r y to h a v e several studies a n d ,
t h e r e f o r e , more than one investigator working on a candidate
d r u g . A r e s t r i n g e n t r e g u l a t i o n s b i n d i n g every i n v e s t i g a t o r t o
t e d i o u s and e x p e n s i v e a d m i n i s t r a t i v e p r o c e d u r e s justifiable
m e r e l y t o i n c r e a s e t h e c h a n c e o f c a t c h i n g the o n e bad i n v e s t i g a t o r
out of500?

T h e i n c i d e n c e o f h o m i c i d e , s e r i o u s a s s a u l t and r o b b e r y a r e all less


1 5
t h a n o n e i n 500 o f t h e g e n e r a l p o p u l a t i o n . D o e s this m e a n that w e
s h o u l d s t o p s p e n d i n g t h e vast p o l i c e , p r i s o n s and c o u r t b u d g e t s t o
r e g u l a t e such c r i m e s , b u d g e t s m a n y t i m e s g r e a t e r t h a n t h o s e o f
h e a l t h r e g u l a t o r y a u t h o r i t i e s ? A c u r i o u s thing a b o u t t h e A b b o t t
s t a t e m e n t is t h a t it t a l k s of an ' o p t i m u m d e g r e e of i n t e g r i t y ' . O n e
w o n d e r s w h a t kind o f r e s e a r c h e r A b b o t t w o u l d c o n s i d e r t o have t o o
much integrity.
W h i l e r e j e c t i n g t h e m o r e s w e e p i n g forms o f industry r h e t o r i c
a b o u t r e g u l a t i o n , it is n e c e s s a r y to c o m e to grips with t h e fact t h a t
r e g u l a t i o n offers less p r o t e c t i o n t o c o n s u m e r s t h a n internal
c o m p a n y safety s t a n d a r d s . T h i s i s u n q u e s t i o n a b l y t r u e o f risks
p o s e d t o p a t i e n t s i n t h e safety t e s t i n g o f n e w d r u g s . O n e U S R e g u -
l a t o r y Affairs D i r e c t o r p o i n t e d out s o m e t h i n g which w o u l d b e true
of m o s t c o m p a n i e s in t h e i n d u s t r y : 'Since I've b e e n at [my c o m p a n y ]
t h e r e h a s not b e e n o n e case w h e r e t h e F D A has r e q u i r e d u s t o stop
clinical t r i a l s on a d r u g b e c a u s e t h e r e h a v e b e e n p r o b l e m s with it,
but t h e r e h a v e b e e n m a n y cases w h e r e t h e c o m p a n y has d o n e s o . '
O f c o u r s e o n e can a r g u e t h a t c o m p a n i e s often s t o p testing a d a n g e r -
o u s d r u g only b e c a u s e m a r k e t forces and p o t e n t i a l p r o d u c t liability
c o s t s force t h e m to do it. W h a t e v e r t h e r e a s o n , t h e fact is t h a t they
m o r e often do it of t h e i r own volition t h a n b e c a u s e of r e g u l a t o r y
compulsion.

I n e v i t a b l y , t h e c o m p a n y will c o m e t o k n o w o f m o s t p r o b l e m s
long b e f o r e t h e r e g u l a t o r s . T h e y h a v e m o r e i n f o r m a t i o n r e p o r t e d t o
t h e m , m o r e staff c a p a b l e o f a s s e s s i n g t h a t i n f o r m a t i o n , and m o r e
i n t i m a t e k n o w l e d g e of a p r o d u c t w h i c h they c r e a t e d . E x t e r n a l l y
i m p o s e d r e g u l a t i o n is t h e r e f o r e not only a m o r e c l u m s y tool than
s e l f - r e g u l a t i o n to c o n t r o l t h e s u b t l e t i e s of scientific a b u s e , it is a tool
w h i c h will n o r m a l l y only be a p p l i e d after t h e d a m a g e is d o n e . T h e
fact t h a t s e l f - r e g u l a t i o n offers m o r e p r o t e c t i o n t h a n e x t e r n a l

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Safety testing of drugs: from negligence to fraud

r e g u l a t i o n i s e v e n m o r e o v e r w h e l m i n g l y t h e case i n m a n y c o u n t r i e s ,
including the d e v e l o p e d e c o n o m i e s of D e n m a r k , Finland, N o r w a y ,
S p a i n , S w i t z e r l a n d and G e r m a n y , ' " w h e r e g o v e r n m e n t a p p r o v a l i s
not r e q u i r e d b e f o r e a c o m p a n y b e g i n s p r e l i m i n a r y safety t e s t i n g of a
new drug on h u m a n beings. W h e r e there is no external regulation,
s e l f - r e g u l a t i o n p r o v i d e s t h e sole p r o t e c t i o n .

Making self-regulation work

I n t e r n a l c o m p a n y i n s p e c t o r s a r e m o r e likely t o k n o w w h e r e the
b o d i e s a r e b u r i e d t h a n g o v e r n m e n t i n s p e c t o r s . T h e medical
d i r e c t o r m e n t i o n e d a b o v e w h o b e c a m e s u s p i c i o u s t h a t o n e o f his
s c i e n t i s t s had c o n d u c t e d a 100-trial s t u d y by r u n n i n g 10 and fabri-
c a t i n g 9 0 had a v a i l a b l e m a n y w a y s o f c h e c k i n g o u t his d o u b t s . H e
c o u l d verify t h e n u m b e r o f a n i m a l s t a k e n from t h e a n i m a l s t o r e , the
a m o u n t o f d r u g s u b s t a n c e which had b e e n u s e d , t h e n u m b e r o f
s a m p l e s w h i c h had b e e n t e s t e d , and s o o n . H i s familiarity with t h e
l a b o r a t o r y m a d e this e a s y . As an i n s i d e r he could do so quietly
w i t h o u t r a i s i n g t h e kind of a l a r m w h i c h might lead t h e c r i m i n a l to
p o u r a n a p p r o p r i a t e a m o u n t o f d r u g s u b s t a n c e d o w n t h e sink. F o r a
g o v e r n m e n t i n s p e c t o r this w o u l d h a v e b e e n m o r e difficult.
F D A G o o d L a b o r a t o r y P r a c t i c e s r e g u l a t i o n s have r e c o g n i s e d
this f u n d a m e n t a l reality and p l a c e d p r e d o m i n a n t r e l i a n c e on self-
regulatory m e c h a n i s m s . Each drug-testing laboratory is required by
t h e r e g u l a t i o n s t o h a v e a Q u a l i t y A s s u r a n c e U n i t ( Q A U ) w h i c h will
act as an i n t e r n a l p o l i c e m a n of r e g u l a t o r y c o m p l i a n c e . Such a
s e l f - r e g u l a t o r y r e q u i r e m e n t shifts t h e financial b u r d e n o f r e g u l a t i o n
a w a y from g o v e r n m e n t and on to t h e c o r p o r a t i o n . It is r e a s o n a b l e
t h a t a c o m p a n y w h i c h m a k e s a profit b e c a u s e o f t h e benefits of a
d r u g s h o u l d also b e a r t h e cost of p r o t e c t i n g the public from its
p o t e n t i a l d a n g e r s . " S e c o n d , a s w e shall see later i n the b o o k , e v e n
t h e w e a l t h i e s t g o v e r n m e n t s i n t h e w o r l d c a n n o t afford effective
i n s p e c t i o n of c o r p o r a t e c o n d u c t as a m a t t e r of sheer b u d g e t a r y
p r a c t i c a l i t y . T h e F D A w a s q u i c k t o learn from the S e a r l e investi-
g a t i o n t h a t i n - d e p t h r e t r o s p e c t i v e r e v i e w o f d a t a w a s a n o p t i o n that
t h e a g e n c y c o u l d only afford i n e x t r a o r d i n a r y c i r c u m s t a n c e s .
The decision to t h r o w the major b u r d e n of regulation on to an
internal Q A U raised some thorny issues, however. Industry argued
t h a t i f Q A U s had t o m a k e their f i n d i n g s a v a i l a b l e t o t h e F D A , t h e n
t h e i r e f f e c t i v e n e s s as a m a n a g e m e n t tool to e n s u r e t h e quality of
r e s e a r c h w o u l d b e u n d e r m i n e d . A Q A U w h i c h k n e w t h a t its

99
Safety testing of drugs: from negligence to fraud

c o m m e n t s w o u l d b e read b y F D A officials (and b y c o n s u m e r g r o u p s


w h o c o u l d get t h e c o m m e n t s from the F D A u n d e r F r e e d o m o f
I n f o r m a t i o n laws) w o u l d be less t h a n frank in its r e p o r t s to
m a n a g e m e n t . Q A U r e p o r t s w o u l d b e c o m e a public r e l a t i o n s
function of t h e c o m p a n y r a t h e r t h a n a c o m p l i a n c e function. T h e
F D A w a s p e r s u a d e d by this a r g u m e n t and d e c i d e d t h a t , as a m a t t e r
o f a d m i n i s t r a t i v e p o l i c y , i n s p e c t o r s w o u l d not r e q u e s t r e p o r t s o f
f i n d i n g s a n d p r o b l e m s u n c o v e r e d b y t h e Q A U o r r e c o r d s o f cor-
r e c t i v e a c t i o n s r e c o m m e n d e d and t a k e n . F D A i n s p e c t o r s w o u l d
still a u d i t t h e Q A U to e n s u r e t h a t it had effective c o m p l i a n c e
s y s t e m s i n place and t o c h e c k c e r t a i n o b j e c t i v e c o m p l i a n c e c r i t e r i a .
H o w e v e r , t h e s e r e c o r d s a v a i l a b l e for r e g u l a r i n s p e c t i o n would b e
s e p a r a t e d from r e p o r t s o f f i n d i n g s and p r o b l e m s and c o r r e c t i v e
a c t i o n s r e c o m m e n d e d . W h i l e t h e latter Q A U r e p o r t s w o u l d b e
t r e a t e d a s c o n f i d e n t i a l c o m p a n y d o c u m e n t s b y t h e F D A , this d o e s
not p r e v e n t a c o u r t r e q u i r i n g the t a b l i n g o f any Q A U r e p o r t , j u s t a s
c o u r t s c a n d e m a n d o t h e r t y p e s o f c o m p a n y d o c u m e n t s which are
c o n f i d e n t i a l for r o u t i n e i n s p e c t o r i a l p u r p o s e s . We will r e t u r n to this
issue in C h a p t e r 9.
A n e x e m p l a r y r e q u i r e m e n t o f t h e G L P s i s t h a t Q A U status
r e p o r t s m u s t r o u t i n e l y b e p l a c e d before the study d i r e c t o r and
m a n a g e m e n t o f t h e c o m p a n y . O t h e r r e g u l a t o r y s c h e m e s tend t o
ignore the i m p o r t a n c e of ensuring that people at the top of an
o r g a n i s a t i o n k n o w a b o u t r e g u l a t o r y p r o b l e m s b o t h s o t h a t they can
be h e l d legally a c c o u n t a b l e for t h e m and so that they might be
forced to t a k e rectifying a c t i o n . T h e n e e d for formal m e c h a n i s m s to
e n s u r e t h a t ' b a d n e w s ' g e t s t o the t o p w a s a c e n t r a l t h e m e i n S t o n e ' s
seminal analysis of corporate crime:

First, as to getting to the higher-ups information a d e q u a t e to


a p p r e c i a t e t h e legal j e o p a r d y t h e i r c o m p a n y is in, t h e r e is a
n a t u r a l t e n d e n c y for ' b a d n e w s ' o f a n y sort not to rise to t h e t o p in
an o r g a n i z a t i o n . A s c r e e n i n g p r o c e s s t a k e s p l a c e , such t h a t if a
c o m p a n y has b e e n t o u t i n g a n e w d r u g , and t h e drug b e g i n s
' e x p e r i e n c i n g difficulties' i n the l a b , lab e m p l o y e e s and t h e i r
s u p e r v i s o r s j u s t ' k n o w ' t h a t i n f o r m a t i o n a b o u t this i s t o b e p a s s e d
u p w a r d , if at all, only in t h e v a g u e s t t e r m s . If an a u t o m o b i l e
c o m p a n y has r e t o o l e d and i s g e a r e d t o p r o d u c e 500,000 units o f
s o m e car, a test d r i v e r or his s u p e r v i s o r k n o w s that i n f o r m a t i o n
s u g g e s t i n g t h a t t h e car t u r n s o v e r t o o easily is not g o i n g to be
w e l c o m e d ' u p s t a i r s ' . W o r s e still, c e r t a i n sorts o f w r o n g d o i n g o f a

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Safety testing of drugs: from negligence to fraud

m o r e s e r i o u s sort - for e x a m p l e , price-fixing or o t h e r c r i m i n a l


activity - is not j u s t s c r e e n e d o u t c a s u a l l y ; it b e c o m e s the j o b of
s o m e o n e , p e r h a p s t h e g e n e r a l c o u n s e l , t o i n t e r c e p t any such
i n f o r m a t i o n t h a t c o u l d ' t a i n t ' his p r e s i d e n t o r b o a r d c h a i r m a n ,
d i v u l g i n g his s u s p i c i o n s only in p r i v a t e , if at all. In this w a y , t h e
law n o t o n l y fails to b r i n g a b o u t t h e n e c e s s a r y i n t e r n a l flow of
information, it may systematically operate to keep information,
o f w r o n g d o i n g a w a y from t h e very p e o p l e w h o m i g h t best d o
s o m e t h i n g a b o u t i t ( S t o n e , 1975: 4 4 - 5 ) .

T h e s t r u c t u r e d c o m m u n i c a t i o n b l o c k a g e which p r o t e c t e d t h e
R i c h a r d s o n - M e r r e l l b o a r d from k n o w l e d g e o f t h e M E R / 2 9 fraud
i l l u s t r a t e s S t o n e ' s p o i n t . S t o n e a r g u e s t h a t t h e law h a s a n i m p o r t a n t
role t o play i n e n s u r i n g t h a t t r a n s n a t i o n a l c o r p o r a t i o n s h a v e a n
effective i n t e r n a t i o n a l c o m m u n i c a t i o n s s y s t e m . F o r a p h a r m a -
c e u t i c a l c o m p a n y , i n f o r m a t i o n a b o u t t h e safety o f its p r o d u c t s
s h o u l d be g a t h e r e d not only from its o w n l a b o r a t o r i e s a r o u n d t h e
w o r l d , b u t also from d o c t o r s , h o s p i t a l s , p h a r m a c i s t s , u n i v e r s i t y
r e s e a r c h e r s , health regulatory authorities, independent contract
l a b o r a t o r i e s , a n d c o m p e t i t o r s i n all c o u n t r i e s . M o r e o v e r , c o l l e c t i n g
the information is not e n o u g h . The information, digested in an
a p p r o p r i a t e form for a c t i o n , m u s t b e d e l i v e r e d t o t h e ' r i g h t ' d e s k s .
T h e t h a l i d o m i d e d i s a s t e r s h o w e d t h a t this i s exactly w h a t d o e s not
h a p p e n i n p h a r m a c e u t i c a l c o m p a n i e s . B a d n e w s from o n e p a r t o f
t h e w o r l d d o e s n o t t r a v e l quickly e n o u g h t o o t h e r p a r t s o f t h e w o r l d .
M o s t r e g u l a t o r y a g e n c i e s only r e q u i r e t h a t a d v e r s e r e a c t i o n s which
c o m e to t h e a t t e n t i o n of t h e c o m p a n y within their country be
reported.
S e l f - r e g u l a t i o n s h o u l d b e m o r e t h a n s e t t i n g u p i n t e r n a l policing
s y s t e m s . T h e very s t r u c t u r e of a r e s e a r c h o r g a n i s a t i o n will have
i m p l i c a t i o n s for c r i m e p r e v e n t i o n , and p r e v e n t i n g fraud o u g h t to be
a c o n s i d e r a t i o n in d e c i s i o n s on o r g a n i s a t i o n a l s t r u c t u r e s . P e r h a p s
the most criminogenic research a r r a n g e m e n t is a hierarchical o n e ,
c e n t r a l l y c o n t r o l l e d by a study d i r e c t o r w h o gives a d i s c r e t e task to
each s u b o r d i n a t e . E v e r y m e m b e r of the research organisation
r e p o r t s t o j u s t o n e s u p e r i o r . A n y o n e p e r s o n i s a w a r e only o f w h a t
s/he a n d t h e p e o p l e w h o a n s w e r t o h i m / h e r are d o i n g . B e y o n d t h i s ,
e a c h r e s e a r c h e r is in t h e d a r k as to w h a t t h e o t h e r is d o i n g . ' B a d
n e w s ' c a n be s t o p p e d by o n e s u p e r i o r w h o d e c i d e s t h a t it will rise no
further in the organisational hierarchy.
O p p o s e d t o this i s a r e s e a r c h t e a m a p p r o a c h , c o m m o n l y

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Safety testing of drugs: from negligence to fraud

c h a r a c t e r i s e d i n i n d u s t r y a s m a t r i x m a n a g e m e n t . H e r e t h e study
d i r e c t o r is the c o o r d i n a t o r o f a system of inter-relationships among
1 1
r e s e a r c h e r s . E a c h has a task w h i c h o v e r l a p s with s o m e o n e else's
t a s k . It is t h e r e f o r e e s s e n t i a l t h a t e a c h k n o w s w h a t t h e o t h e r is
d o i n g . To facilitate this t h e m a t r i x r e s e a r c h t e a m will typically have
a w e e k l y m e e t i n g w h e r e e a c h m e m b e r will give a r e p o r t on
p r o g r e s s . W h e n different p e o p l e are w o r k i n g o v e r t h e s a m e f i g u r e s
it is m o r e difficult to fiddle t h o s e figures. U n d e r a system w h e r e
e v e r y o n e k n o w s w h a t e v e r y o n e else is d o i n g it is hard to p r e v e n t bad
n e w s from r e a c h i n g t h e t o p . C o n v e r s e l y , it is difficult for s o m e o n e
at t h e t o p to q u i e t l y p a s s d o w n an i n s t r u c t i o n to have s o m e dirty
work done. The research director of an American transnational
w h i c h h a d c h a n g e d from a h i e r a r c h i c a l to a m a t r i x r e s e a r c h o r g a n -
i s a t i o n e x p l a i n e d : ' U n d e r t h e old system I could go and tell one of
my s e c t i o n h e a d s to t h r o w o u t a sick rat and not tell a n y o n e a b o u t it.
U n d e r t h e n e w s y s t e m this i s not p o s s i b l e . '

Financial dependence and scientific independence

T h e p r o b l e m o f t h e financial d e p e n d e n c e o f c o n t r a c t labs i s
p o i n t e d l y i l l u s t r a t e d by t h e following view of P e t e r N o e l from o n e of
the largest British contract labs, the H u n t i n g t o n Research C e n t r e .

N o t u n c o m m o n l y , w e a r e a s k e d : 'Will y o u p l e a s e p r e p a r e a
p r o t o c o l and e s t i m a t e of cost for a 3 - ( 6 - e t c . ) m o n t h study in rats
( d o g s , p r i m a t e s , e t c . ) on a d r u g ( p e s t i c i d e , food a d d i t i v e , e t c . ) ? '
W e h a v e l e a r n e d t h a t h o w e v e r p r e c i s e and d e t a i l e d o u r
p r o t o c o l s , it is t h e e s t i m a t e o f c o s t a l o n e which is o c c a s i o n a l l y the
b a s i s for s e l e c t i n g a t e s t i n g facility. L o w e r costs have n o t
i n f r e q u e n t l y b e e n r e a c h e d b y a b b r e v i a t i n g p r o t o c o l s and
s o m e t i m e s , s p o n s o r s could not, or would not, appreciate the
d i f f e r e n c e s i n t h e c o n t e n t s o f t h e study p r o p o s e d . T h e
i n t r o d u c t i o n o f f i n a n c i a l c o n s i d e r a t i o n s leads t o c o m p e t i t i o n
( N o e l , 1977: 112).

C o m p e t i t i o n in p r i c e t a k e s place at t h e e x p e n s e of c o m p e t i t i o n in
q u a l i t y b e c a u s e w h e r e a s t h e s p o n s o r suffers directly from higher
p r i c e s , often it is only t h e c o n s u m e r w h o will suffer from p o o r e r
q u a l i t y . W h e n m a r k e t m e c h a n i s m s h a v e a n anti-social effect o f t h i s
k i n d , t h e r e is an o b v i o u s n e e d for r e g u l a t i o n s w h i c h set a m i n i m u m
s t a n d a r d b e l o w w h i c h no r e s e a r c h o r g a n i s a t i o n is a l l o w e d to fall in
r e s p o n s e t o m a r k e t p r e s s u r e s . A further p r o t e c t i o n a g a i n s t b i d d i n g

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Safety testing of drugs: from negligence to fraud

q u a l i t y a w a y is for t h e s p o n s o r to write into t h e c o n t r a c t a r e q u i r e -


m e n t t h a t G L P s m u s t b e followed b y t h e l a b o r a t o r y . This p r a c t i c e ,
n o w followed b y m a n y A m e r i c a n c o m p a n i e s , i s b o t h a n extra legal
p r o t e c t i o n for t h e s p o n s o r , and s o m e p r o t e c t i o n for t h e r e s p o n s i b l e
c o n t r a c t lab from t h e price c u t t e r w h i c h i s p r e p a r e d t o i g n o r e G L P s .
T h e f i n a n c i a l d e p e n d e n c e o f c o n t r a c t l a b o r a t o r i e s has also b e e n a
p r o b l e m which has c o n c e r n e d the E n v i r o n m e n t a l Protection
A g e n c y i n t h e U n i t e d S t a t e s . T h a t a g e n c y h a s b e e n giving c o n s i d e r -
ation to limiting the p r o b l e m by m e a s u r e s to ensure that contract
labs d o not b e c o m e f i n a n c i a l l y d e p e n d e n t u p o n one o r m o r e
p e s t i c i d e m a n u f a c t u r e r s . O n e t e c h n i q u e w o u l d limit the p r o p o r t i o n
of its b u s i n e s s t h a t any c o n t r a c t l a b o r a t o r y could h a v e with a par-
t i c u l a r p e s t i c i d e p r o d u c e r . T h i s p r o p o s a l is a clumsy b u r e a u c r a t i c
o n e w h i c h p r o v i d e s little real g u a r a n t e e o f g r e a t e r i n t e g r i t y .
In this c h a p t e r it has b e e n seen h o w a s p o n s o r can a b r o g a t e its
o w n r e s p o n s i b i l i t y for r e s e a r c h s t a n d a r d s t h r o u g h a n u n s p o k e n
u n d e r s t a n d i n g with a c o n t r a c t l a b o r a t o r y w h i c h p r o d u c e s the
findings i t w a n t s . W h i l e this c e r t a i n l y d o e s h a p p e n , i t d o e s not
necessarily m e a n that the contract laboratory a r r a n g e m e n t is
i n h e r e n t l y inferior t o i n - h o u s e a r r a n g e m e n t s ( W i l c o x e t a l . , 1978:
1 4 - 5 ) . C o n t r a c t i n g o u t r e s e a r c h d o e s p e r m i t s p o n s o r s w i t h integrity
t o d i s t a n c e t h e i r r e s e a r c h p e o p l e from e v a l u a t i o n o f ' t h e i r own
b a b y ' . O f t e n it is i m p o r t a n t to give different secret c o d e s to t h e n e w
p r o d u c t , an e x i s t i n g p r o d u c t with w h i c h it is to be c o m p a r e d , and a
p l a c e b o i n o r d e r t o p r e v e n t u n i n t e n t i o n a l (or i n t e n t i o n a l ) b i a s e s
affecting t h e i n t e r p r e t a t i o n o f t h e effects o f t h e t h r e e t r e a t m e n t s .
B r e a k i n g t h e s e c r e c y of t h e c o d e is p r o b a b l y less likely to o c c u r
b e t w e e n o r g a n i s a t i o n s than within one organisation. On the other
h a n d , a s p o n s o r c o m p a n y which has a n o u t s t a n d i n g c o m p l i a n c e
s y s t e m is in a b e t t e r p o s i t i o n to apply its s t a n d a r d s of e x c e l l e n c e to
i n - h o u s e t h a n t o o u t s i d e w o r k . I n t e r n a l c o r p o r a t e p o l i c e m e n can
m o r e r e a d i l y d i s c o v e r t h e s k e l e t o n s i n t h e i r own c o r p o r a t e closets
t h a n t h e y can t h o s e o f o t h e r c o m p a n i e s .
T h e c o n t r a c t l a b o r a t o r y r e l a t i o n s h i p p e r m i t s c o m p e t i t i v e forces
to be for g o o d or ill. B u t t h e r e is no r e a s o n why they c a n n o t be
h a r n e s s e d for g o o d . A s t a t e m e n t b y f o r m e r F D A C o m m i s s i o n e r
S c h m i d t b e f o r e t h e S e n a t e is a first step to u n d e r s t a n d i n g h o w this
can b e d o n e .

T h e r e a r e p o w e r f u l e c o n o m i c and legal i n c e n t i v e s for d r u g


m a n u f a c t u r e r s t o c a r r y out a d e q u a t e a n i m a l s t u d i e s o f their

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Safety testing of drugs: from negligence to fraud

p r o d u c t s . S i m i l a r t o x i c o l o g i c a l s t u d i e s are d o n e o n closely related


d r u g s b y different d r u g f i r m s , and c o m p e t i t o r s ' p r o d u c t s are not
u n c o m m o n l y i n c l u d e d in such s t u d i e s . T h i s c r o s s - c h e c k , a
b y - p r o d u c t o f t h e free e n t e r p r i s e s y s t e m , p r o v i d e s a strong
s t i m u l u s to i n d i v i d u a l drug firms to have a c c u r a t e d a t a on their
o w n p r o d u c t s ( S u b c o m m i t t e e o n H e a l t h , 1976a: P a r t II, 9 2 ) .

R e g u l a t o r y a g e n c i e s can foster this c o m p e t i t i v e c h e c k b y


r e q u i r i n g t w o c o m p a n i e s s e e k i n g t o e n t e r a m a r k e t with similar
p r o d u c t s t o e a c h d o c o m p a r a t i v e s t u d i e s with t h e o t h e r ' s p r o d u c t .
F o r a d e c a d e S e n a t o r G a y l o r d N e l s o n a t t e m p t e d t o p e r s u a d e the
US C o n g r e s s to a c c e p t a t h i r d - p a r t y t e s t i n g bill. N e l s o n ' s basic
a r g u m e n t had b e e n t h a t industry s h o u l d b e n e i t h e r testing t h e safety
of its o w n p r o d u c t n o r d e c i d i n g w h o will do t h a t testing for t h e m .
T h e cost t o t h e t a x p a y e r o f g o v e r n m e n t d o i n g all d r u g t e s t i n g w o u l d
b e b e y o n d t h e p o s s i b l e . I n d u s t r y critics a r g u e that t h e g o v e r n m e n t
s h o u l d do t h e t e s t i n g , b u t industry foot the bill. Dr S c h m i d t has
p o i n t e d out some o f t h e a r g u m e n t s against a g o v e r n m e n t monopoly
o f d r u g testing.

It is i n e v i t a b l e t h a t in c a r r y i n g out its a c t i v i t i e s , the G o v e r n m e n t


w o u l d c o m e to set r e s e a r c h p r i o r i t i e s . Since I b e l i e v e t h a t all
m o n o p o l i e s , w h e t h e r public or private, tend to stagnate, the
p r o s p e c t o f a n y single i n s t i t u t i o n g a i n i n g such c o n t r o l o v e r all
preclinical drug investigation troubles me. Second, 'disinterest'
d o e s n o t in any s e n s e a s s u r e q u a l i t y , a l t h o u g h it may e l i m i n a t e
outright bias of certain kinds.
W e a t F D A u n f o r t u n a t e l y k n o w , from a n e m b a r r a s s i n g ,
w e l l - p u b l i c i z e d m i x u p of a n i m a l s in t h e c o u r s e of an F D A study
o f R E D N o . 2 , t h a t G o v e r n m e n t t e s t i n g i s v u l n e r a b l e t o the s a m e
p r o b l e m s of quality control as testing d o n e by private firms.
T h i r d , a fact of life is t h a t m o s t t o x i c o l o g y l a b o r a t o r i e s and
t o x i c o l o g i s t s are a l r e a d y e s t a b l i s h e d in p r i v a t e i n d u s t r y , so t h a t
n o n i n d u s t r y facilities and p e r s o n n e l for this w o r k simply are not
a v a i l a b l e ( S u b c o m m i t t e e o n H e a l t h , 1976a: P a r t I I , 103-4).

An a l t e r n a t i v e w h i c h a v o i d s s o m e of t h e s e p r o b l e m s is for the
g o v e r n m e n t to a p p r o v e a list of i n d e p e n d e n t 'third p a r t i e s ' to
u n d e r t a k e d r u g t e s t i n g . T h e s e w o u l d b e p r i m a r i l y p r i v a t e and
u n i v e r s i t y l a b o r a t o r i e s , and p e r h a p s s o m e l a b o r a t o r i e s i n g o v e r n -
m e n t d e p a r t m e n t s . T h e g o v e r n m e n t could act a s a ' b r o k e r ' a w a r d -
ing b i d s to c o n d u c t e v a l u a t i o n s paid for by s p o n s o r s on t h e basis of

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Safety testing of drugs: from negligence to fraud

e c o n o m i c s , q u a l i t y o f p r o t o c o l s , e x p e r i e n c e with t h e e v a l u a t i o n o f
t h e t y p e o f p r o d u c t c o n c e r n e d and t e c h n i c a l c o m p e t e n c e . W i t h the
e l i m i n a t i o n o f t h e d i r e c t c a s h n e x u s b e t w e e n s p o n s o r and con-
t r a c t o r , scientific i n d e p e n d e n c e c o u l d b e a s s u r e d . C o n t r a c t s w o u l d
be w o n a c c o r d i n g to t h e quality of past r e s e a r c h , not a c c o r d i n g to
how pleasing the results were to the sponsor. Even greater guaran-
t e e s w o u l d p r e v a i l w e r e t h e r e a r e q u i r e m e n t t h a t the s t u d i e s b e
u n d e r t a k e n by two or more research contractors. Contractors
p r o d u c i n g data which the superior m e t h o d o l o g i e s of competitors
s h o w e d to be in e r r o r w o u l d lose o u t in t h e c o m p e t i t i v e struggle for
research excellence.
T h e U S N a t i o n a l C a n c e r I n s t i t u t e t a k e s its g u a r a n t e e s o f t h e
intergrity of research u n d e r t a k e n by i n d e p e n d e n t contractors even
further. C o n t r a c t o r s are sent c o d e d c o m p o u n d s and r e q u i r e d t o
r e t u r n r a w d a t a s h e e t s t o a n o t h e r i n d e p e n d e n t c o n t r a c t o r which
d o e s t h e statistical a n a l y s i s . T h e first lab is t h e r e f o r e in no p o s i t i o n
to fiddle its r e s u l t s at t h e d a t a analysis s t a g e . To c h e c k that t h e lab is
d o i n g its r a w d a t a c o l l e c t i o n p r o p e r l y , N C I will o c c a s i o n a l l y slip it a
c o d e d c o m p o u n d w h i c h has c e r t a i n clearly e s t a b l i s h e d effects t o
a s c e r t a i n t h a t such effects are r e p o r t e d . T h e s e k i n d s o f c h e c k s are
o b v i o u s l y c o s t l y , but t h e r e is no r e a s o n t h a t t h e y could not be used
s p a r i n g l y in a r e a s of high sensitivity or i m p o r t a n c e , or w h e r e
g r o u n d s for s u s p i c i o n exist.
O n e r e a s o n w h y simply r e m o v i n g t h e d i r e c t cash n e x u s b e t w e e n
s p o n s o r and c o n t r a c t o r b y h a v i n g t h e g o v e r n m e n t act a s b r o k e r
m i g h t not be sufficient for all s i t u a t i o n s is t h a t it d o e s not r e m o v e
p r e s s u r e s on c o n t r a c t o r s to a c h i e v e a c e r t a i n s a m p l e size by a
d e a d l i n e . W e h a v e s e e n t h a t d a t a can b e fabricated i n o r d e r t o m e e t
a d e a d l i n e , j u s t as it c a n be m a n u f a c t u r e d to p r o d u c e favourable
r e s u l t s . H e n c e t h e r a t i o n a l e for t h e m o r e s t r i n g e n t r e q u i r e m e n t s o f
c o m p e t i t i o n b e t w e e n c o n t r a c t o r s and t h e N a t i o n a l C a n c e r I n s t i t u t e
m e a s u r e s . J u s t a s w i t h t o x i c o l o g i c a l s t u d i e s , t h e r e are i n c e n t i v e s for
d a t a f a b r i c a t i o n a m o n g clinical i n v e s t i g a t o r s (especially w h e n a s
m u c h a s $ 1 , 0 0 0 p e r subject i s paid b y A m e r i c a n c o m p a n i e s ,
e n a b l i n g s o m e d o c t o r s to e a r n up to $1 million a y e a r from d r u g
r e s e a r c h ) . T h e case for N C I t y p e m e a s u r e s h e r e i s t h e r e f o r e also
clear.
A t least i f clinical t e s t i n g c o n t r a c t s w e r e a w a r d e d b y g o v e r n m e n t ,
we would no longer have the situation of the Australian Medical
D i r e c t o r o f a n A m e r i c a n t r a n s n a t i o n a l w h o could say quite o p e n l y
to m e : ' O f c o u r s e we do p a t a d o c t o r on t h e back and c o n g r a t u l a t e

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Safety testing of drugs: from negligence to fraud

him m o r e if as well as following the p r o t o c o l p r o p e r l y and filling out


t h e forms i n d e t a i l h e finds w h a t w e p r e d i c t e d . T h a t ' s only n a t u r a l . '
A n o t h e r r e f o r m w h i c h w o u l d use c o m p e t i t i v e forces t o i m p r o v e
t h e q u a l i t y of r e s e a r c h w o u l d be to m a k e findings on the safety of
d r u g s a v a i l a b l e u n d e r F r e e d o m o f I n f o r m a t i o n A c t s (see M c G a r i t y
and S h a p i r o , 1980). T h i s w o u l d m e a n t h a t t h e quality o f r e s e a r c h
w o u l d be s u b j e c t e d to e v a l u a t i o n and r e - a n a l y s i s not only by
g o v e r n m e n t s c i e n t i s t s but b y t h e scientists o f c o m p e t i t o r s w h o have
a c l e a r v e s t e d i n t e r e s t in u n c o v e r i n g m e t h o d o l o g i c a l w e a k n e s s e s .
S i m i l a r l y , c o n s u m e r g r o u p s should b e able t o e v a l u a t e the d a t a
w h i c h h a v e led to a d e c i s i o n to set a p r o d u c t loose u p o n c o n s u m e r s .
S h a p o ( 1 9 7 9 : 57) incisively a r g u e d : ' A s a m a t t e r of d e m o c r a t i c
v a l u e s , t h e r e is a s t r o n g p r e s u m p t i o n in favor of m a k i n g public the
facts a b o u t e x p e r i m e n t a t i o n w h o s e s u b j e c t s are t h e p u b l i c ' D r u g
c o m p a n i e s s h o u l d not h a v e t h e right to t r e a t as a p r i v a t e c o m m e r c i a l
s e c r e t s o m e t h i n g w h i c h has a cost in risk of injury b o r n e by t h e
public.
In the absence o f t h e more sweeping reforms mentioned above,
t h e p u b l i c s h o u l d h a v e a right to c e r t a i n o t h e r t y p e s of i n f o r m a t i o n .
T h e p u b l i c , a n d p a r t i c u l a r l y t h e m e d i c a l profession a t l a r g e , should
be i n f o r m e d w h e t h e r a r e s e a r c h e r p u b l i s h i n g d a t a a b o u t a p a r t i c u l a r
drug was financially supported in that research by the manufacturer
o f t h e d r u g . M e d i c a l j o u r n a l s should have a policy o f r e q u i r i n g such
d i s c l o s u r e . T h e s e p o l i c i e s could n e v e r b e totally effective b e c a u s e ,
a s E p s t e i n ( 1 9 7 8 : 82) has p o i n t e d o u t , large c o r p o r a t i o n s are
infinitely r e s o u r c e f u l in c h a n n e l l i n g t h e i r funds indirectly to s u p p o r t
captive researchers.

A n o t h e r a l l e g e d t a c k is for the firm, singly or in c o m b i n a t i o n with


like f i r m s , to set up s u p p o s e d l y i n d e p e n d e n t r e s e a r c h i n s t i t u t e s
w h o s e s c i e n t i s t s s e e m a l w a y s t o find e v i d e n c e t o s u p p o r t t h e
s t a n c e t a k e n b y t h e firm, d e s p i t e m a s s i v e c o n t r a r y e v i d e n c e .
T h u s , w h e n some high-sounding institute states that a c o m p o u n d
is h a r m l e s s or a p r o c e s s free of risk, it is wise to k n o w w h e n c e the
i n s t i t u t e o r t h e s c i e n t i s t s w h o w o r k t h e r e o b t a i n their f i n a n c i a l
support.

O n e o f t h e m a n y l e s s o n s from t h e t h a l i d o m i d e d i s a s t e r w a s the
i m p o r t a n c e of giving c o m p a n y officers g u a r a n t e e s of a right to
p u b l i s h f i n d i n g s p r o m p t l y from t h e r e s e a r c h they do for the
c o m p a n y . D u r i n g F e b r u a r y and M a r c h o f 1962, D r S o m e r s of
D i s t i l l e r s g a v e t h a l i d o m i d e t o four p r e g n a n t w h i t e r a b b i t s . O f t h e 18

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Safety testing of drugs: from negligence to fraud

b a b y r a b b i t s b o r n , 1 3 had t h e t e r r i b l e t y p e s o f d e f o r m i t i e s n o w
a s s o c i a t e d with t h a l i d o m i d e . S o m e r s w a s a n x i o u s t o publish his
f i n d i n g s q u i c k l y . B u t w h e n G r u n e n t h a l l e a r n e d o f t h e r e s u l t s , they
w r o t e to D i s t i l l e r s s u g g e s t i n g t h a t p u b l i c a t i o n s h o u l d be d e l a y e d for
t h e t i m e b e i n g . S o m e r s , with a n integrity w h i c h m a n y r e s e a r c h e r s
w i t h i n i n d u s t r y m i g h t not h a v e s h o w n , p u b l i s h e d his p a p e r in The
Lancet of 28 A p r i l 1962.
A t least o n e A m e r i c a n c o m p a n y , S c h e r i n g , a l l o w s its s c i e n t i s t s ,
as a m a t t e r of c o n t r a c t , t h e right to p u b l i s h i n d e p e n d e n t l y in
a c a d e m i c j o u r n a l s any f i n d i n g s from t h e i r r e s e a r c h . This i s a n
i m p o r t a n t p r o t e c t i o n n o t only b e c a u s e i t e n a b l e s c o m p a n y scientists
to b l o w t h e w h i s t l e after a s e r i o u s c o v e r - u p , b u t also b e c a u s e t h e r e is
b o u n d to be a p r e v e n t i v e effect from t h e k n o w l e d g e t h a t a c o m -
p a n y ' s c o v e r c o u l d be b l o w n at any t i m e by a scientist w h o has a
c o n t r a c t u a l right to do so.

Deterrence and rehabilitation

The s e r i o u s c o n s e q u e n c e s for t h e thalidomide corporations


i n v o l v e d not c r i m i n a l s a n c t i o n s , but civil a c t i o n s c o s t i n g m a n y
h u n d r e d s o f million d o l l a r s , civil a c t i o n s w h i c h w e r e u n i v e r s a l l y
s e t t l e d o u t of c o u r t . S i m i l a r l y , in t h e o t h e r case studies of this
c h a p t e r , c o m p a n i e s have not suffered s e v e r e l y at the h a n d s of
c r i m i n a l c o u r t s , if t h e y w e r e d e a l t w i t h by a c r i m i n a l court at all.
T h i s i s n o t t o say t h a t t h e c o m p a n i e s w e r e u n t o u c h e d b y t h e e v e n t s
d i s c u s s e d h e r e . O n t h e c o n t r a r y , w e h a v e seen t h a t t h e c o m p a n i e s
c o n s i d e r e d in t h e m a j o r case s t u d i e s in t h i s c h a p t e r - R i c h a r d s o n -
M e r r e l l , G r u n e n t h a l , Distillers, G. D. Searle, Biometric Testing
I n c . , I B T - suffered at least in t h e s h o r t t e r m on t h e stock m a r k e t or
in p r o f i t a b i l i t y . T h e y w e r e set back in t h e m a i n not b e c a u s e of
c r i m i n a l s a n c t i o n s b u t from t h e a d v e r s e p u b l i c i t y s u r r o u n d i n g t h e
allegations made against them. Executives of these companies
c o m m u n i c a t e t h e m e s s a g e t h a t the c a m p a i g n s against t h e m had
c o n s e q u e n t i a l d e t e r r e n t effects, but t h a t t h e d e t e r r e n c e b y and large
p r e c e d e d r a t h e r t h a n followed from any c r i m i n a l action which
might have been t a k e n against them.
T h e r e i s e v i d e n c e t h a t t h e c o r p o r a t i o n s i n v o l v e d w e r e not only
d e t e r r e d , but also i n s o m e m e a s u r e r e h a b i l i t a t e d . A n o b v i o u s
e x c e p t i o n h e r e i s I B T w h i c h , i n effect, w a s s e n t e n c e d w i t h o u t trial
to a de facto c o r p o r a t e d e a t h s e n t e n c e . It is unlikely to rise from the
d e a d i n r e h a b i l i t a t e d form. W e h a v e s e e n , t h o u g h , the way that

107
Safety testing of drugs: from negligence to fraud

S e a r l e , f o r m e r l y with o n e o f t h e m o s t sloppy internal c o n t r o l


s y s t e m s in t h e A m e r i c a n p h a r m a c e u t i c a l i n d u s t r y , set up a t o u g h
i n t e r n a t i o n a l i n t e r n a l c o m p l i a n c e s y s t e m . S i m i l a r l y , following its
c r i s e s o f t h e e a r l y 1960s. R i c h a r d s o n - M e r r e l l a p p o i n t e d a ' D i r e c t o r
of S t a n d a r d s ' to a p o s i t i o n with c o n s i d e r a b l e o r g a n i s a t i o n a l c l o u t .
T h e a p p o i n t e e w a s a s t r o n g p e r s o n a l i t y , a former F D A District
C o m m i s s i o n e r , w h o s e j o b it w a s to c l e a n up t h e c o m p a n y . A w o r l d -
wide c o r p o r a t e standards manual was introduced, something
u n u s u a l a t t h a t t i m e , t h o u g h c o m m o n p l a c e t o d a y . H e a d office
b e g a n s e n d i n g t r o u b l e s h o o t e r s t o s u b s i d i a r i e s a r o u n d the w o r l d t o
c h e c k t h a t t h e n e w s t a n d a r d s w e r e being m e t . A n o l d e r R i c h a r d s o n -
M e r r e l l e x e c u t i v e , w h o saw the t r a n s f o r m a t i o n c l a i m e d t h a t a t t h e
t i m e R i c h a r d s o n - M e r r e l l led t h e i n d u s t r y i n w o r l d w i d e a u d i t i n g
p r o g r a m m e s o f c o r p o r a t e s t a n d a r d s i n quality o f d r u g t e s t i n g and
g o o d m a n u f a c t u r i n g p r a c t i c e s . W h e t h e r o r not this i s t r u e , t h e r e can
b e little q u e s t i o n t h a t c o n s i d e r a b l e c o r p o r a t e r e h a b i l i t a t i o n t o o k
place.
T h e t h a l i d o m i d e a n d S e a r l e crises also r e s u l t e d in a kind of
r e g u l a t o r y r e h a b i l i t a t i o n . M E R / 2 9 and t h a l i d o m i d e c o m i n g closely
on top of each o t h e r permitted Senator Kefauver to push through
s w e e p i n g a m e n d m e n t s t o t o u g h e n t h e U S F o o d , D r u g and C o s -
m e t i c A c t i n 1962. A l m o s t every d e v e l o p e d c o u n t r y severely
t i g h t e n e d its r e g u l a t o r y c o n t r o l s on t h e p h a r m a c e u t i c a l i n d u s t r y in
t h e w a k e of t h a l i d o m i d e . S e a r l e ' s fiasco w a s t h e catalyst for t h e
i n t r o d u c t i o n o f G o o d L a b o r a t o r y P r a c t i c e s r e g u l a t i o n s for t h e first
t i m e . C r i t i c s o f t h e p r o c e s s w o u l d call it legislation by crisis r a t h e r
then regulatory rehabilitation.
T h e m o s t s t r a i g h t f o r w a r d c o n c l u s i o n o f this c h a p t e r m u s t b e ,
in t h e face o f t h e w i d e s p r e a d a b u s e s in t h e safety t e s t i n g of d r u g s
w h i c h h a v e b e e n d o c u m e n t e d , that t h e following s t a t e m e n t o f w h a t
h a s b e e n , a n d a r g u a b l y still is, F D A policy, i s a n u n a c c e p t a b l e
position.

T h e policy o f t h e F D A n e c e s s a r i l y has b e e n t h a t u n l e s s t h e r e i s a
c o m p e l l i n g r e a s o n t o b e l i e v e o t h e r w i s e , w e w o u l d p r o c e e d from
t h e a s s u m p t i o n t h a t t h e f o u n d a t i o n w a s i n t a c t , and that the
e v i d e n c e s u b m i t t e d t o s u p p o r t a n a p p l i c a t i o n reflected
p r o f e s s i o n a l i s m a n d science o f t h e h i g h e s t o r d e r ( G a r d n e r , 1977:
5).

A p o s i t i o n m o r e firmly g r o u n d e d in t h e r e a l i t i e s d o c u m e n t e d h e r e
has been expressed by Epstein (1978: 300):

108
Safety testing of drugs: from negligence to fraud

C o n s t r a i n t s o n d a t a , from gross i n a d e q u a c y , biased


i n t e r p r e t a t i o n , m a n i p u l a t i o n , s u p p r e s s i o n and o u t r i g h t
d e s t r u c t i o n , are c o m m o n p l a c e , e s p e c i a l l y w h e n profitable
p r o d u c t s o r p r o c e s s e s are i n v o l v e d . E v i d e n c e o f such c o n s t r a i n t s
n o w justifies a priori r e s e r v a t i o n s a b o u t t h e validity of d a t a
d e v e l o p e d by institutions or individuals whose economic interests
a r e affected, e s p e c i a l l y w h e n the d a t a b a s e has b e e n m a i n t a i n e d
as c o n f i d e n t i a l at i n d u s t r y ' s i n s i s t e n c e .

I n d u s t r y e x e c u t i v e s like to a r g u e t h a t it is n o w t h e 1980s and that


t h e a b u s e s o f t h e 1970s and 1960s are p h e n o m e n a o f t h e past. But
t h e r e a l i s t i c s t a n c e is still o n e of a priori r e s e r v a t i o n s a b o u t the
v a l i d i t y of d a t a s u p p l i e d by i n d u s t r y . C o n s i d e r t h e following inter-
v i e w w h i c h I had in 1980 with a M e d i c a l D i r e c t o r in A u s t r a l i a (a
d e v e l o p e d c o u n t r y w i t h a r e p u t a t i o n a s h a v i n g one o f t h e t o u g h e s t
regulatory schemes). The Medical D i r e c t o r w o r k e d for a n
A m e r i c a n t r a n s n a t i o n a l which c o n c e n t r a t e s a s u b s t a n t i a l p r o p o r -
t i o n of its clinical t e s t i n g p r o g r a m m e in A u s t r a l i a :

J. B . : Do you or the Health Department ever do audits of your


doctors to see that the patients on which you have forms actually
exist!
M e d i c a l D i r e c t o r : N o . A n d I don't think that is necessary.
J. B . : But what about the instances which have been proven in the
US of doctors providing data on fictitious patients in order to
collect more money for clinical testing!
M e d i c a l D i r e c t o r : T h e r e are n o i n c e n t i v e s f o r t h i s . I f w e get back
t o o f a v o u r a b l e a p i c t u r e on a p r o d u c t , we w o u l d t h e n go and
o v e r p r o m o t e it. T h a t w o u l d r e b o u n d a g a i n s t us.
J. B . : But presumably an expert fraud would produce neither
extremely favourable nor extremely unfavourable results, but
pretty average-looking results!
M e d i c a l D i r e c t o r : In t h a t case it w o u l d n o t affect o u r r e s u l t s .

109
4 Unsafe manufacturing practices

SOME CASE STUDIES

L a w s r e g u l a t i n g t h e safe m a n u f a c t u r e o f d r u g s h a v e b e e n r e s p o n -
sive to c r i s e s in a w a y very similar to t h e r e g u l a t i o n of t e s t i n g . It will
b e s e e n i n this c h a p t e r h o w t h e U S F o o d , D r u g and C o s m e t i c A c t o f
1938 w a s b r o u g h t i n t o b e i n g after o v e r o n e h u n d r e d p e o p l e died i n
t h e elixir s u l f a n i l a m i d e d i s a s t e r . T h e B r i t i s h C o m m i t t e e o n Safety
o f D r u g s w a s set u p after t h e t h a l i d o m i d e t r a g e d y . T o u g h e r con-
t r o l l i n g l e g i s l a t i o n e n s u e d in F r a n c e w h e n in 1954 m o r e t h a n a
h u n d r e d p e o p l e died after b e i n g g i v e n i n c o r r e c t l y labelled t a b l e t s
for t h e t r e a t m e n t of b o i l s .
M o s t c o u n t r i e s n o w h a v e r e g u l a t i o n s for G o o d M a n u f a c t u r i n g
P r a c t i c e s ( G M P s ) . I n s o m e c o u n t r i e s , such a s the U n i t e d S t a t e s ,
violations o f t h e regulations are criminal offences, while in o t h e r s ,
s u c h a s A u s t r a l i a , G M P s are little m o r e t h a n v o l u n t a r y c o d e s . ' T h e
k i n d s o f p r o b l e m s w h i c h such c o d e s a d d r e s s r a n g e from unsafe
p r a c t i c e s w h i c h i n v o l v e no c r i m i n a l i n t e n t , such as failure to
p r o p e r l y c l e a n a m a c h i n e b e t w e e n p r o d u c t i o n r u n s o f different
t y p e s o f d r u g s (so t h a t t h e f i r s t p r o d u c t might c o n t a m i n a t e
t h e s e c o n d ) t o m o r e u n u s u a l t y p e s o f offences w h i c h n o r m a l l y
involve criminal intent. An example o f t h e latter would be where
a m a n u f a c t u r e r w a n t o n l y a t t e m p t e d to save m o n e y by s u b s t i t u t i n g
a less e x p e n s i v e i n g r e d i e n t for t h e o n e set d o w n in the specifica-
tions.

T h e F D A has a D r u g P r o d u c t P r o b l e m R e p o r t i n g P r o g r a m which
is a m a j o r s o u r c e of l e a d s on G M P v i o l a t i o n s . In t h e year e n d i n g
3 1 M a r c h 1978, F D A had 6,100 d r u g p r o b l e m s r e p o r t e d from

110
Unsafe manufacturing practices

pharmacists. The most c o m m o n reported problems were off-


c o l o u r e d t a b l e t s , c a p s u l e s , and s o l u t i o n s - a total of 332 c a s e s .

O t h e r p r o b l e m s r e p o r t e d w e r e a d v e r s e r e a c t i o n s , visible
p r e c i p i t a t e s or s e d i m e n t s in d r u g s m a i n l y in solution form,
c r a c k e d o r c r u m b l e d d o s a g e u n i t s such a s t a b l e t s o r glass
a m p u l e s , m i s s i n g o r i m p r o p e r listing o f label e x p i r a t i o n d a t e s ,
e m p t y o r slack-filled d o s a g e u n i t s , s u s p e c t e d p o t e n c y p r o b l e m s ,
and a b n o r m a l o d o r o r t a s t e ( H o p k i n s , 1978).

T h e F D A e n f o r c e m e n t r e p o r t s i n d i c a t e t h a t b e t w e e n M a r c h 1975
a n d S e p t e m b e r 1977 t h e r e w e r e 687 C l a s s I and II recalls from the
m a r k e t o f p r e s c r i p t i o n d r u g s ( P a u l s and K l o e r , 1978: 11). C l a s s III
r e c a l l s , for p r o b l e m s w h i c h a r e 'not likely to c a u s e a d v e r s e h e a l t h
c o n s e q u e n c e s ' w e r e e x c l u d e d from t h e s e f i g u r e s . M o s t recalls are
v o l u n t a r y . T h e F D A , o r t h e c o m p a n y itself, m i g h t d i s c o v e r a
p r o b l e m a n d t h e c o m p a n y will a g r e e , p e r h a p s u n d e r t h r e a t o f court
a c t i o n , t o recall t h e p r o d u c t from t h e m a r k e t . F o r the p e r i o d
J a n u a r y 1974 to D e c e m b e r 1977 t h e r e w e r e 177 court a c t i o n s initi-
a t e d a g a i n s t p h a r m a c e u t i c a l c o m p a n i e s for alleged drug p r o d u c t
q u a l i t y p r o b l e m s ( P a u l s and K l o e r , 1978: 17). T h e s e included in-
j u n c t i o n s , s e i z u r e s and p r o s e c u t i o n s .
S o m e recalls h a v e b e e n m a s s i v e . I n 1 9 7 1 , a single drug c o m p a n y
had to recall from t h e m a r k e t a total of 957 million digoxin t a b l e t s
( S i l v e r m a n a n d L e e , 1974: 140). S i l v e r m a n and L e e have also
d e t a i l e d h o w recalls c a n involve s e r i o u s m a t t e r s :

O n e liver p r e p a r a t i o n a p p r o v e d only for v e t e r i n a r i a n use w a s


m i s l a b e l l e d and m a r k e t e d for injection into h u m a n b e i n g s . F D A
t e s t s p i c k e d up n i t r o g l y c e r i n t a b l e t s (for t h e c o n t r o l of anginal
p a i n ) w i t h as little as 16 p e r c e n t o f t h e l a b e l l e d a m o u n t ,
p r e d n i s o n e (for a r t h r i t i s , a s t h m a , and o t h e r c o n d i t i o n s ) w i t h 3 0
p e r c e n t , r e s e r p i n e (for h y p e r t e n s i o n ) with 2 5 p e r c e n t , and
m o r p h i n e w i t h 6 8 p e r c e n t . T h e F D A tests similarly disclosed
o p h t h a l m i c o i n t m e n t s c o n t a m i n a t e d with metal particles,
i n j e c t a b l e V i t a m i n B c o n t a i n i n g f r a g m e n t s o f m e t a l and g l a s s ,
1 2

s u l f a - d r u g s w i t h m o l d , and h o r m o n e s o l u t i o n s w i t h unidentified
f e v e r - p r o d u c i n g c o n t a m i n a n t s . O n e lot o f a n a n t i h i s t a m i n e
solution was shipped in bottles that reportedly exploded because
o f t h e gas p r o d u c e d by c o n t a m i n a t i n g b a c t e r i a . In a r e p o r t on o n e
lot of m o r e t h a n a million digitalis t a b l e t s , an F D A r e p o r t said,
' P o t e n c y c a n n o t be d e t e r m i n e d ; u n k n o w n interfering substance

111
Unsafe manufacturing practices

c a u s e d p r e m a t u r e d e a t h s a m o n g test a n i m a l s ' ( S i l v e r m a n and


L e e , 1974: 1 4 0 - 1 ) .

T h e w o r s t a b u s e s o c c u r i n the T h i r d W o r l d . M a n y " b a t h t u b '


m a n u f a c t u r e r s i n G u a t e m a l a have a n t i b i o t i c s o n t h e m a r k e t with
less t h a n half t h e r e q u i r e d s t r e n g t h o f a c t i v e i n g r e d i e n t . Such a n t i -
b i o t i c s a r e u n l i k e l y to effect a c u r e for a n y t h i n g , but they do build up
c o m m u n i t y i m m u n i t y t o t h e a n t i b i o t i c s o t h a t future full-strength
a d m i n i s t r a t i o n s are r e n d e r e d ineffective. O n e A u s t r a l i a n g e n e r a l
m a n a g e r told of a case in S o u t h - E a s t A s i a w h e r e w a t e r had b e e n
s u b s t i t u t e d for i n j e c t a b l e p e n i c i l l i n . In K o r e a recently pills
s u p p o s e d l y c o n t a i n i n g a l i f e - a n d - d e a t h d r u g for severe h e a r t d i s e a s e
w e r e found to c o n t a i n only flour ( S i l v e r m a n et a l . , 1982: 111). D r u g
e x e c u t i v e s w h o h a v e w o r k e d in A s i a are full of s t o r i e s of pirate
r e p r o d u c t i o n s of t h e i r p r o d u c t s using forged labels and t a b l e t s of
i d e n t i c a l s i z e , s h a p e and c o l o u r t o their o w n . P i r a t e s s o m e t i m e s
b r i b e t e c h n i c i a n s to steal p u n c h e s and dies so that the r e p u t a b l e
c o m p a n y ' s l o g o can be s t a m p e d on a pill w h i c h might consist of no
more than starch.

I recall a c a s e of a b o u t ten y e a r s ago [in I n d i a ] which we solved in


a m a t t e r of h o u r s . A few w e l l - p l a c e d p e r s o n s r e p o r t e d at a
h o s p i t a l w i t h s w o l l e n h a n d s . I t w a s later found t h a t t h e p r o c a i n e
b e n z y l p e n i c i l l i n w h i c h had b e e n a d m i n i s t e r e d t o t h e m w a s i n
r e a l i t y a s o l u t i o n of c h a l k . On further i n v e s t i g a t i o n s , a most
r e m a r k a b l e r a c k e t c a m e t o light. A n e n t e r p r i s i n g c o m p o u n d e r
c o l l e c t e d d i s c a r d e d penicillin vials and c a r d b o a r d c o n t a i n e r s with
t h e l a b e l s i n t a c t . He filled t h e vials with chalk and p a c k e d t h e m
n e a t l y in t h e c a r d b o a r d c o n t a i n e r s . He o p e r a t e d his r a c k e t on a
very big scale and w a s able to p a l m off w h o k n o w s h o w m a n y
t h o u s a n d s o f s p u r i o u s vials o f t h e so-called p r o c a i n e
b e n z y l p e n i c i l l i n before h e w a s n a b b e d and j a i l e d . H e r e chalk w a s
u s e d b e c a u s e it w a s i n s o l u b l e in w a t e r ( R a n g n e k a r , 1969: 157).

S u c h g r o s s a b u s e s are less c o m m o n i n d e v e l o p e d c o u n t r i e s .
H o w e v e r , Bud Loftus, former Director o f t h e F D A ' s Division of
D r u g M a n u f a c t u r i n g , p o i n t s out that in the late 1950s and early
1960s i n t h e U n i t e d S t a t e s t h e c o u n t e r f e i t i n g o f d r u g s and p i r a t i n g o f
p u n c h e s and dies b e c a m e a big p r o b l e m (see also K r e i g , 1967).
O t h e r k i n d s o f s e r i o u s p r o d u c t safety v i o l a t i o n s are frequently
p e r p e t r a t e d today by transnational companies in developed
c o u n t r i e s . I n 1979 w e saw M e r c k u n d e r t a k e t w o p r o d u c t r e c a l l s , and

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W y e t h , t h e A m e r i c a n H o m e P r o d u c t s s u b s i d i a r y , c a s t i g a t e d with a
b i t i n g r e g u l a t o r y l e t t e r from t h e F D A . T h e l e t t e r o f 2 1 J u n e alleged
'failure to provide a d e q u a t e ventilation to minimize contamination
o f p r o d u c t s b y e x t r a n e o u s a d u l t e r a n t s and d i s s e m i n a t i o n o f m i c r o -
o r g a n i s m s from o n e a r e a to a n o t h e r . . . failure to m a i n t a i n e q u i p -
m e n t i n a c l e a n m a n n e r b y r e a s o n o f t h e p r e s e n c e o f m o l d ' , and
r e f e r r e d t o ' e q u i p m e n t c o n s t r u c t e d o f w o o d w h i c h d o e s not a s s u r e
e x c l u s i o n from d r u g s of c o n t a m i n a n t s from p r e v i o u s b a t c h e s that
m i g h t affect safety, quality or p u r i t y . . .'. T h e F D A also told the
P r e s i d e n t of A m e r i c a n H o m e P r o d u c t s , John Culligan. that the
c o m p a n y had failed 'to subject m a t e r i a l s liable t o m i c r o b i o l o g i c a l
c o n t a m i n a t i o n t o m i c r o b i o l o g i c a l tests p r i o r t o u s e ' , and that t h e r e
is no a s s u r a n c e of stability of finished d r u g s , in that the stability
t e s t i n g p r o g r a m d o e s not i n c l u d e q u a n t i t a t i v e assays o f t h e p r e s e r t -
a t i v e s y s t e m n o r any m i c r o b i o l o g i c a l t e s t i n g o f A m p h o j e l , A - M - T
and O x a i n e - M . '
In 1979 in A u s t r a l i a we saw an e x t r e m e l y h a z a r d o u s p a c k a g i n g
m i x - u p i n w h i c h q u i n i n e d i h y d r o c h l o r i d e w a s d i s c o v e r e d i n blister
p a c k a g e s of L a s i x a m p u l e s . Lasix injections are often used in e m e r -
g e n c y s i t u a t i o n s to r e m o v e e x c e s s i v e fluid r a p i d l y from t h e b o d y , as
i n t h e t r e a t m e n t o f a c u t e h e a r t failure. Q u i n i n e d i h y d r o c h l o r i d e i s
given to patients w h o may have malaria. The Japanese Ministry of
H e a l t h a n d W e l f a r e found t h a t as of 31 M a r c h 1979 126 d r u g -
m a n u f a c t u r i n g p l a n t s , c o m p r i s i n g 9.4 p e r cent of t h o s e in the
c o u n t r y , w e r e n o t i n c o m p l i a n c e with t h e M i n i s t r y ' s G M P
s t a n d a r d s . T h u s , we a r e not d e a l i n g with a p r o b l e m which is limited
to p o o r c o u n t r i e s or d a y s g o n e by. N e v e r t h e l e s s , we shall begin with
an e a r l y crisis w h i c h c h a n g e d t h e history of t h e p h a r m a c e u t i c a l
industry.

The elixir sulfanilamide disaster


S u l f a n i l a m i d e w a s a p r o d u c t widely in use a r o u n d the world in t h e
late 1930s. It w a s only w h e n a T e n n e s s e e c o m p a n y , M a s s e n g i l l &
C o , d e c i d e d to m a n u f a c t u r e t h e p r o d u c t in a liquid form that it
b e c a m e a killer. T h e a c t i v e i n g r e d i e n t w a s dissolved in d i - e t h y l e n e
glycol to form t h e liquid. T h e d i - e t h y l e n e glycol w a s t r a n s f o r m e d in
t h e b o d y into k i d n e y - d e s t r o y i n g oxalic acid. T h e result w a s a slow
a g o n i s i n g d e a t h for 107 d o c u m e n t e d c a s e s , m a n y o f t h e m c h i l d r e n .
T h e m a n u f a c t u r e r told r e p o r t e r s : 'my c h e m i s t s and I d e e p l y regret
t h e fatal r e s u l t s , b u t . . . I do not feel t h e r e w a s any r e s p o n s i b i l i t y on

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Unsafe manufacturing practices

o u r p a r t ' ( S i l v e r m a n a n d L e e , 1974: 8 7 ) . A p p a r e n t l y t h e chief


c h e m i s t t o o k a different view: he c o m m i t t e d suicide.
M a s s e n g i l l had n o t t e s t e d the elixir form of sulfanilamide for
safety o n e i t h e r h u m a n s u b j e c t s o r a n i m a l s . W h e n i t w a s found that
t h e law w a s all but p o w e r l e s s to p u n i s h t h e c o m p a n y , the need for a
n e w F o o d , D r u g and C o s m e t i c A c t w i t h w i d e - r a n g i n g p r o v i s i o n s
w a s c l e a r . P r e s i d e n t R o o s e v e l t signed t h e n e w act into law in J u n e
1938. T h e A c t i n c o r p o r a t e d a v a r i e t y of p r o v i s i o n s to e n s u r e t h a t
d r u g s m a n u f a c t u r e d i n t h e U n i t e d S t a t e s w e r e safe. A n era o f
s t r i c t e r r e g u l a t i o n of p h a r m a c e u t i c a l s had b e g u n , to be followed
after t h e t h a l i d o m i d e d i s a s t e r in 1961 by an e v e n stricter era.

The Abbott affair

I n t h e 1960s and 1970s A b b o t t w a s t h e w o r l d ' s largest m a n u f a c t u r e r


of sterile i n t r a v e n o u s solutions. Intravenous solutions, of course,
a r e c o m m o n l y used on critically ill p a t i e n t s , so high s t a n d a r d s of
p r o d u c t quality are i m p e r a t i v e . H o w e v e r , the Council on E c o n o m i c
P r i o r i t i e s ( 1 9 7 3 ) found A b b o t t t o have t h e w o r s t p r o d u c t safety
r e c o r d i n t h e A m e r i c a n p h a r m a c e u t i c a l i n d u s t r y , w i t h 3 8 recalls i n
s e v e n y e a r s , o n e of t h e m i n v o l v i n g 93 different p r o d u c t s . In 1964 it
w a s d i s c o v e r e d t h a t 300 b o t t l e s o f s o d i u m c h l o r i d e solution
( c o m m o n salt) w e r e m i s l a b e l l e d as " D e x t r o s e 5% in W a t e r ' . A p a n i c
e n s u e d in w h i c h 11,000 b o t t l e s of s o l u t i o n w e r e recalled to t r a c k
d o w n t h e salt m a s q u e r a d i n g a s d e x t r o s e . N o s o o n e r had this crisis
b e e n d e a l t with w h e n a n o t h e r label m i x - u p w a s found: b o t t l e s o f
" D e x t r o s e 1 0 % S a l i n e ' had b e e n e r r o n e o u s l y labelled ' D e x t r o s e
2 7 2 % in Lactated Ringer's Solution'. There were other batches
w i t h t h e w r o n g label but t h e c o r r e c t e m b o s s i n g identification o n t h e
b o t t l e c a p s . A b b o t t had to send w a r n i n g t e l e g r a m s to p h y s i c i a n s at a
cost e s t i m a t e d a t b e t w e e n $ 7 5 0 , 0 0 0 and $ 1 , 0 0 0 , 0 0 0 ( S i l v e r m a n and
Lee,1974:142).
A b b o t t ' s p r o b l e m s w e r e barely b e g i n n i n g . S o m e b o t t l e s w e r e
d i s c o v e r e d t o c o n t a i n m o u l d . F u r t h e r recalls o c c u r r e d b e t w e e n
O c t o b e r 1964 a n d A p r i l 1965 after it w a s d i s c o v e r e d that plastic
l i n e r s on its s c r e w - t o p caps w e r e d e f e c t i v e and p o s e d a severe risk
t h a t b a c t e r i a w o u l d e n t e r t h e i n t r a v e n o u s s o l u t i o n . Such a l e a k a g e
of b a c t e r i a c o u l d r e s u l t in s e p t i c a e m i a or b l o o d p o i s o n i n g .
T h e n in 1969 F D A d i s c o v e r e d t h a t for s o m e time t h e r e had b e e n a
p r o b l e m w i t h t h e a n n e a l i n g o f t h e glass i n the n e c k s o f A b b o t t
b o t t l e s o f i n t r a v e n o u s fluid. T h e result w a s m o r e c o n t a m i n a t i o n o f

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Unsafe manufacturing practices

t h e fluid a n d m o r e recalls t h r o u g h o u t 1969. A n i n s p e c t o r d i s c o v e r e d


the problem w h e n he noticed A b b o t t personnel in O r e g o n opening
p a c k i n g c a s e s o f s o l u t i o n s sent from C h i c a g o and h o l d i n g the b o t t l e s
u p t o t h e light t o d i s c o v e r d e f e c t s . S u b s e q u e n t l y the c o m p a n y stated
t h a t a p r o b l e m had e x i s t e d for s o m e m o n t h s , but they a g r e e d to a
recall only m o n t h s later w h e n F D A i n s p e c t o r s i n d e p e n d e n t l y dis-
c o v e r e d c o n t a m i n a t e d b o t t l e s . In a s p e e c h to the P h a r m a c e u t i c a l
M a n u f a c t u r e r s A s s o c i a t i o n i n M a y 1969, F D A C o m m i s s i o n e r , D r
H e r b e r t L e y , had this t o say a b o u t t h e e p i s o d e :

W e s u b s e q u e n t l y l e a r n e d t h a t t h e m a n u f a c t u r e r had b e g u n
r e c e i v i n g a n u m b e r o f c o m p l a i n t s a b o u t t h e large v o l u m e
p a r e n t e r a l s s t a r t i n g i n D e c e m b e r , 1968. T h e c o m p l a i n t s w e r e
r u n n i n g at an e v e n h i g h e r level by t h e end o f F e b r u a r y .
B u t t h e c o m p a n y did not recall s u s p e c t s t o c k s ; it did not notify
F D A . I n s t e a d , i t had its r e p r e s e n t a t i v e s c h e c k i n g o u t s t a n d i n g
s t o c k s s i m p l y by visual e x a m i n a t i o n . If t h e r e w a s no visible
e v i d e n c e of c o n t a m i n a t i o n , the solutions were to be accepted as
satisfactory.
N o t only w a s this m e a s u r e i n a d e q u a t e , i t w a s n ' t e v e n a l l o w e d
i n all i n s t a n c e s . W e h a v e found u n o p e n e d cases that w e r e m a r k e d
with a s y m b o l t h a t t h e firm said i n d i c a t e d c o n t a m i n a t i o n and
a p p r o v a l by its field p e r s o n n e l .
T h i s e n t i r e c h a i n o f e v e n t s r a i s e s s o m e real q u e s t i o n s . W a s the
m a n u f a c t u r e r m o r e c o n c e r n e d a b o u t t h e security o f its r e p u t a t i o n
t h a n t h e safety o f its p r o d u c t s ? M o r e c o n c e r n e d a b o u t profits
t h a n p a t i e n t s ? It is n o t a story c a l c u l a t e d to build p u b l i c
confidence in the drug industry.

The c o m p a n y agreed to spend several h u n d r e d thousand dollars to


s t r e n g t h e n its q u a l i t y c o n t r o l p r o g r a m m e . T o w a r d s t h e end o f 1970,
Morton Mintz, the Washington Post i n v e s t i g a t i v e j o u r n a l i s t ,
l e a r n e d of a secret c i t a t i o n h e a r i n g into t h e m a t t e r by t h e F D A and
a s k e d for a t r a n s c r i p t o f t h i s . M o n t h s later F D A G e n e r a l C o u n s e l
W. W. G o o d r i c h r e p l i e d refusing to fulfil t h e M i n t z F r e e d o m of
I n f o r m a t i o n request on the g r o u n d s that the d o c u m e n t s requested
contained secret c o m m e r c i a l information.

At almost exactly the same time that the F D A counsel was


w r i t i n g t h i s r e p l y , a m e d i c a l p a p e r in t h e p r e s t i g i o u s New England
Journal of Medicine, t h e F e b r u a r y 4, 1 9 7 1 , i s s u e , d e t a i l e d t h e
story of s e p t i c a e m i a , or b l o o d p o i s o n i n g , arising from a new w a v e

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Unsafe manufacturing practices

o f p a t i e n t s r e c e i v i n g A b b o t t ' s i n t r a v e n o u s fluids. A n d t h e facts


s h o w e d t h a t this had n o t h i n g to do w i t h t h e 1969 o u t b r e a k . In
o t h e r w o r d s , t h e m e r r y - g o r o u n d w a s s t a r t i n g all o v e r a g a i n ,
b a r e l y a y e a r after t h e F D A had so g r a c i o u s l y d r o p p e d its
criminal charges against A b b o t t .
T h e n e w s o f t h e n e w t r o u b l e had b e g u n leaking i n D e c e m b e r .
No less t h a n five p a t i e n t s , all o f t h e m in a c o r o n a r y intensive care
unit a t t h e U n i v e r s i t y o f V i r g i n i a M e d i c a l H o s p i t a l , w e r e riddled
w i t h s e p t i c a e m i a w i t h i n t h e span o f a few days ( F u l l e r . 1972: 53).

I n J a n u a r y 1971 t h e r e w e r e further s h a t t e r i n g r e v e l a t i o n s . E i g h t
d e a t h s o v e r t h e p r e v i o u s t h r e e m o n t h s w e r e r e p o r t e d from the
H e n r y F o r d H o s p i t a l i n D e t r o i t . T h e r e w e r e also 4 5 o t h e r cases o f
b l o o d p o i s o n i n g at t h e h o s p i t a l t r a c e d to the A b b o t t fluids. St
A n t h o n y ' s hospital in D e n v e r reported 24 cases, including one
d e a t h . T h e r e p o r t s m o u n t e d t h r o u g h o u t J a n u a r y and F e b r u a r y .
Fifty d e a t h s w e r e b l a m e d o n t h e c o n t a m i n a t i o n b y the U S C e n t e r
for D i s e a s e C o n t r o l .
It w a s d i s c o v e r e d that the p r o b l e m w a s as it had b e e n in 1964,
a r i s i n g from a d e s i g n c h a n g e to a s c r e w - o n c a p . If t h e b o t t l e w a s
s h a k e n o r t h e t o p b a n g e d l o o s e , g e r m s w o u l d b e w a s h e d from u n d e r
t h e n e w - s t y l e disc lining t h e c a p . A b b o t t w a s e v e n t u a l l y p u s h e d into
a m a s s i v e r e c a l l , t h e biggest in F D A h i s t o r y , and its p r o d u c t i o n line
s h u t d o w n . T h e F D A w e r e u n d e r s t a n d a b l y h e s i t a n t t o act b e c a u s e
A b b o t t s u p p l i e d 4 5 per cent o f t h e m a r k e t for t h e p r o d u c t . W e r e
p a t i e n t s g o i n g to die as a result of not b e i n g able to get s u p p l i e s from
o t h e r small c o m p a n i e s ? P r o b a b l y n o n e d i d , but t h e r e c e r t a i n l y w e r e
p r o b l e m s , a s t h e following d e p r e s s i n g a n e c d o t e i l l u s t r a t e s .

O n e h o s p i t a l s u p e r i n t e n d e n t frantically p h o n e d a different
p h a r m a c e u t i c a l h o u s e , since his i n t r a v e n o u s supply w a s s h r i n k i n g
to z e r o . ' W e ' r e really on a s p o t , ' he told the detail m a n . 'I've got
to h a v e at least five or six d o z e n IV b o t t l e s of v a r i o u s s o l u t i o n s
h e r e by six o ' c l o c k t o n i g h t , or I d o n ' t k n o w w h a t ' s going to
h a p p e n to t h e p a t i e n t s . I c a n ' t use t h e A b b o t t stuff, o b v i o u s l y .
C o u l d you possibly help me o u t ? '
' A b s o l u t e l y , ' c a m e t h e c h e e r y voice o f t h e detail m a n . "Don't
w o r r y a b o u t it at a l l . '
T h e s u p e r i n t e n d e n t w a s s t u n n e d and grateful t h a t h e could get
t h i s e m e r g e n c y h e l p . "You canT he a s k e d i n c r e d u l o u s l y .
' N o p r o b l e m at all,' said t h e d e t a i l m a n . 'I'll j u s t get t h e o r d e r
d o w n on t h e pad a n d have t h e stuff up t h e r e by m i d - a f t e r n o o n . "

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Unsafe manufacturing practices

i c a n ' t t h a n k you e n o u g h , ' said t h e s u p e r i n t e n d e n t .


' O n l y o n e m i n o r t h i n g and we can c l e a r that up in no t i m e . ' t h e
detail man added.
' W h a t ' s t h a t ? ' asked the s u p e r i n t e n d e n t .
'All we n e e d is a t h r e e - y e a r , firm c o n t r a c t , ' w a s t h e r e p l y . ' A s
s o o n as y o u sign it, t h e s h i p m e n t is y o u r s ' ( F u l l e r , 1972: 5 7 - 8 ) .

I n t h e n e w s r e p o r t s o n t h e n o n - s t e r i l e s o l u t i o n s and their r e p o r t e d
350 v i c t i m s from 21 h o s p i t a l s , A b b o t t ' s long history of delin-
q u e n c i e s w i t h t h e s o l u t i o n s w a s not r e c o g n i s e d a s a n issue. N e v e r -
t h e l e s s , this t i m e t h e F D A could not resist t h e p r e s s u r e t o
r e c o m m e n d c r i m i n a l p r o s e c u t i o n s t o t h e J u s t i c e D e p a r t m e n t . Five
A b b o t t e x e c u t i v e s , as well as t h e c o m p a n y itself, w e r e indicted by a
g r a n d j u r y . I t w a s t h e only o c c a s i o n i n the d e c a d e w h e n t h e F D A
w e n t to c o u r t w i t h c r i m i n a l c h a r g e s a g a i n s t a major t r a n s n a t i o n a l
p h a r m a c e u t i c a l c o m p a n y . A n A b b o t t e x e c u t i v e told m e t h a t the
c o m p a n y , o u t o f c o n c e r n t o p r o t e c t its p e o p l e from b e i n g m a d e
sacrificial l a m b s , offered to plead guilty if t h e c h a r g e s against indi-
v i d u a l e x e c u t i v e s w e r e d r o p p e d . B u t t h e offer w a s r e j e c t e d . T h e
2
c o u r t a c q u i t t e d t h e c o m p a n y and its officers of all c h a r g e s .
H o s p i t a l p e r s o n n e l w h o used m e t h o d s o f o p e n i n g c a p s o n the
b o t t l e s w h i c h t h e c o m p a n y m i g h t n o t h a v e f o r e s e e n w e r e held
p a r t i a l l y r e s p o n s i b l e for t h e t r a g e d y . H o w e v e r , the m o r e funda-
m e n t a l p r o b l e m w a s t h a t t h e r e w a s not t h e e v i d e n c e t o link the
specific G M P v i o l a t i o n s r e p o r t e d b y t h e F D A ' s district i n s p e c t o r s a s
t h e c a u s e o f t h e sterility p r o b l e m . I t could b e e s t a b l i s h e d t h a t t h e r e
w e r e G M P v i o l a t i o n s , t h o u g h t h e r e w a s d i s p u t e a b o u t h o w major
t h e y w e r e . T h e e v i d e n c e w a s also c o m p e l l i n g t h a t n o n - s t e r i l e solu-
t i o n s had b e e n p r o d u c e d and t h a t p e o p l e died as a result. E v e n
h e r e , t h e r e w e r e e v i d e n t i a r y p r o b l e m s , h o w e v e r . B u d L o f t u s , the
F D A ' s D i r e c t o r of D r u g Manufacturing at the t i m e , explains:

T h e r e w e r e all k i n d s o f p r o b l e m s with t h e F D A a n a l y s t s ' h a n d l i n g


of and actual testing o f t h e samples. W o r k s h e e t s were defective.
U S P m e t h o d o l o g y had b e e n not closely followed. T h e s e w e r e all
legal p r o b l e m s t h a t F D A w a s a c u t e l y a w a r e o f and t h a t defense
counsel exploited.

T h e i n s u r m o u n t a b l e difficulty w a s t h a t t h e p r o s e c u t i o n c o u l d not
p r o v e a c a u s a l c o n n e c t i o n b e t w e e n t h e alleged G M P v i o l a t i o n s and
the alleged non-sterility.
I n s p i t e o f t h e a c q u i t t a l , A b b o t t did suffer. T h e cost o f c r i m i n a l

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Unsafe manufacturing practices

c o n v i c t i o n w o u l d h a v e b e e n n o t h i n g c o m p a r e d with t h e cost t o
A b b o t t o f its p l a n t s h u t - d o w n . A b b o t t e x e c u t i v e s c l a i m e d that the
c o s t o f t h e 1971 F D A r e g u l a t o r y a c t i o n against t h e m w a s $480
m i l l i o n , p r o b a b l y an e x a g g e r a t e d f i g u r e , but it d o e s give s o m e
i m p r e s s i o n o f t h e w a y t h a t r e g u l a t o r y c o s t s can b e h i g h e r t h a n any
fine w h i c h a c o u r t c o u l d c o n c e i v a b l y i m p o s e . T h e n t h e r e w e r e
p e r s o n a l c o s t s t o t h e A b b o t t e x e c u t i v e s w h o s e r e p u t a t i o n s w e r e put
o n t r i a l . T h e y suffered t e r r i b l e p e r s o n a l b a t t e r i n g s u n d e r days o f
c r o s s - e x a m i n a t i o n . A s o n e c o l l e a g u e s y m p a t h i s e d : ' T h e guys w h o
w e r e d e f e n d a n t s i n t h a t c a s e , s o m e o f t h e m are b a s k e t cases t o d a y .
T h e y ' v e never been the same since.'

Evans Medical

A s i m i l a r B r i t i s h d i s a s t e r i n v o l v i n g c o n s i d e r a b l e injury and d e a t h
from t h e use o f c o n t a m i n a t e d i n t r a v e n o u s s o l u t i o n s w a s the subject
of an official e n q u i r y in 1972 ( C l o t h i e r R e p o r t , 1972). T h e p r o b l e m
a r o s e w h e n a b a t c h of p r o d u c t at E v a n s M e d i c a l failed to reach
sterilising t e m p e r a t u r e in an autoclave. The government enquiry
r e v e a l e d t h a t t h e d i s a s t e r was t h e result o f b o t h t h e i g n o r i n g o f s o m e
o f t h e c o m p a n y ' s S t a n d a r d O p e r a t i n g P r o c e d u r e s ( S O P s ) and t h e
i n a d e q u a c y o f o t h e r S O P s w h i c h w e r e followed.
W h e n t h e c o n t a m i n a t e d b a t c h w a s p r o d u c e d , the r e c o r d i n g
t h e r m o m e t e r a t t a c h e d to t h e a u t o c l a v e failed to indicate a rise in
t e m p e r a t u r e . This warning was ignored in contravention of SOPs
b e c a u s e t h e r e c o r d i n g t h e r m o m e t e r s had a history o f b r e a k i n g
d o w n . I t w a s c o m m o n for t h e p e n o f o n e t h e r m o m e t e r t o b e c o m e
s t u c k , refusing t o m o v e from the b a s e l i n e . N o r m a l l y , t h e instru-
m e n t t e c h n i c i a n w o u l d r e p a i r t h e t h e r m o m e t e r and i t w o u l d show
that the t e m p e r a t u r e was n o r m a l . H e n c e , an attitude developed
w h e r e t e m p e r a t u r e w a r n i n g s w e r e not t a k e n seriously.
S O P s afforded w e a k quality g u a r a n t e e s i n t h a t t h e y placed the
d e c i s i o n to r e l e a s e a b a t c h of p r o d u c t for sale in t h e h a n d s of
p r o d u c t i o n staff i n s t e a d of quality c o n t r o l staff. O b v i o u s l y p r o -
d u c t i o n staff h a v e a s t r o n g e r i n c e n t i v e to see t h e i r p r o d u c t i o n
a p p r o v e d and d e s p a t c h e d . There were other respects in which SOPs
c r e a t e d i n c e n t i v e s for p r o d u c t i o n staff to t a k e t h e ' e a s y ' c o u r s e in
o v e r s e e i n g t h e q u a l i t y o f t h e i r o w n w o r k : i n t h e a b s e n c e o f firm
d i r e c t i o n from q u a l i t y c o n t r o l , s a m p l e s w e r e i n p r a c t i c e selected b y
p r o d u c t i o n staff only from t h e t o p layer in e a c h c a g e , no d o u b t
b e c a u s e this was the easiest course. It is the C o m m i t t e e ' s opinion

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Unsafe manufacturing practices

t h a t . . . b o t t l e s in t h e u p p e r t w o l a y e r s of the c a g e s w e r e s t e r i l e , and
t h o s e i n t h e lowest layer w e r e not s t e r i l e ' ( C l o t h i e r R e p o r t , 1972:
11). T h e c o m m i t t e e o f e n q u i r y c o n c l u d e d t h a t t h e g e n e r a l l y sloppy
a p p r o a c h to S O P s w a s t h e result of a 'lack of v i g o u r ' a m o n g key
m i d d l e m a n a g e r s and a w i l l i n g n e s s to p l a c e in r e s p o n s i b l e p o s i t i o n s
p e o p l e w h o w e r e i n a d e q u a t e l y t r a i n e d i n quality c o n t r o l p r i n c i p l e s .

The Cordis litigation

A p p r o x i m a t e l y a q u a r t e r of a m i l l i o n h e a r t p a t i e n t s a r o u n d the
w o r l d h a v e b a t t e r y - p o w e r e d c a r d i a c p a c e m a k e r s i m p l a n t e d i n their
b o d i e s t o n o r m a l i s e h e a r t b e a t . S o m e o f t h e activities o f M e d t r o n i c ,
t h e l a r g e s t p a c e m a k e r m a n u f a c t u r e r i n t h e w o r l d , w e r e discussed i n
t h e c h a p t e r o n b r i b e r y . S e n a t e h e a r i n g s h a v e also w i t n e s s e d a
c o n c e r t e d a t t a c k o n M e d t r o n i c b y D r Sidney Wolfe c o n c e r n i n g t h e
q u a l i t y of its m a n u f a c t u r i n g . He listed t h e following difficulties:

1) 1970 - R e c a l l of 1000 p a c e m a k e r s b e c a u s e of p r o b l e m with


power supply.
2) M a r c h 1973 - R e c a l l o f 3 4 3 e x t e r n a l p a c e m a k e r s b e c a u s e of
battery placement problems.
3) M a r c h 1973 - D u e to c a r e l e s s s w i t c h i n g of a t r a n s i s t o r ,
t h o u s a n d s o f p a c e m a k e r s d e p r i v e d o f signal t o i n d i c a t e
b a t t e r y failure ( S u b c o m m i t t e e o n H e a l t h , 1973: 2 8 8 ) .

W o l f e a l s o d r e w a t t e n t i o n to a r e p o r t from a M i n n e a p o l i s F D A
i n s p e c t i o n t e a m : ' M e d t r o n i c s has i n s t i t u t e d a p r o g r a m of resteriliz-
ing p a c e m a k e r s and l e a d s t h a t h a v e b e e n d i s i m p l a n t e d p r i o r t o
e x p i r a t i o n o f t h e w a r r a n t y p e r i o d . T h e s e d e v i c e s are t h e n i m p l a n t e d
i n t o n e w p a t i e n t s . ' W o l f e w a s c o n c e r n e d a b o u t the "the possibility
of b a c t e r i a l and viral infections from such a gross p r a c t i c e as r e u s i n g
p a c e m a k e r s ' ( S u b c o m m i t t e e o n H e a l t h , 1973: 2 8 8 ) . Since 1972 i n
t h e U n i t e d S t a t e s t h e r e h a v e b e e n a total of 34 v o l u n t a r y recalls of
p a c e m a k e r lots m a n u f a c t u r e d b y v a r i o u s c o m p a n i e s .
The present case study is concerned with M e d t r o n i c s ' main com-
p e t i t o r , the second largest m a n u f a c t u r e r of p a c e m a k e r s , the Cordis
C o r p o r a t i o n . In 1975 in t h e D i s t r i c t C o u r t for t h e S o u t h e r n D i s t r i c t
o f F l o r i d a , t h e F D A s o u g h t a n i n j u n c t i o n t o close d o w n t h e p r o -
d u c t i o n o f C o r d i s p a c e m a k e r s until satisfactory quality c o n t r o l
m e a s u r e s w e r e i n t r o d u c e d . T h e c a s e study p r o v i d e s s o m e invalu-
a b l e l e s s o n s a b o u t t h e limits of legal s o l u t i o n s to m a n u f a c t u r i n g
quality p r o b l e m s .

119
Unsafe manufacturing practices

A d e f e c t i v e l y m a n u f a c t u r e d h e a r t p a c e m a k e r is a frightful risk to
h u m a n h e a l t h . A car w h i c h runs well 95 p e r c e n t o f t h e t i m e may be
r e g a r d e d as a g o o d c a r , but h i g h e r s t a n d a r d s m u s t be e x p e c t e d o f a
p a c e m a k e r w h i c h only has to fail o n c e to c a u s e s e r i o u s injury or
d e a t h . D r C e n t e r , o n e o f t h e g o v e r n m e n t w i t n e s s e s a t the injunc-
tion h e a r i n g , outlined the range of possible medical c o n s e q u e n c e s
o f p a c e m a k e r defect.

W e l l , t h e w o r s t c o m p l i c a t i o n , of c o u r s e , is d e a t h . If you have a
r u n a w a y p a c e m a k e r , w h e r e it's r u n n i n g a t six. eight h u n d r e d
times a m i n u t e , that's instant death.
If you h a v e a p a c e m a k e r t h a t r u n s at 150 and the p a t i e n t is not
a w a r e o f t h e p r o b l e m but j u s t i s not feeling w e l l , t h e s e c a r d i a c
p a t i e n t s c a n n o t t o l e r a t e that r a t e for an indefinite p e r i o d of t i m e
a n d c o u l d c o n c e i v a b l y go into heart failure and d i e .
T h e r e a r e p a c e m a k e r s t h a t fail i n t e r m i t t e n t l y . T h e y might fail
for, let's s a y , a few s e c o n d s at a t i m e . It may be sufficient so
t h a t t h e p a t i e n t e i t h e r has a s i n k a b l e e p i s o d e , a b l a c k o u t spell
a n d falls, or he m i g h t suffer a b r o k e n a r m . b r o k e n leg, fractured
skull.
If t h e p e r i o d is long e n o u g h , t h e y m a y n e v e r survive that period
b e c a u s e t h e h e a r t r a t e d o e s n ' t r e t u r n i n t i m e t o again get their
circulation back to normal.
T h e r e a r e s y m p t o m s w h i c h are m i n i m a l , such a s dizzy spells,
w h e r e e i t h e r t h e h e a r t r a t e slows down because the p a c e m a k e r is
s l o w e d d o w n or a p e r s o n m a y go i n t o h e a r t failure a g a i n b e c a u s e
t h e r a t e h a s s l o w e d d o w n and t h e p a t i e n t c a n n o t t o l e r a t e it.
T h e r e a r e p a t i e n t s t h a t are not a w a r e o f a n y s y m p t o m s and that
on e x a m i n a t i o n o n e can find a d e f e c t i v e p a c e m a k e r .
T h e a n s w e r is it can r a n g e a n y w h e r e from n o t h i n g to instant
death.

F D A i n s p e c t o r s had r e p o r t e d a list of 148 o b j e c t i o n a b l e devia-


t i o n s from q u a l i t y c o n t r o l s t a n d a r d s at t h e C o r d i s p l a n t . It w o u l d be
i m p o s s i b l e to c o v e r all the F D A c i t a t i o n s h e r e , but it is i m p o r t a n t to
give s o m e flavour o f t h e n a t u r e o f F D A c o n c e r n s . F D A a l l e g e d that
C o r d i s p a c e m a k e r s had a k n o w n failure r a t e o f 5 p e r c e n t , and that
o f a s a m p l e o f 9 7 e x p l a n t e d p a c e m a k e r s which had failure r e p o r t s ,
60 were made by Cordis. Nine other manufacturers combined
a c c o u n t e d for t h e r e m a i n i n g 37 failures.
F D A i n s p e c t o r s found t h a t i n t h e C o r d i s plant t h e r e w e r e
m a c h i n e s for w h i c h t h e r e w e r e n o w r i t t e n o p e r a t i n g p r o c e d u r e s , n o

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Unsafe manufacturing practices

s p e c i f i c a t i o n s , n o c a l i b r a t i o n p r o c e d u r e s , and n o m a i n t e n a n c e
s c h e d u l e . O n e critical a r e a w h e r e all o f t h e s e deficiencies w e r e
r e p o r t e d t o exist w a s with the h e l i u m leak t e s t e r . P a c e m a k e r
p r o b l e m s h a v e b e e n s h o w n t o arise from m o i s t u r e leaking into the
c o m p o n e n t s , so leak t e s t i n g is critical.
I n s o m e c a s e s e m p l o y e e s w e r e found t o b e a s s e m b l i n g p a c e m a k e r
p a r t s o n t h e s t r e n g t h o f d i a g r a m s w h i c h had h a n d w r i t t e n , u n d a t e d ,
u n a u t h o r i s e d c h a n g e s all o v e r t h e m . S o m e t i m e s o p e r a t o r s w e r e
a s s e m b l i n g a c c o r d i n g to c h a n g e s to specifications given verbally or
t e l e p h o n e d i n from e n g i n e e r i n g . O n e o p e r a t o r w a s e v e n w o r k i n g
from a d i a g r a m for a kit different from t h e o n e she w a s w o r k i n g on.
W h e n i t e m s failed c e r t a i n t e s t s , t h e y w e r e often r e t e s t e d to see if a
p o s i t i v e result w a s p r o d u c e d o n t h e s e c o n d test w i t h o u t a n evalu-
a t i o n of why t h e failure o c c u r r e d on t h e first. V a r i o u s t y p e s of
t e s t i n g e q u i p m e n t w e r e alleged t o b e d e f e c t i v e . M a i n t e n a n c e o f
e q u i p m e n t w a s b e i n g d o n e o n c e every t w o w e e k s instead o f every
week according to requirements.
P a c e m a k e r s a r e e n c a p s u l a t e d several t i m e s i n e p o x y . T h e w r i t t e n
r e q u i r e m e n t s o f t h e firm w e r e t o s a m p l e and test t h e s q u a r e root o f
the n u m b e r of incoming quarts of epoxy. Inspectors observed
o p e r a t o r s t o s a m p l e only o n e q u a r t p e r lot. F o r e x a m p l e , w h e n a 964
q u a r t lot c a m e in, 3 2 s a m p l e s should have b e e n c h e c k e d , not o n e .
'Life t e s t i n g ' w a s d o n e t o see h o w the p a c e m a k e r s stood u p t o
s t r e s s . H o w e v e r , t h e F D A c o u n s e l s u m m e d u p how i n s p e c t o r s
a l l e g e d the life-testing device to be of limited v a l u e :

t h e c h a r t used t o r e c o r d t h e t e m p e r a t u r e o f t h a t critical d e v i c e
f o c u s e d so strongly in t h e m i d d l e t h a t it c o u l d n ' t be r e a d , and
w h e n this w a s p o i n t e d o u t t o m a n a g e m e n t , they put a n o t h e r c h a r t
on and t h e p a p e r d i d n ' t m a t c h and t h e r e a d i n g said 140 d e g r e e s ,
w h e n t h e o v e n s h o u l d have b e e n and p r o b a b l y w a s a t 4 0 .
3
It w a s a l l e g e d t h a t p y r o g e n - f r e e w a t e r for t h e final c l e a n i n g of
t h e p a c e m a k e r s w a s left t o stand o v e r n i g h t . F D A c o u n s e l L e v i n e
c o m p l a i n e d , 'I d o n ' t e v e n let w a t e r used to b r u s h my t e e t h stand
o v e r n i g h t . ' It w a s a l s o c l a i m e d that c e r t a i n p a r t s w e r e not stored in a
c l e a n , d r y , lint-free a t m o s p h e r e and t h a t solder w a s b e i n g put o n
p a c e m a k e r s w i t h o u t t e s t i n g t h e s o l d e r i n g flux, c l e a n i n g fluid and oil
in t h e s o l d e r i n g m a c h i n e for p u r i t y .
T h e g o v e r n m e n t a l l e g e d c e r t a i n w a i v e r d e v i a t i o n s . Specifications
were established, but when lots failed t o meet them they w e r e
passed.

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Unsafe manufacturing practices

C a p a c i t o r s w e r e being t e s t e d , a c c o r d i n g t o the i n s p e c t o r s , with


t e s t i n g e q u i p m e n t d e s i g n e d for c a p a c i t o r s m a d e by a different
m a n u f a c t u r e r . C e r t a i n m i x - u p s o f c o n t a i n e r s and labels w e r e
a l l e g e d . A c c o r d i n g t o t h e i n s p e c t i o n r e p o r t , t a s k s w e r e being signed
off a s c o m p l e t e d b e f o r e t h e y a c t u a l l y w e r e c o m p l e t e d . M o r e o v e r ,
I n s p e c t o r H o o t e n c l a i m e d : "The Q u a l i t y C o n t r o l r e c o r d s h e e t s ,
i n d i c a t i n g t h a t t h e p a c e m a k e r had b e e n a p p r o v e d w e r e n ' t being
s i g n e d . T h e r e w e r e n o official a u t h o r i z a t i o n s i g n a t u r e s o r d a t e s o n
t h e s e s h e e t s r e l e a s i n g t h e p a c e m a k e r s . ' A s the final stage o f t h e
a p p r o v a l p r o c e s s , a t r a v e l c a r d w a s p u n c h e d with a h e a r t - s h a p e d
p u n c h to i n d i c a t e t h a t t h e p a c e m a k e r had passed all tests and w a s
a c c e p t a b l e . H o o t e n : ' T h e r e w e r e t w o o f t h e s e p u n c h e s lying loose
on t h e b e n c h . T h e y should have had limited access to t h e s e
p u n c h e s , since t h e y d o i n d i c a t e t h a t the p a c e m a k e r i s o k a y . T h e y
w e r e lying t h e r e for a n y o n e ' s u s e . '

T h e F D A a r g u e d t h a t t h e w h o l e quality control function was


d a n g e r o u s l y s l o p p y and that quality g o a l s w e r e s u b s e r v i e n t t o p r o -
d u c t i o n g o a l s . M a n u f a c t u r i n g i n s p e c t o r s w e r e used a s quality
control inspectors and they reported through a manufacturing
i n s p e c t i o n m a n a g e r t o the v i c e - p r e s i d e n t for m a n u f a c t u r i n g . T h e
d a n g e r s of having quality control people reporting to production
will be d i s c u s s e d later in this c h a p t e r .
M a n y m o r e p a g e s could b e filled listing t h e m u l t i t u d e o f
specific F D A a l l e g a t i o n s a g a i n s t C o r d i s . This w o u l d serve little
p u r p o s e . T h e g o v e r n m e n t c h a r g e d that e v e n w h e n C o r d i s did
b e c o m e a w a r e o f p r o b l e m s its r e s p o n s e s w e r e i n a d e q u a t e . F D A
Counsel, Levine:

Dr S t e r n e r told I n s p e c t o r O g l e s b a y t h a t they had a p r o b l e m with


t h e i r C T S 2.7 r a t e resistor. T h e y d e c i d e d t o recall c e r t a i n lots.
T h e y did n o t recall o t h e r s , a l t h o u g h t h e s a m e resistor is used in
them.
T h e firm had p r o b l e m s with C T S r a t e resistors as far back as
O c t o b e r . 1972.
I w a n t to call t h e C o u r t ' s a t t e n t i o n to G o v e r n m e n t ' s E x h i b i t
N o . 5 1 , which on an internal m e m o r a n d u m a Cordis employee
h a s w r i t t e n on t h e t o p , it l o o k s like we h a v e a C T S p r o b l e m
here.'
T h a t w a s in 1972. It w a s not until D e c e m b e r of 1974 t h a t Mr
H e r s h e n s o n w e n t b a c k to find out w h a t w a s going on with C T S , a
m a j o r s u p p l i e r for t h e d e f e n d a n t s .

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C o r d i s had sent a ' D e a r D o c t o r ' l e t t e r a b o u t quality p r o b l e m s


w i t h o n e of its p a c e m a k e r s . In p a r t , t h e letter read:

. . . we a n t i c i p a t e t h a t only a small p e r c e n t a g e o f t h e listed p a c e r s


will m a l f u n c t i o n . H o w e v e r , w e r e c o m m e n d for c o n s e r v a t i v e
m a n a g e m e n t t h a t t h e s e p a t i e n t s be m o n i t o r e d on a m o n t h l y basis
t h r o u g h 1 4 m o n t h s after i m p l a n t a t i o n t o d e t e c t e i t h e r o f t h e t w o
p o t e n t i a l t y p e s o f m a l f u n c t i o n : T y p e 1 , p r e m a t u r e rate d e c r e a s e
f o l l o w e d by c e s s a t i o n of p a c i n g or. T y p e 2, loss of s e n s i n g ,
r e s u l t i n g in fixed rate of p a c i n g .

W h e n Dr C e n t e r w a s a s k e d w h a t it m e a n t to him to be told that


' p a t i e n t s be m o n i t o r e d on a m o n t h l y basis t h r o u g h 14 m o n t h s after
i m p l a n t a t i o n ' , h e said:

W e l l , realistically s p e a k i n g , t h e r e i s n o way t o a d e q u a t e l y
m o n i t o r a p a t i e n t on a m o n t h l y basis. If t h e r e is a p r o b l e m in t h e
p a c e m a k e r , you c a n e x a m i n e t h e p a t i e n t a t t w o o'clock and
e v e r y t h i n g is p e r f e c t . T h e first e v i d e n c e of failure may o c c u r at
2:15 t h a t s a m e d a y . T h e r e f o r e , i f y o u r a p p o i n t m e n t t o see t h e
p a t i e n t is not for a n o t h e r m o n t h and t h e r e is a rapid
d e t e r i o r a t i o n , or e v e n a slow d e t e r i o r a t i o n , it's obviously very
p o s s i b l e t h a t if n o t h i n g is d o n e in t h e m e a n t i m e , t h e r e n e v e r will
be a s e c o n d visit.

H e n c e t h e F D A view w a s t h a t a p a t t e r n o f n e g l e c t o f quality w a s
c o m p o u n d e d by a r e l u c t a n c e on t h e part of t h e c o m p a n y to t a k e
effective a c t i o n to p r o t e c t p a t i e n t s o n c e t h e fruits of this n e g l e c t
b e c a m e a p p a r e n t . T h u s t h e n e e d for a n i n j u n c t i o n t o close d o w n
C o r d i s until t h e s i t u a t i o n w a s s t r a i g h t e n e d out. T h e c o u r t declined
t o g r a n t t h e F D A its i n j u n c t i o n .
C o u n s e l for C o r d i s did not d i s p u t e very m a n y o f t h e F D A ' s 148
a l l e g e d d e f i c i e n c i e s . I t w a s c o n c e d e d : ' R e g r e t t a b l y , p a c e m a k e r s are
n o t p e r f e c t , t h e p a c e m a k e r i n d u s t r y is not p e r f e c t , and C o r d i s is not
p e r f e c t . " N e v e r t h e l e s s , it w a s a r g u e d : ' C o r d i s is at least as good as
t h e rest o f t h e p a c e m a k e r i n d u s t r y . '
T h e s e c o n d e l e m e n t o f t h e successful C o r d i s defence w a s that
the suffering to p a t i e n t s from g r a n t i n g t h e g o v e r n m e n t its
i n j u n c t i o n w o u l d e x c e e d t h e benefits t o t h e m . T h e C o r d i s d e f e n c e
attorney:

N o w , I t h i n k t h e C o u r t also will h a v e to be a w a r e o f t h e p o t e n t i a l
effect of g r a n t i n g t h e g o v e r n m e n t t h e relief w h i c h it s e e k s in

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r e m o v i n g C o r d i s , hopefully t h e n only t e m p o r a r i l y , from the


market.
C o r d i s is the Avis o f t h e p a c e m a k e r industry. A corporation
c a l l e d M e d t r o n i c w a s t h e first o n t h e m a r k e t . T h e y h a v e a b o u t 5 0
o r 6 0 p e r c e n t o f t h e m a r k e t . C o r d i s has o n t h e o r d e r o f 2 0
p e r c e n t . T h e rest i s s c a t t e r e d a m o n g a b o u t five d o m e s t i c and four
foreign m a n u f a c t u r e r s , none of w h o m is anywhere near either
Medtronic or Cordis.
If t h e relief r e q u e s t e d by t h e F o o d and D r u g A d m i n i s t r a t i o n is
g r a n t e d , w e will s h o w t h a t t h e c u r r e n t d e m a n d for new and
r e p l a c e m e n t p a c e m a k e r s c a n n o t b e met and that t h e r e will b e
very s e r i o u s p o s s i b l e c o n s e q u e n c e s for p e r s o n s w h o n e e d
p a c e m a k e r s initially and for t h o s e w h o a l r e a d y have p a c e m a k e r s
i m p l a n t e d i n t h e m and r e q u i r e r e p l a c e m e n t s .
F u r t h e r , a s t o t h e p a r t i c u l a r p e r s o n s w h o have C o r d i s
p a c e m a k e r s p r e s e n t l y i m p l a n t e d i n t h e m , a p p r o x i m a t e l y forty t o
fifty t h o u s a n d t h r o u g h o u t t h e w o r l d , w e will s h o w that t h e r e
w o u l d be v a r i o u s a d d i t i o n a l m e d i c a l p r o b l e m s in shifting from a
C o r d i s p a c e m a k e r t o s o m e o t h e r p a c e m a k e r , e v e n a s s u m i n g that
one would be available.

T h e d e f e n c e relied h e a v i l y o n t h e t e s t i m o n y o f one medical practi-


t i o n e r . D r M o r s e , i n e s t a b l i s h i n g this c o n c l u s i o n .

Dr M o r s e : I feel t h a t t h e C o r d i s p a c e m a k e r is the most reliable


on the m a r k e t today.
Q: C o u l d you give us any p a r t i c u l a r r e a s o n for this
opinion?
Dr M o r s e : Y e s . I h a v e had C o r d i s f i x e d - r a t e p a c e m a k e r s five
y e a r s a g o , t h a t e n d e d t h e i r life five y e a r s a g o , that
lasted four y e a r s . N o w , this i s really u n u s u a l . T h e
a v e r a g e life of p a c e m a k e r s from most c o m p a n i e s at
t h a t t i m e w a s a b o u t 18 to 20 m o n t h s . I c o n t i n u e to use
C o r d i s p a c e m a k e r s b e c a u s e I feel that they are t h e
best d e s i g n e d a n d t h e m o s t versatile p a c e m a k e r and
the most reliable p a c e m a k e r that's available at the
present time.

D r M o r s e ' s t e s t i m o n y was d i s p a r a g e d b y F D A o n t h e g r o u n d s
t h a t he a d m i t t e d to b e i n g a C o r d i s s h a r e h o l d e r .
C o r d i s had a p o i n t . If a C o r d i s s h u t d o w n c a u s e d c e r t a i n p a t i e n t s
to c h a n g e over to a n o t h e r brand of p a c e m a k e r , medical evidence

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Unsafe manufacturing practices

i n d i c a t e d that i n c r e a s e d risks of infection could follow from implant-


ing a n e w m o d e l , especially in cases w h e r e the i m p l a n t i n g of a larger
4
m o d e l involved a surgical e n l a r g i n g o f t h e pocket for the d e v i c e .
D r M o r s e , i n testifying for the d e f e n c e , also m a d e m u c h o f t h e
p s y c h o l o g i c a l i m p a c t on p a t i e n t s of a C o r d i s s h u t d o w n . A s k e d w h a t
t h e effect w o u l d b e . M o r s e said:

I t h i n k it w o u l d be a c a t a s t r o p h e o f t h e first o r d e r . T h e r e w o u l d
be h y s t e r i a a m o n g t h e p a t i e n t s . . . . T h e r e w o u l d be a
t r e m e n d o u s r e a c t i o n t h r o u g h o u t t h e c o u n t r y , b e c a u s e this i s t h e
s e c o n d largest m a n u f a c t u r e r in the c o u n t r y . It would j u s t s h a k e
t h e faith of e v e r y o n e w h o has a p a c e m a k e r in t h e m , and t h e s e
p e o p l e a r e c o n c e r n e d , and t h e r e i s o v e r a h u n d r e d t h o u s a n d o f
them.

T h e third and s t r o n g e s t e l e m e n t o f t h e C o r d i s d e f e n c e w a s that i n


t h e m o n t h s b e t w e e n t h e i n s p e c t i o n and t h e c o u r t case t h e c o m p a n y
had rectified all o f t h e p r o b l e m s n o t e d b y t h e F D A . C o r d i s c o u n s e l ,
in s u m m i n g up argued:

N o w , t h e real key to o u r c a s e , I s u b m i t , is Mr H e r s h e n s o n ' s


t e s t i m o n y t h a t a s o f this d a t e e v e r y t h i n g i s c o r r e c t e d , c e r t a i n l y t o
t h e best o f t h e c o m p a n y ' s ability.
N o w , M r L e v i n e p o i n t e d out t h a t this w a s r a t h e r
c o n c l u s i o n a r y . that we didn't go t h r o u g h item by item.
T h a t ' s t r u e . H o w e v e r , t h a t i s simply b e c a u s e I d i d n ' t w a n t t o
w a s t e t h e C o u r t ' s t i m e a s k i n g item by i t e m . I can a s s u r e t h e C o u r t
a n d t h e F D A t h a t M r H e r s h e n s o n w a s fully p r e p a r e d t o stand
c r o s s - e x a m i n a t i o n on e v e r y item and to satisfy e v e r y o n e that each
a n d e v e r y o n e w a s , i n fact, d o n e .

N e i t h e r side w a s really willing or a b l e to s p e n d m o n t h s in c o u r t


a r g u i n g w h e t h e r or not e a c h o f t h e 144 specific deficiencies in turn
had b e e n satisfactorily rectified. N o t w i t h s t a n d i n g all of the sub-
s i d i a r y a r g u m e n t s , i t w a s this third m a j o r d e f e n c e which w o n the
day.

T h e r e is no e v i d e n c e e i t h e r of p r e s e n t v i o l a t i o n of l a w , since the
g o v e r n m e n t has not b e e n t h e r e t o see w h a t c o n d i t i o n s are r i g h t
n o w , n o r h a v e t h e y p r e s e n t e d any e v i d e n c e o f l i k e l i h o o d o f
r e c u r r e n c e , w h i c h I t h i n k is sort of a logical impossibility w h e n
you don't k n o w what the situation is right now.
H o w e v e r , i f t h e C o u r t has e v e n t h e slightest d o u b t , w e very

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Unsafe manufacturing practices

r e s p e c t f u l l y s u g g e s t that it o r d e r t h e F D A to inspect C o r d i s and to


r e p o r t any significant a d v e r s e f i n d i n g s i m m e d i a t e l y and directly
to the Court.
F i n a l l y , if t h e m o t i o n should be d e n i e d , as we have a s k e d , we
invite and e n c o u r a g e the F o o d and D r u g A d m i n i s t r a t i o n t o
i n s p e c t C o r d i s and also t o a s s u r e itself t h a t e v e r y t h i n g has b e e n
corrected.

J u d g e F a y , in his d e c i s i o n to d e n y t h e m o t i o n for a p r e l i m i n a r y
i n j u n c t i o n , s u g g e s t e d that the F D A could t a k e up this offer and
s e n d in a t e a m of i n s p e c t o r s to assess t h e c u r r e n t s i t u a t i o n .
T h e F D A w a s not t o b e d e t e r r e d a n d t o o k u p the offer. Before
d i s c u s s i n g t h e s e further d e v e l o p m e n t s , i t i s w o r t h c o n s i d e r i n g the
i m p l i c a t i o n s of w h a t had t r a n s p i r e d up to that point. T h e r e will
a l w a y s b e d e l a y s b e t w e e n a n i n s p e c t i o n and court action b a s e d o n
t h e r e s u l t s of t h a t i n s p e c t i o n , e s p e c i a l l y given the g e n e r a l policy of
t h e F D A ( a n d m o s t o t h e r r e g u l a t o r y a g e n c i e s ) o f giving offenders
an o p p o r t u n i t y v o l u n t a r i l y to set their h o u s e in o r d e r before t a k i n g
c o u r t a c t i o n . H e n c e , t h e r e i s t h e o p p o r t u n i t y for the c o m p a n y t o
i g n o r e F D A w a r n i n g s u p t o t h e p o i n t o f t h e c o u r t h e a r i n g and t h e n
a r g u e in c o u r t t h a t it has n o w rectified all s h o r t c o m i n g s . T h e regu-
l a t o r y a g e n c y is t h e n invited to do a n o t h e r i n s p e c t i o n and t h e
a d v e r s a r i e s a r e set on t h e r o u n d a b o u t a g a i n . This p r o b l e m is not so
a c u t e w i t h c r i m i n a l p r o s e c u t i o n s or civil d a m a g e s a c t i o n s against a
c o m p a n y for past a c t i o n s . I t i s w h e n t h e r e g u l a t o r y a g e n c y s e e k s
i n j u n c t i v e relief t h a t t h e p r o b l e m is w o r s t . I n j u n c t i o n s to p r e v e n t a
d a n g e r o u s p r a c t i c e a r e m o r e i m p o r t a n t t h a n r e t r i b u t i o n against past
sins in t e r m s o f t h e i m m e d i a t e p r i o r i t y of a r e g u l a t o r y a g e n c y to save
lives and p r e v e n t suffering.

It m i g h t be a r g u e d that if the c o m p a n y really d o e s rectify the


d e f i c i e n c i e s t h e n t h e p u b l i c h a s b e e n p r o t e c t e d . I n t h e first p l a c e ,
t h e r e is no way of e s t a b l i s h i n g this w i t h o u t setting t h e d o g on a
c o u r s e of c h a s i n g its tail a g a i n . B u t t h e r e is a m o r e f u n d a m e n t a l
o b j e c t i o n to this a r g u m e n t , an o b j e c t i o n w h i c h is a r e p e t i t i o n of a
p o i n t m a d e i n t h e last c h a p t e r . F D A c o u n s e l L e v i n e e x p r e s s e d i t
w h e n he said t h a t t h e g r e a t c o n c e r n w a s not with rectifying t h e 144
specific d e f i c i e n c i e s , but with c u r i n g t h e u n d e r l y i n g c o r p o r a t e
m a l a i s e o f w h i c h t h e s e w e r e s y m p t o m s : "Large o r s m a l l , t h e i m p o r -
t a n t t h i n g i s t h e p a t t e r n o f i n a d e q u a t e q u a l i t y c o n t r o l . ' T h e r e i s little
g u a r a n t e e t h a t e l i m i n a t i n g any g i v e n set o f s y m p t o m s which c o m e t o
n o t i c e w o u l d also r e m o v e t h e s y s t e m i c c a u s e s . Yet the inbuilt

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Unsafe manufacturing practices

t r a d i t i o n of W e s t e r n law is not to a d d r e s s itself to p a t t e r n s of


c o n d u c t , but to specific i t e m s of c o n d u c t ; not to deal with d i s e a s e s ,
b u t w i t h s y m p t o m s . T h a t i s w h y , t o c h o o s e a n o t h e r a r e a o f failure.
W e s t e r n law h a s not b e e n a b l e t o deal w i t h p h e n o m e n a like o r g a n -
ised c r i m e at t h e i r r o o t : Al C a p o n e had to be dealt with by con-
5
v i c t i o n for an o b s c u r e tax v i o l a t i o n .
L e t u s r e t u r n t o t h e C o r d i s saga. O n 2 8 A u g u s t 1975. t h r e e days
after t h e F D A c o m p l a i n t for i n j u n c t i o n w a s d e n i e d b y the c o u r t ,
t w o F D A i n s p e c t o r s revisited t h e C o r d i s p l a n t . Specific deficiencies
n o t e d b y t h e i n s p e c t o r s t o t a l l e d 137. and F D A r e t u r n e d t o t h e c o u r t
to s e e k i n j u n c t i v e relief for a second t i m e . As C o r d i s had d o n e twice
p r e v i o u s l y , i t w r o t e t o t h e F D A i n d i c a t i n g how i t i n t e n d e d t o
r e m e d y t h e specific deficiencies. This t i m e , t h e j u d g e , lacking con-
fidence in his c a p a c i t y to deal with t h e highly t e c h n i c a l issues o f t h e
c a s e , d e c i d e d to set up a special h e a r i n g to be c o n d u c t e d by
Professor Hines.
B e f o r e P r o f e s s o r H i n e s t h e C o r d i s c o u n s e l again c e n t r e d their
c a s e a r o u n d t h e fact t h a t specific deficiencies had b e e n , and w e r e
b e i n g , dealt with.

P a r t o f t h e g o v e r n m e n t ' s c a s e i s saying t h a t , w e l l , w h e n w e c a m e
b a c k in this m o s t r e c e n t i n s p e c t i o n we saw t h e same t h i n g s we saw
i n t h e M a y - J u n e i n s p e c t i o n a n d way back i n t h e F e b r u a r y
i n s p e c t i o n , and o b v i o u s l y t h a t w o u l d be very significant, if it w e r e
t r u e , t h a t we had d o n e n o t h i n g . I t h i n k t h a t w o u l d be very bad.
W e i n t e n d t o d e m o n s t r a t e t h a t w e d i d , i n fact, d o s o m e t h i n g
a b o u t e v e r y t h i n g and i n fact n o n e o f t h e later o b s e r v a t i o n s are
r e a l l y t h e s a m e . T h e r e a r e s e v e r a l , two o r t h r e e , that the s a m e
s i t u a t i o n r e c u r r e d , but we will s h o w t h a t we t o o k significant
m e a s u r e s i n t h e i n t e r i m w h i c h u n f o r t u n a t e l y i n t w o o r t h r e e cases
o u t of a b o u t 150 did not w o r k well e n o u g h and we have t a k e n
more m e a s u r e s since.

T h e C o m m i s s i o n e r , P r o f e s s o r H i n e s , t e n d e d t o r e s p o n d i n his
r e p o r t t o t h e u n d e r l y i n g reality o f t h e C o r d i s p r o b l e m r a t h e r t h a n t o
t h e e x t e n t to w h i c h specific deficiencies had b e e n rectified. He did
c o n c l u d e t h a t F D A ' s 137 n e w a l l e g a t i o n s w e r e s u b s t a n t i a l l y c o r r e c t
a n d t h a t m a n y o f t h e deficiencies w h i c h existed i n t h e A u g u s t -
O c t o b e r i n s p e c t i o n w e r e similar t o deficiencies n o t e d i n t h e t w o
e a r l i e r i n s p e c t i o n s . C o r d i s c o r r e c t i o n s o f t h e e a r l i e r deficiencies
w e r e d e s c r i b e d as 'reactive rather than pro-active'. Professor Hines
found that the FDA observations represented 'significant

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Unsafe manufacturing practices

d e f i c i e n c i e s w h i c h had r e s u l t e d from a lack o f a carefully c o n c e i v e d ,


c o m p r e h e n s i v e p l a n for p r o d u c t a s s u r a n c e ' , the lack o f c o m p r e -
h e n s i v e o p e r a t i n g a n d i m p l e m e n t i n g p r o c e d u r e s and 'the lack o f a
vigorous internal auditing program to assure compliance with oper-
ating p r o c e d u r e s . ' With respect to one model ofCordis p a c e m a k e r s
( t h e K a p p a l i n e ) , t h e C o m m i s s i o n e r found t h a t n o p r o c e d u r e s t o
b r i n g t h e i r p r o d u c t i o n u n d e r t h e quality a s s u r a n c e p r o g r a m m e had
b e e n d e v e l o p e d a t all. I n s u m . P r o f e s s o r H i n e s c o n c l u d e d that the
w h o l e C o r d i s o p e r a t i o n w a s s o l a c k i n g i n s y s t e m a t i s a t i o n and
d o c u m e n t a t i o n as to be 'not c o n d u c i v e to n o r c o n s i s t e n t with the
p r o d u c t i o n o f high reliability p a c e r s . '
C o r d i s c o u n s e l r e m i n d e d P r o f e s s o r H i n e s that i n spite o f t h e
fact t h a t his role w a s defined by the j u d g e as to e x p r e s s a view
on t h e t e c h n i c a l q u e s t i o n s , g r e a t p o w e r w a s being placed in his
hands.

. . . in a d d i t i o n to j u s t settling t e c h n i c a l q u e s t i o n s , you are really


h a v i n g a d r a m a t i c , p e r h a p s a final, effect on t h e life o f a very large
e n t e r p r i s e . It is on t h e o r d e r of forty-million d o l l a r s a n n u a l sales
o r t w o t h o u s a n d e m p l o y e e s , and t h e t e c h n i c a l q u e s t i o n s t h a t you
will be d e c i d i n g will be a very significant basis f o r j u d g e E a t o n to
m a k e his u l t i m a t e d e c i s i o n a s t o w h e t h e r this o p e r a t i o n r e m a i n s
o p e n or is closed d o w n , so t h a t it is m o r e t h a n j u s t t e c h n i c a l
q u e s t i o n s as I am sure you a p p r e c i a t e . . . .

P e r h a p s P r o f e s s o r H i n e s w a s influenced b y this w a r n i n g w h e n i n
his r e p o r t he w a s careful to frame his r e c o m m e n d a t i o n s as reforms
w h i c h s h o u l d b e u n d e r t a k e n b y C o r d i s . H e did not r e c o m m e n d that
C o r d i s b e shut d o w n o r t h a t F D A s u p e r v i s i o n w a s r e q u i r e d . I n d e e d ,
t h e d e f e n d a n t s w e r e a b l e t o m a k e m u c h o f t h e fact that m a n y o f t h e
c h a n g e s a n d i m p r o v e m e n t s r e q u i r e d p a c e m a k e r production t o b e
u n d e r w a y i n o r d e r t h a t t h e n e e d e d i m p r o v e m e n t s could b e effected.
T h i s , o f c o u r s e , w a s a p o o r a r g u m e n t for a l l o w i n g C o r d i s t o con-
t i n u e d i s t r i b u t i n g p a c e m a k e r s w h i l e its o p e r a t i o n s w e r e b e i n g
brought under appropriate controls.

On the strength of Professor H i n e s ' s report, F D A counsel argued


before the convened court:

A n i n j u n c t i o n s h o u l d n o w b e issued. T h e t e r m s o f t h e injunction
w o u l d b e t h o s e c o n t a i n e d i n the C o m m i s s i o n e r ' s
R e c o m m e n d a t i o n s . T h e s e r e q u i r e C o r d i s activity (1) t o e s t a b l i s h
a c c e p t a b l e reliability g o a l s , (2) t o e s t a b l i s h d a t a c o l l e c t i o n and

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Unsafe manufacturing practices

statistical a n a l y s e s of field e x p e r i e n c e in o r d e r to d e v e l o p
e s t i m a t e s o f p a c e r r e l i a b i l i t y , (3) t o b r i n g K a p p a pacer m o d e l
p r o d u c t i o n u n d e r t h e p r o d u c t a s s u r a n c e system and t o modify
p r o m o t i o n a l l i t e r a t u r e t o reflect t h e n e w n e s s o f t h e d e v i c e , (4) t o
c o m p l e t e the design of a c o m p r e h e n s i v e pacer assurance system,
to i n c l u d e t h e t h i r t e e n a r e a s specified by t h e C o m m i s s i o n e r in
o r d e r t o a c h i e v e rigid c o n t r o l , (5) t o i n c r e a s e final p r o d u c t
t e s t i n g , (6) to staff t h e i n t e r n a l quality a u d i t g r o u p so that it can
be v i g o r o u s [ s i c ] , and (7) to d e v e l o p a high reliability discipline
and i n t e g r a t i o n o f m a n a g e m e n t p o l i c i e s .

In c o n t r a s t . C o r d i s a r g u e d t h a t ' . . . we fully a c c e p t his [Professor


H i n e s ' ] r e c o m m e n d a t i o n s and w e are w o r k i n g a s hard a s possible t o
i m p l e m e n t t h e m as soon as p o s s i b l e and that is rapidly b e i n g
a c c o m p l i s h e d . ' T h e n c a m e t h e c l i n c h e r . F D A based its w h o l e case
in law a g a i n s t C o r d i s on m i s b r a n d i n g . C o r d i s c l a i m e d in the
b r o c h u r e s and d i r e c t i o n s - f o r - u s e l i t e r a t u r e w h i c h w e n t t o d o c t o r s
t h a t its p a c e m a k e r s w e r e ' m a n u f a c t u r e d u n d e r rigidly c o n t r o l l e d
c o n d i t i o n s ' a n d t h a t t h e y p e r f o r m e d with "a high d e g r e e of relia-
bility o v e r a n e x t e n d e d p e r i o d o f t i m e ' . B e c a u s e t h e s e s t a t e m e n t s
w e r e i n a c c u r a t e , t h e injunction t o s t o p the d i s t r i b u t i o n o f mis-
b r a n d e d p r o d u c t s s h o u l d b e i s s u e d , t h e F D A a r g u e d . Such a
s t r a t e g y w a s n e c e s s a r y b e c a u s e a t t h a t t i m e G M P s applied only t o
drugs and not to implantable medical devices. The bombshell was
t h a t a c o u p l e of w e e k s before t h e D e c e m b e r 1975 c o u r t h e a r i n g (on
19 N o v e m b e r ) C o r d i s i n s t i t u t e d n e w labelling for all C o r d i s p a c e -
m a k e r s and sent c o p i e s t o all p h y s i c i a n s w h o c u r r e n t l y used those
l a b e l s . 'All p a c e r s b e i n g s h i p p e d from C o r d i s plant as of t o d a y have
t h i s n e w l a b e l l i n g . T h e y d o not h a v e any s t a t e m e n t a b o u t rigid
control.'
L e v i n e a r g u e d : i d o n ' t k n o w w h e t h e r t h e new labelling h e r e will
r e m e d y t h e past four o r five y e a r s o f t h e s t a t e m e n t o f rigid c o n t r o l . '
But J u d g e E a t o n immediately intervened here: 'Perhaps we have a
n e w l a w s u i t n o w . We all pick up t h e n e w m a t e r i a l and we start o v e r
in r e f e r e n c e to t h e l a b e l l i n g . ' T h e F D A had lost t h e b a t t l e . It lost
e v e r y b a t t l e a g a i n s t C o r d i s , and the w a r .
T h e failure t o close d o w n t h e C o r d i s p l a n t gave i m p e t u s t o F D A
efforts to h a v e specific m e d i c a l d e v i c e r e g u l a t i o n s e n a c t e d . It w a s
o n e o f t h e few a t t e m p t s by t h e F D A to pull out all legal stops against
a m o d e r a t e l y l a r g e c o m p a n y . As s u c h , it w a s also a salutary lesson
on t h e limits of law in c o n t r o l l i n g c o r p o r a t e a b u s e s .

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A fourth modern case study: an anonymous transnational

T h e C o r d i s c a s e study s e r v e d to i l l u s t r a t e t h e limits of law in


r e g u l a t i n g unsafe m a n u f a c t u r i n g p r o b l e m s . T h e following case
s t u d y is p r o b a b l y m o r e typical in t h a t it i l l u s t r a t e s h o w c o n t r o l w a s
effected t h r o u g h n e g o t i a t i o n w i t h o u t r e c o u r s e t o litigation. I n p a r t ,
an i n f o r m a l s e t t l e m e n t w a s effected precisely b e c a u s e of a
r e a l i s a t i o n by s o m e F D A officers that legal c o n t r o l s did have s e v e r e
limits in t h e kind of s i t u a t i o n t h e y w e r e d e a l i n g with. T h e case study
concerns an a n o n y m o u s American transnational pharmaceutical
c o m p a n y a n d a n o n y m o u s F D A officers. Such a n o n y m i t y arises
from t h e fact t h a t my chief i n f o r m a n t , a s e n i o r F D A official,
r e q u e s t e d it be t h a t w a y .
F D A i n s p e c t o r s b e c a m e a w a r e o f t h e fact t h a t t h e r e had b e e n a
m a j o r b r e a k d o w n o n t h e quality s y s t e m a t t h e largest m a n u f a c t u r -
ing p l a n t o f o n e o f t h e t o p A m e r i c a n c o m p a n i e s . E s s e n t i a l l y the
p r o b l e m s w e r e a n u m b e r of s l o p p y p r a c t i c e s which c r e a t e d a risk
t h a t u n d e t e c t e d n o n - s t e r i l e p r o d u c t s w e r e going o n t o t h e m a r k e t .
T h e d e t a i l s of t h e s e p r a c t i c e s will not be discussed h e r e , but they
w e r e of a m a g n i t u d e to c a u s e o n e F D A officer to d e s c r i b e the
q u a l i t y b r e a k d o w n as ' o n e o f t h e m o s t s e r i o u s I h a v e seen in 30 years
e x p e r i e n c e ' . T h e F D A district d i r e c t o r w a n t e d t o close d o w n the
p l a n t and c o m m e n c e c r i m i n a l p r o c e e d i n g s a g a i n s t the c o m p a n y and
c e r t a i n of its officers. We have seen t h a t c r i m i n a l p r o s e c u t i o n s of
t r a n s n a t i o n a l p h a r m a c e u t i c a l c o m p a n i e s u n d e r t h e F o o d , D r u g and
C o s m e t i c A c t a r e virtually n o n - e x i s t e n t . S o t h e F D A w a s clearly not
g o i n g t o rush i n t o criminal p r o s e c u t i o n s . H o w e v e r , i m m e d i a t e
a c t i o n had t o b e t a k e n a b o u t t h e risk t o t h e p u b l i c . ' W e w e r e
t e r r i f i e d ' a b o u t t h i s risk, c l a i m e d t h e F D A h e a d office official w h o s e
j o b it was to react to the p r o b l e m .
T h e crisis built u p g r a d u a l l y . G o v e r n m e n t c o n t r a c t s for p r o d u c t s
from t h e p l a n t w e r e cut off after an initial i n v e s t i g a t i o n by the
F D A ' s d i s t r i c t office. E x e c u t i v e s from the firm c o n t a c t e d t h e F D A ' s
h e a d office and a s k e d if t h e y could c o m e to W a s h i n g t o n to discuss it.
T h e y w e r e told t h a t t h e y c o u l d , but only i f they c a m e with d e c i s i o n -
m a k i n g a u t h o r i t y . In t h e m e a n t i m e t h e district office had sent head
office an i n j u n c t i o n r e c o m m e n d a t i o n for t h e c l o s u r e o f t h e p l a n t . At
t h e initial m e e t i n g b e t w e e n F D A and c o m p a n y officers i t was
p o i n t e d o u t t o t h e c o m p a n y that t h e injunction r e c o m m e n d a t i o n
had b e e n r e c e i v e d . N e v e r t h e l e s s , t h e m e e t i n g w a s n o n - p r o d u c t i v e .
F u r t h e r e v i d e n c e e m e r g e d s u b s e q u e n t t o that initial m e e t i n g

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c u l m i n a t i n g in a r e c o m m e n d a t i o n by t h e district office for c r i m i n a l


p r o s e c u t i o n s . A s t h i s e v i d e n c e e m e r g e d from t h e district office
i n v e s t i g a t i o n s , the c o m p a n y b e c a m e m o r e co-operative.
A p l a n of a c t i o n to rectify t h e p r o b l e m w a s w o r k e d out at m e e t -
ings b e t w e e n t h e F D A a n d the c o r p o r a t i o n ' s g e n e r a l c o u n s e l . O n e
m e a s u r e w a s a g r a d u a t e d recall of v a r i o u s p r o d u c t s which w a s said
t o cost t h e c o m p a n y S 8 - 1 0 million. I t w a s a g r e e d t h a t t h e c o m p a n y
w o u l d d i s m i s s its p r o d u c t i o n and quality c o n t r o l m a n a g e r s , w h o
w e r e r e g a r d e d as h a v i n g special r e s p o n s i b i l i t y for t h e quality crisis.
A h u g e a n d costly p r o g r a m m e to u p g r a d e t h e quality a s s u r a n c e
s y s t e m a t t h e p l a n t and i n t h e c o m p a n y g e n e r a l l y w a s i m p l e m e n t e d .
M a s s i v e t h i n g s w e r e d o n e h e r e ' , a c c o r d i n g t o t h e key F D A official
in t h e n e g o t i a t i o n s .
W h i l e t h e c o r p o r a t e g e n e r a l c o u n s e l w o n full s u p p o r t for t h e
r e g i m e of r e h a b i l i t a t i o n from his p r e s i d e n t , t h e F D A official did not
h a v e such a s m o o t h r i d e . T h e recall p r o g r a m m e w a s a major s o u r c e
o f d i s s e n s i o n w i t h i n t h e a g e n c y . I t had b e e n a g r e e d t h a t t h e recalls
s h o u l d b e g r a d u a l . P r o d u c t s a l r e a d y o n t h e m a r k e t w o u l d not b e
r e c a l l e d until such t i m e a s n e w s t o c k s m a n u f a c t u r e d u n d e r t h e
r e f o r m e d q u a l i t y c o n t r o l system had c o m e o u t t h e end o f the
p r o d u c t i o n l i n e . O l d stock w o u l d be recalled o v e r four to five
m o n t h s a s m o r e and m o r e n e w stock w a s p r o d u c e d . T h e p r o d u c t
w a s n e c e s s a r y i n s u r g e r y ; w i t h o u t i t c e r t a i n o p e r a t i o n s could not
t a k e p l a c e . B e c a u s e t h e c o m p a n y w a s s o large i n the p r o d u c t lines
c o n c e r n e d , i m m e d i a t e recall o f all p r o d u c t s p r o d u c e d u n d e r t h e
d e f e c t i v e q u a l i t y c o n t r o l s y s t e m w o u l d have c r e a t e d s h o r t a g e s
w h i c h m a y h a v e p u t c e r t a i n p a t i e n t s at risk. T h e o b j e c t i o n to this
p a r t o f t h e a g r e e m e n t w a s , h o w e v e r , t h a t illegal d r u g s w e r e out
t h e r e on t h e m a r k e t and should be w i t h d r a w n as a m a t t e r of
p r i n c i p l e . T o c o m p r o m i s e this p r i n c i p l e w o u l d b e i n t o l e r a b l e .
T h e s e a r g u m e n t s w e r e further confused b y t h e fact that F D A did
not h a v e e v i d e n c e t h a t any o f the i n v e n t o r y w a s n o n - s t e r i l e . N o
a d v e r s e r e a c t i o n s had b e e n r e p o r t e d . M o r e o v e r , it is difficult to test
w i t h any c e r t a i n t y t h e sterility of an e n d - p r o d u c t . T h a t is precisely
w h y s t r o n g v a l i d a t i o n of i n - p r o c e s s c o n t r o l s for sterility is e s s e n t i a l .
T h e r e w a s a lack of a s s u r a n c e o f t h e sterility in all lots w h i c h had
been m a n u f a c t u r e d in serious violation of G M P s . The probability
t h a t a n u m b e r of lots on t h e m a r k e t w e r e n o n - s t e r i l e could only be
g u e s s e d . E v e n if t h e r e w e r e no d r u g s l a c k i n g sterility, it did r e m a i n
t r u e t h a t t h e d r u g s w e r e 'illegal' i n t h e sense that they had not b e e n
m a d e a n d t e s t e d a c c o r d i n g t o t h e s t a n d a r d s set d o w n i n law.

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A l l p r o t a g o n i s t s w i t h i n the a g e n c y s e e m e d sincere i n their d e s i r e


t o a s s u r e m a x i m u m p r o t e c t i o n for t h e c o n s u m e r . B u t n e i t h e r side
h a d t h e d a t a to be a b l e to show that the risk from p r o d u c t s h o r t a g e s
w o u l d b e g r e a t e r o r l e s s e r t h a n t h e risk from unsafe p r o d u c t . T h e
w i n n i n g a r g u m e n t o f t h o s e w h o d e f e n d e d t h e g r a d u a l recall w a s that
this was part o f a total p a c k a g e o f c o n s e n s u a l measures which, as a
w h o l e , w o u l d afford far g r e a t e r p r o t e c t i o n to p a t i e n t s t h a n would
r e s u l t i f t h e c o n s e n s u s b r o k e d o w n t h r o u g h legal a c t i o n b y F D A
against the c o m p a n y (e.g. seizure, injunction, prosecution). The
c o m p a n y m i g h t r e n e g e o n s o m e p a r t s o f its side o f t h e d e a l i f F D A
c h a n g e d its t u n e on g r a d u a l recall.

T h i s h a v i n g b e e n s e t t l e d , t h e r e w a s n o w t h e q u e s t i o n o f criminal
p r o s e c u t i o n s . U l t i m a t e l y , n o r e c o m m e n d a t i o n went from t h e F D A
to t h e J u s t i c e D e p a r t m e n t for a c r i m i n a l p r o s e c u t i o n . T h e district
d i r e c t o r w a n t e d t o p r o c e e d w i t h c r i m i n a l a c t i o n against t h e
c o m p a n y a n d t h e t w o e x e c u t i v e s w h o had b e e n d i s m i s s e d . I n
c o n t r a s t , t h e view o f t h e F D A h e a d office official w h o had d o n e the
n e g o t i a t i n g w a s t h a t it w o u l d be "vindictive' to p r o s e c u t e t h e "two
old m e n ' w h o had suffered e n o u g h from p r o f e s s i o n a l d i s g r a c e and
loss o f e m p l o y m e n t . M o r e o v e r , t h e r e w e r e informal i n d i c a t i o n s
t h a t t h e y w e r e highly unlikely to ever go b a c k to t h e p h a r m a c e u t i c a l
industry and pose a threat to the public again. This senior F D A
officer justified his p o s i t i o n as follows:

I s t a t e d my o p i n i o n t h a t t h e g o v e r n m e n t w o u l d win if it w e n t
f o r w a r d [on t h e case a g a i n s t t h e c o r p o r a t i o n and two individual
d e f e n d a n t s ] . I r e c o m m e n d e d t h a t the case be not p r o s e c u t e d at
all b e c a u s e , in my o p i n i o n , t h e p u b l i c h e a l t h and welfare w o u l d
n o t be at all s e r v e d . T h e p r o b l e m had b e e n c o r r e c t e d . We had
m a g n i f i c e n t (if b e l a t e d ) c o o p e r a t i o n from t h e firm. T h e former
p l a n t m a n a g e r a n d p l a n t Q C d i r e c t o r (they had different t i t l e s ,
b u t I c a n ' t r e m e m b e r t h e m ) w e r e o u t o f t h e i n d u s t r y ; so. any
p u n i s h m e n t of t h e m w o u l d be strictly p u n i t i v e . . . . T h e district
office s c r e a m e d "Foul. T h e law is t h e l a w . ' T h a t kind of r e a s o n i n g
has a l w a y s d i s g u s t e d me b e c a u s e w h e n it is used the tail literally
w a g s t h e d o g . T h e stated p u r p o s e o f t h e C o n g r e s s i n e n a c t i n g the
A c t w a s "to p r o t e c t t h e p u b l i c h e a l t h and w e l f a r e . . . . ' T o o , F D A
t o o k into c o n s i d e r a t i o n its t r a c k r e c o r d with the court j u r i s d i c t i o n
i n v o l v e d . T h a t p a r t i c u l a r F D A district office w a s not r e s p e c t e d b y
a t least o n e j u d g e u p t h e r e w h o t h o u g h t they w e r e high h a n d e d
a n d less t h a n o b j e c t i v e i n a n o t h e r m a t t e r referred t o him.

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Unsafe manufacturing practices

T h e i m m e d i a t e s u p e r i o r of this officer w h o did the n e g o t i a t i n g


d i s a g r e e d . He supported criminal prosecution o f t h e corporation,
t h e c h a i r m a n o f its b o a r d , and t h e t w o e x e c u t i v e s w h o had b e e n
d i s m i s s e d . I n t u r n , his i m m e d i a t e s u p e r i o r , w h o w a s a p e r s o n a l
friend o f t h e c h a i r m a n o f t h e a c c u s e d c o r p o r a t i o n , " w a s a g a i n s t any
c r i m i n a l a c t i o n . I n t h e e n d , the m a t t e r was r e s o l v e d i n t h e n e g a t i v e
a t t h e h i g h e s t d e c i s i o n - m a k i n g levels o f t h e a g e n c y . T h e c o m p a n y ,
a c c o r d i n g to F D A staff, has had a g o o d G M P r e c o r d since the
i n c i d e n t . T h i s c a s e study will b e d r a w n u p o n later t o illustrate t h e
difficult c h o i c e s and p r e s s u r e s w h i c h r e g u l a t o r s m u s t confront in
d e c i d i n g for or a g a i n s t legal a c t i o n , and to illustrate t h e real possi-
bilities for a c h i e v i n g significant p r o t e c t i o n for t h e public from d e a l s
s t r u c k 'in smoke-filled r o o m s ' . '

Unsafe manufacturing practices affecting workers


So far in t h i s c h a p t e r t h e i m p a c t of unsafe m a n u f a c t u r i n g p r a c t i c e s
o n c o n s u m e r s h a s b e e n c o n s i d e r e d . B u t w o r k e r s a s well a s con-
s u m e r s c a n be v i c t i m s . U n f o r t u n a t e l y , w o r k e r s as victims is a t o p i c
w h i c h h a s b e e n r e l a t i v e l y n e g l e c t e d in this r e s e a r c h . It is an a r e a that
w o u l d justify d e t a i l e d i n v e s t i g a t i o n . T h e p h a r m a c e u t i c a l g i a n t ,
W a r n e r - L a m b e r t , and four of its e x e c u t i v e s w e r e recently the
s u b j e c t of a l a n d m a r k i n d i c t m e n t c h a r g i n g t h e m with h o m i c i d e over
an e x p l o s i o n - f i r e in its L o n g Island city c h e w i n g - g u m plant in w h i c h
6 w o r k e r s w e r e killed a n d 55 o t h e r s seriously i n j u r e d . U l t i m a t e l y
t h e U . S . C o u r t o f A p p e a l s for t h e S e c o n d Circuit i n N e w Y o r k
dismissed the case ( P e o p l e v. W a r n e r L a m b e r t , Ct. a p p . , 434
N . Y . S . at 159). E v e n t h o u g h the c o m p a n y had virtually ignored a
w a r n i n g by its i n s u r a n c e c a r r i e r s that t h e r e w a s a severe e x p l o s i o n
h a z a r d a t t h e p l a n t , b e c a u s e t h e i m m e d i a t e s o u r c e o f ignition could
n o t b e d e t e r m i n e d w i t h c e r t a i n t y after t h e e x p l o s i o n , t h e c h a r g e s
w e r e d i s m i s s e d . In o t h e r w o r d s , to get a c o n v i c t i o n for criminally
n e g l i g e n t h o m i c i d e , t h e p r o s e c u t i o n w a s r e q u i r e d t o p r o v e that t h e
d e f e n d a n t s c o u l d f o r e s e e n o t only t h e fact t h a t t h e r e m i g h t b e a n
e x p l o s i o n , but a l s o t h e p r e c i s e c h a i n o f e v e n t s which actually
t r i g g e r e d t h e e x p l o s i o n . T h e d e c i s i o n will m a k e c o n v i c t i o n s i n
future c a s e s of t h e s a m e kind e x t r a o r d i n a r i l y difficult, if not
impossible.
O b v i o u s l y , safety p r o b l e m s are not all m a n a g e m e n t ' s fault. In a
p h a r m a c e u t i c a l l a b o r a t o r y in w h i c h it is c o m m o n p r a c t i c e for
d a n g e r o u s c h e m i c a l s to be m o u t h p i p e t t e d , t h e fault may lie with
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Unsafe manufacturing practices

staff w h o c h o o s e to do this to save t i m e . E q u a l l y , it could be that


m a n a g e m e n t is at fault for failure to w a r n t h e m off such a p r a c t i c e ,
or e v e n for t r a i n i n g n e w staff i n t o a set of p r a c t i c e s w h i c h a c c e p t s
mouth pipetting as normal.
An i m p o r t a n t n e e d is for d e t a i l e d i n v e s t i g a t i o n o f t h e health risks
t o p e o p l e w h o w o r k with h o r m o n a l p r o d u c t s . B e t w e e n 1968 and
1971 m a n y w o r k e r s a t D a w e s L a b o r a t o r i e s i n C h i c a g o H e i g h t s .
I l l i n o i s , c o m p l a i n e d o f sexual i m p o t e n c e . S o m e m e n d e v e l o p e d
e n l a r g e d b r e a s t s , i n o n e c a s e r e q u i r i n g surgical r e m o v a l . C o n d i t i o n s
a t t h e p l a n t a c c o r d i n g t o E p s t e i n ( 1 9 7 8 : 227) w e r e : "Ventilation w a s
p r a c t i c a l l y n o n e x i s t e n t a n d t h e w h o l e i n t e r i o r o f t h e plant w a s
c o v e r e d by dust c o n t a i n i n g as high as 10 p e r c e n t D E S [a h o r m o n a l
p r o d u c t ] by w e i g h t . " In 1977 an O c c u p a t i o n a l Safety and H e a l t h
A d m i n i s t r a t i o n i n s p e c t i o n r e s u l t e d i n t h e c o m p a r a t i v e l y heavy fine
of $46,000. which was subsequently reduced under appeal to
$ 2 1 , 0 0 0 . E p s t e i n p o i n t e d o u t that a similar i n c i d e n t i s d o c u m e n t e d
from an o r a l c o n t r a c e p t i v e p l a n t in P u e r t o R i c o in 1976.

F o l l o w i n g c o m p l a i n t s o f e n l a r g e d b r e a s t s i n male e m p l o y e e s and
m e n s t r u a l d i s o r d e r s i n f e m a l e s , N I O S H i n v e s t i g a t e d the plant i n
M a y , 1976, a n d found e v i d e n c e o f e x c e s s i v e o e s t r o g e n e x p o s u r e .
I n t h i s c a s e , m a n a g e m e n t i n s t i t u t e d t h e n e c e s s a r y dust c o n t r o l
m e a s u r e s and i m p r o v e d w o r k p r a c t i c e s , w h i c h a p p e a r t o have
4 0
r e s o l v e d t h e p r o b l e m ( E p s t e i n . 1978: 2 2 8 ) . "

O n e c o n t r a c e p t i v e m a n u f a c t u r e r c l a i m e d that e x t e n s i v e p r e c a u -
t i o n s w e r e t a k e n i n t h e i r P u e r t o R i c a n o p e r a t i o n t o r e d u c e t h e risk
t o w o r k e r s from o e s t r o g e n i n t h e a t m o s p h e r e . W o r k e r s a r e r o t a t e d
i n a n d o u t o f t h a t section o f t h e w o r k e n v i r o n m e n t with the highest
risk: t h e c o n t r a c e p t i v e s are m a n u f a c t u r e d in a part of t h e plant
w h i c h is p h y s i c a l l y s e p a r a t e d from t h e rest; and o t h e r special
m e a s u r e s . H o w e v e r , I w a s told by s e n i o r m a n a g e m e n t of this
A m e r i c a n c o m p a n y t h a t t h e high safety s t a n d a r d s o f its P u e r t o
R i c a n p l a n t w e r e not m a t c h e d i n its British o p e r a t i o n . E v e n t h o u g h
t h e B r i t i s h c o n t r a c e p t i v e p l a n t had b e e n a p p r o v e d b y g o v e r n m e n t
i n s p e c t o r s , t h e c o r p o r a t i o n ' s i n t e r n a t i o n a l c o m p l i a n c e unit w a s not
satisfied t h a t it met c o r p o r a t e safety s t a n d a r d s . S t r e n g t h e n e d by the
a r g u m e n t t h a t his o w n g o v e r n m e n t found the plant safe, the
m a n a g i n g d i r e c t o r o f t h e British s u b s i d i a r y w a s f i g h t i n g the a t t e m p t
b y h e a d q u a r t e r s c o r p o r a t e c o m p l i a n c e staff t o i m p o s e h i g h e r
standards.

A h e a d q u a r t e r s c o m p l i a n c e e x e c u t i v e e x p l a i n e d t h e p r o b l e m : 'It
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Unsafe manufacturing practices

is h a r d to sell t h e n e e d for t w e n t y i m p r o v e m e n t s in a plant to a


m a n a g i n g d i r e c t o r w h e n they have had a n i n s p e c t i o n t h e w e e k
b e f o r e by t h e i r local r e g u l a t o r s w h o give t h e m full m a r k s . We can
a l w a y s find t h i n g s w r o n g , m o r e i m p o r t a n t t h i n g s w r o n g , t h a n t h e
local g o v e r n m e n t official.' At t h e t i m e I i n t e r v i e w e d c e r t a i n p a r t i e s
t o t h e i n t e r n a l s t r u g g l e o v e r safety s t a n d a r d s , t h e conflict w a s d e a d -
l o c k e d , with some c h a n c e that the m a t t e r might be resolved by the
r e g i o n a l v i c e - p r e s i d e n t for E u r o p e or his s u p e r i o r in the U n i t e d
S t a t e s . T h e story is a nice i l l u s t r a t i o n of h o w . e v e n in a d e v e l o p e d
c o u n t r y , w o r k e r s a r e often b e t t e r p r o t e c t e d b y w a t c h d o g s o f cor-
p o r a t e s t a n d a r d s w i t h i n the t r a n s n a t i o n a l t h a n they are b y g o v e r n -
ment inspectors. This b e c o m e s even more true in Third World
c o u n t r i e s w h e r e t h e r e are n o g o v e r n m e n t i n s p e c t o r s . P o l i c i e s t o
s t r e n g t h e n t h e s e socially r e s p o n s i b l e c o n s t i t u e n c i e s within t h e
t r a n s n a t i o n a l c o r p o r a t i o n will b e c o n s i d e r e d later.
I n d u s t r i a l safety a r r a n g e m e n t s s u r r o u n d i n g the m a n u f a c t u r e o f
c o n t r a c e p t i v e s internationally is an area which warrants detailed
p u b l i c i n t e r e s t r e s e a r c h . T h e following s t a t e m e n t b y the quality
a s s u r a n c e m a n a g e r o f t h e M e x i c a n subsidiary o f a n o t h e r major t r a n s -
n a t i o n a l i m p l i e s t h a t , at least at that t i m e ( D e c e m b e r , 1979), indus-
trial safety s t a n d a r d s w e r e unsatisfactory: ' W e do have a bit of dust in
t h e air w h i c h can b e d a n g e r o u s w h e n m a k i n g O C s [oral c o n t r a c e p -
t i v e s ] . We do not h a v e e n o u g h vents in t h e roof. B u t we are building a
n e w p l a n t and t h e n w e will b e i n c o m p l i a n c e w i t h t h e r e g u l a t i o n s . '
A further m a t t e r w h i c h r e q u i r e s i n v e s t i g a t i o n is t h e e x t e n t to
w h i c h p h a r m a c e u t i c a l m a n u f a c t u r i n g affects the h e a l t h of sur-
r o u n d i n g c o m m u n i t i e s in a d d i t i o n to t h a t of w o r k e r s . By far the
g r e a t e s t c o n c e n t r a t i o n o f p h a r m a c e u t i c a l m a n u f a c t u r i n g i n the
w o r l d is in t h e s t a t e of N e w J e r s e y in t h e U S . N e w J e r s e y is the
A m e r i c a n manufacturing headquarters of Ciba-Geigy, Warner-
L a m b e r t , R o c h e , S a n d o z , H o e c h s t - R o u s s e l , J o h n s o n and J o h n s o n .
Merck, Ethicon, O r g a n o n , B e e c h a m , Schering-Plough, Squibb.
C a r t e r - W a l l a c e , B e c t o n - D i c k i n s o n and m a n y s m a l l e r p h a r m a -
c e u t i c a l c o m p a n i e s . N e w J e r s e y leads all A m e r i c a n s t a t e s i n overall
c a n c e r mortality and in the variety of mortal cancers. W h e t h e r this
fact can be a t t r i b u t e d , as E p s t e i n ( 1 9 7 8 : 4 5 1 ) s u g g e s t s , to w a s t e
from t h e c o n c e n t r a t i o n of c h e m i c a l i n d u s t r i e s in N e w J e r s e y is
b e y o n d t h e c o m p e t e n c e o f t h i s a u t h o r . H o w e v e r , t h e possibility
t h a t this could be t h e c a s e a d d s a n o t h e r r e a s o n for s y s t e m a t i c
r e s e a r c h on t h e effect on the h e a l t h of p e o p l e from the m a k i n g , in
addition to the c o n s u m i n g , of pharmaceuticals.
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Unsafe manufacturing practices

AN INTERPRETATION OFTHE CASE STUDIES

The Limits of Law

T h e C o r d i s c a s e s t u d y i l l u s t r a t e d s o m e o f the p r o b l e m s with
i n j u n c t i v e r e m e d i e s to unsafe m a n u f a c t u r i n g p r a c t i c e s . In part it is
t h e b y n o w o f t - r e p e a t e d p r o b l e m o f W e s t e r n law not being geared
to deal w i t h a p a t t e r n of c o n d u c t but with specific e g r e g i o u s acts.
H o w e v e r , it is a l s o a p r o b l e m o f t h e slow r e s p o n s e of legal p r o c e s s e s
t o m a t t e r s w h i c h r e q u i r e i m m e d i a t e a c t i o n . T h e c o m p a n y which has
a socially d a n g e r o u s p a t t e r n of a d m i n i s t r a t i o n has t i m e to rectify
specific c o m p l a i n t s before t h e c o u r t h e a r i n g t a k e s p l a c e , while not
d e a l i n g w i t h t h e u n d e r l y i n g m a l a i s e . T h e n , w e h a v e s e e n , a regu-
l a t o r y r o u n d a b o u t c a n b e g i n . It is p e r h a p s for t h e s e r e a s o n s t h a t one
s e n i o r F D A official e x p r e s s e d t h e view: ' T h e F e d e r a l j u d i c i a r y has a
p r i v a t e c o n t e m p t for a g e n c i e s w h o s e e k i n j u n c t i o n s . T h e y feel t h a t
t h e y r e s o r t t o i n j u n c t i o n s w h e n they fail a t d o i n g their own j o b . '

M a n y r e g u l a t o r s h a v e c o m e t o t h e c o n c l u s i o n that they can win


m o r e i m m e d i a t e a n d m o r e satisfactory p r o t e c t i o n for the c o n s u m e r
t h r o u g h n e g o t i a t i o n r a t h e r t h a n litigation. I t i s i m p o r t a n t , never-
t h e l e s s , for g o v e r n m e n t n e g o t i a t o r s t o h a v e t h e b a c k - u p t h r e a t o f
i n j u n c t i v e relief, s e i z u r e and p r o s e c u t i o n as n e g o t i a t i n g t o o l s . T h e y
a r e t h e n a b l e to w a l k softly while c a r r y i n g a big stick. T h e clum-
s i n e s s of law as a c o n t r o l l i n g d e v i c e d o e s not apply only to injunc-
t i o n s . A n e g o t i a t e d v o l u n t a r y recall of h a z a r d o u s d r u g s will
g e n e r a l l y be m o r e effective t h a n s e i z u r e s e n f o r c e d by the c o u r t s . In
t h e l a t t e r c a s e , o r d e r s to seize d r u g s m i g h t have to be issued to
a l m o s t a h u n d r e d different m a r s h a l s from district c o u r t s a r o u n d the
U n i t e d S t a t e s . M o r e o v e r , t h e c o - o p e r a t i v e c o m p a n y i s m o r e able t o
t r a c e w h e r e all t h e d r u g s h a v e g o n e t h a n t h e g o v e r n m e n t official
w h o h a s t o elicit g r u d g i n g c o - o p e r a t i o n u n d e r c o u r t o r d e r .

S i m i l a r c o n s i d e r a t i o n s a p p l y to t h e limits of p r o s e c u t i o n for
v i o l a t i o n s o f G M P r e g u l a t i o n s . I n t h e first p l a c e , n o set o f regula-
t i o n s can specify all t h e t y p e s o f c o n d u c t t h a t a c o m p a n y , following a
s o c i a l l y r e s p o n s i b l e p a t t e r n o f m a n u f a c t u r i n g o r g a n i s a t i o n , should
a d o p t . R e g u l a t i o n s can e v e n specify t h a t c e r t a i n t y p e s o f c o m -
p o n e n t s be s a m p l e d for testing from t h e t o p , m i d d l e and b o t t o m of a
c o n t a i n e r to e n s u r e t h a t it is not p u r e in o n e section but i m p u r e in
a n o t h e r . H o w e v e r , r e g u l a t i o n s c a n n o t r e a s o n a b l y i m p o s e a formal
r e q u i r e m e n t t h a t s a m p l e s b e t a k e n from m o r e t h a n t h r e e p a r t s o f
t h e c o n t a i n e r w h e n s o m e o n e has a h u n c h t h a t s o m e t h i n g could b e

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Unsafe manufacturing practices

w r o n g . R e g u l a t i o n s c a n e n f o r c e m i n i m u m s t a n d a r d s , but they
c a n n o t e n f o r c e c o m m o n sense and social r e s p o n s i b i l i t y .
A g a i n t o r e p e a t a c o n c l u s i o n from o t h e r c h a p t e r s , g o v e r n m e n t
i n s p e c t o r s a r e not in as g o o d a p o s i t i o n as i n s i d e r s to d i s c o v e r w h e n
r e g u l a t i o n s h a v e b e e n v i o l a t e d . T h e following s t a t e m e n t from a
c o r p o r a t e c o m p l i a n c e e x e c u t i v e w a s not u n c o m m o n : "We've had a
s i t u a t i o n w h e r e an F D A i n s p e c t i o n h a s given a plant a clean bill of
h e a l t h o n e w e e k , and o u r i n s p e c t o r s have c o m e i n t h e next w e e k t o
p o i n t out a d o z e n t h i n g s w h i c h are not up to s t a n d a r d . '
In fact, F D A i n s p e c t o r s c a n n o t give a plant a "clean bill of h e a l t h '
since t h e i r only r e s p o n s i b i l i t y i s t o r e p o r t G M P v i o l a t i o n s w h i c h
t h e y n o t i c e . T h e y do not w r i t e a r e p o r t which says that a c e r t a i n
a s p e c t of m a n u f a c t u r i n g w a s a p p r o v e d as satisfactory. This differs
from t h e g r a d i n g s y s t e m used by t h e i n s p e c t o r a t e of the C a n a d i a n
H e a l t h P r o t e c t i o n B r a n c h . O b v i o u s l y , if a p r o b l e m arises in an
o p e r a t i o n w h i c h has j u s t b e e n given a positive g r a d i n g by t h e
g o v e r n m e n t , t h e n t h e c o m p a n y can defend itself b y p o i n t i n g t o this.
S u c h a p o s s i b i l i t y p e r h a p s d o e s put i n s p e c t o r s on their m e t t l e . T h e
o t h e r a d v a n t a g e i s t h a t i t e n a b l e s t h e g o v e r n m e n t formally t o use
b o t h t h e p s y c h o l o g y of p r a i s e and of criticism in i m p r o v i n g
standards.
I n s p e c t i o n s by c o r p o r a t e c o m p l i a n c e staff are also m o r e likely to
u n c o v e r p r o b l e m s than g o v e r n m e n t inspections because of the
g r e a t e r degree of o p e n n e s s with the former.

O u r i n s t r u c t i o n s t o officers w h e n d e a l i n g with F D A i n s p e c t o r s i s
t o only a n s w e r t h e q u e s t i o n s a s k e d , not t o p r o v i d e any e x t r a
i n f o r m a t i o n , not t o v o l u n t e e r a n y t h i n g , and not t o a n s w e r any
q u e s t i o n s o u t s i d e y o u r a r e a o f c o m p e t e n c e . O n the o t h e r h a n d w e
[the c o r p o r a t e c o m p l i a n c e staff] can ask a n y o n e a n y t h i n g and
e x p e c t a n a n s w e r . T h e y are told that w e are part o f t h e s a m e
family a n d , u n l i k e t h e g o v e r n m e n t , w e are w o r k i n g for t h e s a m e
final o b j e c t i v e s . '

An a d v e r s e r e p o r t from a g o v e r n m e n t i n s p e c t o r in m a n y situ-
a t i o n s will be a m a t t e r of g r e a t e r c o n c e r n to a factory m a n a g e r t h a n
a n a d v e r s e r e p o r t from a n i n s p e c t o r from c o r p o r a t e h e a d q u a r t e r s .
B u t this n e e d not n e c e s s a r i l y b e t r u e . T h e m a n a g e r ' s s u p e r i o r s may
s y m p a t h i s e w h e n he or she is v i c t i m i s e d by ' t h o s e b a s t a r d s from
F D A m a k i n g u n r e a s o n a b l e d e m a n d s ' . B u t a n internal a d v e r s e
r e p o r t is less likely to elicit social s u p p o r t from s u p e r i o r s . W h e n
t h e r e is no o u t - g r o u p to b l a m e , an a d v e r s e r e p o r t m i g h t have a m o r e

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n e g a t i v e i m p a c t for the m a n a g e r o n m a t t e r s such a s p r o m o t i o n


p r o s p e c t s . A n o t h e r i m p o r t a n t difference b e t w e e n g o v e r n m e n t and
i n t e r n a l i n s p e c t o r s i s r e l e v a n t h e r e . T h e t w o serve different
p u r p o s e s . W h i l e t h e g o v e r n m e n t i n s p e c t o r sets out t o find G M P
v i o l a t i o n s "by t h e c o m p a n y ' , t h e i n t e r n a l i n s p e c t o r s e e k s t o l o c a t e
c u l p a b l e i n d i v i d u a l s for p r o b l e m s and to a s s e s s the p e r f o r m a n c e of
i n d i v i d u a l s i n m e e t i n g c o r p o r a t e quality g o a l s . H e n c e the impact o f
an a d v e r s e g o v e r n m e n t r e p o r t is diffused - in a sense e v e r y o n e is to
b l a m e . I n t e r n a l r e p o r t s , p a r t l y b e c a u s e o f their p u r p o s e and p a r t l y
b e c a u s e o f t h e i r s u p e r i o r c a p a c i t y t o locate buried b o d i e s , have
m o r e t a n g i b l e c o n s e q u e n c e s for p a r t i c u l a r i n d i v i d u a l s .
It is an o f t - r e p e a t e d r e a s o n for the failure of c o n t r o l s on c o r p o r a t e
c r i m e t h a t in a large c o r p o r a t i o n r e s p o n s i b i l i t y for any law v i o l a t i o n
i s diffused ( S t o n e , 1 9 7 5 ; E r m a n n a n d L u n d m a n , 1978; F i s s e , 1978;
G r o s s , 1978; M c A d a m s , 1978; S c h r a g e r and S h o r t , 1978; B r a i t h -
waite, 1979a; Harvard Law Review, 1979; Yale Law Journal, 1979).
T h e r e a r e m a n y i n d i v i d u a l a c t o r s e a c h o f w h o m h a s a partial
r e s p o n s i b i l i t y for a w h o l e which no o n e of t h e m fully a d m i t s . W h i l e
t h i s is u n d e n i a b l e and i n e v i t a b l e , it s h o u l d be c o n s i d e r e d t h a t in
some m e a s u r e companies conspire to create an impression of
diffusion of r e s p o n s i b i l i t y . All c o r p o r a t e a c t o r s benefit from the
p r o t e c t i o n afforded b y p r e s e n t i n g t o o u t s i d e r s a n a p p e a r a n c e o f
g r e a t l y diffused a c c o u n t a b i l i t y . Y e t w h e n c o m p a n i e s , for t h e i r o w n
p u r p o s e s , w a n t a c c o u n t a b i l i t y , they can g e n e r a l l y get it. O n e
q u a l i t y c o n t r o l d i r e c t o r c l a i m e d with p r i d e t h a t his i n f o r m a t i o n
s y s t e m w a s so g o o d t h a t ' w h e n a d r u g is p r o d u c e d w h i c h d o e s not
m e e t s p e c s , we can find w h o is to b l a m e 95 p e r cent o f t h e t i m e ' . I
r e p l i e d : ' T h a t s u r p r i s e s m e . I w o u l d h a v e t h o u g h t t h a t on a p r o -
d u c t i o n line w i t h such a large n u m b e r of p e o p l e , it would be possible
for e v e r y i n d i v i d u a l w h o m i g h t b e b l a m e w o r t h y t o find s o m e o n e
e l s e w h o t h e y could b l a m e . ' ' N o . T h e r e c o r d s are s o good that w e
c a n p i n p o i n t w h o i t is. E v e r y o n e r e c o r d s w h a t t h e y d o a t every
s t a g e . We h a v e a m a n full t i m e on t r a c i n g b a c k t h r o u g h t h e r e c o r d s
s o u r c e s of p r o b l e m s . ' C o m p a n i e s have two kinds of records:
r e c o r d s d e s i g n e d to a l l o c a t e guilt (such as the a b o v e ) and r e c o r d s
d e s i g n e d t o o b s c u r e guilt.
I n t e r n a l a u d i t o r s are n o t p r e s e n t e d w i t h a c o n s p i r a c y o f con-
fusion. S u c h w o u l d be i n d i c a t i v e of a bad m a n a g e m e n t c o n t r o l
s y s t e m . M a n a g e r s t h e r e f o r e have a c l e a r interest in p r e s e n t i n g t h e
s a m e r e a l i t y as o n e of diffused r e s p o n s i b i l i t y to o u t s i d e r s , yet one
o f c l e a r l y defined r e s p o n s i b i l i t y t o i n s i d e r s . T h e m a n a g e r w h o

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Unsafe manufacturing practices

successfully p o r t r a y s diffused r e s p o n s i b i l i t y to t h e o u t s i d e r will be


p r a i s e d by h i s / h e r s u p e r i o r s for t h e successful s m o k e s c r e e n . But a
m a n a g e r w h o p l e a d e d diffused r e s p o n s i b i l i t y t o insiders w o u l d b e
c r i t i c i s e d for not h a v i n g c o n t r o l o f h i s / h e r m a n a g e m e n t s y s t e m . O n e
of t h e g r e a t a d v a n t a g e s of i n t e r n a l i n s p e c t i o n s is that t h e internal
i n s p e c t o r s h a v e a c c e s s t o p o w e r o v e r o r g a n i s a t i o n a l s y s t e m s for
allocating responsibility, w h e r e a s g o v e r n m e n t inspectors do not.
W h i l e g o v e r n m e n t law e n f o r c e m e n t officers have limited p o w e r s ,
t h o s e o f c o r p o r a t e c o m p l i a n c e staff a r e often a l m o s t u n l i m i t e d . O n e
q u a l i t y a s s u r a n c e m a n a g e r told of c o n c e r n he had that s o m e of his
a s s a y staff w e r e so r o u t i n e l y t e s t i n g a p r o d u c t at 99 per cent or 100
p e r c e n t or 101 p e r cent s t r e n g t h , t h a t w h e n t h e y found a result of 80
p e r c e n t t h e y w o u l d a s s u m e t h a t t h e y had m a d e a m i s t a k e in t h e
a s s a y . ' R a t h e r t h a n r e c a l c u l a t e it. t h e y j u s t p u t it d o w n as 101 per
c e n t . ' The quality assurance m a n a g e r ' s solution was to periodically
' s p i k e ' s a m p l e s w i t h u n d e r s t r e n g t h p r o d u c t s t o see w h e t h e r his
q u a l i t y c o n t r o l staff w o u l d pick u p t h e d e f e c t s . I f not. t h e y c o u l d b e
dismissed or sanctioned in some other way. G o v e r n m e n t inspectors
do n o t h a v e t h e p o w e r to c o m e into a plant and ' s p i k e ' a p r o d u c t i o n
run.
G o v e r n m e n t i n s p e c t o r s ' e n s u r e t h e quality o f y o u r r e c o r d s , not
t h e q u a l i t y o f y o u r d e e d s ' , a s o n e q u a l i t y c o n t r o l m a n a g e r wryly
r e m a r k e d . O n e e x e c u t i v e w h o had b e e n r e c e n t l y t r a n s f e r r e d t o the
U n i t e d States recalled that when he was in Australia workers on
o c c a s i o n w o u l d w r i t e up r e c o r d s a c o u p l e of w e e k s in a d v a n c e of
actually doing the w o r k .
It is difficult to s e n d s o m e o n e into an u n f a m i l i a r factory to c h e c k
q u a l i t y a s s u r a n c e . S o m e industry i n f o r m a n t s a r g u e d t h a t t o d o s o
effectively o n e n e e d s to c h e c k right t h r o u g h from the raw m a t e r i a l s
to t h e final p r o d u c t s t a g e s - t o follow a unit of p r o d u c t t h r o u g h each
stage.

T h i s c a n ' t be d o n e in our plant by s o m e o n e c o m i n g from o u t s i d e


b e c a u s e at all s t a g e s we have t h r e e m o n t h s i n v e n t o r y - t h r e e
m o n t h s r a w m a t e r i a l , t h r e e m o n t h s o f i n - p r o c e s s p r o d u c t s , and
t h r e e m o n t h s i n v e n t o r y o f t h e finished p r o d u c t . S o t o follow
p r o d u c t s t h r o u g h all s t a g e s w o u l d t a k e n i n e m o n t h s a n d this i s
i m p o r t a n t b e c a u s e , for e x a m p l e , in a lot of p r o d u c t s rigid s t o r a g e
c o n d i t i o n s m a y be i m p o r t a n t e v e n t h o u g h a p r o d u c t may be
s i t t i n g at t h e t i m e of i n s p e c t i o n in c o n d i t i o n s of c o r r e c t
t e m p e r a t u r e s t o r a g e , this may not be t h e case at all t i m e s .

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Unsafe manufacturing practices

T e s t i n g t h e sterility o f a s a m p l e of end p r o d u c t gives no g u a r a n t e e


t h a t all u n i t s in t h e lot are sterile or that s o m e might not b e c o m e
n o n - s t e r i l e (for e x a m p l e , b e c a u s e o f a n i n a d e q u a t e p r e s e r v a t i v e
s y s t e m ) : T h e q u a l i t y o f a m e d i c i n a l p r e p a r a t i o n i s built i n and not
t e s t e d ' ( P a t e l . 1969: 6 8 ) . E v e n with m o t o r v e h i c l e s , i t w o u l d not b e
sufficient to c h e c k q u a l i t y by seeing if t h e car starts w h e n it e m e r g e s
from t h e end o f t h e p r o d u c t i o n line. S i m i l a r l y , t h e fact that a final
p r o d u c t is found to be sterile at o n e point in t i m e is no g u a r a n t e e
t h a t lack of sterility will not d e v e l o p later. T h e fact that o n e con-
t a m i n a n t h a s b e e n t e s t e d for is no a s s u r a n c e that o t h e r types of
c o n t a m i n a n t s a r e not p r e s e n t . A s well a s c h e c k i n g final tests and
i n - p r o c e s s t e s t s , t h e i n s p e c t o r m u s t certify e q u i p m e n t , v a l i d a t e
p r o c e s s e s , a n d e n s u r e t h a t p r o p e r i n s t r u c t i o n s and s u p e r v i s i o n are
p r o v i d e d t o w o r k e r s . E x t r a o r d i n a r i l y k n o w l e d g e a b l e p e o p l e are
r e q u i r e d for this difficult task. On this final c r i t e r i o n of k n o w l e d g e ,
it is a l s o t y p i c a l l y t r u e t h a t g o v e r n m e n t i n s p e c t o r s do not c o m p a r e
favourably with internal experts. 'Our compliance auditors
g e n e r a l l y h a v e P h D s . T h e y are s p e c i a l i s t s , not g e n e r a l i s t s like t h e
government people.'
A n u m b e r of a r g u m e n t s h a v e n o w b e e n a s s e m b l e d as to h o w , in
m a n y w a y s , i n t e r n a l i n s p e c t o r s are b e t t e r able t o find out a b o u t law
v i o l a t i o n s a n d are in a b e t t e r p o s i t i o n to h a n d out s a n c t i o n s which
will pull i n t o line t h e p e o p l e r e s p o n s i b l e . T h e p r o b l e m is. t h o u g h ,
t h a t t h e r e is no g u a r a n t e e t h a t this p o w e r will be used by the
c o m p a n y . H i g h e r m a n a g e m e n t might choose to ignore inspectors
and s u p p o r t p r o d u c t i o n p e o p l e w h o w a n t t o save t i m e and m o n e y b y
c u t t i n g c o r n e r s o n q u a l i t y . H o w e v e r , this w o u l d b e a n u n u s u a l
c o u r s e for g o o d m a n a g e m e n t to follow. C r o s b y (1979) is r i g h t w h e n
he says t h a t ' q u a l i t y is free'. W h a t costs m o n e y are t h e u n q u a l i t y
t h i n g s - t h e a c t i o n s t h a t i n v o l v e not d o i n g j o b s right the first t i m e .

T h e cost of q u a l i t y is t h e e x p e n s e of d o i n g t h i n g s w r o n g . It is t h e
s c r a p , r e w o r k , s e r v i c e after s e r v i c e , w a r r a n t y , i n s p e c t i o n , t e s t s ,
and s i m i l a r a c t i v i t i e s m a d e n e c e s s a r y b y n o n c o n f o r m a n c e
p r o b l e m s . B e t w e e n 1967 and 1977, t h e m a n u f a c t u r i n g cost of
q u a l i t y at I T T h a s b e e n r e d u c e d by an a m o u n t e q u i v a l e n t to 5
p e r c e n t of s a l e s . T h a t is a g r e a t deal of m o n e y . T h e savings
p r o j e c t e d by t h e c o m p t r o l l e r w e r e $30 million in 1968; $157
m i l l i o n in 1 9 7 1 ; $328 million in 1 9 7 3 ; and in 1 9 7 6 - $ 5 3 0 million!
We had e l i m i n a t e d - t h r o u g h defect p r e v e n t i o n - costs
a m o u n t i n g to t h o s e dollar figures ( C r o s b y , 1979: 12).

140
Unsafe manufacturing practices

T h e r e can b e little d o u b t t h a t m a n a g e m e n t w h i c h d o e s not have a


s t r o n g c o m m i t m e n t t o t h e p r i n c i p l e o f c o n f o r m i t y t o quality stan-
d a r d s is u n s o u n d m a n a g e m e n t . In c o n s i d e r a b l e m e a s u r e , t h e n , the
conflict of i n t e r e s t b e t w e e n c o n s u m e r s and b u s i n e s s on the quality
q u e s t i o n is illusory. It should be p o s s i b l e to p e r s u a d e s o m e c o m -
p a n i e s t o i n s t i t u t e m u c h t o u g h e r i n t e r n a l quality a u d i t i n g s y s t e m s
on t h e g r o u n d s t h a t this is in their i n t e r e s t s .
I n spite o f t h i s , t h e r e will b e o c c a s i o n s w h e n r e p u t a b l e c o m p a n i e s
find t h e m s e l v e s in a s i t u a t i o n w h e r e it is e c o n o m i c a l l y r a t i o n a l to
t e m p o r a r i l y s u s p e n d t h e i r c o m m i t m e n t to quality and cut a par-
t i c u l a r c o r n e r . ' " W e will discuss s o m e o f t h e s e s i t u a t i o n s later.
T h e r e will also be 'fly-by-night' c o m p a n i e s w h o aim for quick profits
by o p e r a t i n g on t h e fringe of an i n d u s t r y until such t i m e as con-
s u m e r s b e c o m e a w a r e of their abysmal standards. For these
reasons, government inspectors remain of utmost importance.
I t i s simply b e i n g a r g u e d t h a t c o n s u m e r s get m o r e p r o t e c t i o n now
from i n t e r n a l t h a n from g o v e r n m e n t i n s p e c t i o n s o f p h a r m a c e u t i c a l
c o m p a n i e s , a n d t h a t t h e r e i s also m o r e h o p e for i n c r e a s i n g the
p r o t e c t i o n to c o n s u m e r s in t h e future from s t r e n g t h e n i n g internal
r a t h e r t h a n e x t e r n a l i n s p e c t i o n . E x p a n d i n g g o v e r n m e n t inspection
staffs is also of vital i m p o r t a n c e . H o w e v e r , t h e n u m b e r of
A u s t r a l i a n H e a l t h D e p a r t m e n t G M P i n s p e c t o r s could b e d o u b l e d
t o m o r r o w and still b e i n a d e q u a t e . A t t h e t i m e o f writing t h e r e are
only t h r e e i n s p e c t o r s c o v e r i n g the c o n t i n e n t . O n e M e d i c a l D i r e c t o r
d e s c r i b e d t h e i r i n s p e c t i o n s as ' b e n i g n affairs'. T h e y look for
d e v i a t i o n s from G M P s t a n d a r d s w h i c h h a v e n o force o f law. A s i n
B r i t a i n , " G M P s a r e simply v o l u n t a r y g u i d e l i n e s . M a n y , p e r h a p s
m o s t , T h i r d - W o r l d c o u n t r i e s h a v e n o i n s p e c t o r s , n o r any G M P
regulations.
O n e of t h e A u s t r a l i a n s u b s i d i a r i e s I visited r e c e i v e d a n n u a l
H e a l t h D e p a r t m e n t i n s p e c t i o n s of half a day to a d a y ' s d u r a t i o n by
o n e i n s p e c t o r . I n s p e c t i o n s b y h e a d q u a r t e r s ' c o m p l i a n c e staff w e r e
t w i c e y e a r l y , and n o r m a l l y u n d e r t a k e n b y t h r e e i n s p e c t o r s w h o
s p e n t o v e r a w e e k i n t h e plant. W h i l e t h e c o r p o r a t e i n s p e c t i o n s
w e r e u n a n n o u n c e d , t h e r e w a s a day o r t w o f o r e w a r n i n g o f g o v e r n -
ment inspections.
T h e t a s k facing t h e small staff of s c i e n t i s t s w h o test s a m p l e s of
d r u g b a t c h e s sent t o t h e A u s t r a l i a n N a t i o n a l Biological S t a n d a r d s
L a b o r a t o r y i s similarly i m p o s s i b l e . T w o p e r cent o f a n t i b i o t i c
s a m p l e s t e s t e d fail t o m e e t g o v e r n m e n t s t a n d a r d s . B u t b y t h e t i m e
t h e t e s t i n g has b e e n d o n e and t h e c o m p a n y notified o f t h e failure,

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Unsafe manufacturing practices

in t h e m a j o r i t y of c a s e s t h e b a t c h has a l r e a d y b e e n sold or partly


sold.
M o s t c o m m e n t a t o r s have a n u n r e a l i s t i c a p p r e c i a t i o n o f the
e n o r m i t y o f t h e task facing r e g u l a t o r s and o f t h e practical impossi-
bility o f t h e i r d o i n g a n y t h i n g a p p r o a c h i n g a n e x h a u s t i v e , t h o r o u g h
j o b . C o n s i d e r , for e x a m p l e , t h e following s t a t e m e n t i n which
T u r n e r ( 1 9 7 6 : 178-9) c o m m e n t s o n t h e K i n s l o w R e p o r t o n the
FDA.

T h e r e p o r t ' s g e n e r a l a t t i t u d e o n e n c o u r a g i n g c o m p l i a n c e i n place
o f r e g u l a t i o n is i l l u s t r a t e d (in t h e d r u g s e c t i o n o f t h e r e p o r t ) by its
r e c o m m e n d a t i o n s for c o n t r o l of insulin and a n t i b i o t i c s :
in t h e 1969 fiscal y e a r , only 0.3 p e r cent of insulin s a m p l e s and
1 p e r c e n t of a n t i b i o t i c b a t c h e s w e r e rejected as not m e e t i n g
specified s t a n d a r d s . T h e Study G r o u p b e l i e v e s F D A may b e
e x p e n d i n g m o r e r e s o u r c e s i n a s s u r i n g t h e quality o f a n t i b i o t i c s
a n d insulin b y b a t c h certification t h a n t h e p r o b l e m d i c t a t e s . T h e
n e e d for this level of c o n t r o l w a s c e r t a i n l y n e c e s s a r y w h e n
a n t i b i o t i c s w e r e first m a r k e t e d . We a r e not sure if it is n e c e s s a r y
today.

R E C O M M E N D A T I O N : 2 6 . C o n s i d e r a p r o g r a m o f statistical
s a m p l i n g for a n t i b i o t i c s and insulin r a t h e r t h a n b a t c h - b y - b a t c h
certification.'
T h e r e a s o n i n g s u p p o r t i n g this r e c o m m e n d a t i o n w o u l d
u n d e r m i n e any effective F D A p r o g r a m t h a t m i g h t d e v e l o p .
B a s i c a l l y , it says t h e r e is a p r o g r a m t h a t has b e e n effective in
i n s u r i n g t h e q u a l i t y of all insulin and a n t i b i o t i c s that r e a c h t h e
m a r k e t . It h a s b e e n so effective, in fact, t h a t it should be
discontinued.

T h i s s o u n d s like a c o m p e l l i n g a r g u m e n t . Y e t so vast a r e the u n m e t


r e s p o n s i b i l i t i e s of r e g u l a t o r y a g e n c i e s and so limited t h e r e s o u r c e s
a v a i l a b l e t h a t c o s t - e f f e c t i v e n e s s c o n s i d e r a t i o n s m u s t c o m e into
p l a y . P r o g r a m m e s o f g r e a t cost w h i c h deal with p r o b l e m s o f only
m o d e r a t e i m p o r t a n c e m u s t b e p u s h e d aside for m a n y c h e a p e r p r o -
g r a m m e s t o deal w i t h l a r g e r n e e d s . W h e n finite r e s o u r c e s are
a v a i l a b l e to deal w i t h an a l m o s t infinite p r o b l e m , to fail to ask
c o s t - e f f e c t i v e n e s s q u e s t i o n s is to do less t h a n the best to p r o t e c t t h e
public.
Such cost-effectiveness problems must also loom large in
d e c i d i n g h o w often p r o s e c u t i o n is used as a m e t h o d of c o n t r o l . We
h a v e s e e n from t h e case s t u d i e s i n this c h a p t e r that w e c a n n o t e x p e c t

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Unsafe manufacturing practices

G M P p r o s e c u t i o n s t o b e s t r a i g h t f o r w a r d m a t t e r s . T h e costs i n t i m e
a n d m o n e y o f p r o s e c u t i o n s i n v o l v i n g highly t e c h n i c a l m a t t e r s can
be e n o r m o u s . E v e n in w h a t w o u l d seem on t h e surface like t h e less
technical matter o f t h e recent US prosecution of Morton-Norwich
c o n c e r n i n g t h e sterility o f b a n d a g e s m a n u f a c t u r e d b y t h e c o m p a n y ,
1 2
we saw a trial w h i c h lasted t h r e e y e a r s . In this case u n t a n g l i n g the
c o m p l e x i t y w a s not assisted w h e n t h e j u d g e , sitting a l o n e , acci-
d e n t a l l y sent y e a r s of his n o t e s on t h e trial to t h e d u m p .
O n e c o u l d i m a g i n e t h a t if a p r o s e c u t i o n o f a large p h a r m a c e u t i c a l
c o m p a n y w e r e e v e r t o t a k e place i n A u s t r a l i a , t h e e n t i r e A u s t r a l i a n
g o v e r n m e n t G M P i n s p e c t o r i a l force could b e tied u p for m o n t h s .
W o u l d such a c o n c e n t r a t i o n of r e s o u r c e s on o n e case m a k e for
c o s t - e f f e c t i v e e n f o r c e m e n t ? P u t s i m p l y , a c o n s i s t e n t policy of
p r o s e c u t i o n of all s e r i o u s G M P offences is a policy w h i c h no g o v e r n -
m e n t c o u l d afford. T h i s s t a t e m e n t s h o u l d be qualified by p o i n t i n g
o u t t h a t i n M e x i c o p r o s e c u t i o n s for G M P offences are fairly
r o u t i n e , b u t t h e p e n a l t i e s a r e so low (5 - 5,000 p e s o s ) t h a t the fines
a r e effectively a licence fee to v i o l a t e t h e law. O n e M e x i c a n
pharmaceutical executive explained:

Quality assurance d i r e c t o r : A lot of c o m p a n i e s k n o w i n g l y


violate t h e law and pay t h e fine
every n o w and t h e n . T h e y run t h e
risk.
J.B.: Do companies ever contest the fines
in court!
Q u a l i t y a s s u r a n c e d i r e c t o r : N o . I t ' s not w o r t h it for such a small
amount.

The place of quality control in the organisation

In t h e last s e c t i o n it w a s p o i n t e d o u t t h a t in any o r g a n i s a t i o n t h e r e
are occasions w h e n it is economically rational to temporarily
s u s p e n d c o m m i t m e n t t o quality s t a n d a r d s . O n e t y p e o f c i r c u m -
s t a n c e is w h e r e a p r o d u c t is in short supply and m a j o r c u s t o m e r s are
c o m p l a i n i n g t o t h e m a r k e t i n g m a n a g e r b e c a u s e they c a n n o t get
s u p p l i e s . I f t h e q u a l i t y c o n t r o l m a n a g e r fails to pass a major b a t c h of
t h e p r o d u c t b e c a u s e it falls j u s t s h o r t of specifications t h e quality
c o n t r o l m a n a g e r m i g h t c o m e u n d e r p r e s s u r e from t h e m a r k e t i n g
m a n a g e r t o p a s s t h e b a t c h a s ' n e a r e n o u g h ' . T h e p r e s s u r e might b e
particularly strong w h e n certain major c u s t o m e r s are threatening to

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Unsafe manufacturing practices

s w i t c h to a c o m p e t i n g b r a n d u n l e s s c o n t i n u i t y of s u p p l i e s is g u a r a n -
teed.
A n o t h e r s i t u a t i o n i s o n e i n w h i c h a n o r g a n i s a t i o n a l s u b - u n i t , but
n o t n e c e s s a r i l y t h e w h o l e o r g a n i s a t i o n , sees it as in its i n t e r e s t s to
put the quality control m a n a g e r under pressure to reverse a
d e c i s i o n . A m a n u f a c t u r i n g plant might h a v e a p r o d u c t i o n t a r g e t set
by h e a d q u a r t e r s . A failed b a t c h w o u l d place it in j e o p a r d y of not
3
m e e t i n g t h a t t a r g e t . ' F r o m t h e p u b l i c i n t e r e s t point o f view the
s o l u t i o n to this p r o b l e m is to s t r u c t u r e t h e o r g a n i s a t i o n so that the
q u a l i t y c o n t r o l m a n a g e r is i n s u l a t e d from p r e s s u r e from m a n u -
f a c t u r i n g o r m a r k e t i n g . T h i s c e r t a i n l y d o e s not h a p p e n i n m a n y
p h a r m a c e u t i c a l c o m p a n i e s w h e r e quality c o n t r o l m a n a g e r s a n s w e r
to the manufacturing m a n a g e r or to an executive whose primary
r e s p o n s i b i l i t y is for m a r k e t i n g and m a n u f a c t u r i n g .

O t h e r c o m p a n i e s , e s p e c i a l l y A m e r i c a n t r a n s n a t i o n a l s , have b e e n
s e n s i t i v e to t h i s p r o b l e m . T h e y h a v e an a r r a n g e m e n t w h e r e b y a
q u a l i t y c o n t r o l d e c i s i o n can only be o v e r r u l e d by the p r e s i d e n t . T h e
q u a l i t y c o n t r o l d i r e c t o r m a k e s a n i n d e p e n d e n t w r i t t e n decision o n
e a c h b a t c h w h i c h s/he duly signs. I f t h e p r e s i d e n t w i s h e s t o o v e r r u l e
a q u a l i t y c o n t r o l d e c i s i o n s/he m u s t do so in writing o v e r h i s / h e r
s i g n a t u r e . People b e c o m e corporation presidents in part because
t h e y e x h i b i t a m o d i c u m o f c a u t i o n . I m a g i n e the c o n s e q u e n c e s for a
p r e s i d e n t o f s e r i o u s injuries t o c o n s u m e r s b e c a u s e s/he o v e r r u l e d i n
w r i t i n g a q u a l i t y c o n t r o l d e c i s i o n . No m a t t e r h o w low t h e c h a n c e s of
t h i s w e r e p e r c e i v e d to b e , it w o u l d be a foolish risk for a c o r p o r a t i o n
p r e s i d e n t t o t a k e for t h e s a k e o f o n e b a t c h o f d r u g s . W h i l e t h e
d e s t r u c t i o n of a b a t c h m i g h t be a m a j o r a g g r a v a t i o n to t h e p h a r m a -
ceuticals m a r k e t i n g or manufacturing m a n a g e r , to the president it is
a m i n o r m a t t e r . Effectively t h e n , such a n o r g a n i s a t i o n a l s t r u c t u r e
p r e c l u d e s any p o s s i b i l i t y o f quality c o n t r o l b e i n g formally over-
ruled.

I n M e r c k ' s A u s t r a l i a n s u b s i d i a r y this i s t a k e n e v e n further.


Q u a l i t y c o n t r o l can i g n o r e an i n s t r u c t i o n from t h e c h a i r m a n to cut
c o r n e r s on q u a l i t y in v i o l a t i o n of c o r p o r a t e policies. T h e m a t t e r can
be r e p o r t e d over the head o f t h e chairman to headquarters. In a
t r a n s n a t i o n a l c o r p o r a t i o n , t h e u l t i m a t e p r o t e c t i o n is for quality
staff ( a n d all o t h e r t y p e s of a u d i t i n g staff) to have a direct r e p o r t i n g
r e l a t i o n s h i p to a h e a d q u a r t e r s c o m p l i a n c e g r o u p a n d only a d o t t e d
line r e l a t i o n s h i p w i t h local m a n a g e m e n t . T h e i r c a r e e r line is t h e n
b o u n d u p with p e r f o r m a n c e i n e n s u r i n g c o m p l i a n c e , not with per-
f o r m a n c e i n a s s i s t i n g t h e goals o f t h e s u b s i d i a r y .

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Unsafe manufacturing practices

I n a d d i t i o n t o e n s u r i n g t h a t quality m a n a g e r s d o not r e p o r t t o
m a r k e t i n g o r p r o d u c t i o n m a n a g e r s , t h e f o r m e r must b e i n s u l a t e d
from any influence by t h e latter o v e r t h e i r future p r o m o t i o n , salary
i n c r e m e n t s , o r p e r f o r m a n c e r e p o r t s . T h e d a n g e r s p r e s e n t h e r e are
well i l l u s t r a t e d by t h e following e x c h a n g e with a M e x i c a n plant
manager.

Plant manager: T h e q u a l i t y a s s u r a n c e d i r e c t o r d o c s not r e p o r t


to m e , but we h a v e a good w o r k i n g r e l a t i o n s h i p .
He used to be my s e c o n d - i n - c h a r g e w h e n I w a s
d i r e c t o r of quality a s s u r a n c e . If he says I should
do s o m e t h i n g a n d I d o n ' t w a n t to do it, t h e n I
d o n ' t do it.
J. B.: What if he wants to stop the production line on
quality grounds that you think are not right?
Plant manager: H e c a n n o t stop p r o d u c t i o n . H e has n o a u t h o r i t y
to do t h a t . He can w i t h h o l d a p p r o v a l o f t h e final
p r o d u c t . If he d o e s t h a t and I do not a g r e e with
h i m . t h e n I can g o t o t h e g e n e r a l m a n a g e r a n d
s h o w w h y he s h o u l d be o v e r r u l e d - that Social
Security n e e d s the product quickly, or whatever
r e a s o n . I will do w h a t he s u g g e s t s if it is
reasonable.

H e r e we h a v e a s i t u a t i o n w h e r e a m u c h m o r e powerful m a n a g e r ' s
d e f i n i t i o n o f ' r e a s o n a b l e n e s s ' will a l w a y s hold sway over t h a t of an
o r g a n i s a t i o n a l l y w e a k quality a s s u r a n c e d i r e c t o r . O b v i o u s l y the
e x t e n t t o w h i c h p e o p l e w i t h r e s p o n s i b i l i t y for quality s t a n d a r d s
h a v e o r g a n i s a t i o n a l c l o u t is a c o n t i n u u m .
C o n s i d e r t h e following A m e r i c a n t r a n s n a t i o n a l i n which the cor-
p o r a t e c o m p l i a n c e p o s i t i o n h a s very little c l o u t . H e a d q u a r t e r s has a
c o r p o r a t e c o m p l i a n c e g r o u p with a small staff of six. T h e c o m -
p l i a n c e d i r e c t o r is a r e l a t i v e l y j u n i o r p e r s o n with little e x p e r i e n c e
w i t h i n t h e c o m p a n y . T h e d i r e c t o r has only a n a d v i s o r y r o l e , b e i n g
u n a b l e to instruct a manufacturing plant to do anything. He reports
to a t e c h n i c a l affairs v i c e - p r e s i d e n t w h o is similarly u n a b l e to issue
d i r e c t i v e s to a m a n u f a c t u r i n g p l a n t . T h e i n t e r n a t i o n a l influence of
t h e c o m p l i a n c e g r o u p e x t e n d s only t o C a n a d a . O t h e r s u b s i d i a r i e s
a r e g i v e n a u t o n o m y to set their own s t a n d a r d s w i t h i n t h e limits set
b y b r o a d c o m p a n y g u i d e l i n e s . A p a r t from C a n a d a , h e a d q u a r t e r s
c o m p l i a n c e staff d o n o t g o o u t t o t h e s u b s i d i a r i e s t o a u d i t c o m -
p l i a n c e w i t h c o r p o r a t e s t a n d a r d s . E v e n with r e s p e c t t o the

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Unsafe manufacturing practices

c o m p l i a n c e g r o u p ' s influence i n C a n a d a , t h e v i c e - p r e s i d e n t for


i n t e r n a t i o n a l r e g u l a t o r y affairs ( a m o r e senior e x e c u t i v e t h a n the
c o m p l i a n c e d i r e c t o r ) w a s critical: " W e ' v e got t o teach [the c o m -
p l i a n c e d i r e c t o r ] t h a t h e c a n ' t try t o i m p o s e U S s t a n d a r d s o n
C a n a d a . H e ' s g o t t o u n d e r s t a n d that w e c a n ' t spend all that m o n e y
t o d o u p t h e r e w h a t t h e F D A w a n t s u s t o d o d o w n h e r e . ' W i t h i n the
U n i t e d States the inspections u n d e r t a k e n by the compliance g r o u p
a r e m o c k F D A i n s p e c t i o n s . T h e goal i s not t o audit c o n f o r m a n c e
w i t h i n d e p e n d e n t c o r p o r a t e s t a n d a r d s , but t o p r o v i d e m a n u f a c t u r -
ing p l a n t s w i t h a dry run to p r e p a r e t h e m for F D A i n s p e c t i o n s . In
s h o r t , t h e e x i s t e n c e of t h e c o m p l i a n c e g r o u p fulfils the public
r e l a t i o n s function of e n a b l i n g t h e c o m p a n y to claim t h a t it has an
i n d e p e n d e n t g r o u p a u d i t i n g quality c o n t r o l staff i n t h e field. I n d e e d
it is so i n d e p e n d e n t as to be i m p o t e n t .

O r g a n i s a t i o n a l clout is crucial at all levels of quality a s s u r a n c e . In


a d d i t i o n t o t h e b i g g e r d e c i s i o n s a b o u t a c c e p t i n g o r rejecting w h o l e
b a t c h e s , o n - s i t e q u a l i t y c o n t r o l m a n a g e r s must m a k e and influence
many smaller decisions

T h e q u a l i t y c o n t r o l d i r e c t o r m a k e s a lot of little d e c i s i o n s e v e r y
d a y w h i c h c a n b r i n g him into conflict with the p r o d u c t i o n
m a n a g e r . If a s a m p l e o f t e n pills is t e s t e d from the line every thirty
m i n u t e s and o n e of t h o s e pills is o u t s i d e specs he has to d e c i d e
w h e t h e r t h a t o n e pill w a s an o d d i t y or t h e result of his m i s t a k e , or
w h e t h e r he w a n t s to anger the p r o d u c t i o n manager by stopping
t h e line until t h e p r o b l e m is s o r t e d out. If he d e c i d e s t h e r e is a
q u a l i t y p r o b l e m i n t h e s a m p l e t h e n e v e r y pill p r o d u c e d o n e a c h
side of t a k i n g t h a t o n e s a m p l e will have to be r e t r i e v e d . It's not
r e a l l y such a big p r o b l e m b e c a u s e t h e y will all have g o n e in one
bin.

B e c a u s e o f t h e i m m e d i a c y o f such d e c i s i o n s , this c o m p a n y ' s


p o l i c y t h a t t h e q u a l i t y c o n t r o l d i r e c t o r ' s d e c i s i o n can only be over-
r u l e d by t h e p r e s i d e n t is not of g r e a t c o n s e q u e n c e . S o l u t i o n s m u s t
b e n e g o t i a t e d w i t h t h e p r o d u c t i o n m a n a g e r t h e n and t h e r e . T h e
i n f o r m a n t , t h e e x e c u t i v e v i c e - p r e s i d e n t , c o n t i n u e d : "My quality
c o n t r o l d i r e c t o r i s t o o a c a d e m i c . H e h a s n ' t realized yet that it's not
p u r e s c i e n c e o u t t h e r e , it's t h e art o f c o m p r o m i s e with the p r o d u c -
t i o n m a n a g e r - trying to m o v e him t o w a r d s y o u r s t a n d a r d s a bit.' In
' t r y i n g to m o v e him t o w a r d s y o u r s t a n d a r d s a bit', seniority, training
a n d e x p e r i e n c e a r e i m p o r t a n t for quality c o n t r o l p e r s o n n e l . M o r e
will be said later on t h e p r o f e s s i o n a l i s m of quality c o n t r o l staff.

146
Unsafe manufacturing practices

T h e a b o v e has p r a c t i c a l i m p l i c a t i o n s for g o v e r n m e n t a c t i o n t o
p r o t e c t p a t i e n t s . T h e fact t h a t G M P i n s p e c t i o n t e a m s from
c o r p o r a t e h e a d q u a r t e r s can p r o b a b l y d o a b e t t e r j o b t h a n g o v e r n -
m e n t i n s p e c t o r s i m p l i e s t h a t it is g o o d policy for g o v e r n m e n t to
r e q u i r e such i n t e r n a l i n s p e c t i o n s and p e r h a p s c o n c e n t r a t e their
efforts m o r e on a u d i t i n g t h e a u d i t o r s . S i m i l a r l y , t h e fact t h a t a
quality control m a n a g e r answering to production or marketing is
b o u n d to be c o m p r o m i s e d from t i m e to t i m e i m p l i e s t h a t g o v e r n -
m e n t s s h o u l d p r o h i b i t such o r g a n i s a t i o n a l s t r u c t u r e s . I n d e e d , F D A
c o m p l i a n c e staff a r e a b l e t o d o this u n d e r G M P r e g u l a t i o n s , and
i n c r e a s i n g l y a r e d o i n g s o , a t least with large c o m p a n i e s . O t h e r
g o v e r n m e n t s have n o such p o w e r s . H e n c e , m a n y t r a n s n a t i o n a l s
w h i c h s c r u p u l o u s l y s t r u c t u r e their A m e r i c a n o r g a n i s a t i o n s o a s t o
i n s u l a t e q u a l i t y c o n t r o l m a n a g e r s from e c o n o m i c p r e s s u r e s d o j u s t
t h e o p p o s i t e i n o t h e r p a r t s o f t h e w o r l d . T h e following s t a t e m e n t b y
a r e g u l a t o r y affairs d i r e c t o r , w h o w a s formerly a quality c o n t r o l
d i r e c t o r w i t h a n o t h e r t r a n s n a t i o n a l , s h o w s h o w effective g o v e r n -
m e n t i n t e r v e n t i o n in t h e o r g a n i s a t i o n a l form of a c o m p a n y is easier
said t h a n d o n e . G o v e r n m e n t i n s p e c t o r s m u s t look b e l o w the surface
t o avoid b e i n g s e d u c e d b y a p p e a r a n c e s .

If y o u l o o k at t h e o r g a n i z a t i o n a l c h a r t of m a n y c o m p a n i e s you
will see t h a t t h e q u a l i t y c o n t r o l d i r e c t o r r e p o r t s directly to t h e
p r e s i d e n t . T h e F D A i n s p e c t o r c o m e s a r o u n d and asks w h o t h e
q u a l i t y c o n t r o l d i r e c t o r r e p o r t s t o , and w h e n he is told that it's t h e
p r e s i d e n t he g o e s a w a y p l e a s e d . T h a t ' s h o r s e s h i t . . . .
I w o u l d n ' t tell an F D A i n s p e c t o r t h i s , b u t I'll tell you [If only all
i n f o r m a n t s had s h o w n m e such s o l i c i t u d e . ] O k a y , t h e quality
c o n t r o l d i r e c t o r d o e s m a k e t h e final d e c i s i o n to recall a p r o d u c t
a n d only t h e p r e s i d e n t can o v e r r u l e him. B u t t h e c o m p a n y has
s t a n d a r d o p e r a t i n g p r o c e d u r e s c o n c e r n i n g a p o s s i b l e recall. T h e
p r o c e d u r e s specify t h a t t h e quality c o n t r o l d i r e c t o r m u s t c o n s u l t
c e r t a i n p e o p l e a b o u t his d e c i s i o n - s o m e o f t h e m m o r e senior
t h a n h i m , or m o s t of t h e m . A m e e t i n g of m a y b e five p e o p l e will
t a k e p l a c e a n d t h e y will m a k e a r e c o m m e n d a t i o n that the quality
c o n t r o l d i r e c t o r w o u l d be foolish not to follow - if he w a n t s to
k e e p his j o b i n t h e long t e r m , t h a t is. T h e r e will a l w a y s b e s o m e
l a w y e r s o n t h e s e c o m m i t t e e s . T h e y h a v e m o s t say. B u t they b e a r
n o n e o f t h e r e s p o n s i b i l i t y . T h e quality c o n t r o l d i r e c t o r d o e s t h a t .
I h a v e b e e n p r e s s u r e d by t h e l a w y e r s n o t to m a k e a recall in this
s i t u a t i o n and it w a s t o u g h . T h e y c o m e at you with h e a r t s and

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Unsafe manufacturing practices

flowers. ' T h e c o m p a n y will lose $5 million if you do this. Fifty


j o b s will g o ' , t h e y say.

Overlying the organisation chart is an operational structure,


often f o r m a l i s e d by S O P s . If t h e o p e r a t i o n a l s t r u c t u r e is f o r m a l i s e d ,
t h e n it is o b v i o u s l y easy e n o u g h for g o v e r n m e n t i n s p e c t o r s to ask to
see t h e r e l e v a n t S O P s . I f n o t , t h e n g o v e r n m e n t must e i t h e r r e q u i r e
t h e S O P s to be w r i t t e n or be satisfied with an i n t e r v e n t i o n of limited
e f f e c t i v e n e s s t o i n s u l a t e quality c o n t r o l m a n a g e r s . P e r h a p s this
o v e r s t a t e s the p r o b l e m a little, because a product-recall decision,
s u c h as in t h e a b o v e s t a t e m e n t , is a very m a j o r decision in which t o p
m a n a g e m e n t is b o u n d to b e c o m e i n v o l v e d . It is a large step
r e m o v e d from a d e c i s i o n to fail a b a t c h still sitting in t h e factory.
H o p e f u l l y it can be seen as in t h e i n t e r e s t s of b o t h the r e g u l a t o r s and
t o p m a n a g e m e n t to put in place m a n a g e m e n t systems which ensure
t h a t i n t e g r i t y d e c i s i o n s are m a d e i n all o f t h e m o r e r o u t i n e t y p e s o f
c r i s e s w h i c h t a k e p l a c e a t t h e l o w e r levels o f t h e o r g a n i s a t i o n . B u t
m o s t c o m p a n i e s will w a n t t o k e e p o p e n t h e o p t i o n o f r e v e r s i n g their
n o r m a l c o m m i t m e n t t o integrity w h e n $ 5 million could b e k n o c k e d
off t h e i r profits. In t h e s e t o p - l e v e l c r i s e s s e l f - r e g u l a t i o n b r e a k s
down.
T h e d r u g - r e c a l l d e c i s i o n is t h e classic i l l u s t r a t i o n in t h e p h a r m a -
c e u t i c a l i n d u s t r y of a d e c i s i o n with such d r a m a t i c financial impli-
c a t i o n s that top m a n a g e m e n t might even have to choose between
m a k i n g an i n t e g r i t y d e c i s i o n and k e e p i n g t h e i r j o b s . A saving
f e a t u r e of a recall d e c i s i o n for e x e c u t i v e s w h o are c o n c e r n e d for
t h e i r skins is t h a t t h e r e are an infinity of w a y s t h a t integrity can be
c o m p r o m i s e d i n v a r y i n g d e g r e e s . P a t e l ( 1 9 6 9 : 166-7) gives the
f o l l o w i n g e x a m p l e o f a recall n o t i c e w h i c h did not give an i n d i c a t i o n
o f t h e dangerous character ofthe goods to be returned.

D e a r P h a r m a c i s t : I n k e e p i n g with o u r policy o f p r o v i d i n g you


w i t h only t h e h i g h e s t q u a l i t y p h a r m a c e u t i c a l s , we have m a d e a
recent i m p o r t a n t change in the formulation of our X Y Z tablets.
T h i s has r e s u l t e d i n g r e a t e r stability o f t h e active i n g r e d i e n t s and
r e d u c e d t h e h a z a r d of side effects. Y o u will r e c o g n i z e the n e w
i m p r o v e d p r o d u c t b y t h e c h a n g e o f design i n t h e labels. All n e w
X Y Z t a b l e t s , w h e t h e r 3 0 ' s , 5 0 ' s , o r 100's, b e a r the n e w
e y e - a p p e a l i n g b l u e and w h i t e q u a l i t y seal in a d d i t i o n to t h e
required labelling.
P l e a s e r e t u r n all old s t o c k s o f X Y Z t a b l e t s for i m m e d i a t e c r e d i t
or replacement.

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Unsafe manufacturing practices

The integrity decision here is obviously to prominently mark


I M P O R T A N T : D R U G R E C A L L ' o n b o t h t h e e n v e l o p e and
l e t t e r - h e a d of a n o t i c e w h i c h fully d i s c l o s e s t h e facts.
T h e r e is, t h e n , a difference b e t w e e n t h e n e e d for a c o m m i t m e n t
t o i n t e g r i t y and q u a l i t y a t o p e r a t i n g levels o f t h e o r g a n i s a t i o n and
t h e n e e d for t o p m a n a g e m e n t t o b e able t o s u s p e n d t h a t c o m m i t -
m e n t for d e c i s i o n s of m a j o r financial i m p o r t . As will be a r g u e d in
C h a p t e r 9, it is this difference w h i c h is e s s e n t i a l for u n d e r s t a n d i n g
the limits of self-regulation.

Towards professionalism in quality control


In the previous section, the importance of seniority, c o m p e t e n c e
a n d t r a i n i n g o f q u a l i t y c o n t r o l staff t o e q u i p t h e m t o resist p r e s s u r e s
to c o m p r o m i s e their standards was emphasised. The importance of
c o m p e t e n c e is e v e n m o r e d r a m a t i c a l l y i l l u s t r a t e d by a p a r t i c u l a r
k i n d of c i r c u m s t a n c e w h i c h w a s a s o u r c e of a n g u i s h to several
quality control managers interviewed.

We all try to avoid it, but it s o m e t i m e s h a p p e n s that we only


d i s c o v e r t h a t a b a t c h is unsafe w h e n it is on t h e d o c k . No quality
c o n t r o l p e r s o n w a n t s t o g o i n and e x p l a i n t o t h e v i c e - p r e s i d e n t
t h a t t h e c o m p a n y will h a v e to lose a lot of m o n e y by having
p r o d u c t s b r o u g h t back from t h e d o c k , e x p e c i a l l y w h e n it is the
fault of q u a l i t y c o n t r o l t h a t it w a s n ' t p i c k e d up earlier. A n d
u s u a l l y in t h e s e s i t u a t i o n s you can after t h e e v e n t see h o w you
c o u l d h a v e p i c k e d it up earlier. No o n e w a n t s to be in that
uncomfortable situation.

O b v i o u s l y a n i n c o m p e t e n t quality c o n t r o l m a n a g e r will m o r e often


e n d u p i n ' t h a t u n c o m f o r t a b l e s i t u a t i o n ' and t h e r e f o r e b e m o r e
t e m p t e d t o c o v e r u p t h e m i s t a k e . A c o m p e t e n t quality c o n t r o l
m a n a g e r w h o r a r e l y slips up is m o r e likely to h a v e t h e s e l f - e s t e e m to
face t h e m u s i c w h e n e v e r integrity d e m a n d s . Just a s the j u d g m e n t o f
c o m p e t e n t q u a l i t y c o n t r o l m a n a g e r s will b e h e e d e d i n crises w h i l e
t h a t of i n c o m p e t e n t s will be i g n o r e d , so t h e m i s t a k e s of c o m p e t e n t
m a n a g e r s will b e f o r g i v e n . C e r t a i n l y v i c e - p r e s i d e n t s w h o d o not
forgive t h e m i s t a k e s o f c o m p e t e n t p e o p l e m a k e a d a n g e r o u s bed t o
lie in. A c o m p a n y in w h i c h quality c o n t r o l m a n a g e r s are afraid to
r e p o r t h o n e s t m i s t a k e s t o s e n i o r m a n a g e m e n t will lose m o n e y
t h r o u g h t u r n i n g m i n o r c r i s e s into m a j o r o n e s . C r o s b y (1979: 84) has
e x p r e s s e d this c o m m o n sense forcefully:

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Unsafe manufacturing practices

D o n ' t b e u n n e r v e d b y all t h e h o r r o r s t o r i e s a b o u t i r r a t i o n a l j u r y
v e r d i c t s a n d t h e i n t r i c a c i e s o f t h e law. H a r d l y any o f t h o s e t h i n g s
o c c u r r e d because o f t h e original incident. They occurred because
s o m e o n e w h o had c o n t r i b u t e d t o t h e p r o b l e m d i d n ' t h a v e e n o u g h
s e n s e or c o u r a g e to face up to it early and get a r e a s o n a b l e
settlement.
I h a v e n e v e r seen a p r o d u c t safety p r o b l e m , real or p o t e n t i a l ,
t h a t d i d n ' t get itself h a n d l e d with a n a b s o l u t e m i n i m u m o f
e x p e n s e w h e n i t w a s faced m a t u r e l y .

N o t all difficult s i t u a t i o n s which a q u a l i t y c o n t r o l m a n a g e r must


face c a n be c o v e r e d by r e g u l a t i o n s . Q u a l i t y c o n t r o l p e o p l e m u s t be
s o c i a l i s e d in a p r o f e s s i o n a l c u l t u r e w h i c h e q u i p s t h e m to deal with
p r o b i t y w i t h t h e m a n y s h a d e s - o f - g r e y s i t u a t i o n s they m u s t confront.
Society recognises law, e n g i n e e r i n g , m e d i c i n e , p h a r m a c y , as pro-
f e s s i o n s . W h y s h o u l d not quality c o n t r o l be r e c o g n i s e d as a
p r o f e s s i o n ? P r o f e s s i o n a l i s m is no g u a r a n t e e of i n t e g r i t y , but it
helps. The quality control m a n a g e r s in a pharmaceutical c o m p a n y
r e a l l y h a v e only o n e m a s t e r o n e t h i c a l s t a n d a r d s i n their w o r k , and
t h a t i s t h e i r e m p l o y e r . L a w y e r s and p h y s i c i a n s i n t h e s a m e
c o m p a n i e s h a v e t w o m a s t e r s o n s t a n d a r d s o f e t h i c s . T h e y must
a n s w e r to t h e i r p r o f e s s i o n a l a s s o c i a t i o n s as well - the bar associ-
a t i o n o r t h e m e d i c a l a s s o c i a t i o n . P r o f e s s i o n a l a s s o c i a t i o n s are
n o t n o t e d for t h e s t r i n g e n c y w i t h w h i c h t h e y enforce their ethical
c o d e s . B u t t h e m o r e i m p o r t a n t value o f s t a n d a r d s o f professional
e t h i c s i s t h a t t h e y give t h e e m p l o y e e w h o w a n t s t o act w i t h integrity
a source of support against the superior p o w e r o f t h e employer. So
t h e l a w y e r can r e m o n s t r a t e : 'If I w e r e to do t h a t , I could be struck
off by t h e B a r A s s o c i a t i o n , a n d t h a t w o u l d be good for n e i t h e r me
n o r t h e c o m p a n y . ' T h e quality c o n t r o l m a n a g e r has n o such
recourse.

T h e o t h e r r a t i o n a l e for q u a l i t y c o n t r o l being g r a n t e d p r o f e s s i o n a l
s t a t u s c o n c e r n s t h e kind o f p r o f e s s i o n a l s o c i a l i s a t i o n w h i c h might
go on w i t h a u n i v e r s i t y d e g r e e in q u a l i t y c o n t r o l . G r a d u a t e s would
h o p e f u l l y be socialised into c e r t a i n i d e a l s of scientific inde-
p e n d e n c e , o f p u t t i n g p r o f e s s i o n a l s t a n d a r d s a h e a d o f profit. I n t h i s ,
o n e is e n c o u r a g e d by Q u i n n e y ' s (1963) classic study in which he
f o u n d t h a t p h a r m a c i s t s w i t h a p r o f e s s i o n a l i d e o l o g y w e r e less likely
to violate laws regulating their work than were pharmacists with a
b u s i n e s s i d e o l o g y . Of c o u r s e it is difficult not to be cynical a b o u t
h o w m u c h p r o t e c t i o n t h e p u b l i c i s afforded b y c o m m i t m e n t t o the

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Unsafe manufacturing practices

i d e o l o g y of a p r o f e s s i o n . N e v e r t h e l e s s , it is t r u e t h a t it would be
i m p o s s i b l e to w r i t e r u l e s to c o v e r all t h e difficult ethical j u d g m e n t s
w h i c h d o c t o r s m u s t face. T h e only p r o t e c t i o n w h i c h p a t i e n t s can
rely on in m o s t s i t u a t i o n s is t h e p r o f e s s i o n a l e t h i c s o f t h e d o c t o r .
G i v i n g q u a l i t y c o n t r o l p r o f e s s i o n a l s t a t u s and a p r o f e s s i o n a l
i d e o l o g y is no p a n a c e a , b u t it is a m e a s u r e w h i c h has m e r i t . F o r t h e
s a m e r e a s o n , t h e p r o f e s s i o n a l i s a t i o n o f o c c u p a t i o n a l safety would
be a d e s i r a b l e d e v e l o p m e n t .

The social costs of over-regulation


T h e financial c o s t s o f r e g u l a t i o n g e n e r a l l y i n t h e p h a r m a c e u t i c a l
i n d u s t r y will be c o n s i d e r e d in C h a p t e r 9. H e r e c e r t a i n social costs of
G M P r e g u l a t i o n will b e d i s c u s s e d . C o m p a r e d with o t h e r w o r k
s i t u a t i o n s , p e o p l e w o r k i n g with d r u g s have relatively little dis-
c r e t i o n . M o s t t h i n g s t h e y do a r e limited by a r u l e . M o s t m u s t be
r e c o r d e d . M a n y o p e r a t i o n s c a n n o t b e d o n e w i t h o u t t h e direct
s u p e r v i s i o n of a s e c o n d p e r s o n w h o signs off to i n d i c a t e t h a t t h e
o p e r a t i o n was c o m p l e t e d as recorded. In short, pharmaceutical
w o r k e r s h a v e little a u t o n o m y and often a r e e x c e e d i n g l y a l i e n a t e d .
R e g u l a t i o n t h e r e f o r e has a social cost on t h e quality o f t h e lives of
these people.

T h e a l i e n a t i o n e n g e n d e r e d can also r e b o u n d o n t h e effectiveness


of r e g u l a t i o n . T h e m i n u t i a e of r e g u l a t i o n has r e a c h e d its height in
t h e U n i t e d S t a t e s . O n e q u a l i t y c o n t r o l e x e c u t i v e w h o had e x p e r i -
e n c e b o t h i n t h e A u s t r a l i a n and A m e r i c a n w o r k e n v i r o n m e n t
d e s c r i b e d t h e p r o b l e m in t h e following t e r m s : 'In A u s t r a l i a , if a
w o r k e r h a p p e n e d to n o t i c e a red pill in a b o t t l e full of g r e e n o n e s he
w o u l d r e p o r t it. T h i s h a p p e n e d o n c e w h e n I w a s w o r k i n g i n
A u s t r a l i a . I n t h e U S t h e p h a r m a c e u t i c a l w o r k e r w o u l d j u s t let i t g o .
It is n o t his r e s p o n s i b i l i t y . ' W h e t h e r or not this is an o v e r s t a t e m e n t
(it p r o b a b l y i s ) , t h e r e is a d a n g e r in m a k i n g w o r k e r s into rule-
following a u t o m a t o n s rather than responsible, concerned people
w h o feel t h a t t h e e x e r c i s e of their p e r s o n a l d i s c r e t i o n m a k e s a
d i f f e r e n c e . T h e p r o b l e m is, f u r t h e r m o r e , t h a t t h e latter k i n d s o f
p e o p l e q u i c k l y m o v e o u t o f t h e j o b . ' G o o d p e o p l e get fed u p w i t h
b e i n g slaves t o r u l e s , ' a s o n e e x e c u t i v e e x p l a i n e d . G o o d p e o p l e also
l e a v e b e c a u s e t h e y get fed up w i t h a w o r k s i t u a t i o n in w h i c h s o m e -
o n e i s a l w a y s l o o k i n g o v e r y o u r s h o u l d e r , c h e c k i n g y o u r every
action.

I r o n i c a l l y , p e r h a p s , a u t o m a t i o n h o l d s o u t s o m e h o p e o f partially

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Unsafe manufacturing practices

a l l e v i a t i n g t h e l a t t e r p r o b l e m s . D e v i c e s for r e a d i n g c o d e s p r i n t e d
on b o t t l e s or t u b e s for o i n t m e n t can a u t o m a t i c a l l y c h e c k and eject
t u b e s w h i c h h a v e b e e n m i s t a k e n l y l a b e l l e d , for e x a m p l e . B u t t h e r e
a r e limits t o w h i c h h u m a n c h e c k s can b e r e p l a c e d with m e c h a n i c a l
surveillance.
A l i e n a t e d w o r k e r s are c a r e l e s s w o r k e r s . T h e y b e c o m e a g g r a -
v a t e d w h e n forced t o c o m p l y w i t h r e g u l a t i o n s w h i c h seem petty t o
t h e m , w h e n t h e y are r e p r i m a n d e d for only initialling a record w h i c h
r e q u i r e s t h e i r full s i g n a t u r e . E x a s p e r a t i o n o v e r the p e r c e i v e d
p e t t i n e s s o f t h e r e g u l a t i o n s l e a d s t o less d i l i g e n c e w h e n the follow-
ing o f r e a l l y i m p o r t a n t r e g u l a t i o n s i s r e q u i r e d . W o r k e r s a b r o g a t e
social r e s p o n s i b i l i t y t o u n e n t h u s i a s t i c rule following.
A n o t h e r c o n s e q u e n c e o f a l i e n a t i o n i s industrial s a b o t a g e
( D u b o i s , 1979). O n e t r a n s n a t i o n a l p h a r m a c e u t i c a l c o m p a n y has
faced a s i t u a t i o n w h e r e w o r k e r s a t t e m p t e d to set fire to o n e of its
A m e r i c a n f a c t o r i e s . A n e x e c u t i v e from a n o t h e r c o m p a n y d e s c r i b e d
an e x t r a o r d i n a r i l y m a l i c i o u s act of s a b o t a g e w h i c h could have
( p e r h a p s d i d ) cost lives: "We had a n industrial s a b o t a g e p r o b l e m
w h e r e a w o r k e r w a s p u t t i n g q u a r t e r s inside t h e lids o f t h e c o n t a i n e r s
[of an i n j e c t a b l e p r o d u c t ] . M a y b e he w a s t r y i n g to get back at [the
c o m p a n y ] . ' T h e F D A did not find o u t a b o u t t h e p r o b l e m . T h e
w o r k e r w a s d i s m i s s e d , but t h e c o m p a n y did not notify F D A for fear
of a d v e r s e p u b l i c i t y a r i s i n g from his p r o s e c u t i o n .
T h e r e a r e s o l u t i o n s . R u l e s which g e n u i n e l y a r e petty should b e
e l i m i n a t e d , a n d r u l e s w h i c h only s e e m p e t t y t o t h e u n i n f o r m e d
s h o u l d b e e x p l a i n e d . ' F r o m t h e p o i n t o f view o f m o t i v a t i o n , " k n o w -
w h y " i s m o r e i m p o r t a n t t h a n " k n o w - h o w " ' ( M o d y , 1969: 4 7 ) .
W o r k e r s m u s t b e p e r s u a d e d a s t o t h e d e s i r a b i l i t y o f rule-following
a n d d o c u m e n t a t i o n , b u t t h e y m u s t also b e given r e a s o n t o b e l i e v e
t h a t t h e y h a v e s o m e influence o v e r t h o s e r u l e s . A d e g r e e o f w o r k e r
p a r t i c i p a t i o n i n r u l e - m a k i n g m a y b e t h e p r i c e that m a n a g e m e n t and
g o v e r n m e n t m i g h t h a v e t o a c c e p t for w o r k e r c o m m i t m e n t t o t h e
rules.
In a small w a y , this h a p p e n s in s o m e factories a l r e a d y . U n d e r
A b b o t t ' s Q u a l i t y A l e r t A w a r d s c h e m e w o r k e r s can suggest new
S O P s . W o r k e r s w h o c o m e forward with a useful quality alert
s u g g e s t i o n a r e p r e s e n t e d w i t h a pin. F o r their second s u g g e s t i o n
t h e y a r e g i v e n a g r e e n s t o n e for the p i n , for t h e i r third a red s t o n e ,
a n d s o o n . " A b b o t t likes t o k e e p its w o r k e r s ' p a r t i c i p a t i o n within
r e a s o n a b l e l i m i t s , h o w e v e r . W h e n h e a d q u a r t e r staff saw o n t h e
n o t i c e b o a r d of o n e p l a n t t h a t a w o r k e r had b e e n given a special

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Unsafe manufacturing practices

c o m m e n d a t i o n for finding seven v i o l a t i o n s o f F D A r e g u l a t i o n s i n


t h e p l a n t , t h e n o t i c e w a s o r d e r e d d o w n lest i t p r o v i d e a m m u n i t i o n
for an F D A i n s p e c t o r . C i b a - G e i g y in 1971 also s t a r t e d its ' Q u a l i t y
S e a l ' p r o g r a m m e t o foster e m p l o y e e p a r t i c i p a t i o n i n m e t h o d s o f
error reduction.
T h e p h a r m a c e u t i c a l i n d u s t r y can g o m u c h further i n h a n d i n g o v e r
d e c i s i o n - m a k i n g p o w e r t o w o r k e r s . I n this r e g a r d , t h e r e i s m u c h
it c o u l d learn from t h e a u t o m o b i l e i n d u s t r y , p a r t i c u l a r l y t h e
J a p a n e s e car m a n u f a c t u r e r s . U n d e r t h e J a p a n e s e m o d e l , w h i c h i s
n o w b e i n g a d o p t e d b y G e n e r a l M o t o r s , w o r k e r s are given t h e
a u t h o r i t y to shut d o w n t h e a s s e m b l y line if they t h i n k t h a t , for
w h a t e v e r r e a s o n , q u a l i t y c o n t r o l s t a n d a r d s are not being m e t ( L o h r ,
1981).
A n o t h e r idea for g e n e r a t i n g shopfloor c o m m i t m e n t t o quality
w h i c h h a s b e e n w i d e l y i m p l e m e n t e d b y quality p r o f e s s i o n a l s i n
m a n y i n d u s t r i e s i s t h e ' z e r o defects d a y ' . T h e e n t i r e w o r k f o r c e i s
asked to c o n t r i b u t e their ideas to ways of making an experimental
d a y u n i q u e l y free of d e f e c t i v e o u t p u t . If t h e z e r o defects day is
successful in i m p r o v i n g q u a l i t y , t h e quality p e r f o r m a n c e of t h a t day
b e c o m e s a b e n c h m a r k for future i m p r o v e m e n t .
O n e s t r a t e g y for g e n e r a t i n g c o m m i t m e n t t o quality w o r k m a n s h i p
f o l l o w e d by B a x t e r - T r a v e n o l in A u s t r a l i a is to t a k e w o r k e r s to t h e
local W e s t m e a d H o s p i t a l t o see their i n t r a v e n o u s s o l u t i o n s i n u s e .
' O n e old lady g r a b b e d t h e a r m of o n e of o u r s u p e r v i s o r s and said
h o w m u c h she a p p r e c i a t e d w h a t h e w a s d o i n g for her. T h a t c o m -
p l e t e l y c h a n g e d his a t t i t u d e t o his w o r k . '
W h a t e v e r t h e s t r a t e g i e s u s e d , t h e i m p o r t a n t thing i s t o a c h i e v e
s o m e real w o r k e r p a r t i c i p a t i o n t o m a k e e m p l o y e e s b e l i e v e t h a t i t i s
i m p o r t a n t t h a t t h e y s h o w initiative o n t h e j o b . T h e m o s t d a n g e r o u s
b e l i e f t h a t can p e r m e a t e a p h a r m a c e u t i c a l c o m p a n y is t h a t quality is
t h e r e s p o n s i b i l i t y o f t h e quality a s s u r a n c e d e p a r t m e n t . E v e r y
w o r k e r s h o u l d be a c c o u n t a b l e for t h e q u a l i t y of his or her o w n task.
W h e n a q u a l i t y failure o c c u r s , b o t h t h e o p e r a t i v e r e s p o n s i b l e and
t h e q u a l i t y c o n t r o l staff s h o u l d be called to a c c o u n t .

International variations in GMP compliance


J. B.: Are there ever product recalls [in
Guatemala]?
Production manager: N a h . P r o b l e m s a r e put d o w n t o
post-operative shock.

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Unsafe manufacturing practices

G M P s t a n d a r d s vary g r e a t l y b e t w e e n c o u n t r i e s . T h e r e are many


c o u n t r i e s like G u a t e m a l a w h e r e t h e r e are n o G M P i n s p e c t i o n s , n o
n a t i o n a l d r u g - t e s t i n g l a b o r a t o r y . T r a n s n a t i o n a l c o m p a n i e s are able
t o t a k e a d v a n t a g e o f this s i t u a t i o n . M a n y o f t h e major t r a n s -
n a t i o n a l s h a v e m a n u f a c t u r i n g p l a n t s t o serve the C e n t r a l A m e r i c a n
r e g i o n i n G u a t e m a l a . O n e o f t h e a d v a n t a g e s o f this a r r a n g e m e n t i s
t h a t m a n u f a c t u r i n g is not only c h e a p e r by virtue of the non-
u n i o n i s e d w o r k f o r c e and tax c o n c e s s i o n s , but also b e c a u s e m a n u -
f a c t u r i n g s t a n d a r d s do not h a v e to be as high as in the U n i t e d S t a t e s ,
G e r m a n y or Great Britain.
T h e s i t u a t i o n is m o r e c o m p l i c a t e d w h e n m a n u f a c t u r i n g in a par-
t i c u l a r c o u n t r y i s for b o t h d e v e l o p e d and T h i r d - W o r l d m a r k e t s .
S o m e m a n u f a c t u r i n g for t h e A s i a n m a r k e t t a k e s place i n A u s t r a l i a n
p l a n t s . G e n e r a l l y , t h e costs o f c h a n g i n g r o u t i n e d o not justify
i n t e n t i o n a l l y m a n u f a c t u r i n g i t e m s for t h e A s i a n m a r k e t to lower
s t a n d a r d s t h a n for A u s t r a l i a n c o n s u m e r s . N e v e r t h e l e s s , i f b a t c h e s
e m e r g e w h i c h h a p p e n t o fail t o m e e t A u s t r a l i a n s t a n d a r d s , t h e n
t h e r e is an obvious t e m p t a t i o n to d u m p these batches on the Asian
m a r k e t - a t e m p t a t i o n w h i c h s o m e i n f o r m a n t s c o n c e d e d is not
a l w a y s r e s i s t e d . C o n v e r s e l y , e x p o r t s t o t h e J a p a n e s e m a r k e t might
have to meet higher standards than in Australia on certain criteria.
T r a n s n a t i o n a l c o m p a n i e s vary g r e a t l y in the e x t e n t to which they
follow different G M P s t a n d a r d s i n different p a r t s o f the w o r l d .
S o m e h a v e a p h i l o s o p h y t h a t t h e c o m p a n y has a c e r t a i n s t a n d a r d
w h i c h m u s t be followed w h e n e v e r a p r o d u c t is sold u n d e r t h e
c o m p a n y n a m e . M a n y A m e r i c a n c o m p a n i e s regularly send c o m -
p l i a n c e a u d i t o r s to all s u b s i d i a r i e s to c h e c k t h a t this is h a p p e n i n g .
E u r o p e a n c o m p a n i e s w h o also s u b s c r i b e t o this p h i l o s o p h y t e n d not
to be so tightly c e n t r a l l y c o n t r o l l e d , but c l a i m they a c h i e v e t h e s a m e
e n d b y p o s t i n g h e a d office E u r o p e a n s t o m a n a g e T h i r d - W o r l d
subsidiaries. O t h e r companies attempt to imbue Third-World
m a n a g e r s with ' c o r p o r a t e s t a n d a r d s ' b y p e r i o d i c a l l y b r i n g i n g t h e m
i n t o h e a d q u a r t e r s for t r a i n i n g . S o m e t r a n s n a t i o n a l s . while p a y i n g
lip s e r v i c e t o a u n i f o r m c o r p o r a t e G M P s t a n d a r d , i m p l e m e n t the
p o l i c y simply by s e n d i n g a set of c o r p o r a t e s t a n d a r d s , w h i c h might
be e i t h e r d e t a i l e d or g e n e r a l , to all s u b s i d i a r i e s . Such a g e s t u r e
m i g h t or m i g h t not be c o m b i n e d with a r e q u i r e m e n t for s u b s i d i a r i e s
t o p e r i o d i c a l l y send s a m p l e s o f final p r o d u c t t o h e a d q u a r t e r s
for t e s t i n g . At t h e e x t r e m e are t r a n s n a t i o n a l s which m a k e a virtue
o f local a u t o n o m y and e m p h a s i s e t h e s o v e r e i g n r i g h t o f e a c h n a t i o n
to set its o w n G M P s t a n d a r d s . E a c h of its s u b s i d i a r i e s is e n c o u r a g e d

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Unsafe manufacturing practices

to m a x i m i s e its c o m m e r c i a l advantage within that legal frame-


work.
O f t h e a b o v e a p p r o a c h e s , only a n i n t e r n a t i o n a l a u d i t i n g p r o -
g r a m m e i m p o s e d from h e a d q u a r t e r s e n s u r e s a m o d i c u m o f
u n i f o r m i t y . T h e fact t h a t d e t a i l e d c o r p o r a t e s t a n d a r d s m e a n little
on t h e i r o w n w a s g r a p h i c a l l y i l l u s t r a t e d w h e n I visited the
A u s t r a l i a n s u b s i d i a r y o f a major A m e r i c a n c o m p a n y . The
m a n a g i n g d i r e c t o r s p o k e t o m e first and g a v e g l o w i n g a c c o u n t s o f
h o w m u c h t o u g h e r their c o r p o r a t e s t a n d a r d s w e r e w h e n c o m p a r e d
w i t h g o v e r n m e n t s t a n d a r d s . I w a s t h e n i n t r o d u c e d t o the quality
a s s u r a n c e d i r e c t o r w h o told m e : ' W e follow H e a l t h D e p a r t m e n t
r e g u l a t i o n s . T h e r e a r e [ c o r p o r a t e s t a n d a r d s ] which are p r o b a b l y
t o u g h e r i n s o m e w a y s , but t o b e h o n e s t I've n e v e r read t h e m . '

E v e n t h e t r a n s n a t i o n a l s w h i c h e n f o r c e t h e strictest o f inter-
national auditing systems cannot achieve c o m p l e t e uniformity of
s t a n d a r d s a r o u n d t h e w o r l d . A n d c o m p a n i e s w h i c h m a k e only
t o k e n efforts to a c h i e v e such a policy a l l o w , by default, vast
disparities in G M P s to continue. N e v e r t h e l e s s , it is undoubtedly
true that in T h i r d - W o r l d countries the G M P standards o f t h e trans-
n a t i o n a l s , n o m a t t e r h o w m u c h l o w e r t h a n a t h e a d q u a r t e r s , are
g e n e r a l l y h i g h e r t h a n t h o s e o f m o s t locally o w n e d m a n u f a c t u r e r s .
T r a n s n a t i o n a l s a r e s o m e t i m e s a l o b b y i n g force for u p g r a d i n g the
G M P s t a n d a r d s in T h i r d - W o r l d c o u n t r i e s . T h e y see this as a way of
p u t t i n g ' b a t h t u b ' c o m p e t i t o r s o u t o f b u s i n e s s . C e r t a i n l y this s e e m e d
t o b e t h e effect o f t h e d e c i s i o n o f t h e P o r t i l l o g o v e r n m e n t i n M e x i c o
t o c l o s e d o w n 300 o f t h e 600 p h a r m a c e u t i c a l c o m p a n i e s o p e r a t i n g i n
t h e c o u n t r y in 1977.

T h u s , the internationalisation of capital, both because of the


e c o n o m i c i n t e r e s t s i t b r i n g s t o t h e T h i r d W o r l d and b e c a u s e o f
t h e t r a n s f e r of q u a l i t y c o n t r o l t e c h n o l o g y , is a force for the
upgrading of G M P standards. Increasingly, Third-World countries
a r e e s t a b l i s h i n g n a t i o n a l t e s t i n g l a b o r a t o r i e s for d r u g s ( N y l e n ,
1975). M a n y a r e e n a c t i n g G M P s a n d s e n d i n g i n s p e c t o r s t o t h e F D A
for t r a i n i n g .
T h e i n c r e a s i n g l y i n t e r n a t i o n a l c h a r a c t e r of t h e industry is also
having an impact on the equalisation of standards between
d e v e l o p e d c o u n t r i e s . C o u n t r i e s w i t h l o w e r s t a n d a r d s are forced t o
c o m e i n t o line b y u p g r a d i n g t h e i r s t a n d a r d s . F o u r M e d i t e r r a n e a n
c o u n t r i e s ( G r e e c e , P o r t u g a l , Spain and T u r k e y ) w h o h a v e b e e n
e x p l o r i n g t h e possibility o f m e m b e r s h i p i n t h e E u r o p e a n E c o n o m i c
C o m m u n i t y h a v e b e e n told t h a t they w o u l d have t o t i g h t e n their

155
Unsafe manufacturing practices

d r u g r e g u l a t o r y p r a c t i c e s before b e i n g a d m i t t e d . C o u n t r i e s i n the
E u r o p e a n Free Trade Association (Ireland, Austria, D e n m a r k ,
Finland, Hungary. Iceland, Liechtenstein, Norway, Portugal.
S w e d e n , S w i t z e r l a n d and G r e a t B r i t a i n ) now have a " C o n v e n t i o n
for t h e M u t u a l R e c o g n i t i o n o f I n s p e c t i o n s i n R e s p e c t o f t h e M a n u -
f a c t u r e o f P h a r m a c e u t i c a l P r o d u c t s . ' T h i s has b e e n a c h i e v e d
t h r o u g h a d e g r e e of a g r e e m e n t on u n i f o r m i t y of i n s p e c t i o n stan-
d a r d s . U n d e r t h e a g r e e m e n t i n s p e c t o r s from o n e c o u n t r y can g o
into a n o t h e r to check the manufacturing standards of products to be
imported. The Benelux countries (Belgium, Netherlands,
L u x e m b u r g ) and t h e A n d e a n P a c t c o u n t r i e s ( P e r u , E c u a d o r ,
B o l i v i a , C o l o m b i a and V e n e z u e l a ) h a v e b o t h m a d e p r o g r e s s o n
e s t a b l i s h i n g s o m e u n i f o r m i t y i n d r u g r e g u l a t i o n within t h e i r g r o u p s .
The F r e n c h have been most anxious in recent years to improve
G M P s , G L P s and t h e s t r i n g e n c y o f t h e drug a p p r o v a l p r o c e s s
p r e c i s e l y so t h e y can b e t t e r c o m p e t e for t h e d e v e l o p e d c o u n t r y
m a r k e t s . B r i t i s h c o n t r a c t l a b o r a t o r i e s w r i t e to the F D A asking for
G L P i n s p e c t i o n s s o t h a t t h e y can tell c u s t o m e r s t h a t they are
a p p r o v e d u n d e r A m e r i c a n G L P s . T h e r e can b e n o d o u b t , t h e n , that
t h e i n t e r n a t i o n a l i s a t i o n of capital i s , in a g g r e g a t e , a force to
u p g r a d e t h e s t a n d a r d s o f t h o s e w h o lag b e h i n d .

T h e m o s t significant force of all for h a r m o n i s a t i o n of s t a n d a r d s


h a s b e e n t h e W o r l d H e a l t h O r g a n i s a t i o n ' s Certification S c h e m e o n
the Quality of Pharmaceutical Products Moving in International
C o m m e r c e . P a r t i c i p a n t c o u n t r i e s i n t h e s c h e m e certify o n r e q u e s t
from a n o t h e r p a r t i c i p a n t c o u n t r y t h a t specified p h a r m a c e u t i c a l
e x p o r t s m e e t t h e G M P s t a n d a r d s set d o w n u n d e r t h e s c h e m e , that
t h e p l a n t s a r e subject to p e r i o d i c i n s p e c t i o n , and that the p r o d u c t is
a u t h o r i s e d for sale i n t h e e x p o r t i n g c o u n t r y . P a r t i c i p a n t c o u n t r i e s
are Argentina, Australia, Belgium, Cyprus, Egypt, Finland,
F r a n c e , Iceland, Italy, J a p a n , J o r d a n , Mauritius, N e w Z e a l a n d .
N o r w a y , Poland. Portugal, Republic of Korea. Romania, Senegal,
Spain, S w e d e n , Syria, United A r a b E m i r a t e s , United Kingdom,
U n i t e d S t a t e s . To t h e e x t e n t t h a t such s c h e m e s have an effect it is in
r a i s i n g t h e s t a n d a r d s o f t h e less s t r i n g e n t c o u n t r i e s . N a t i o n s with
h i g h e r s t a n d a r d s h a v e not i n p r a c t i c e r e d u c e d their r e q u i r e m e n t s t o
a lowest c o m m o n denominator.

V a s t d i s p a r i t i e s r e m a i n , but t h e y are n a r r o w i n g . T h e p l a n t
m a n a g e r o f t h e M e x i c a n subsidiary of an A m e r i c a n company was
p r e p a r e d to give w h a t s e e m e d an h o n e s t a s s e s s m e n t of h o w far his
factory had c o m e and h o w far it had to g o .

156
Unsafe manufacturing practices

It t a k e s t i m e for us to c a t c h up to US s t a n d a r d s . I k n o w h o w
m a c h i n e s s h o u l d be c l e a n e d . B u t t h e y say we should h a v e
i n s t r u c t i o n s i n w r i t i n g o n h o w t o clean m a c h i n e s . B e f o r e w e
had n o t h i n g i n w r i t i n g . N o w w e are b e g i n n i n g t o w r i t e t h i n g s
down.

The malevolent multinationals?


T r a n s n a t i o n a l c o r p o r a t i o n s d e s e r v e to be criticised for a l l o w i n g
m u c h m o r e lax G M P s t a n d a r d s t o apply i n t h e p o o r p a r t s o f the
w o r l d t h a n in t h e rich n a t i o n s . Possibly t h e r e are a c o u p l e of
c o m p a n i e s ( p e r h a p s Lilly i s o n e ) w h o g o close t o i n t e r n a t i o n a l
u n i f o r m i t y of q u a l i t y s t a n d a r d s - b u t no m o r e t h a n a c o u p l e . In spite
o f t h e i r b l a m e w o r t h i n e s s o n this s c o r e , t h e foregoing discussion
i m p l i e s t h a t t r a n s n a t i o n a l c o r p o r a t i o n s are a force for h i g h e r
s t a n d a r d s in the Third W o r l d . Certainly their standards exceed
those of most of their indigenous competitors.
F u r t h e r m o r e , w i t h i n the U n i t e d S t a t e s t h e t r a n s n a t i o n a l c o m -
panies have much more sophisticated G M P compliance systems
m a n a g e d b y m o r e qualified p e r s o n n e l t h a n t h e s m a l l e r A m e r i c a n
c o m p a n i e s . M a n y s m a l l e r o p e r a t i o n s c a n n o t afford a quality a u d i t
f u n c t i o n s u p e r i m p o s e d a b o v e t h e i n - p l a n t quality c o n t r o l staff. O n e
small c o m p a n y e x e c u t i v e a r g u e d t h a t t h e y d o not need a n a u d i t
f u n c t i o n as m u c h as a large c o m p a n y in w h i c h t o p m a n a g e m e n t , far
r e m o v e d from t h e s h o p floor, n e e d a s s u r a n c e s t h a t s t a n d a r d s are
b e i n g m a i n t a i n e d . P e r h a p s s o , but e a c h plant o w n e d b y a t r a n s -
n a t i o n a l is s i m i l a r in size to m a n y a small c o m p a n y c o n s i s t i n g o f a
single p l a n t . T h e t r a n s n a t i o n a l plant m a n a g e r i s j u s t a s i n t o u c h with
t h e s h o p floor a s t h e small c o m p a n y plant m a n a g e r . H o w e v e r , t h e
f o r m e r i s s u b j e c t e d t o t w o t y p e s o f i n s p e c t i o n s (from h e a d q u a r t e r s
a n d t h e F D A ) , w h i l e t h e l a t t e r i s s u b j e c t e d t o only o n e t y p e , and i f i t
is a small p l a n t , F D A i n s p e c t i o n s are likely to be m u c h less
1 5
frequent.
S m a l l p l a n t s s o m e t i m e s do not h a v e the e c o n o m i e s of scale to
justify s o m e of t h e q u a l i t y r e f i n e m e n t s of t h e t r a n s n a t i o n a l . A
g e n e r i c m a n u f a c t u r e r , w h i c h d o e s not enjoy t h e m o n o p o l i s t i c
profits of large c o m p a n i e s with p r o d u c t s on p a t e n t , survives by cost
c u t t i n g . S o m e t i m e s this i n v o l v e s c u t t i n g c e r t a i n quality c h e c k s
w h i c h , p e r h a p s t h o u g h not r e q u i r e d b y g o v e r n m e n t r e g u l a t i o n s , are
n e v e r t h e l e s s d e s i r a b l e . In a small c o m p a n y it m i g h t be a practical
impossibility to have decisions on the approval of batches m a d e by

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Unsafe manufacturing practices

s o m e o n e w h o has n o i n t e r e s t i n t h e o u t c o m e . All e m p l o y e e s may


effectively a n s w e r to t h e p r e s i d e n t and e v e r y o n e is intimately
i n v o l v e d in t h e p r o d u c t i o n of every b a t c h of p r o d u c t . M o r e o v e r , in
a small c o m p a n y the c o s t s of r e j e c t i n g o n e b a t c h ( p e r h a p s $50,000)
m i g h t c a u s e t h e e n t e r p r i s e to run at a loss for the m o n t h . T h e
t e m p t a t i o n to c o m p r o m i s e s t a n d a r d s is much g r e a t e r t h a n in a
t r a n s n a t i o n a l w h e r e $ 5 0 , 0 0 0 is as n o t h i n g c o m p a r e d to t h e costs of
t h e a d v e r s e publicity a r o u n d t h e w o r l d should the b a t c h c a u s e
s e r i o u s a d v e r s e r e a c t i o n s . T h e large c o m p a n y also has m o r e t o lose
by falling o u t of favour with the F D A - m o r e p r o d u c t s being
c o n s i d e r e d for a p p r o v a l b y t h e a g e n c y , m o r e p l a n t s w h i c h can b e
h a r a s s e d by i n s p e c t o r s , and so o n .

A Lilly c o r p o r a t i o n study ( P a u l s and K l o e r , 1978) c o m p a r e d t h e


i n c i d e n c e o f p r o d u c t recalls and F D A e n f o r c e m e n t action b e t w e e n
t h e 2 3 ' r e s e a r c h - i n t e n s i v e ' c o m p a n i e s (all t r a n s n a t i o n a l ) and the
h u n d r e d s o f s m a l l e r A m e r i c a n c o m p a n i e s . T h e d a t a w e r e from
F D A E n f o r c e m e n t R e p o r t s for t h e p e r i o d J a n u a r y 1974 t h r o u g h
D e c e m b e r 1977. O n l y recalls w h i c h w e r e classified b y t h e F D A a s
i n v o l v i n g a risk to h e a l t h w e r e i n c l u d e d . T h e i n c i d e n c e of recalls
w a s found to be s e v e n t i m e s h i g h e r by v o l u m e of sales in the s m a l l e r
c o m p a n i e s . T h e r a t e o f F D A c o u r t a c t i o n s ( p r o s e c u t i o n s , injunc-
t i o n s , s e i z u r e s ) w a s 4 3 t i m e s h i g h e r for the s m a l l e r c o m p a n i e s
c o m p a r e d w i t h t h e t r a n s n a t i o n a l s . T h e F D A and p u b l i c - i n t e r e s t
g r o u p s w h o w e r e k e e n t o defend t h e q u a l i t y o f g e n e r i c a l l y m a n u -
f a c t u r e d d r u g s a s e q u a l t o t h a t o f b r a n d - n a m e p r o d u c t s a t t a c k e d the
Lilly s t u d y on a n u m b e r of m e t h o d o l o g i c a l g r o u n d s . H o w e v e r , Lilly
w e r e a b l e to field t h e s e o b j e c t i o n s c o n v i n c i n g l y (Eli Lilly and
C o m p a n y , 1979). U n d o u b t e d l y ail t h e e v i d e n c e is not yet in on this
d e b a t e . H o w e v e r , a f a i r - m i n d e d o b s e r v e r has to find t h e existing
e v i d e n c e c o n v i n c i n g t h a t e v e n i n the A m e r i c a n m a r k e t t h e t r a n s -
n a t i o n a l s h a v e a q u a l i t y r e c o r d s u p e r i o r t o t h a t o f t h e rest o f t h e
industry.

158
5 Antitrust

A n t i t r u s t l a w , it will be a r g u e d , fulfils m a i n l y a s y m b o l i c function in


c a p i t a l i s t s o c i e t i e s r a t h e r t h a n c r i m e c o n t r o l functions. I t a s s u r e s
p e o p l e t h a t t h e m y t h o l o g y of c o m p e t i t i o n and free e n t e r p r i s e is
r e a l . A n i m p r e s s i o n o f m o n o p o l i s a t i o n u n r e s t r a i n e d b y law u n d e r -
m i n e s t h e l e g i t i m a t i o n o f capitalist r e l a t i o n s o f p r o d u c t i o n ( P e a r c e .
1976; O ' M a l l e y , 1980). T h i s is not to say t h a t a n t i t r u s t law is not
d e s i r a b l e and n e c e s s a r y . H o w e v e r , it will be a r g u e d that if capitalist
s o c i e t i e s are s e r i o u s a b o u t r e s t o r i n g c o m p e t i t i o n to an industry like
p h a r m a c e u t i c a l s , t h e r e are m o r e effective s t r u c t u r a l r e m e d i e s for
a c h i e v i n g t h i s t h a n a r e a v a i l a b l e u n d e r a n t i t r u s t law. C e r t a i n l y
a n t i t r u s t law can be r e f o r m e d to focus m o r e on m o n o p o l i s t i c and
o l i g o p o l i s t i c s t r u c t u r e s and less o n c o n s p i r a t o r i a l c o n d u c t . B u t n o
m a t t e r h o w far such reform g o e s , a n t i t r u s t law will r e m a i n less
i m p o r t a n t t h a n g o v e r n m e n t e c o n o m i c policies for r e s t r a i n i n g
m o n o p o l i s t i c pricing.
B e f o r e c o n s i d e r i n g t h e n a t u r e of a n t i t r u s t offences in t h e phar-
m a c e u t i c a l i n d u s t r y w e must first c o m e t o grips with the e c o n o m i c
structure o f t h e industry.

Profits in the pharmaceutical industry

Since the Second W o r l d W a r p h a r m a c e u t i c a l s have been one o f t h e


m o s t a t t a c t i v e a r e a s o f i n v e s t m e n t . D r u g s have r a n k e d first o r
s e c o n d in profitability a m o n g all i n d u s t r i e s in most y e a r s since 1955.

In some y e a r s , some c o m p a n i e s - including Sterling, A m e r i c a n


H o m e P r o d u c t s , N o r w i c h , S c h e r i n g , and S e a r l e - have r e c o r d e d

159
Antitrust

net [after tax] profits of 30 to 39 per cent per year.


C a r t e r - W a l l a c e , R o h r e r , and Smith K l i n e & F r e n c h have
a c h i e v e d profits o f 4 0 t o 4 7 per c e n t . M a r i o n L a b o r a t o r i e s , A . H .
R o b i n s , and S y n t e x have r e p o r t e d net profits of 51 to 54 per cent
in s o m e y e a r s . E v e n d u r i n g t h e s e v e r e d e p r e s s i o n years of 1930 to
1935 U p j o h n r e p o r t e d profits of at least 30 per cent ( S i l v e r m a n
a n d L e e , 1974: 3 0 ) .

T h e t h r e e l e a d i n g B r i t i s h c o m p a n i e s - B o o t s , B e e c h a m and G l a x o -
in 1972 e a r n e d 45 p e r c e n t , 41 per cent and 22 per cent r e s p e c t i v e l y
o n c a p i t a l e m p l o y e d . R a n k X e r o x w a s t h e only c o m p a n y w h i c h w a s
m o r e p r o f i t a b l e t h a n B o o t s and B e e c h a m i n that year a m o n g t h e top
100 B r i t i s h firms (Gereffi, 1979: 6 0 ) .
A m y r i a d of r e s e a r c h e r s from different p a r t s of the w o r l d have
s h o w n h o w r e c o r d e d profits in the p h a r m a c e u t i c a l industry are far
i n e x c e s s o f m a n u f a c t u r i n g i n d u s t r y a v e r a g e s ( N a d e r , 1973; B u r a c k ,
1976; 6 6 - 8 ; S i l v e r m a n , 1976: 1 2 1 ; L a b o u r P a r t y , 1976: 2 0 - 1 ;
C l a r k s o n , 1977, 1979; M a e s d a y , 1977: 2 7 6 ; S l a t t e r , 1977; S u b -
c o m m i t t e e o n H e a l t h , 1977; A g a r w a l , 1978; Lall, 1978; Gereffi,
1 9 7 9 ; U n i t e d N a t i o n s C e n t r e o n T r a n s n a t i o n a l C o r p o r a t i o n s , 1979:
5 4 - 9 ) . E c o n o m i s t s d e f e n d i n g t h e i n d u s t r y have a r g u e d that
r e c o r d e d profit figures in t h e p h a r m a c e u t i c a l industry artificially
inflate t h e t r u e r a t e o f r e t u r n o n i n v e s t m e n t ( A y a n i a n , 1975;
S c h w a r t z m a n , 1975; Stauffer, 1975; P h a r m a c e u t i c a l M a n u f a c t u r e r s
A s s o c i a t i o n , 1977). T h e c e n t r a l t h r u s t o f their a r g u m e n t i s that
" d i s c o v e r y i n t e n s i v e * i n d u s t r i e s such as p h a r m a c e u t i c a l s are in a
u n i q u e s i t u a t i o n . E x c e s s i v e profits i n t h e industry are a n a c c o u n t i n g
i l l u s i o n , t h e y say, a r i s i n g from t h e fact t h a t r e s e a r c h and d e v e l o p -
m e n t e x p e n d i t u r e s a r e not c a p i t a l i s e d a s a n i n v e s t m e n t asset, but
r a t h e r a r e set a g a i n s t c u r r e n t i n c o m e . Gereffi (1979) p o i n t s o u t ,
h o w e v e r , t h a t t h e p r a c t i c e of not t r e a t i n g r e s e a r c h as a capital
i n v e s t m e n t can r e s u l t in e i t h e r an u n d e r s t a t e m e n t or an over-
s t a t e m e n t o f t h e ' r e a l ' o r e c o n o m i c rate o f r e t u r n . S o m e o f the
s t a t e m e n t s o f p r o - i n d u s t r y e c o n o m i s t s o n t h e q u e s t i o n o f profits
have been calculatingly misleading.

I n d u s t r y d e f e n d e r s tell us t h a t drug d e v e l o p m e n t is a risky


b u s i n e s s . It is. M a n y millions can be spent on a p r o d u c t w h i c h
p r o v e s to be unsafe or ineffective. I n d e e d , the Lilly e c o n o m i s t .
C o c k s ( 1 9 7 5 ) , s h o w s t h a t this risk e l e m e n t p r o d u c e s wild v a r i a t i o n s
in t h e s h a r e o f t h e m a r k e t held by different c o m p a n i e s . In a list of
t w e n t y i n d u s t r y g r o u p s , d r u g s r a n k s e c o n d o n a n index o f m a r k e t -

160
Antitrust

s h a r e i n s t a b i l i t y . W h e n w e look a t t h e r a w d a t a , h o w e v e r , w e find
t h a t t o p of t h e list for m a r k e t - s h a r e instability is that struggling
i n d u s t r y , ' p e t r o l e u m * . C o u l d i t b e t h a t c e r t a i n i n d u s t r i e s are b o t h
h i g h l y risky a n d highly p r o f i t a b l e ?
T h e s m o k e s c r e e n from i n d u s t r y e c o n o m i s t s c a n n o t d i s p l a c e the
r e a l i t y t h a t p h a r m a c e u t i c a l profits are e x t r a o r d i n a r i l y high. If actual
profits m e r e l y b a l a n c e d risk, t h e n o n e w o u l d e x p e c t capital t o b e
i n v e s t e d in t h e p h a r m a c e u t i c a l i n d u s t r y at t h e same rate as t h e
all-industry average. The United Nations Centre on Transnational
C o r p o r a t i o n s ( 1 9 7 9 : 5 7 - 8 ) s h o w s t h a t t h i s is not so. F r o m 1953 to
1967 in t h e U n i t e d S t a t e s , e q u i t y c a p i t a l in d r u g s i n c r e a s e d 584 per
c e n t , t h e s e c o n d h i g h e s t figure for any i n d u s t r y g r o u p . E q u i t y
c a p i t a l for t h e w h o l e m a n u f a c t u r i n g sector i n c r e a s e d only 183 per
c e n t d u r i n g t h e s a m e p e r i o d . I n o t h e r w o r d s , drug profits h a v e
a t t r a c t e d new m o n e y at more than three times the average rate.

Oligopoly in the pharmaceutical industry


E x c e s s i v e profits in t h e p h a r m a c e u t i c a l i n d u s t r y arise in c o n s i d e r -
a b l e m e a s u r e from t h e p e c u l i a r f e a t u r e s o f t h e m a r k e t which s h e l t e r
p r o d u c e r s from p r i c e c o m p e t i t i o n . C o n s u m e r s o v e r e i g n t y i s a b s e n t
i n t h e p r e s c r i p t i o n d r u g m a r k e t b e c a u s e i t i s not t h e c o n s u m e r w h o
m a k e s a d e c i s i o n to p u r c h a s e , but t h e p h y s i c i a n . D o c t o r s have no
r e a s o n to be p r i c e - c o n s c i o u s . M o r e o v e r , t h e need for effective
m e d i c a l c a r e is relatively price inelastic in affluent s o c i e t i e s .
T h e i n c r e d i b l e i m p e r v i o u s n e s s o f t h e p h a r m a c e u t i c a l industry t o
m a r k e t forces b e c a m e a p p a r e n t i n t h e K e f a u v e r h e a r i n g s before the
U S S e n a t e S u b c o m m i t t e e o n A n t i t r u s t a n d M o n o p o l y i n the early
1960s. K e f a u v e r ' s staff found t h a t t h e a v e r a g e p r o d u c t i o n costs for
fifteen m a j o r d r u g firms w e r e 32.3 p e r cent o f t h e w h o l e s a l e price a t
w h i c h t h e m a n u f a c t u r e r s sold their p r o d u c t . N o t o n e o f fifty c o m -
p a r i s o n c o m p a n i e s from o t h e r i n d u s t r i e s had p r o d u c t i o n costs l o w e r
t h a n the highest p r o d u c t i o n costs a m o n g the 15 drug companies.
A m o n g t h e n o n - d r u g f i r m s , C o c a - C o l a w a s the l o w e s t , with p r o d u c -
t i o n c o s t s b e i n g only 4 2 . 6 per cent o f e x - m a n u f a c t u r e r sales. T h e
d r u g i n d u s t r y c l a i m e d t h a t t h e r e a s o n for this w a s the a m o u n t s they
had to s p e n d on r e s e a r c h . In fact only 9 per cent of their sales d o l l a r s
a r e s p e n t o n r e s e a r c h , m o r e t h a n twice t h a t i s s p e n t o n a d v e r t i s i n g ,
a n d m o r e t h a n twice t h e r e s e a r c h e x p e n d i t u r e i s a c c o u n t e d for b y
p r e - t a x profits ( S i l v e r m a n and L e e , 1974: 2 8 - 3 0 ) . '

The Kefauver hearings revealed that in many situations

161
Antitrust

c o m p a n i e s c h a r g e a l m o s t w h a t e v e r t h e y c h o o s e for a p r o d u c t .
T h e r e a r e not t h e c o m p e t i t i v e forces t o m a k e price b e a r any relation
to c o s t s . R o u s s e l , a F r e n c h firm, sold a d r u g used for m e n o p a u s a l
d i s o r d e r s ( e s t r a d i o l p r o g y n o n ) to S c h e r i n g in bulk form. S c h e r i n g
did no r e s e a r c h on t h e d r u g . T h e y simply put t h e p r o d u c t into tablet
form in b o t t l e s of 60 u n d e r their o w n label. T h e b o t t l e s , which
c o n t a i n e d 11.7 c e n t s w o r t h o f t h e d r u g , w e r e sold for S 8 . 4 0 , a
m a r k - u p o f 7079 p e r cent ( M i n t z , 1967: 3 5 9 ) .
D e f e n d e r s o f t h e p h a r m a c e u t i c a l i n d u s t r y c o r r e c t l y point out that
t h e o v e r a l l s t r u c t u r e of the i n d u s t r y is not m o n o p o l i s t i c or o l i g o -
p o l i s t i c . In B r i t a i n , for e x a m p l e , t h e t o p five firms a c c o u n t e d for
o n l y 2 6 . 6 p e r c e n t of p h a r m a c e u t i c a l sales for 1973 ( S l a t t e r , 1977:
4 7 ) . A g a i n t h e p e o p l e w h o point to such statistics put up a mis-
l e a d i n g s m o k e s c r e e n . It is only meaningful to talk a b o u t d e g r e e of
c o n c e n t r a t i o n in a m a r k e t for p r o d u c t s which are s u b s t i t u t a b l e . F o r
e x a m p l e , it is m e a n i n g f u l to talk a b o u t c o n c e n t r a t i o n in t h e a u t o -
m o b i l e m a r k e t b y o b s e r v i n g w h a t p r o p o r t i o n o f t h e m a r k e t i s con-
t r o l l e d by t h e five l e a d i n g car m a n u f a c t u r e r s . T h i s is b e c a u s e F o r d s
o r C h r y s l e r s c a n b e s u b s t i t u t e d for G e n e r a l M o t o r s c a r s . H o w e v e r ,
t h e p r o d u c t s o f o n e drug m a n u f a c t u r e r which m a k e s a n t i b i o t i c s
c a n n o t b e s u b s t i t u t e d for t h o s e o f a n o t h e r which p r o d u c e s tran-
q u i l l i s e r s o r c o n t r a c e p t i v e s . W h e n o n e l o o k s a t the c o n c e n t r a t i o n
w i t h i n t h e r a p e u t i c c a t e g o r i e s , t h e p h a r m a c e u t i c a l industry e m e r g e s
as a highly o l i g o p o l i s t i c m a r k e t ( S l a t t e r , 1977: 4 8 - 9 ) .

S c h w a r t z m a n ' s ( 1 9 7 6 : T a b l e 6.14) d a t a e n a b l e u s t o e x a m i n e t h e
p e r c e n t a g e o f t h e US m a r k e t c o n t r o l l e d by t h e leading four firms for
n i n e m a j o r t h e r a p e u t i c c a t e g o r i e s i n 1973. B e g i n n i n g with the
l o w e s t four-firm c o n c e n t r a t i o n r a t i o , t h e results w e r e : s e d a t i v e s - 6 1
p e r c e n t , a n a l g e s i c s (ethical s y s t e m i c ) - 66 p e r c e n t ; a n t i b i o t i c s
( t o t a l ) - 69 p e r c e n t ; a n t i h i s t a m i n e s - 76 p e r c e n t ; oral d i u r e t i c s - 77
p e r c e n t ; p s y c h o s t i m u l a n t s - 83 per c e n t ; t r a n q u i l l i s e r s (oral
a t a r a c t i c s ) - 86 p e r c e n t ; a n t i a r t h r i t i c s - 96 per c e n t ; and anti-
d i a b e t i c s (oral h y p o g l y c e m i c s ) - 98 per c e n t . C o n c e n t r a t i o n is e v e n
m o r e p r o n o u n c e d at t h e level of bulk drug p r o d u c t i o n . For
e x a m p l e , a s c o r b i c acid ( V i t a m i n C) in d o s a g e forms is sold by m o r e
t h a n a h u n d r e d c o m p a n i e s . T h e e n t i r e o u t p u t o f t h e v i t a m i n itself,
h o w e v e r , i s p r o d u c e d b y M e r c k . Pfizer, and R o c h e ( U N C e n t r e o n
T r a n s n a t i o n a l C o r p o r a t i o n s , 1979: 3 8 ) . B y their selling policies
b u l k p r o d u c e r s are a b l e t o c o n t r o l t h e e x t e n t o f c o m p e t i t i o n . M a n y
b u l k p r o d u c e r s a r e m o n o p o l i s t s . N e a r l y 500 o f t h e 650 bulk
m e d i c i n a l c h e m i c a l s sold in the U n i t e d S t a t e s in 1975 w e r e a v a i l a b l e

162
Antitrust

from only a single d o m e s t i c s o u r c e . O n l y 4 of the 650 medicinal


c h e m i c a l s w e r e sold b y m o r e t h a n four m a n u f a c t u r e r s ( U S Inter-
n a t i o n a l T r a d e C o m m i s s i o n , 1977: 9 3 - 1 0 6 ) . H i g h profits i n t h e
p h a r m a c e u t i c a l i n d u s t r y are t h e r e f o r e t h e p r o d u c t o f m i n i m a l price
competition.

Legal monopolies
T h e f u n d a m e n t a l m e c h a n i s m which g u a r a n t e e s limited price c o m -
p e t i t i o n in t h e p h a r m a c e u t i c a l i n d u s t r y is t h e g r a n t i n g of p a t e n t s to
t h e d i s c o v e r e r s of n e w m e d i c i n e s for a p e r i o d of 16, 17 or 20 y e a r s ,
t h e p e r i o d d e p e n d i n g on the c o u n t r y . T h e h o l d e r of a p r o d u c t
p a t e n t has e x c l u s i v e r i g h t s o v e r t h e m a n u f a c t u r e and sale of the
p r o d u c t until t h e p a t e n t e x p i r e s . It is a legal m o n o p o l y . By defini-
t i o n , w h e n a d r u g is still u n d e r p a t e n t price c o m p e t i t i o n is
precluded.
A m o s t v o c i f e r o u s o p p o n e n t of legal m o n o p o l i e s on m e d i c i n e s
w a s S e n a t o r K e f a u v e r w h o a d v o c a t e d "the long-held m o r a l belief
t h a t no o n e s h o u l d h a v e the right to w i t h h o l d from t h e p u b l i c
p r o d u c t s w h i c h r e l i e v e suffering and may spell the difference
b e t w e e n life a n d d e a t h ' . N a t i o n s differ in the e x t e n t to w h i c h they
p e r m i t legal m o n o p o l i e s o v e r m e d i c i n e s . M a n y c o u n t r i e s will not
p a t e n t m e d i c i n a l p r o d u c t s , but grant t h e m u c h w e a k e r p r o t e c t i o n o f
p a t e n t s for a p a r t i c u l a r m e t h o d of p r o d u c i n g a d r u g (e.g. A r g e n t i n a ,
Austria. Cameroon. C e n t r a l African E m p i r e . Chad, Chile,
Colombia, C o n g o , D a h o m e y , Denmark. Egypt, Gabon, Ghana.
G r e e c e , I n d i a , Ivory Coast. M a d a g a s c a r , the N e t h e r l a n d s .
Pakistan, Senegal. Spain, Sweden, Switzerland, Upper Volta,
U r u g u a y , V e n e z u e l a , Yugoslavia). A dwindling number of coun-
tries grant neither product nor process patents (e.g. Brazil, Iran,
2
Italy, R e p u b l i c of K o r e a , T u r k e y ) . A n u m b e r of countries which
r e c o g n i s e b o t h p r o d u c t and p r o c e s s p a t e n t s have a d o p t e d p r o -
v i s i o n s for c o m p u l s o r y licensing of c o m p e t i n g firms to p r o d u c e t h e
p r o d u c t in the public interest (e.g. Australia, C a n a d a , Federal
R e p u b l i c o f G e r m a n y , G r e a t B r i t a i n ( r e p e a l e d i n 1977), I s r a e l ) .
S e n a t o r K e f a u v e r o n c e w e n t close i n t h e U n i t e d States t o w i n n i n g
s u p p o r t for a p r o p o s a l to r e d u c e t h e p e r i o d of p a t e n t p r o t e c t i o n for
d r u g s t o t h r e e y e a r s . A t t h e end o f t h a t p e r i o d t h e d i s c o v e r e r w o u l d
h a v e t o m a k e t h e p r o d u c t a v a i l a b l e u n d e r licence t o all c o m p e t i t o r s
for a r o y a l t y fee of up to 8 p e r cent.

Of c o u r s e the rationale for p a t e n t s is t h a t they provide an

163
Antitrust

i n c e n t i v e for i n n o v a t i o n . T h e q u e s t i o n that K e f a u v e r w a s a s k i n g ,
h o w e v e r , i s h o w m u c h i n c e n t i v e i s sufficient. I n a d d i t i o n t o u n d e r -
m i n i n g c o m p e t i t i o n t h e r e are o t h e r w a y s that t h e quest for p a t e n t s
can run c o u n t e r t o t h e p u b l i c i n t e r e s t . D u r i n g the S e c o n d W o r l d
W a r , D r V . B u s h , d i r e c t o r o f t h e U S Office o f Scientific R e s e a r c h ,
w a s r e s p o n s i b l e for g e t t i n g t h e d r u g c o m p a n i e s t o m a k e t h e new
w o n d e r d r u g , p e n i c i l l i n , a v a i l a b l e in q u a n t i t y for the war effort. In
A p r i l 1943 B u s h r e p o r t e d t h a t t h e c o m p a n i e s had c o - o p e r a t e d "after
a f a s h i o n ' . In a letter to an A r m y A i r C o r p s c o n s u l t a n t , Dr B u s h
c o m p l a i n e d : ' T h e y h a v e n o t m a d e their e x p e r i m e n t a l results and
their d e v e l o p m e n t of manufacturing processes generally available,
h o w e v e r . . . this is the p r o b l e m ' ( M i n t z , 1967: 366). T h e p r o b l e m
w a s t h a t ' t h e firms w e r e t o o busy trying t o c o r n e r p a t e n t s o n v a r i o u s
p r o c e s s e s in t h e p r o d u c t i o n of penicillin to p r o d u c e much of it'
( H a r r i s , 1964). T h e c o - o r d i n a t o r o f t h e W a r P r o d u c t i o n B o a r d ' s
special penicillin p r o g r a m m e , Albert L. Elder, wrote in a January
1944 m e m o r a n d u m :

T h e v a l u e of penicillin in saving t h e lives of w o u n d e d soldiers has


b e e n so t h o r o u g h l y d e m o n s t r a t e d t h a t I c a n n o t w i t h a c l e a r
c o n s c i e n c e a s s u m e t h e r e s p o n s i b i l i t y for c o o r d i n a t i n g this
p r o g r a m any l o n g e r w h i l e a t the s a m e t i m e b e i n g h a n d i c a p p e d b y
b e i n g u n a b l e t o m a k e a v a i l a b l e i n f o r m a t i o n w h i c h w o u l d result i n
t h e o u t p u t of m o r e penicillin and t h e r e b y save the lives of our
s o l d i e r s ( M i n t z , 1967: 3 6 6 ) .

A n o t h e r w a y t h a t t h e p a t e n t m e c h a n i s m r e b o u n d s against the
p u b l i c i n t e r e s t is t h r o u g h c r e a t i n g i n c e n t i v e s for r e s e a r c h effort to
be directed at ' m e - t o o ' drugs rather than therapeutic advances. In
C h a p t e r 3 we saw t h a t t h e g r e a t m a j o r i t y of n e w p r o d u c t s which
c o m e o n t h e m a r k e t are m o l e c u l a r m a n i p u l a t i o n s o f p r o d u c t s
a l r e a d y u n d e r p a t e n t . T h e y are a t t e m p t s t o get a r o u n d t h e legal
m o n o p o l y by p a t e n t i n g a m e - t o o p r o d u c t which is m o l e c u l a r l y
d i s t i n c t but t h e r a p e u t i c a l l y i d e n t i c a l . S c a r c e r e s e a r c h t a l e n t and
m o n e y are directed at me-too research precisely because of the
p a t e n t s y s t e m . M e - t o o r e s e a r c h has o c c a s i o n a l l y s t u m b l e d u p o n
significant t h e r a p e u t i c a d v a n c e s ( e . g . p r e d n i s o n e from c o r t i s o n e ;
T h o r a z i n e from t h e e a r l y a n t i h i s t a m i n e s ) . Y e t h o w m u c h m o r e o f
v a l u e m i g h t t h e s e scientists have d i s c o v e r e d i f their goal had b e e n
t h e m a x i m u m a d v a n c e m e n t of m e d i c i n e i n s t e a d of finding a l o o p -
hole a r o u n d a patent?

Former Squibb medical director, Dr Dale Console, testified


164
Antitrust

b e f o r e a S e n a t e s u b c o m m i t t e that d u r i n g his t e n u r e at S q u i b b
an e s t i m a t e d 25 per cent of r e s e a r c h funds w e r e d e v o t e d to ' w o r t h -
w h i l e ' p r o j e c t s , a n d 7 5 p e r c e n t t o the d e v e l o p m e n t o f m e - t o o d r u g s
a n d u n i m p o r t a n t c o m b i n a t i o n p r o d u c t s . C o n s o l e testified that 'with
m a n y of t h e s e p r o d u c t s , it is clear w h i l e t h e y are on t h e d r a w i n g
b o a r d t h a t t h e y p r o m i s e no utility. T h e y p r o m i s e s a l e s . It is not a
q u e s t i o n of p u r s u i n g t h e m b e c a u s e s o m e t h i n g may c o m e of it. . .it
is p u r s u e d s i m p l y b e c a u s e t h e r e is a profit in it' ( S i l v e r m a n and L e e ,
1974: 4 0 ) . P a t e n t laws also restrict the c a p a c i t y o f i n d u s t r y
r e s e a r c h e r s t o c o n s u l t w i t h o u t s i d e scientists o n t h e p r o g r e s s o f t h e i r
w o r k . T o d o s o m i g h t e n d a n g e r t h e secrecy o f a p a t e n t a b l e i n n o v a -
tion. O n e of A m e r i c a ' s most eminent pharmacologists. Professor
K e n n e t h L. M e l m o n , testified before t h e S e n a t e : i k n o w for a fact
t h a t t h e p r e s e n t p a t e n t laws have p r e v e n t e d m y scientific c o o p e r -
a t i o n w i t h i n d u s t r y ' ( S u b c o m m i t t e e o n H e a l t h , 1974, P a r t 2 : 6 8 5 ) .

T h e i m p o r t a n t fact a b o u t p a t e n t s i s t h a t t h e r e i s s t r o n g e v i d e n c e
t h a t t h e i r r e s t r i c t i v e effect on c o m p e t i t i o n c o n t i n u e s long after the
p a t e n t s c o n c e r n e d h a v e e x p i r e d ( S l a t t e r , 1977; 7 2 - 3 ) . A c o m p a n y
w h i c h h a s h a d e x c l u s i v e m a r k e t i n g o f a n e w p r o d u c t for a n u m b e r o f
y e a r s g e t s c o n s u m e r s ( d o c t o r s ) i n the habit o f using ( p r e s c r i b i n g )
t h a t p r o d u c t ( W h i t t e n , 1979). L a t e e n t r a n t s t o t h e m a r k e t after the
p a t e n t has e x p i r e d have to struggle a g a i n s t this a d v a n t a g e . A
F e d e r a l T r a d e C o m m i s s i o n study ( B o n d and L e a n , 1977) i n d i c a t e s
t h a t late e n t r a n t s g e n e r a l l y fail to do t h i s , at least in t h e oral
d i u r e t i c s and a n t i a n g i n a l m a r k e t s w h i c h w e r e t h e subject o f the
s t u d y . N e i t h e r h e a v y p r o m o t i o n n o r p r i c e c u t t i n g w a s successful i n
p e r s u a d i n g d o c t o r s t o select t h e s u b s t i t u t e b r a n d s o f t h e e n t r a n t s i n
g r e a t v o l u m e . O n e m u s t s y m p a t h i s e with t h e a p p a r e n t l y irrational
i n t r a n s i g e n c e o f t h e p r e s c r i b i n g p h y s i c i a n . T h e b e w i l d e r i n g array o f
b r a n d n a m e s w h i c h c o n f r o n t s t h e d o c t o r - 2 0 , 0 0 0 b r a n d n a m e s for
t h e 700 different d r u g s on t h e m a r k e t in t h e U n i t e d States - m e a n s
t h a t t h e d o c t o r is d o i n g well if s/he can r e m e m b e r the b r a n d n a m e of
3
t h e first v e r s i o n w h i c h a p p e a r s . T h e d o c t o r has e n o u g h t o learn
w i t h o u t b o t h e r i n g w i t h t h e b r a n d n a m e s o f late m a r k e t e n t r a n t s .
H e n c e t h e r a t i o n a l e for t h e policy a d v o c a t e d b y m a n y r e f o r m e r s o f
a b o l i s h i n g b r a n d n a m e s . E a c h p r o d u c t w o u l d h a v e a single g e n e r i c
n a m e , so that choices between c o m p e t i n g suppliers would be made
m o r e on t h e b a s i s of p r i c e and quality and less on t h e s t r e n g t h of
habits c o n d i t i o n e d by early entry.

T h e e x t e n t t o w h i c h t h e early m a r k e t e n t r a n t with a n e x p i r e d
p a t e n t can resist p r i c e r e d u c t i o n s w h i l e m a i n t a i n i n g m a r k e t

165
Antitrust

d o m i n a n c e c a n b e s t a g g e r i n g . T h e m o s t e x p e n s i v e p r o d u c t often
h a s t h e g r e a t e s t s h a r e o f t h e m a r k e t . F r e q u e n t l y the leading b r a n d
sells at five to ten t i m e s t h e price o f t h e c h e a p e s t s u p p l i e r s . In t h e
c a s e o f t h e r e s e r p i n e m a r k e t , the a v e r a g e price c h a r g e d i n t h e
U n i t e d S t a t e s by t h e four lowest cost s u p p l i e r s w a s S I . 1 7 (1,000 0.25
m g . t a b l e t s ) . T h e l e a d i n g b r a n d , C i b a - G e i g y ' s S e r p a s i l , sold for
S 3 8 . 7 1 , more than 30 times as much (UN Centre on Transnational
4
C o r p o r a t i o n s , 1979: 4 9 . 1 3 6 ) .
T h e fact t h a t p a t e n t s c r e a t e legal m o n o p o l i e s , and that they a l l o w
a r b i t r a r y p r i c e differentials t o c o n t i n u e e v e n after t h e y e x p i r e , has
i m p o r t a n t i m p l i c a t i o n s for c r i m e . I n t h e m i n d o f t h e p h a r m a c e u t i c a l
e x e c u t i v e , t h e r e is little m o r a l difference b e t w e e n legal and illegal
5
p r i c e fixing. T h e m o r a l a u t h o r i t y of a n t i t r u s t law rests in a s s u m p -
t i o n s a b o u t t h e v a l u e o f free c o m p e t i t i o n . P h a r m a c e u t i c a l execu-
t i v e s find difficulty in e s t a b l i s h i n g t h e r e l e v a n c e of this m o r a l
a u t h o r i t y t o t h e i r w o r k s i t u a t i o n i n which e s c h e w i n g price c o m -
p e t i t i o n is n o r m a l a n d legal. M o r e t h a n l e g a l , it is affirmatively
s a n c t i o n e d i n law t h r o u g h p a t e n t s .
T h e e x i s t e n c e of legal m o n o p o l y p o i n t s up t h e a m b i g u i t y felt by
t h e e x e c u t i v e a b o u t t h e i m p r o p r i e t y o f illegal m o n o p o l y . I n d e e d ,
p h a r m a c e u t i c a l e x e c u t i v e s a r e socialised t o p e r c e i v e moral virtue i n
a n t i c o m p e t i t i v e p r i c i n g p r a c t i c e s . R e p e a t e d l y m y i n f o r m a n t s would
a d m o n i s h t h a t such pricing p r a c t i c e s w e r e a way of e n s u r i n g that
p r o p e r r e w a r d s and incentives went to the innovators of health-
g i v i n g d r u g s . ' P r i c e fixing saves lives' is a c a r i c a t u r e of this p o s i t i o n ,
b u t t h e c a r i c a t u r e g r a s p s t h e e s s e n c e o f t h e stance w h i c h has real
m o r a l a u t h o r i t y t o p h a r m a c e u t i c a l e x e c u t i v e s . 'Price c o m p e t i t i o n i s
t h e s t r e n g t h o f t h e free e n t e r p r i s e s y s t e m ' has n o moral a u t h o r i t y
b e c a u s e it is r e c o g n i s e d for the h u m b u g it is with r e s p e c t to t h e i r
industry.

Advantages of oligopoly

E c o n o m i s t s s o m e t i m e s c a s t i g a t e l a w y e r s w h o wish t o litigate anti-


t r u s t m a t t e r s e v e n w h e n t h e illegal c o n d u c t c o n c e r n e d i s i n the
n a t i o n a l e c o n o m i c i n t e r e s t ( e . g . P o s n e r , 1976). T h e y claim that
c o u r t s t o o often lose sight of the o r i g i n a l p u r p o s e of legislation. In
t h e c a s e o f a n t i t r u s t laws t h e p u r p o s e i s t o i n c r e a s e e c o n o m i c
efficiency t h r o u g h e n s u r i n g u n f e t t e r e d c o m p e t i t i o n . B u t i f t h e goal
i s g r e a t e r efficiency, w h y d e t e r m o n o p o l i s t i c p r a c t i c e s i n c i r c u m -
s t a n c e s w h e r e m o n o p o l y i s efficient? S o m e t i m e s l a w y e r s d o t a k e t h e

166
Antitrust

v i e w t h a t m o n o p o l y isperse evil and e x h i b i t an i n c l i n a t i o n to apply


a n t i t r u s t law t o a r e a s w h e r e t h e costs o f m o n o p o l y pricing are
o u t w e i g h e d by t h e e c o n o m i e s of c e n t r a l i s i n g p r o d u c t i o n in o n e or a
very few firms." L e g a l i s m t e n d s to focus a t t e n t i o n on t h o s e t y p e s of
a n t i t r u s t offences w h i c h are m o s t c o n s p i r a t o r i a l , m o s t p r e d a t o r y i n
t h e i r i n t e n t ; e c o n o m i s m a d v o c a t e s t h e d i r e c t i o n o f scarce en-
f o r c e m e n t resources to m o n o p o l i e s which have the most adverse
structural implications.
T h e r e have been a r g u m e n t s that oligopoly in the pharmaceutical
i n d u s t r y p r o d u c e s socially beneficial e c o n o m i e s of scale in (a)
q u a l i t y c o n t r o l ; (b) p r o d u c t i o n ; (c) p r o m o t i o n ; and (d) r e s e a r c h and
d e v e l o p m e n t ( G e r e f f i , 1979). In t h e last c h a p t e r it w a s a r g u e d t h a t
the large t r a n s n a t i o n a l do have superior performance in ensuring
drug quality. The UN C e n t r e on Transnational C o r p o r a t i o n s (1979:
3 5 ) a r g u e t h a t t h e r e are e x p l a n a t i o n s for this i n t e r m s o f e c o n o m i e s
of s c a l e :

T h e r e are two major sources of scale-economies in controlling


d r u g q u a l i t y : l a r g e o v e r h e a d costs w h i c h d o not vary w i t h o u t p u t
a n d t h e n e e d t o e m p l o y p e r s o n s with highly specialized skills
w h i c h w o u l d be i n c o m p l e t e l y utilized by firms t h a t p r o d u c e d a
small q u a n t i t y o r r a n g e o f d r u g s . T h e latter i n c l u d e c o n t r o l
s y s t e m s w h i c h utilize c o m p u t e r s for t h e entry of test results and
t h e m a i n t e n a n c e o f b a t c h r e c o r d s ; t h e staffing and o p e r a t i n g costs
o f t h e q u a l i t y c o n t r o l l a b o r a t o r y ; t h e d e c l i n i n g cost o f s a m p l i n g
a n d t e s t i n g p e r unit o f o u t p u t w i t h i n c r e a s e s i n b a t c h size; and the
c o s t s o f t h e c u s t o m e r c o m p l a i n t d e p a r t m e n t r e s p o n s i b l e for
l o c a t i n g and r e c a l l i n g defective p r o d u c t s , c o s t s t h a t i n c r e a s e less
t h a n p r o p o r t i o n a l l y w i t h sales.

O f c o u r s e t h e a b o v e a r g u m e n t s and t h e d a t a o f t h e last c h a p t e r
s u g g e s t i n g t h e s u p e r i o r q u a l i t y p e r f o r m a n c e o f the t r a n s n a t i o n a l s
do n o t imply t h a t by b e c o m i n g e v e n larger, t r a n s n a t i o n a l s will
f u r t h e r i m p r o v e t h e i r quality p e r f o r m a n c e .
E c o n o m i e s of scale in p r o d u c t i o n are of limited r e l e v a n c e to
pharmaceuticals.

T h e r e a r e t w o s t a g e s i n drug m a n u f a c t u r e : raw m a t e r i a l o r active


i n g r e d i e n t p r o d u c t i o n , and dosage-form fabrication. The
e c o n o m i e s of scale in d o s a g e - f o r m f a b r i c a t i o n are small and
t h e r e f o r e do n o t b a r e n t r y . T h e t e c h n o l o g y calls for relatively
s i m p l e e q u i p m e n t a n d t h e following o f well s p e l l e d - o u t

167
Antitrust

d i r e c t i o n s . T h o s e significant scale e c o n o m i e s t h a t d o exist are


p r e s e n t only in the manufacture of active ingredients. O n e
e x a m p l e d e a l s with t h e b a t c h f e r m e n t a t i o n p r o c e s s e s that
c h a r a c t e r i z e t h e p r o d u c t i o n o f a n t i b i o t i c s and s y n t h e t i c
c o r t i c o s t e r o i d s . T h e t e c h n o l o g y in this case is s o p h i s t i c a t e d and
c a p i t a l - i n t e n s i v e , and only large m a n u f a c t u r e r s can use it
efficiently. T h e r e is a t h r e s h o l d to o u t p u t v o l u m e , h o w e v e r ,
b e y o n d w h i c h t h e r e are n o further gains i n p r o d u c t i o n e c o n o m i e s
from size. E a c h o f t h e large a n t i b i o t i c s m a n u f a c t u r e r s , for
i n s t a n c e , uses from ten to fifty f e r m e n t a t i o n v e s s e l s ; w h e n they
w a n t t o i n c r e a s e t h e i r o u t p u t , they i n c r e a s e t h e n u m b e r r a t h e r
t h a n t h e c a p a c i t y of i n d i v i d u a l vats - a c i r c u m s t a n c e c o n d u c i v e to
c o n s t a n t r e t u r n s t o scale (Gereffi, 1979: 4 0 - 1 ) .

T h e r e a r e c e r t a i n l y e c o n o m i e s o f scale i n p r o m o t i o n . L a r g e firms
spend almost as much on p r o m o t i o n as they do on production.
S m a l l firms find it i m p o s s i b l e to r e t a i n a large t e a m of d e t a i l e r s for
d o c t o r v i s i t s , t o t a k e o u t full-page a d v e r t i s e m e n t s i n leading
m e d i c a l j o u r n a l s , s p o n s o r c o n f e r e n c e s i n A c a p u l c o , and d o all the
o t h e r t h i n g s n e c e s s a r y for e n t r y t o t h e b r a n d - n a m e m a r k e t . T h e s e
s c a l e - e c o n o m i e s in p r o m o t i o n are not a justification for o l i g o p o l y ,
b u t o n e o f t h e c a u s e s of it. T h e y c o n s t i t u t e a m a j o r b a r r i e r for e n t r y
of n e w c o m p e t i t o r s . M o r e o v e r , the question of w h e t h e r p r o m o t i o n
is on b a l a n c e a social benefit will be c o n s i d e r e d critically in t h e next
chapter.

T h e s t r o n g e s t i n d u s t r y justification for o l i g o p o l y c o n c e r n s
e c o n o m i e s o f scale i n r e s e a r c h and d e v e l o p m e n t . H a n s e n (1979)
f o u n d t h e a v e r a g e c u r r e n t cost of d e v e l o p i n g a new c h e m i c a l entity
to t h e s t a n d a r d s r e q u i r e d for m a r k e t i n g as a drug in t h e U n i t e d
S t a t e s to be $54 m i l l i o n . C l e a r l y , this is b e y o n d the r e s o u r c e s of
s m a l l c o m p a n i e s . T h e O E C D c o n s i d e r e d t h a t 'for a r e s e a r c h - b a s e d
p h a r m a c e u t i c a l c o m p a n y t o have r e a s o n a b l e p r o s p e c t s o f g r o w t h , i t
is u s u a l l y c o n s i d e r e d t h a t at least 300 r e s e a r c h w o r k e r s should be
e m p l o y e d ' ( O E C D , 1969). I n c r e a s i n g l y , p r o d u c t i n n o v a t i o n s are
c o n c e n t r a t e d i n t h e r e s e a r c h d i v i s i o n s o f t h e largest c o m p a n i e s
b e c a u s e o f e s c a l a t i n g r e g u l a t o r y r e q u i r e m e n t s and t e c h n i c a l
d e m a n d s for n e w b r e a k t h r o u g h s . G r a b o w s k i and V e r n o n ( 1 9 7 9 : 4 7 )
s h o w t h a t w h i l e t h e s h a r e of d r u g sales of the largest four firms
r e m a i n e d fairly c o n s t a n t b e t w e e n 1957 and 1 9 7 1 , t h e p r o p o r t i o n o f
i n n o v a t i o n a l o u t p u t ( n e w c h e m i c a l e n t i t i e s ) a c c o u n t e d for b y t h e
four l a r g e s t firms i n c r e a s e d from 24 p e r cent to 49 p e r c e n t . B e t w e e n

168
Antitrust

1957 a n d 1961 t h e r e w e r e 51 firms w h o d e v e l o p e d a n e w c h e m i c a l


e n t i t y ; b e t w e e n 1967 a n d 1971 t h e r e w e r e only 2 3 .
P r i o r to t h e m i d - 1 9 6 0 s it w a s t h e case t h a t t h e very largest firms
w e r e n o t t h e m o s t i n n o v a t i v e , s o t h a t t h e r e w e r e c e r t a i n dis-
e c o n o m i e s o f scale ( C o m a n o r , 1965; G r a b o w s k i , 1968; R e e k i e ,
1 9 6 9 ; M a n s f i e l d e t a l . , 1 9 7 1 ; M o n o p o l i e s C o m m i s s i o n , 1972).
H o w e v e r , R e e k i e and W e b e r ( 1 9 7 9 : 146-51) have r e v i e w e d the
c o n s i d e r a b l e e v i d e n c e w h i c h p o i n t s t o t h e c o n c l u s i o n t h a t since t h e
m i d - 1 9 6 0 s r e s e a r c h and d e v e l o p m e n t effort and o u t p u t n o w
i n c r e a s e p r o p o r t i o n a t e l y w i t h firm size.
A f r e q u e n t l y o v e r s t a t e d , b u t n e v e r t h e l e s s r e a l , social benefit of
t h e o l i g o p o l i s t i c s h e l t e r i n g of t h e r e s e a r c h - i n t e n s i v e firms is t h e
p r o d u c t i o n o f ' s e r v i c e drugs'. These are products of great medical
v a l u e , but for w h i c h t h e r e is such a small m a r k e t t h a t t h e costs of
p r o d u c t i o n , safety t e s t i n g , and d o c u m e n t a t i o n for g o v e r n m e n t
r e g i s t r a t i o n e x c e e d r e t u r n s from sales. F o r e x a m p l e , t h e r e i s t h e
story o f C u p r i m i n e ( p e n i c i l l a m i n e ) , w h i c h M e r c k i n t r o d u c e d i n
1963 to r e m o v e c o p p e r in t r e a t i n g W i l s o n ' s d i s e a s e , an often fatal
c o m p l a i n t w h i c h afflicts only 1,000 p e r s o n s in t h e US ( M i n t z , 1967:
3 4 7 - 8 ) . R o s e n t h a l (1960) points out that

it would b e c y n i c a l . . . to dismiss as mere public relations Mead


J o h n s o n ' s drug which cures a rare mental disorder occurring in
p e r h a p s four h u n d r e d infants i n this c o u n t r y ; W y e t h ' s A n t i v e n i n
a g a i n s t s n a k e b i t e ; L i l l y ' s m u s t a r d gas kit; o r A b b o t t ' s r a d i o a c t i v e
i s o t o p e s . T h e s e a r e c e r t a i n l y not p r o f i t a b l e .

O n e s u s p e c t s t h a t p h a r m a c e u t i c a l c o m p a n i e s m o r e often t h a n not
d e c i d e a g a i n s t m a r k e t i n g a beneficial yet u n p r o f i t a b l e p r o d u c t .
N e v e r t h e l e s s , in a perfectly c o m p e t i t i v e m a r k e t , c o m p a n i e s could
n o t afford t h e l u x u r y o f a n y lines w h i c h c a u s e losses. T o t h e e x t e n t
t h a t s e r v i c e d r u g s d o e x i s t , t h e y are m a d e p o s s i b l e b y t h e oligo-
p o l i s t i c s t r u c t u r e o f t h e m a r k e t . I n c o n c l u s i o n , t h e n , t h e r e are
c e r t a i n i m p o r t a n t p u b l i c benefits from o l i g o p o l y i n t h e p h a r m a -
c e u t i c a l i n d u s t r y . T h e q u e s t i o n is, h o w e v e r , w h e t h e r t h e public
w o u l d be b e t t e r s e r v e d by direct p u b l i c funding for t h e s e benefits
(for e x a m p l e , g o v e r n m e n t p r o d u c t i o n o f service d r u g s ) , while sub-
s i d i s i n g such f u n d i n g from t h e savings which w o u l d follow from
breaking oligopolistic power.

169
Antitrust

Government price controls

M o s t g o v e r n m e n t s , realising that t h e p r i c e s t h e i r p e o p l e are asked


t o pay t r a n s n a t i o n a l d r u g c o m p a n i e s b e a r little r e l a t i o n t o m a r k e t
f o r c e s , h a v e i n t r o d u c e d m o r e or less effective g o v e r n m e n t control
o f p h a r m a c e u t i c a l p r i c e s . F o r a l m o s t e v e r y p r e s c r i p t i o n d r u g , one
c a n o b s e r v e t h e identical p r o d u c t p r o d u c e d b y t h e same c o m p a n y
selling at grossly d i s p a r a t e p r i c e s in different p a r t s o f t h e world -
Lilly's D a r v o n , for e x a m p l e , sold for S7.02 per h u n d r e d c a p s u l e s in
t h e U n i t e d S t a t e s a n d S I . 6 6 i n I r e l a n d . W i d e s p r e a d price controls
on d r u g s h a v e b e e n a r e s p o n s e to t h e reality that prices b e a r m o r e
r e l a t i o n to w h a t p u b l i c o p i n i o n will b e a r t h a n to what the m a r k e t
will b e a r . T h e y a r e a reflection of political choices r a t h e r than
purchasing choices.
In m o s t c o u n t r i e s the price at w h i c h a d r u g is to be sold is
n e g o t i a t e d w i t h t h e g o v e r n m e n t at t h e t i m e it is first allowed on the
m a r k e t and may not b e c h a n g e d w i t h o u t g o v e r n m e n t a p p r o v a l . I n
m a n y c a s e s t h e n e g o t i a t e d prices are b a s e d on a formula which
i n c o r p o r a t e s costs of raw materials, production, distribution,
r e s e a r c h , a n d a profit m a r g i n . S o m e c o u n t r i e s such as A u s t r a l i a do
q u i t e d e t a i l e d a n a l y s i s o f v a r i o u s c o s t s o f m a r k e t i n g the p r o d u c t .
I t a l y , in c o n t r a s t , simply a w a r d s a price w h i c h is a multiple o f t h e
r a w m a t e r i a l s and p r o d u c t i o n c o s t s . B r i t a i n d e t e r m i n e s price
i n c r e a s e s or d e c r e a s e s on t h e basis of w h a t a m o u n t of i n c o m e will
a l l o w t h e c o m p a n y a p r e d e t e r m i n e d level of profit. T h e r e is no
a n a l y s i s o f c o m p o n e n t c o s t s . M a n y T h i r d - W o r l d c o u n t r i e s which
c a n n o t afford m o r e d e t a i l e d i n v e s t i g a t i o n base their decisions o n
the prices prevailing in the country of origin.
In s o m e c o u n t r i e s a 'free m a r k e t ' o p e r a t e s alongside a price-
c o n t r o l l e d m a r k e t . T h e g o v e r n m e n t might not allow a p r o d u c t into
its s u b s i d i s e d p h a r m a c e u t i c a l benefits s c h e m e unless the c o m p a n y is
w i l l i n g to a g r e e to t h e g o v e r n m e n t ' s d e c i s i o n on the price at which
t h e p r o d u c t will be sold within t h e c o u n t r y . But the c o m p a n y can
d e c i d e not to h a v e its p r o d u c t on the p h a r m a c e u t i c a l benefits
s c h e m e a n d sell it on t h e o p e n m a r k e t at w h a t e v e r price it c h o o s e s .
T h e l a t t e r is g e n e r a l l y not an a t t r a c t i v e p r o p o s i t i o n to c o m p a n i e s
b e c a u s e d r u g s u n a p p r o v e d b y g o v e r n m e n t subsidy s c h e m e s are less
likely to be p r e s c r i b e d by d o c t o r s . H e n c e , e v e n w h e r e t h e free
m a r k e t o p t i o n is o p e n , effective p r i c e c o n t r o l is generally possible.
T h e U n i t e d S t a t e s is t h e only large p h a r m a c e u t i c a l m a r k e t in the
w o r l d w h e r e p r i c e s a r e not p r i m a r i l y c o n t r o l l e d b y g o v e r n m e n t .

170
Antitrust

A f u n d a m e n t a l reality of any e c o n o m i c i n s t i t u t i o n is t h a t it
c r e a t e s n e w t e m p t a t i o n s , p r e s s u r e s and o p p o r t u n i t i e s for c r i m e
w h i c h a r e u n i q u e t o it. P a t e n t s c r e a t e p a t e n t p i r a t e s , a n d . a s w e saw
i n C h a p t e r 2 , b r i b e s for e m p l o y e e s t o disclose c o m m e r c i a l s e c r e t s .
P r i c e c o n t r o l s c r e a t e illegal price i n c r e a s e s . In 1977 the M e x i c a n
g o v e r n m e n t i m p o s e d fines of up to 5().(XX) p e s o s ( S U S 2 , 7 1 5 ) on
forty companies for increasing prices without government
a p p r o v a l . M o r e t y p i c a l l y , f i n d i n g l o o p h o l e s t o get a r o u n d price
c o n t r o l laws i s t h e p r e f e r r e d s t r a t e g y . I n M e x i c o , c o m p a n i e s w h o
h a v e had a price of say 100 p e s o s a p p r o v e d for a b o t t l e o f 2 0 t a b l e t s
m a n o e u v r e a r o u n d t h e law by m a r k e t i n g a n e w pack of 24 t a b l e t s for
150 p e s o s . A m o r e w i d e l y used s t r a t e g y is t h e ' r e g i s t r a t i o n l o o p -
h o l e ' . W h e n t h e price of o n e of its d r u g s is fixed at an unsatisfac-
torily low l e v e l , t h e c o m p a n y s u b m i t s a n e w r e g i s t r a t i o n a p p l i c a t i o n
for t h e s a m e d r u g u n d e r a n e w n a m e ; or, if it has o n e . a m e - t o o
version o f t h e original.

S o m e o f t h e g o v e r n m e n t price r e g u l a t o r s t o w h o m I s p o k e had
little d o u b t that c o m p a n i e s often p r o v i d e d t h e m with false and
m i s l e a d i n g i n f o r m a t i o n on costs in o r d e r to get a price i n c r e a s e . O n e
c o m p a n y i n f o r m a n t told m e t h a t t h e m a n a g i n g - d i r e c t o r o f his t r a n s -
n a t i o n a l had a s c h e m e for s h o w i n g the A u s t r a l i a n H e a l t h D e p a r t -
m e n t t h a t its t r a n s f e r prices for r a w m a t e r i a l s i m p o r t e d from
c o r p o r a t e h e a d q u a r t e r s w e r e twice w h a t they i n fact w e r e . H a l f the
r a w m a t e r i a l s w e r e i m p o r t e d from h e a d q u a r t e r s at. say. S10 a g r a m
a n d half sent free of c h a r g e 'for use in c o n d u c t i n g trials'. W h i l e the
real cost of t h e s h i p m e n t w a s $5 a g r a m , t h e H e a l t h D e p a r t m e n t
c o u l d be s h o w n an i n v o i c e to i n d i c a t e t h a t t h e transfer price w a s
S10.

W h i l e t h e g o v e r n m e n t price c o n t r o l s b r i n g into play n e w forms o f


c r i m i n a l i t y , o n e w o u l d e x p e c t t h e m to e l i m i n a t e o t h e r s - for
e x a m p l e , price-fixing c o n s p i r a c i e s . T h e following r e v e l a t i o n from
o n e o f t h e most indiscreet o f t h e executives I interviewed brought
h o m e t h e fact t h a t g o v e r n m e n t c o n t r o l o v e r p r i c e s d o e s not elimin-
ate price-fixing c o n s p i r a c i e s ; it m e r e l y c h a n g e s their form.
I had had an a b s o l u t e l y fruitless discussion with four A u s t r a l i a n
e x e c u t i v e s of an A m e r i c a n c o m p a n y . G e n e r a l l y , I found t h a t in
c o l l e c t i v e i n t e r v i e w s , e x e c u t i v e s w h o w e r e frank i n private j o i n e d
t h e o t h e r s i n a t t e m p t s t o o u t d o each o t h e r with displays o f c o m p a n y
l o y a l t y a n d o r a t i o n s a b o u t t h e evils of r e g u l a t i o n . As I w a i t e d
d e j e c t e d l y in t h e foyer for a taxi to t a k e me to my h o t e l , one o f t h e
four e x e c u t i v e s , a t e n n i s r a c q u e t u n d e r his a r m , c a m e o v e r and

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Antitrust

b e g a n to c h a t . In t h e c o u r s e of an a m i a b l e c o n v e r s a t i o n he m e n -
t i o n e d t h a t he w a s off to play t e n n i s on the c o u r t s of a n o t h e r
p h a r m a c e u t i c a l c o m p a n y l o c a t e d n e a r b y . W i t h c a l c u l a t e d naivety I
said: ' O h a r e n ' t you c u t - t h r o a t c o m p e t i t o r s w h o are a l w a y s a t e a c h
o t h e r ' s t h r o a t s ? ' - a t a u t o l o g o u s q u e s t i o n t h a t still rings in my e a r s .
N o , h e s a i d , t h e y got o n well t o g e t h e r . W h y , h e c o n t i n u e d ,

j u s t r e c e n t l y w e got t o g e t h e r a b o u t 3 0 o f u s , all o f t h e a c c o u n t a n t s
a n d f i n a n c e d i r e c t o r s . . . t o sit a r o u n d t h e table t o g e t h e r and
w o r k o u t p r i c e s t h a t we could all a g r e e on in t h e s u b m i s s i o n s that
w e m a k e t o t h e H e a l t h D e p a r t m e n t . . . . S o t h a t , for e x a m p l e ,
we w o u l d all p u t d o w n r o u g h l y the s a m e price for the costs of
d i s t r i b u t i n g a d r u g s o t h a t the H e a l t h D e p a r t m e n t c o u l d n ' t c o m e
to o n e of us and say: ' L o o k , o t h e r c o m p a n i e s are c o s t i n g this at a
lot less t h a n y o u a r e . '

I furtively b l u r t e d this into my t a p e r e c o r d e r in t h e b a c k o f t h e t a x i ,


d e s p i t e my e m b a r r a s s m e n t at the driver's presence.

T h e H o f f m a n - L a R o c h e case s t u d y

D r . R i c h a r d B u r a c k c o m p a r e s t h e cost o f V a l i u m t o the price o f


g o l d . He d i s c o v e r e d t h a t t h e w h o l e s a l e price of V a l i u m is
t w e n t y - f i v e t i m e s t h e price o f g o l d . B u t t h a t said n o t h i n g a b o u t
t h e profit to R o c h e . T h i s w a s r e v e a l e d in a p a t e n t h e a r i n g in
C a n a d a , initiated by the attorney general of that country. H e r e ' s
w h a t w a s f o u n d . It costs $87 per kilo (2.2 p o u n d s ) for the raw
m a t e r i a l for V a l i u m , k n o w n by its g e n e r i c c h e m i c a l n a m e as
d i a z e p a m . To put t h e r a w m a t e r i a l into final d o s a g e form and to
label a n d p a c k a g e t h e t a b l e t s b r i n g s t h e cost up to $487. T h i s is a
g e n e r o u s e s t i m a t e o f p r o d u c t i o n c o s t s ; t h e y are p r o b a b l y less.
T h e final retail p r i c e is $11,000 for t h a t s a m e original kilo w h i c h
h a s n o w p r o d u c e d 100,000 t e n - m i l l i g r a m t a b l e t s . T h e selling
p r i c e is 140 t i m e s t h e original cost of m a t e r i a l s and t w e n t y t i m e s
t h e t o t a l p r o d u c t i o n cost ( P e k k a n e n , 1973: 8 1 ) .

V a l i u m a n d L i b r i u m h a v e b e e n b e t t e r t h a n gold for H o f f m a n - L a
R o c h e , t h e Swiss p a t e n t - h o l d e r s o f t h e t r a n q u i l l i s e r s . R o c h e sales o f
V a l i u m in t h e U n i t e d S t a t e s a l o n e a p p r o a c h e d $200 million for 1972
m a k i n g i t t h e t o p - s e l l i n g p r e s c r i p t i o n d r u g ( N a d e r , 1973). Inter-
n a t i o n a l p r i c e v a r i a t i o n s for V a l i u m reflect t h e c a p a c i t y of the
t r a n s n a t i o n a l w i t h a legal m o n o p o l y to c h a r g e w h a t e v e r t h e traffic

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Antitrust

will b e a r . E v e n w i t h i n t h e E E C , i n G e r m a n y R o c h e sells V a l i u m a t
a l m o s t four t i m e s t h e p r i c e i t c h a r g e s i n B r i t a i n (1976 p r i c e s ) . R o c h e
h a s q u o t e d t h e Sri L a n k a n g o v e r n m e n t a price for V a l i u m 70 t i m e s
higher than the price charged by an Indian company ( A g a r w a l ,
1 9 7 8 b ) . T h e P a p u a N e w G u i n e a g o v e r n m e n t has b e e n offered
V a l i u m a t o n e t e n t h t h e price c h a r g e d t o the n e i g h b o u r i n g
A u s t r a l i a n g o v e r n m e n t ( G o r r i n g , 1978: 9 3 ) .
I n t h e late 1960s t h e B r i t i s h g o v e r n m e n t d e c i d e d t h a t H o f f m a n -
L a R o c h e w a s a b u s i n g m o n o p o l y p o w e r b y its pricing o f V a l i u m a n d
L i b r i u m . N e g o t i a t i o n s with t h e c o m p a n y led t o p a y m e n t s o f S I . 6
m i l l i o n to t h e g o v e r n m e n t for excess profits b e t w e e n 1967 and 1969.
R o c h e r e g a r d e d p a y i n g s o m e o f their profits t o t h e g o v e r n m e n t a s
p r e f e r a b l e to c u t t i n g t h e i r p r i c e s for fear t h a t t h e l a t t e r w o u l d lead
t o d e m a n d s from o t h e r c o u n t r i e s for e q u i v a l e n t price r e d u c t i o n s .
V a l i u m w a s also g i v e n free of c h a r g e to h o s p i t a l s in the N a t i o n a l
H e a l t h S e r v i c e . T h e r e w e r e c o m p e n s a t i n g benefits from this
e x p e n s e . P a t i e n t s started on Valium in hospital would continue on it
w h e n d i s c h a r g e d , and young doctors would acquire the habit of
p r e s c r i b i n g t h e d r u g d u r i n g their h o s p i t a l t r a i n i n g .

N e v e r t h e l e s s , in 1971 R o c h e refused to m a k e any r e p a y m e n t s for


e x c e s s i v e profits for t h e y e a r 1970. T h e D e p a r t m e n t o f H e a l t h and
S o c i a l S e c u r i t y d e c i d e d t o p r o c e e d a g a i n s t t h e c o m p a n y b y referring
t h e m a t t e r o f t h e s u p p l y o f L i b r i u m and V a l i u m t o the M o n o p o l i e s
C o m m i s s i o n . H a v i n g carefully i n v e s t i g a t e d R o c h e ' s c o s t s , t h e
M o n o p o l i e s C o m m i s s i o n r e c o m m e n d e d that t h e price o f L i b r i u m
be r e d u c e d to 40 p e r c e n t o f t h e 1970 price and V a l i u m to 25 per c e n t
o f t h e 1970 f i g u r e . ' A n o r d e r u n d e r t h e m o n o p o l i e s legislation fixing
these prices was m a d e on 12 April 1973." R o c h e petitioned the
H o u s e o f L o r d s Special O r d e r s C o m m i t t e e against t h e o r d e r
w i t h o u t s u c c e s s . ' Then the c o m p a n y c o m m e n c e d High Court pro-
c e e d i n g s c h a l l e n g i n g t h e validity o f b o t h t h e M o n o p o l i e s C o m m i s -
sion r e p o r t and t h e price-fixing o r d e r . O u t - o f - c o u r t n e g o t i a t i o n s
s e t t l e d t h e m a t t e r i n N o v e m b e r 1975 w h e n R o c h e a g r e e d t o pay the
g o v e r n m e n t S3.75 million in e x c e s s profits. It w a s also a g r e e d t h a t
p r i c e s for L i b r i u m a n d V a l i u m be r o u g h l y half the 1970 levels.

T h e B r i t i s h M o n o p o l i e s C o m m i s s i o n r e p o r t o n L i b r i u m and
V a l i u m focused i n t e r n a t i o n a l a t t e n t i o n o n m o n o p o l i s t i c d r u g
p r i c i n g . A n t i - c a r t e l c o u r t a c t i o n s followed i n W e s t G e r m a n y and
t h e N e t h e r l a n d s t o r e d u c e t h e p r i c e s o f L i b r i u m and V a l i u m . F o r
H o f f m a n - L a R o c h e , and for t h e p h a r m a c e u t i c a l i n d u s t r y g e n e r a l l y ,
the a d v e r s e publicity o f t h e British report o p e n e d the floodgates of

173
Antitrust

t o u g h e r g o v e r n m e n t a l price c o n t r o l s a l m o s t e v e r y w h e r e except t h e
U n i t e d S t a t e s , w h e r e t h e P M A lobby p r o v e d a s s t r o n g a s ever.
H o f f m a n - L a R o c h e had d o n e a disservice to the industry by p u s h i n g
t o o h a r d , by failing to realise that w h i l e t h e m a r k e t could i m p o s e no
u p p e r limit on its p r i c e s , p u b l i c o p i n i o n c o u l d . W h i l e it had violated
no a n t i t r u s t l a w s , it had b r e a c h e d t h e c o m m u n i t y ' s sense of fair
p l a y , a n d i n d o i n g s o d e m o n s t r a t e d t h e limited r e l e v a n c e o f anti-
t r u s t law t o t h e p r o t e c t i o n o f d r u g c o n s u m e r s .

The Centrafarm case study

T h e logical u p s h o t of a r b i t r a r y i n t e r n a t i o n a l price v a r i a t i o n in
p h a r m a c e u t i c a l s o c c u r r e d i n 1973. F o l l o w i n g the M o n o p o l i e s
C o m m i s s i o n r e p o r t B r i t a i n had c h e a p e r d r u g prices t h a n t h e rest o f
the E E C . An enterprising Dutch firm, Centrafarm, began buying
H o f f m a n - L a R o c h e L i b r i u m and V a l i u m from British w h o l e s a l e r s
and t h e n reselling the drugs in the N e t h e r l a n d s , undercutting Roche
p r i c e s on sales of its o w n p r o d u c t . C e n t r a f a r m e v e n b o u g h t a
p r o d u c t ( N e g r a m ) i n B r i t a i n w h i c h had b e e n m a n u f a c t u r e d i n
H o l l a n d . T h e y b r o u g h t i t back t o resell i n H o l l a n d , again u n d e r -
c u t t i n g p r i c e s o n t h e local m a r k e t . T h e n t w o D u t c h l i c e n c e - h o l d e r s
for N e g r a m , S t e r l i n g and W i n t h r o p , sued C e n t r a f a r m for b r e a c h o f
p a t e n t a n d t r a d e m a r k r i g h t s . W h i l e they w o n i n t w o D u t c h c o u r t s ,
t h e S u p r e m e C o u r t i n t h e H a g u e , for t h e first t i m e e v e r , w e n t t o t h e
E E C C o u r t for a r u l i n g .

The Court of Justice o f t h e E u r o p e a n Communities in Luxem-


b o u r g d e c i d e d in favour of C e n t r a f a r m on 31 O c t o b e r 1974, ruling
t h a t t h e E E C t r e a t y forbids firms from d o i n g a n y t h i n g that has t h e
effect o f r e s t r i c t i n g t r a d e w i t h i n t h e E E C . T h e C e n t r a f a r m victory
w a s s h o r t lived, b e c a u s e t h e D u t c h g o v e r n m e n t d e c i d e d t o back
R o c h e and t h e o t h e r t r a n s n a t i o n a l i n t h e i r a t t e m p t s t o s t o p
C e n t r a f a r m ' s price c u t t i n g . T h e D u t c h g o v e r n m e n t e n a c t e d a law
r e q u i r i n g i m p o r t e r s t o s u b m i t d o c u m e n t s from t h e m a n u f a c t u r e r
giving full d e t a i l s o f t h e d r u g s i m p o r t e d . O b v i o u s l y , R o c h e refused
t o issue such d o c u m e n t s t o C e n t r a f a r m . W h e n C e n t r a f a r m b r o k e
t h e n e w l a w , i t w a s p r o s e c u t e d . C e n t r a f a r m ' s d e f e n c e that t h e new
D u t c h law w a s i n conflict with the N e t h e r l a n d s ' E E C o b l i g a t i o n s
resulted in the m a t t e r being referred to the E E C Court again.

B e f o r e t h e L u x e m b o u r g C o u r t , t h e D u t c h g o v e r n m e n t b a s e d its
c a s e for d e m a n d i n g t h e d o c u m e n t s o n the p o t e n t i a l d a n g e r t o public
h e a l t h - t h e only g r o u n d s t h e R o m e t r e a t y allows for r e s t r i c t i n g

174
Antitrust

t r a d e . R o c h e w a s n o t k e e n for the D u t c h g o v e r n m e n t t o a r g u e that


t h e p r o d u c t s it sold in B r i t a i n w e r e inferior to t h o s e it sold in t h e
N e t h e r l a n d s . I n any c a s e , C e n t r a f a r m p o i n t e d out that the p r o d u c t s
it b o u g h t in B r i t a i n w e r e m a d e in t h e s a m e S w i s s - G e r m a n plant
from w h i c h R o c h e ' s D u t c h sales o r i g i n a t e d . T h e British and D a n i s h
g o v e r n m e n t s w e i g h e d i n o n t h e side o f t h e D u t c h a u t h o r i t i e s :

T h e w i d e l y a c c e p t e d m o t i v a t i o n for t h e U K p o s i t i o n w a s straight
s e l f - i n t e r e s t . If B r i t i s h c o m p a n i e s are forced to sell c h e a p e r
e l s e w h e r e in E u r o p e , t h e y will a r g u e t h a t they can no l o n g e r hold
to t h e low p r i c e s c h a r g e d in B r i t a i n and t h e cost to t h e N H S will
g o u p ( L a m b e r t , 1976).

B u t t h e tiny D u t c h i m p o r t e r w o n a g a i n s t t h e legal might o f t h e t h r e e


g o v e r n m e n t s and t h e i n t e r n a t i o n a l p h a r m a c e u t i c a l lobby. T h e
E u r o p e a n C o u r t r u l e d t h a t any a d m i n i s t r a t i v e r e q u i r e m e n t not
b a s e d strictly on c o n c e r n for p u b l i c h e a l t h w a s against the T r e a t y .
M o r e o v e r , t h e y h u m i l i a t e d t h e D u t c h g o v e r n m e n t with t h e further
r u l i n g t h a t t h e o n u s for s u p p l y i n g d o c u m e n t s r e l a t i n g to a p h a r m a -
c e u t i c a l p r e p a r a t i o n lies s q u a r e l y with t h e m a n u f a c t u r e r - and not
with the importer.

The tetracycline case study

The market for antibiotics

A n t i b i o t i c s a r e a m a j o r g r o u p of d r u g s w h i c h are effective against a


v a r i e t y of i n f e c t i o n s . P e n i c i l l i n w a s t h e first of the a n t i b i o t i c w o n d e r
d r u g s . T h e m a r k e t for this n a r r o w - s p e c t r u m a n t i b i o t i c has a l w a y s
b e e n c o m p e t i t i v e since n o c o m p a n y had a p a t e n t . F o r t u n e s w e r e not
m a d e o n p e n i c i l l i n . B u t t h e a d v a n c e s t o t h e b r o a d - s p e c t r u m anti-
b i o t i c s saw Pfizer a n d C y a n a m i d d o m i n a t e this m a r k e t with p a t e n t s
on chlortetracycline and oxytetracycline. This patent protection
e n a b l e d t h e m t o m a i n t a i n high p r i c e s and m a s s i v e profits. T h e s e
profits w e r e t h r o w n i n t o j e o p a r d y i n 1953 w h e n t h e t h e r a p e u t i c a l l y
s u p e r i o r t e t r a c y c l i n e c a m e o n t h e s c e n e . T h e r e w a s a real d a n g e r
t h a t t e t r a c y c l i n e w o u l d not b e r e g a r d e d a s p a t e n t a b l e b y e i t h e r
Pfizer or C y a n a m i d and t h a t t e t r a c y c l i n e w o u l d go the way of
p e n i c i l l i n . M o r e o v e r , low p r i c e s for t e t r a c y l i n e w o u l d force d o w n
t h e p r i c e s of c h l o r t e t r a c y c l i n e and o x y t e t r a c y c l i n e . Pfizer and
C y a n a m i d w i s h e d t o avoid this c o m p e t i t i v e m a r k e t s t r u c t u r e a t all
c o s t s , a n d t h r o u g h a series of d e a l s w h i c h will be discussed later.

175
Antitrust

m a n a g e d to r e s t r i c t t e t r a c y c l i n e sales to five c o m p a n i e s - Pfizer,


C y a n a m i d , B r i s t o l . S q u i b b and U p j o h n - all of w h o m r e c o g n i s e d
Pfizer as t h e p a t e n t - h o l d e r .
F r o m 1954 t h e five c o m p a n i e s m a n a g e d t o m a i n t a i n uniform and
high p r i c e s for t e t r a c y c l i n e . We shall see t h a t t h e uniformity w a s so
s t r i k i n g as to be e i t h e r t h e result of price fixing or c o i n c i d e n c e w h i c h
defies belief. W h a t e v e r the s o u r c e s , t h e high prices for t e t r a c y c l i n e
m a d e t h e s e c o m p a n i e s into t h e m a s s i v e t r a n s n a t i o n a l s they are
t o d a y . In 1957, t h e first year for which such figures are a v a i l a b l e ,
Pfizer L a b o r a t o r i e s r e p o r t e d an o p e r a t i n g profit of S23,886,(KK),
$ 2 0 , 0 0 0 , 0 0 0 of w h i c h w a s a c c o u n t e d for by profits from b r o a d -
s p e c t r u m a n t i b i o t i c s . F o r s o m e y e a r s in t h e early 1950s all of
C y a n a m i d ' s p h a r m a c e u t i c a l profits c a m e from b r o a d - s p e c t r u m
a n t i b i o t i c s , the r e m a i n d e r of the c o m p a n y ' s pharmaceutical
d i v i s i o n r u n n i n g at a loss. T h e i r sales of b r o a d - s p e c t r u m a n t i b i o t i c s
b e t w e e n 1954 a n d 1961 w e r e $ 3 2 6 , 0 0 0 , 0 0 0 .

The evidence for price fixing

T h e U S g o v e r n m e n t ' s p r i m a r y e v i d e n c e against the five c o m p a n i e s


w a s t h e e x t r a o r d i n a r y uniformity o f p r i c e s s u m m a r i s e d i n T a b l e 5 . 1 .
T h i s u n i f o r m i t y existed in spite o f t h e fact that t h e p r o d u c t i o n costs of
t h e five c o m p a n i e s w e r e widely d i s p a r a t e . T a b l e 5.2 indicates how
S q u i b b a n d U p j o h n p r o d u c t i o n costs w e r e a l w a y s a t least t h r e e times
a s high a s t h o s e o f t h e o t h e r c o m p a n i e s . T h i s w a s b e c a u s e S q u i b b
a n d U p j o h n did n o t m a n u f a c t u r e t h e r a w m a t e r i a l t h e m s e l v e s . T h e y
b o u g h t in b u l k from Bristol and did t h e i r o w n e n c a p s u l a t i o n .
It c a n be seen from T a b l e 5.1 t h a t t h e first n o t a b l e price cuts
o c c u r r e d in 1961 a n d 1962. T h e s e w e r e largely a p u b l i c - r e l a t i o n s
r e a c t i o n t o K e f a u v e r ' s S e n a t e i n v e s t i g a t i o n o f t h e a l l e g e d con-
s p i r a c y . B y 1964, h o w e v e r , t h e t h r e a t o f real c o m p e t i t i o n b e g a n t o
build u p , p r i m a r i l y from t e t r a c y c l i n e i m p o r t e d from I t a l y , a c o u n t r y
w h i c h did not r e c o g n i s e t h e p a t e n t . T h e s e i m p o r t e r s w e r e g e n e r a l l y
driven out o f t h e A m e r i c a n m a r k e t by patent infringement suits.'"
H o w e v e r , o n e n e w c o m p e t i t o r , M c K e s s o n and R o b b i n s , had the
r e s o u r c e s t o resist. T h e i n f r i n g e m e n t suit against M c K e s s o n and
R o b b i n s w a s settled in 1966 w h e n t h e c o m p a n y s h o w e d that it was
m o r e t h a n w i l l i n g to go t h r o u g h with a legal c h a l l e n g e to the shaky
Pfizer p a t e n t . M c K e s s o n w a s licensed by Pfizer and C y a n a m i d to
sell t h e i r o w n b r a n d o f t e t r a c y c l i n e , and pricing uniformity b e g a n t o
fall a p a r t .

176
Antitrust

T A B L E 5.1 W e i g h t e d a n n u a l a v e r a g e price t o r e t a i l e r s o f
t e t r a c y c l i n e , 2 5 0 m g , 100 c a p s u l e s '

Bristol Squibb
Pfizer Cyanamid (Polycycline (Steclin Upjohi
(Tetracyn) (Achromycin) & Brislacycline) & Tetracycline) (Panm

J $ S $ $
1955 30.60 30.60 30.60 30.60 30.60
1956 30.60 30.60 30.60 30.60 30.60
1957 30.60 30.60 30.60 30.60 30.60
1958 30.60 30.60 30.60 30.60 30.60
1959 30.60 30.60 30.60 30.60 30.60
1960 28.67 29.36 28.87 29.15 29.31
1961 26.01 25.88 25.88 26.00 25.95
1962 23.81 23.75 23.82 23.31 23.80
1963 22.00 22.00 22.00 22.00 22.00
1964 19.35 19.36 19.51 19.43 13.02
1965 17.60 17.60 17.74 17.60 8.41
1966 16.05 15.62 15.88 15.79 7.08
1967 11.75 11.37 14.95 8.41 6.57
1968 5.02 11.22 14.26 4.25 4.94
1969 4.25 11.22 6.00 4.25 4.95
1970 4.25 9.23 4.46 4.25 4.08
1971 4.25 4.50 4.17 4.25 3.86
1972 3.36 4.50 4.17 4.25 3.62
1973 3.25 4.50 3.25 4.25 2.52
1974 3.31 3.90 3.25 4.25 2.47

' E x t r a c t e d f r o m US v Pfizer et aL. 4 - 7 1 C i v . 4 3 5 . 4 - 7 1 C i v . 4 0 3 . US D i s t r i c t C o u r t . D i s t r i c t of


M i n n e s o t a . A m e n d m e n t a n d S u p p l e m e n t t o P r e t r i a l D a m a g e B r i e f for U S . 9 O c t o b e r . 1975.

T h e r e w a s o t h e r e v i d e n c e c o n s i s t e n t with a price-fixing con-


s p i r a c y . P r i o r t o t h e m a r k e t i n g o f t e t r a c y c l i n e , c o m p a n i e s like
C y a n a m i d , U p j o h n a n d S q u i b b had d i s s i m i l a r d i s c o u n t s c h e d u l e s t o
w h o l e s a l e r s and c u s t o m e r s b u y i n g u n d e r p u r c h a s i n g plans and
agency a g r e e m e n t s . Following the introduction of tetracycline,
h o w e v e r , t h e s e d i s p a r a t e s c h e d u l e s w e r e a l t e r e d t o bring all retail
p r i c e s exactly i n t o line. N e v e r t h e l e s s , t h e g o v e r n m e n t did not h a v e
d i r e c t e v i d e n c e of m e e t i n g s which t o o k place to illegally fix p r i c e s .
T h e best kind o f e v i d e n c e c o n c e r n i n g c o m m u n i c a t i o n s a b o u t prices
w h i c h c o u l d b e found w a s i n t h e n a t u r e o f t h e following i n s t r u c t i o n
s e n t to S q u i b b ' F i e l d M a n a g e r s ' on 12 N o v e m b e r 1954. ' A s you
h a v e b e e n i n f o r m e d , it is our fixed policy not only to avoid price
c u t t i n g on Steclin b u t to a v o i d any p r a c t i c e w h i c h might lay us o p e n
to such an accusation.'
W h i l e t h e d i r e c t p r o o f o f c o n s p i r a c y w a s w e a k , the c i r c u m s t a n t i a l
e v i d e n c e w a s c o m p e l l i n g . C l e a r l y t h e m o s t difficult a r e a in w h i c h to
hold t h e line in a price-fixing c o n s p i r a c y is the secret bid m a r k e t s -

177
Antitrust

TABLE 5.2 T e t r a c y c l i n e p r o d u c t i o n costs 250 m g . c a p s u l e s 100's

*th '111, 4th 4th 4th 4th 4th


qu arter q U arter qu arter qu arter qu arter qu arter qu arter
1954 1955 1956 1957 1958 1959 1960

Cyanamid -
Achromycin
Capsules.
2 5 0 m g . 100's
(Unit cost)* S2.26 SI.57 SI.77 $1.64 $1.59 $1.52 $1.56
Pfizer -
Tetracyn
Capsules,
2 5 0 m g . 100's
( A c t u a l unit
cost) S3.87 S3.01 S3.08 $2.74 $3.24 $2.94 $1.70
Bristol -
Polycycline
Capsules,
2 5 0 m g . 100's
(Reaveraged
unit c o s t ) * S6.24t NA SI.08 $1.67 $1.91 $1.92 $1.86
(January
•57)
Squibb -
Steclin
Capsules,
2 5 0 m g . 100's
( U n i t factory
cost)* NA $11.28 $9.47 $9.50 $9.58 $9.59 $7.71
Upjohn -
Panmycin
Capsules.
2 5 0 m g . 100's
(Unit finished
goods cost) $14.61 $9.86 NA NA $9.39 NA $7.98
(October)
$12.08
(December)

NA = not available.
D o e s not include royalty p a y m e n t s ,
t In 1 9 5 4 B r i s t o l ' s r e a v e r a g e d unit c o s t s w e r e : $ 6 0 . 2 5 ( M a y ) . $ 4 7 . 4 1 ( J u n e ) . $ 3 9 . 6 1 ( J u l y ) .
$ 2 9 . 7 9 ( A u g u s t ) . $ 2 3 . 7 3 ( S e p t e m b e r ) . $9.01 ( O c t o b e r ) . $6.24 ( N o v e m b e r ) . $4.91 (December).

From US\PfizerelaL.VSCoun of A p p e a l s for the S e c o n d Circuit. B r i e f for t h e A p p e l l e e , p. 17.

t h a t is. s a l e s t o h o s p i t a l s and o t h e r p u b l i c i n s t i t u t i o n s . T h e r e w a s
c o n s i d e r a b l e e v i d e n c e t h a t t h e t e t r a c y c l i n e c o m p a n i e s did hold the
line o n s e c r e t b i d s . O n e i l l u s t r a t i o n w a s with a n $ 8 3 0 , 0 0 0 c o n t r a c t
w i t h t h e M i l i t a r y M e d i c a l S u p p l y A g e n c y i n 1957. B r i s t o l , Pfizer
a n d C y a n a m i d all bid S I . 8 3 a b o t t l e . B u t Pfizer had bid on t h e w r o n g

178
Antitrust

size b o t t l e (70cc i n s t e a d of 7 5 c c ) . T h e M e d i c a l Military Supply


A g e n c y d e c i d e d t o use this o p p o r t u n i t y t o p u s h the price d o w n and
r e i s s u e d the call for bids at 70cc a m o u n t s . Pfizer and C y a n a m i d b o t h
bid S I . 8 3 a g a i n . B u t B r i s t o l , w h o s e t u r n i t w a s , u n d e r t h r e a t from
t h e A g e n c y to switch the c o n t r a c t to Pfizer unless a lower bid w e r e
f o r t h c o m i n g for the s m a l l e r a m o u n t , w o n the c o n t r a c t with a bid of
SI,828.
T h e s t a n d a r d bid p r i c e to C C S h o s p i t a l s for 100 c a p s u l e s ( 2 5 0 m g . )
in 1955 w a s S22.49. H o w e v e r , in A p r i l 1955 S q u i b b b r o k e r a n k s
w i t h the offer o f a 2 p e r cent d i s c o u n t . U p j o h n ' s d i s p l e a s u r e at this is
i n d i c a t e d b y the following i n t e r n a l c o r r e s p o n d e n c e .

A s r e q u e s t e d , w e are e n c l o s i n g the r e s u l t s o f t h e bids a t Los


Angeles County Hospital:
864 T e t r a c y c l i n e C a p s . 2 5 0 m g . w e n t a s follows:
Pfizer S22.49 2% 15th P r o x i m s
S q u i b b S22.49 2 % o p e n
L e d e r l e S22.49 net
[Cyanamid]
B r i s t o l S22.49 n e t
H o m e r H a m m o n d feels S q u i b b will get the bid with an o p e n 2%
no t i m e limit. . . .
On the P a n m y c i n it l o o k s like S q u i b b scuttled o u r ship. I w o n d e r
if B r i s t o l will c o m p l a i n to t h e m as t h e y did w i t h us.

T h e r e w a s also e v i d e n c e o f Pfizer d i s q u i e t that S q u i b b ' s d i s c o u n t


m i g h t m e a n ' t h a t t h e S22.49 price has b e e n b r o k e n b y S q u i b b . '
S q u i b b m a n a g e m e n t w a s i n d e e d w o r r i e d a b o u t w i n n i n g this bid, a s
e v i d e n c e d by a l e t t e r from A. I. H e b e r g e r , m a n a g e r of S q u i b b ' s
m a r k e t i n g d e p a r t m e n t t o L . L . H e r b e r t , L o s A n g e l e s regional sales
m a n a g e r , d a t e d 2 7 A p r i l 1955:

I w a s d i s t u r b e d to l e a r n t h a t we w e r e the successful b i d d e r to L o s
A n g e l e s C o u n t y b e c a u s e w e bid o n t e t r a c y c l i n e 2 5 0 m g . c a p s u l e s
S22.49 p e r 100 less 2% d i s c o u n t . It is nice to get a Steclin o r d e r
finally from L o s A n g e l e s C o u n t y , but I have my fingers c r o s s e d ,
a n t i c i p a t i n g c e r t a i n r e a c t i o n s to w h a t we did. which may not be
good.
W h e n I got J a c k ' s p e r m i s s i o n t o q u o t e 2 % cash d i s c o u n t , t h e r e
w a s no q u e s t i o n in his mind or m i n e t h a t we e x p e c t e d you to
q u o t e the 2% as a c a s h d i s c o u n t .

179
Antitrust

As I s a y , it w o u l d be nice to get t h e o r d e r but I am h o p i n g t h e r e


are no serious results.

W i t h i n a few w e e k s , S q u i b b p e r h a p s m a d e a m e n d s to its ' c o m -


p e t i t o r s ' . T h e i r 2 p e r c e n t d i s c o u n t w a s d r o p p e d on a N e w a r k bid, as
i n d i c a t e d by t h e following i n t e r n a l C y a n a m i d m e m o r a n d u m of 6
M a y 1955.

I n f o r m a t i o n I p r e v i o u s l y r e c e i v e d and as w a s r e p o r t e d to you in
my l e t t e r of 4 - 2 7 - 5 5 stated that S q u i b b w a s to get the a w a r d
in N e w a r k b e c a u s e o f t h e fact that t h e y did a l l o w a 2%
discount.
It n o w d e v e l o p s from further r e p o r t that S q u i b b called the
a t t e n t i o n o f t h e P u r c h a s i n g Office in N e w a r k to the fact that t h e r e
w a s an a s t e r i s k on t h e i r bid, w h i c h m e a n t that the 2% w o u l d not
be a l l o w e d . On t h e basis of this i n f o r m a t i o n , Pfizer, S q u i b b .
B r i s t o l and L e d e r l e w e r e e q u a l i n b i d d i n g the $ 2 2 . 4 9 . O n May
4 t h , M r . Z i e g l e r , as a r e p r e s e n t a t i v e of L e d e r l e , w a s called in for
a d r a w i n g out o f a hat. B r i s t o l w a s successful and has r e c e i v e d t h e
award.

H o l d i n g a c a r t e l t o g e t h e r is not easy. A c e n t r a l r e q u i r e m e n t for


a n y c a r t e l is a s y s t e m for r e c o r d i n g ' v i o l a t i o n s ' and p u n i s h i n g
' d e l i n q u e n t s ' . If such a s y s t e m did exist a m o n g the t e t r a c y c l i n e
p r o d u c e r s , its form h a s not b e e n d i s c o v e r e d . N e v e r t h e l e s s , t h e r e i s
e v i d e n c e s u g g e s t i n g t h a t s o m e sort of s y s t e m did exist. C o n s i d e r t h e
following internal Squibb m e m o r a n d u m :

Y o u r e p o r t e d on a r e c e n t bid m a d e to M i l w a u k e e C o u n t y , for
which we thank you.
On Bid N o . 635 for 100's of T e t r a c y c l i n e 2 5 0 M g . , L e d e r l e ' s
p r o d u c t w a s offered at $ 2 1 . 0 8 p e r 100. In o r d e r to p r o p e r l y record
t h i s v i o l a t i o n I m u s t k n o w w h e t h e r this w a s a direct bid by
L e d e r l e , o r w h e t h e r t h e bid w a s m a d e t h r o u g h a d e a l e r .
I w o u l d very m u c h a p p r e c i a t e y o u r setting me straight.

B r i s t o l , S q u i b b and U p j o h n s e e m e d to display a c e r t a i n willing-


n e s s to ' t u r n t h e o t h e r c h e e k ' and m a i n t a i n a f i x e d - b i d price d e s p i t e
a p p a r e n t p r o v o c a t i o n from Pfizer. T h e following c o r r e s p o n d e n c e
from S q u i b b m a n a g e m e n t to o n e of their field officers illustrates this
policy of d e t e n t e .

In y o u r l e t t e r to me you r e p o r t t h e fact t h a t Pfizer q u o t e d Steclin


to t h e K i n g C o u n t y H o s p i t a l at t h e r e g u l a r price and also offered

180
Antitrust

2 0 0 on a no c h a r g e b a s i s . Y o u stated t h a t you w o u l d like to h e a r


my c o m m e n t s .
A n y c o m m e n t I m i g h t m a k e a b o u t this and s o m e o t h e r Pfizer
m a n e u v e r s w o u l d n o t be fit to print. I guess h o w e v e r , you really
m e a n t to ask me w h e t h e r we w o u l d m a t c h this Pfizer price on
future b i d s .
If I w e r e free to m a k e my own d e c i s i o n s on m e e t i n g Pfizer
c o m p e t i t i o n , I w o u l d c e r t a i n l y m a t c h a n y t h i n g they give but
u n d e r t h e c i r c u m s t a n c e s w e can not r e t a l i a t e . W e have
i n s t r u c t i o n s and t h e s e c a m e directly from t h e t o p and t h e r e f o r e
u n d e r n o c i r c u m s t a n c e s can w e d e v i a t e from o u r regular
s c h e d u l e . I k n o w w h y we m u s t o b s e r v e o u r s c h e d u l e and can not
h e l p but a g r e e t h a t w e have n o o t h e r r e c o u r s e . I t i s u n f o r t u n a t e
b u t for t h e t i m e b e i n g we are h e l p l e s s .

S o m e data support the conclusion that outside the United States


t e t r a c y c l i n e may h a v e b e e n a classic i n t e r n a t i o n a l price c a r t e l .
K e f a u v e r ' s S e n a t e i n v e s t i g a t i o n and s u b s e q u e n t follow-up r e v e a l e d
an i d e n t i t y of t e t r a c y c l i n e p r i c e s in 13 c o u n t r i e s for which d a t a w e r e
a v a i l a b l e ( C o s t e l l o , 1968: 3 7 ) . P a r t i c u l a r l y d a m a g i n g i n the S e n a t e
w e r e L a t i n A m e r i c a n c o m m u n i c a t i o n s a m o n g t h e five c o m p a n i e s ,
s o m e o f t h e m m a r k e d ' p e r s o n a l a n d c o n f i d e n t i a l ' and ' p l e a s e
d e s t r o y ' . S e n a t o r L o n g d e s c r i b e d o n e l e t t e r a s 'the most startling
price-fixing d o c u m e n t I h a v e ever s e e n ' . T h e letter w a s w r i t t e n
p a r t l y in c o d e . D a t e d 7 N o v e m b e r 1958, it w a s signed in C a r a c a s by
' P l u t o ' - t h e a l l e g e d c o d e n a m e for Rafael N. Silva, Pfizer's
m a n a g e r i n V e n e z u e l a - and w a s a d d r e s s e d t o F r a n k P . W i l s o n ,
Pfizer's p r i c i n g m a n a g e r i n N e w Y o r k . I n e x p l a i n i n g the l e t t e r t o t h e
S e n a t e , L o n g h a d to use a g l o s s a r y .

H e s a i d , for e x a m p l e , t h a t 'Special G - 1 3 ' d e n o t e d


' P f i z e r - V e n e z u e l a ' s " p a y - o f f fund to " f a c i l i t a t e " sales to
g o v e r n m e n t a l p u r c h a s e r s in V e n e z u e l a . ' A ' s i n n e r ' d e n o t e d a
v i o l a t o r of a price-fixing a g r e e m e n t . A ' p o w - w o w ' w a s a price-
fixing m e e t i n g . A ' d i s t u r b e d family' m e a n t that s o m e o n e had cut
p r i c e s . A n u n p r o n o u n c e a b l e ' b r s t l h s t c h l d r l l p t t p f z r ' d e n o t e d five
c o m p a n i e s - B r i s t o l ; H o e c h s t , t h e G e r m a n firm it licensed to
m a k e t e t r a c y c l i n e ; L e d e r l e ; L e p e t i t , t h e Italian firm licensed b y
Pfizer to m a k e t e t r a c y c l i n e ; and Pfizer. T h e l e t t e r told of an
a n t i b i o t i c s ' p o w w o w ' r e c e n t l y ' c o n v o k e d i n o u r office with
b r s t l h s t c h l d r l l p t t p f z r i n a t t e n d a n c e . ' ' P l u t o ' noted that 'our
friend s q b b [ S q u i b b ] could not a t t e n d b u t w a s no p a r t y to any

181
Antitrust

offense [ c o m p e t i t i v e price v a r i a t i o n ] a n d w a s fully d e s i r o u s of


o t h e r s r e - e s t a b l i s h i n g the p r e v i o u s a t m o s p h e r e o f c o n f i d e n c e . . .
it b e c a m e e v i d e n t t h a t brstl [ B r i s t o l ] w a s e n g a g e d in a n a t i o n w i d e
p r i c e c u t t i n g s c h e m e . . . Idrl [ L e d e r l e ] had followed suit w i t h o u t
c o n s u l t i n g t h e r e m a i n i n g p a r t n e r s . . . ' T h e letter r e c o u n t s that
t h e "powwow* s u c c e e d e d in r e s t o r i n g "the p r e v i o u s c o n f i d e n c e ' in
a spirit o f ' l e t ' s try a g a i n ! ' - but only a day later t h e r e c a m e a
r e p o r t , ' P l u t o ' said, t h a t Tdrl w a s a t i t again." A n o t h e r ' p o w w o w '
w a s s c h e d u l e d "to t h r a s h o u t this [ n e w ] v i o l a t i o n ' ( M i n t z , 1967:
184d-e).

T h e l a t t e r w a s not r e l e v a n t , o f c o u r s e , t o m o s t o f t h e U S p r i c e -
fixing c a s e s . M o s t d r a m a t i c o f t h e c i r c u m s t a n t i a l e v i d e n c e w a s the
c o n v i c t i o n in N e w Y o r k state in D e c e m b e r 1955 of J o h n G. B r o a d y ,
a l a w y e r a n d p r i v a t e i n v e s t i g a t o r , for w i r e - t a p p i n g n u m e r o u s tele-
p h o n e s , i n c l u d i n g t h o s e o f Bristol and S q u i b b ' s e x e c u t i v e offices.
P f i z e r ' s g e n e r a l c o u n s e l had paid B r o a d y $ 6 0 , 0 0 0 t o m a k e c e r t a i n
i n v e s t i g a t i o n s a n d his illegal a c t i o n s s t e m m e d from t h o s e investi-
g a t i o n s . L i k e so m u c h o f t h e e v i d e n c e for c o n s p i r a c y , this w a s highly
c i r c u m s t a n t i a l . E v e n i f B r o a d y w a s b u g g i n g the Bristol and S q u i b b
e x e c u t i v e s u i t e s at Pfizer's b e h e s t , h o w could it be p r o v e d that this
w a s d o n e to p o l i c e a c o n s p i r a c y ?

The criminal cases

T h e J u s t i c e D e p a r t m e n t s o u g h t t o p r o s e c u t e all five c o m p a n i e s and


a n u m b e r of i n d i v i d u a l s w i t h i n t h e m . On 7 A u g u s t 1961 a g r a n d jury
i n d i c t e d Pfizer, C y a n a m i d , B r i s t o l - M y e r s and t h r e e e x e c u t i v e s
c h a r g i n g c o n s p i r a c y t o m o n o p o l i s e and r e s t r a i n t r a d e u n d e r
s e c t i o n s o n e and t w o o f t h e S h e r m a n A c t . S q u i b b and U p j o h n w e r e
n a m e d a s c o - c o n s p i r a t o r s , but w e r e not i n d i c t e d . A N e w Y o r k j u r y
found e a c h c o r p o r a t e d e f e n d a n t guilty of all t h r e e c o u n t s on 29
D e c e m b e r 1967. T h e y w e r e fined S50,(XX) a p i e c e on e a c h c o u n t . T h e
i n d i c t m e n t s a g a i n s t t h e i n d i v i d u a l d e f e n d a n t s had b e e n d i s m i s s e d i n
1965. In 1970 t h e US C o u r t of A p p e a l s , S e c o n d C i r c u i t , r e v e r s e d
t h e c o n v i c t i o n s , r e m a n d i n g t h e c o r p o r a t e d e f e n d a n t s for a new
t r i a l . " T h e C o u r t of A p p e a l s opinion was that the District J u d g e .
M a r v i n F r a n k e l , had m a d e a n i m p r o p e r c h a r g e t o the j u r y stressing
' i n f l a m m a t o r y issues". A g o v e r n m e n t a p p e a l to the S u p r e m e C o u r t
u p h e l d t h e A p p e a l C o u r t d e c i s i o n for retrial on a split 4 - 4
decision.'"

182
Antitrust

In 1 9 7 3 . t w e n t y y e a r s after t h e c o n s p i r a c y w a s alleged to have


b e g u n , a r e t r i a l c o m m e n c e d before J u d g e C a n e l l a o n t h e basis o f
t h e p r e v i o u s trial r e c o r d , w i t h o u t a j u r y . All d e f e n d a n t s w e r e
a c q u i t t e d . W h i l e c o n c e d i n g that t h e d e f e n d a n t s had m a i n t a i n e d
substantially similar prices over a n u m b e r of years. Judge Canclla
felt t h a t t h e g o v e r n m e n t ' s c i r c u m s t a n t i a l e v i d e n c e w a s insufficient
1
for p r o o f b e y o n d r e a s o n a b l e d o u b t . ' T h e w a n t o f direct e v i d e n c e
for c o n s p i r a t o r i a l m e e t i n g s w a s the g o v e r n m e n t ' s d o w n f a l l .

T h e r e c o r d , w h i c h is fully d e v e l o p e d by e x t e n s i v e direct and cross


e x a m i n a t i o n , d o e s n o t reveal that any d i s c u s s i o n o f p r i c e s , price
f i x i n g , e x c l u s i o n o f c o m p e t i t o r s o r licensing r e s t r i c t i o n s o c c u r r e d
a t t h e N o v e m b e r m e e t i n g s and t h e i n d i v i d u a l s p r e s e n t have
v i g o r o u s l y d e n i e d any illegal m o t i v e for their c o n d u c t . T h e
t e s t i m o n y given s t r e s s e s t h e b u s i n e s s r e a s o n s for t h e a c t i o n s
t a k e n a n d t h e a c t o r s * e x e r c i s e o f b u s i n e s s j u d g m e n t a s free
a g e n t s , a n d not a s c o n s p i r a t o r s .

M o r e o v e r , t h e J u d g e c o n c l u d e d : i n t h e face o f t h e g o v e r n m e n t ' s
c i r c u m s t a n t i a l p r o o f and a r g u m e n t , s t a n d s t h e d e f e n d a n t s ' v i g o r o u s
and c o m p l e t e d e n i a l s o f t h e e x i s t e n c e o f any a g r e e m e n t o r con-
s p i r a c y to e n g a g e in t h e illegal acts c h a r g e d in t h e i n d i c t m e n t . '
W h i l e t a k i n g p a i n s t o point out t h a t c i r c u m s t a n t i a l e v i d e n c e could
b e highly r e l e v a n t , h e a p p r o v i n g l y cited J u d g e M e d i n a ' s s t a t e m e n t
in t h e Investment Bankers' c a s e " on d e t e r m i n i n g t h e e x i s t e n c e of
c o n s p i r a c y : ' T h e a n s w e r m u s t not be f o u n d in s o m e crystal ball or
v a g u e l y s e n s e d by s o m e p r o c e s s of i n t u i t i o n , b a s e d u p o n a c h a n c e
p h r a s e used h e r e or t h e r e . . . .'
To c o n c l u d e . J u d g e Canella q u o t e d Judge C h a s e in US v.
Buchalter: ' N o t h i n g this c o u r t might n o w say could b e t t e r sum-
m a r i z e t h e r a t i o n a l e of its o p i n i o n in t h e i n s t a n t c a s e . '

Difficulty of p r o o f is no s u b s t i t u t e for a c t u a l i t y of p r o o f and an


a c c u s e d is p r e s u m e d to be i n n o c e n t until p r o v e d guilty as c h a r g e d
b e y o n d a r e a s o n a b l e doubt. H e r e there w e r e , indeed, many
s u s p i c i o u s c i r c u m s t a n c e s t o lead t o t h e c o n c l u s i o n t h a t [the
d e f e n d a n t ] w a s guilty but t h e r e w a s n o s u b s t a n t i a l e v i d e n c e t o
o v e r c o m e t h e p r e s u m p t i o n of i n n o c e n c e . . .

The history of the tetracycline patent

J u d g e C a n e l l a ' s o v e r t u r n i n g o f t h e criminal convictions was a severe


183
Antitrust

s e t b a c k for o v e r a h u n d r e d plaintiffs w h o w e r e s e e k i n g civil


d a m a g e s a g a i n s t t h e f i v e t e t r a c y c l i n e c o m p a n i e s . B u t t h e civil cases
c o n t i n u e d , and still c o n t i n u e to this day. T h e a c q u i t t a l s led the
l i t i g a n t s to shift t h e i r a t t a c k a g a i n s t t h e c o m p a n i e s from a focus on
c o n s p i r a c y to e m p h a s i s on the allegation that the tetracycline patent
w h i c h e n a b l e d t h e m t o m a i n t a i n e x c e s s i v e prices w a s o b t a i n e d b y
fraud. L e t u s t h e n r e t r a c e t h e history o f t h e t e t r a c y c l i n e p a t e n t .
Pfizer f i r s t d i s c o v e r e d t h e m o l e c u l a r s t r u c t u r e o f t e t r a c y c l i n e and
filed a p a t e n t a p p l i c a t i o n on it on 23 O c t o b e r 1952. A l m o s t simul-
t a n e o u s l y C y a n a m i d had realised t h e t h e r a p e u t i c i m p o r t a n c e o f
t e t r a c y c l i n e and l o d g e d a p a t e n t a p p l i c a t i o n on 16 M a r c h 1953. A
t h i r d c o m p a n y , H e y d e n C h e m i c a l C o r p o r a t i o n , had also p r o d u c e d
t e t r a c y c l i n e a n d l o d g e d its p a t e n t c l a i m o n 2 8 S e p t e m b e r 1953.
B r i s t o l w a s t h e last to file on 19 O c t o b e r 1953.
A l l p a r t i e s w e r e a w a r e o f t h e fact t h a t t h e y had i n s e c u r e claims o n
t h e p a t e n t and t h a t a ruling t h a t t e t r a c y c l i n e was u n p a t e n t a b l e , in
that it was 'no a d v a n c e m e n t over prior art', was probable. By
a t t a c k i n g each o t h e r s ' claims they would certainly destroy a n y o n e ' s
c h a n c e s o f g e t t i n g t h e p a t e n t . C y a n a m i d first e l i m i n a t e d t h e t h r e a t
from H e y d e n by b u y i n g its a n t i b i o t i c division for $ 1 2 , 0 0 0 , 0 0 0 ,
a p p r o x i m a t e l y twice t h e b o o k v a l u e o f its a s s e t s . T h e U S g o v e r n -
m e n t c l a i m e d t h a t C y a n a m i d ' s p u r c h a s e o f H e y d e n w a s unlawful,
being in contravention ofthe Clayton Act.
In J a n u a r y , 1954 Pfizer and C y a n a m i d a g r e e d not to d e s t r o y e a c h
o t h e r ' s c h a n c e s o f s e c u r i n g a legal m o n o p o l y o v e r t e t r a c y c l i n e . T h e
w r i t t e n a g r e e m e n t p r o v i d e d t h a t w h i c h e v e r o n e s e c u r e d the p a t e n t
w o u l d license t h e o t h e r t o sell t h e d r u g . T h e a g r e e m e n t further
p r o v i d e d for a p r i v a t e a d j u d i c a t i o n t o d e t e r m i n e w h i c h o f t h e two
w a s t h e first i n v e n t o r . Pfizer w o n and duly cross-licensed C y a n a m i d .
C y a n a m i d also a g r e e d t o supply Pfizer w i t h bulk t e t r a c y c l i n e until
its p r o d u c t i o n facilities could be t o o l e d up for m a s s p r o d u c t i o n . T h i s
p r o v i s i o n w a s t o p r e v e n t C y a n a m i d from e s t a b l i s h i n g its b r a n d
n a m e b e f o r e Pfizer got o n t h e m a r k e t . H e n c e the e v i d e n c e suggests
t h a t t h e p a t e n t p r o v i d e d a c o v e r for c o n s p i r a t o r i a l b e h a v i o u r to
p a r t i t i o n a m a r k e t w h i c h i n t h e a b s e n c e o f t h e p a t e n t w o u l d have
b e e n c l e a r l y illegal.
U n l i k e Pfizer a n d C y a n a m i d , the last p a t e n t c l a i m a n t o n t h e
s c e n e , B r i s t o l , w a s a small c o m p a n y in t h o s e d a y s , and t h e former
r e g a r d e d it as no m a t c h for t h e m in a p a t e n t s t r u g g l e . H o w e v e r , in
O c t o b e r 1954 t h e p a t e n t - h e a r i n g e x a m i n e r , i n dissolving the inter-
f e r e n c e b e t w e e n Pfizer and B r i s t o l , ruled t h a t 'on t h e e x a m i n e r ' s

184
Antitrust

a s s u m p t i o n t h a t t e t r a c y c l i n e w a s i n h e r e n t l y p r o d u c e d b y the
p r o c e s s d i s c l o s e d in' t h e C y a n a m i d p a t e n t o n c h l o r t e t r a c y c l i n e ,
t e t r a c y c l i n e itself w a s not p a t e n t a b l e . H e n c e t h e e x a m i n e r ' s con-
c l u s i o n w a s t h a t Pfizer had identified t e t r a c y c l i n e a s o n e o f a n u m b e r
of d r u g s p r o d u c e d in an 'old p r o c e s s ' and t h e r e f o r e c o n s t i t u t e d no
a d v a n c e m e n t over prior art.
T h i s s e t b a c k c a u s e d Pfizer's p a t e n t a g e n t t o direct Pfizer scientists
to e v a l u a t e the e x a m i n e r ' s assumption of co-production. Subse-
q u e n t l y t h e r e s e a r c h w a s s t o p p e d , h o w e v e r . Yet t h e t e s t s w e r e i n
fact c o n t i n u e d and t h e r e s u l t s r e c o r d e d o u t s i d e t h e n o r m a l l a b o r a -
t o r y r e c o r d s . T h e s e secret d a t a s h o w e d t h e e x a m i n e r ' s a s s u m p t i o n
to be correct, according to the g o v e r n m e n t ' s evidence.
A p a r t from t h e c o n c e a l m e n t o f test r e s u l t s , i t w a s alleged that
Pfizer r i g g e d o t h e r t e s t s . T h e e x a m i n e r had a g r e e d t o r e a d m i t the
a p p l i c a t i o n i f Pfizer could d e m o n s t r a t e t h a t t e t r a c y c l i n e could not
b e r e c o v e r e d from f e r m e n t a t i o n b r o t h s p r o d u c e d i n a c c o r d a n c e
with the chlortetracycline process patent. G o v e r n m e n t evidence
i n d i c a t e d t h a t t h e m i c r o - o r g a n i s m s s e l e c t e d by Pfizer for this test
w e r e k n o w n t o b e p o o r p r o d u c e r s o f a n t i b i o t i c s , and t h a t the w h o l e
t e s t p r o c e d u r e w a s s t r u c t u r e d t o m i n i m i s e a n t i b i o t i c p r o d u c t i o n and
d i s c o v e r y . T h e p a t e n t w a s g r a n t e d , but t h e p a t e n t e x a m i n e r w a s
l a t e r t o testify t h a t i f h e had k n o w n o f t h e t e c h n i c a l c o n d i t i o n s u n d e r
w h i c h t h e Pfizer test had b e e n c o n d u c t e d , h e w o u l d not have
granted the patent.

T h e g o v e r n m e n t a r g u e d t h a t C y a n a m i d was a p a r t y to this fraud


on t h e p a t e n t office in t h a t its s u p p o r t for t h e Pfizer affidavit t h a t
c o - p r o d u c t i o n did n o t o c c u r w e n t b e y o n d m e r e silence. I t i s clear
t h a t B r i s t o l k n e w t h a t c o - p r o d u c t i o n did o c c u r . B r i s t o l ' s alleged
s t r a t e g y w a s to assist Pfizer in o b t a i n i n g t h e p a t e n t t h r o u g h mis-
r e p r e s e n t a t i o n and t h e n use t h a t i n f o r m a t i o n to force a licence out
of Pfizer.
Pfizer refused to g r a n t B r i s t o l a l i c e n c e . N e g o t i a t i o n s b r o k e d o w n
on t h e f o r e b o d i n g n o t e of S c h w a r t z of Bristol saying to P o w e r s of
Pfizer: i h o p e this isn't g o i n g to be a dirty fight, J o h n . ' P o w e r s
r e p l i e d : i t ' s g o i n g to get very r o u g h but it w o n ' t be d i r t y . ' Bristol
c a l l e d Pfizer's bluff and b e g a n to sell t e t r a c y c l i n e in v i o l a t i o n o f t h e
Pfizer p a t e n t on 30 A p r i l 1954. B r i s t o l did not have a p r o m o t i o n a l
n e t w o r k to h a n d l e l a r g e - v o l u m e s a l e s , so it sold bulk t e t r a c y c l i n e to
S q u i b b and U p j o h n . S q u i b b and U p j o h n gave Bristol legal m u s c l e
by i n d e m n i f y i n g t h e m a g a i n s t any p a t e n t i n f r i n g e m e n t suit. Pfizer
s u e d . B u t a s B r i s t o l c o u n s e l , W a l k e r , later testified, they w e r e

185
Antitrust

determined to "impress Pfizer t h a t B r i s t o l w a s no b a b e in t h e


woods'.
T h i s t h e y surely did. Bristol p r i v a t e l y sent Pfizer a 12-page
' S t a t e m e n t o f F a c t s ' . T h e s e "facts' i n c l u d e d B r i s t o l ' s belief that t h e
Pfizer p a t e n t had b e e n fraudulently o b t a i n e d , that the p u r c h a s e o f
H e y d e n and m a n y o t h e r collusive p r a c t i c e s b y Pfizer and C y a n a m i d
w e r e i n v i o l a t i o n o f t h e C l a y t o n and S h e r m a n A c t s , and that Bristol
w a s in a s t r o n g p o s i t i o n b o t h to d e s t r o y t h e p a t e n t and r e c o v e r
t r e b l e d a m a g e s in a p r i v a t e a n t i t r u s t suit.
B r i s t o l had t h e m o v e r a b a r r e l . T h e r e w a s no c h o i c e but to a d m i t
B r i s t o l to t h e c l u b . Pfizer g r a n t e d the c o m p a n y a licence on 13
J a n u a r y 1955. I n t h e s e t t l e m e n t a g r e e m e n t Bristol ' a c k n o w l e d g e d '
t h e validity of Pfizer's p a t e n t ( e v e n t h o u g h Bristol had a r g u e d for its
i n v a l i d i t y i n t h e p r i v a t e ' S t a t e m e n t o f F a c t s ' ) , and ' c o n c e d e d ' t h a t i t
had infringed t h a t p a t e n t . Bristol w a s to be a l l o w e d to c o n t i n u e
s u p p l y i n g b u l k t e t r a c y c l i n e t o S q u i b b and U p j o h n , but not t o any
n e w o u t l e t s . T h e g o v e r n m e n t a l l e g a t i o n a g a i n s t B r i s t o l , S q u i b b and
U p j o h n is t h e r e f o r e t h a t they a c c e p t e d licences u n d e r a p a t e n t
w h i c h t h e y k n e w t o b e f r a u d u l e n t l y o b t a i n e d and c o n s e q u e n t l y
s h a r e d i n t h e e x p l o i t a t i o n o f a n illegally o b t a i n e d p a t e n t m o n o p o l y .

The civil cases

A long trail of civil c a s e s focusing p r i m a r i l y on the alleged p a t e n t


fraud issue r a t h e r t h a n on t h e price-fixing q u e s t i o n have run in
p a r a l l e l with t h e c r i m i n a l c a s e s . I n 1958 the F e d e r a l T r a d e
C o m m i s s i o n first c h a r g e d t h e five c o m p a n i e s with m o n o p o l i s i n g
t h e t e t r a c y c l i n e m a r k e t . A n F T C h e a r i n g e x a m i n e r d i s m i s s e d the
c h a r g e s i n 1 9 6 1 . H o w e v e r , o n a r e v i e w o f t h e h e a r i n g r e c o r d , the
full f i v e - m e m b e r c o m m i s s i o n held t h a t Pfizer and C y a n a m i d had
c o m m i t t e d fraud on t h e P a t e n t Office and t h a t the five d e f e n d a n t s
had c o n s p i r e d to fix p r i c e s on t e t r a c y c l i n e . " It o r d e r e d Pfizer to
l i c e n s e t h e d r u g to all r e q u e s t i n g c o m p a n i e s at a 2.5 p e r c e n t royalty.
T h e C o u r t o f A p p e a l s for t h e Sixth C i r c u i t vacated t h e c o m m i s -
s i o n ' s findings o n t h e g r o u n d t h a t p r o c e d u r a l defects had t a i n t e d the
c o m m i s s i o n ' s d e t e r m i n a t i o n s . " W h e n h e a r d a g a i n i n the F T C
b e f o r e a different e x a m i n e r a finding of fraud on t h e P a t e n t Office
w a s a g a i n m a d e . S e p t e m b e r 1967 saw this decision u p h e l d b y the
full c o m m i s s i o n ; b u t on a split v o t e , it found a g a i n s t t h e e x i s t e n c e of
a c o n s p i r a c y to fix p r i c e s . ' " T h i s d e c i s i o n was affirmed by t h e US
C o u r t o f A p p e a l s , Sixth C i r c u i t , o n 3 0 S e p t e m b e r 1968, and t h e

186
Antitrust

r e q u i r e m e n t s for Pfizer to license c o m p e t i t o r s at a 2.5 per cent


royalty s t o o d . "
A f t e r t h e 1967 guilty c r i m i n a l v e r d i c t a n t i t r u s t t r e b l e - d a m a g e
suits b e g a n to flow in, finally t o t a l l i n g o v e r 160. T h e y c a m e from
p r i v a t e h o s p i t a l s , h e a l t h and welfare funds, u n i o n s , state g o v e r n -
m e n t s s u i n g on b e h a l f of their citizens as a c l a s s , the US g o v e r n -
m e n t , a n d t h e g o v e r n m e n t s o f I r a n , W e s t G e r m a n y , C o l o m b i a , the
P h i l i p p i n e s , I n d i a , S p a i n , S o u t h K o r e a and K u w a i t .
T h e s e cases have been a never-ending judicial nightmare.
A l r e a d y s e t t l e m e n t s in e x c e s s of $250 million h a v e b e e n paid by t h e
c o m p a n i e s . A n u m b e r of litigants, including the US g o v e r n m e n t ,
p u s h o n . T h e U S g o v e r n m e n t suit a l l e g e s o v e r c h a r g e s and pre-
j u d g m e n t i n t e r e s t o n t e t r a c y c l i n e sales t o t h e g o v e r n m e n t o f $376.5
million. It is believed that the impossible burden ofthe tetracycline
l i t i g a t i o n w a s a factor in t h e ill-health which led J u d g e W y a t t to be
r e l i e v e d of r e s p o n s i b i l i t y for t h e a n t i t r u s t suits w h i c h had not b e e n
s e t t l e d . H i s place w a s t a k e n b y J u d g e L o r d w h o a p p l i e d extra-
o r d i n a r y p r o c e d u r a l i n n o v a t i o n t o t h e 5 8 u n s e t t l e d cases h a n d e d t o
h i m i n 1970. W e saw t h e r e m a r k a b l e c o u r t r o o m scene o f t w o
different trials in six different cases p r o c e e d i n g at o n c e . S o m e o f t h e
hearings were a t t e n d e d by more than a hundred attorneys.

'Jury O n e ' was hearing evidence in actions brought by the United


S t a t e s , t w o n a t i o n a l c l a s s e s ( o n e o f i n s u r a n c e c o m p a n i e s and the
o t h e r of u n i o n h e a l t h and welfare f u n d s ) , and a California
m e d i c a l g r o u p . ' J u r y T w o ' w a s h e a r i n g e v i d e n c e i n suits b r o u g h t
in behalf of c o m p e t i t o r s o f t h e defendant drug companies. For
the most part, the juries were hearing evidence c o m m o n to both
sets o f c a s e s . W h e n e v i d e n c e w a s i n t r o d u c e d t h a t w a s r e l e v a n t t o
o n l y o n e set o f c a s e s , t h e o t h e r j u r y w o u l d b e e x c u s e d ( W o l f r a m .
1976: 2 5 4 ) .
A unique judicial organization proliferated around Judge
L o r d . A s t h e e v i d e n c e and a r g u m e n t s a b o u t t h e o r i e s o f d a m a g e s
a n d liability b e c a m e m o r e c o m p l e x . J u d g e L o r d , o n M a y 10,
1 9 7 1 , a p p o i n t e d t w o e x p e r t s a s his p e r s o n a l c o n s u l t a n t s o n
e c o n o m i c s and s t a t i s t i c s , t h e costs to be s h a r e d e q u a l l y by
plaintiffs and d e f e n d a n t s ( W o l f r a m , 1976: 3 1 3 - 4 ) .
A s d i s c o v e r y i n t h e v a r i o u s c a s e s p r o c e e d e d t h r o u g h the
s u m m e r of 1971, J u d g e Lord was confronted with a n u m b e r of
m o t i o n s a n d o t h e r signs o f conflict a b o u t d i s c o v e r y . T h e plaintiffs
filed very b r o a d r e q u e s t s t o p r o d u c e d o c u m e n t s , and t h e

187
Antitrust

d e f e n d a n t s r e s p o n d e d with s w e e p i n g c l a i m s o f p r i v i l e g e ,
p r i m a r i l y b e c a u s e o f a l l e g e d a t t o r n e y - c l i e n t r e l a t i o n s h i p , but also
o n t r a d e s e c r e t and r e l a t e d g r o u n d s . V a r i o u s privileges w e r e
claimed as to several hundred thousand d o c u m e n t s . In order to
d e a l w i t h t h e issues t h a t t h e o b j e c t i o n s r a i s e d . J u d g e L o r d , o n
A u g u s t 5, 1971, appointed a t h r e e - m e m b e r team of discovery
m a s t e r s t o m a k e p r e l i m i n a r y rulings o n privilege and t o m a k e
r e c o m m e n d a t i o n s t o him ( W o l f r a m 1976: 3 1 4 - 1 5 ) .

In s p i t e of t h e t i m e saved by this brilliant s t r e a m l i n i n g , the


c o r p o r a t e d e f e n d a n t s w e r e a b l e to effect a six m o n t h s ' delay in
1 9 7 1 - 2 b y p e t i t i o n s o f m a n d a m u s c h a l l e n g i n g J u d g e L o r d ' s ability
to be i m p a r t i a l . N e v e r t h e l e s s , t h e t e t r a c y c l i n e class a c t i o n s are a
l a n d m a r k i n t h e way t h a t s e e m i n g l y u n m a n a g e a b l e legal t a n g l e s o f
u n p r e c e d e n t e d m a g n i t u d e can be solved with a sufficient will for
p r o c e d u r a l innovativeness. The manageability problem is of course
c o m p o u n d e d w h e n the defendants have an interest in perpetuating
it. O n e t e t r a c y c l i n e d e f e n c e a t t o r n e y c a l c u l a t e d smugly t h a t i t
w o u l d t a k e J u d g e L o r d 8,000 y e a r s t o try all t h e c o n s u m e r d a m a g e
c l a i m s . A g a i n , o n e can d o n o b e t t e r t h a n q u o t e W o l f r a m ( 1 9 7 6 : 3 4 4 )
a s t o h o w t h e j u d g e m a n a g e d t o find s i m p l e s o l u t i o n s t o c o m p l e x
detail.

O n e o f t h e m a i n a r g u m e n t s o f t h e d e f e n d a n t s against c r e a t i o n o f
t h e c o n s u m e r c l a s s e s w a s t h a t trial o f t h e c l a i m s i n t h e s e classes
w o u l d be u n m a n a g e a b l e for a n u m b e r of r e a s o n s . F i r s t , t h e
d e f e n d a n t s w o u l d insist u p o n their right to j u r y trial as to each
a n d e v e r y c o n s u m e r ' s c l a i m . T h i s w o u l d r e q u i r e t h e services o f all
t h e federal j u d g e s in t h e e n t i r e s y s t e m o v e r a p e r i o d of several
y e a r s . J u d g e L o r d r e s p o n d e d with t h e d e v a s t a t i n g r e m a r k t h a t
t h e w a y to try to a j u r y a vast n u m b e r of d a m a g e claims w a s to try
all of a s t a t e ' s c o n s u m e r d a m a g e c l a i m s at o n c e . T h e e v i d e n c e
w o u l d not c o n s i s t o f a n infinite p a r a d e o f individual c o n s u m e r s
w i t h t e s t i m o n y a b o u t family d r u g s t o r e p u r c h a s e s . R a t h e r
e c o n o m i s t s a n d s t a t i s t i c i a n s w o u l d d e s c r i b e t h e total v o l u m e o f
c o n s u m e r sales and t h e p r o b a b l e p r i c e s t h a t w o u l d have b e e n
charged in the absence ofthe antitrust violations. In other w o r d s ,
t h e ' d a m a g e ' issue c o u l d b e r e f r a m e d t o i n q u i r e into t h e e x t e n t o f
injury t h a t t h e a n t i t r u s t v i o l a t i o n had w r e a k e d u p o n all
c o n s u m e r s w i t h i n t h e s t a t e . As to this i s s u e , a single j u r y could
h e a r all t h e e v i d e n c e a n d r e n d e r a final and b i n d i n g verdict. T h e
c o n s u m e r m e m b e r s o f t h e class w o u l d t h e n simply m a k e claims

188
Antitrust

a g a i n s t w h a t e v e r fund w a s p r o d u c e d b y t h e v e r d i c t . T h e
d e f e n d a n t s w o u l d h a v e n o further l e g i t i m a t e i n t e r e s t i n t h e
q u e s t i o n o f d a m a g e d i s t r i b u t i o n and could b e e x c u s e d . T h e
v a l i d a t i o n of c l a i m s a n d d i s t r i b u t i o n could be h a n d l e d by a t e a m
a p p o i n t e d b y t h e j u d g e . T h e costs o f d i s t r i b u t i o n w o u l d b e t a k e n
o u t o f t h e fund. A l t h o u g h t h e s e c o n c e p t s w e r e t e n t a t i v e . J u d g e
L o r d b e l i e v e d t h a t s o l u t i o n s t o so-called m a n a g e a b i l i t y p r o b l e m s
were ready to hand.

In spite of J u d g e L o r d ' s successful insistence t h a t p r o b l e m s of a


n e w o r d e r r e q u i r e d legal s o l u t i o n s of a n e w o r d e r , t h e legal costs of
t h e saga h a v e b e e n m o m e n t o u s . C o l l e c t i v e legal e x p e n s e s for t h e
plaintiffs often a p p r o a c h e d $ 1 0 0 , 0 0 0 per m o n t h . I n s o m e c l a s s e s .
W o l f r a m ( 1 9 7 6 : 3 6 2 ) e s t i m a t e d , c o s t s ( a t t o r n e y fees, mailed
n o t i c e s , e t c . ) w o u l d be a s u m a l m o s t e q u a l to t h e net m o n i e s
e v e n t u a l l y d i s t r i b u t e d t o class m e m b e r s . H e a r g u e d that t h e case
i l l u s t r a t e d t h e n e e d for g r e a t e r p u b l i c scrutiny of the costs t h a t
l a w y e r s a r e a b l e to c h a r g e t h e i r r e m o t e c l i e n t s in a class a c t i o n suit.
H o w e v e r , a m o r e r e c e n t a s s e s s m e n t o f t h e legal and a d m i n i s t r a t i v e
c o s t s of d i s t r i b u t i n g refunds to eligible c o n s u m e r s p u t s it overall at
less t h a n 2 0 p e r c e n t o f t h e s e t t l e m e n t fund ( B a r t s h e t a l . , 1978).
M o r e o v e r , a s u r v e y of c l a i m a n t s found t h a t most r e g a r d e d a 20 p e r
cent overhead as acceptable.
T h e c a s e s w h i c h r e m a i n e d u n s e t t l e d after J u d g e L o r d ' s inter-
v e n t i o n s w e r e d e a l t a s e v e r e b l o w i n A u g u s t 1980 w h e n J u d g e
W e i n e r ruled, in c o - o r d i n a t e d pretrial proceedings in the E a s t e r n
D i s t r i c t of P e n n s y l v a n i a , a g a i n s t a finding of fraud by Pfizer in
2 0
o b t a i n i n g the tetracycline p a t e n t . T h e U S g o v e r n m e n t ' s case
r e s t e d h e a v i l y o n t e s t i m o n y b y p a t e n t e x a m i n e r Lidoff t h a t h e
w o u l d not h a v e g r a n t e d Pfizer t h e p a t e n t had c e r t a i n i n f o r m a t i o n
not been withheld by the c o m p a n y . B e c a u s e o f t h e passage of so
many years b e t w e e n Lidoff s testimony and the events about which
h e w a s t e s t i f y i n g , t h e j u d g e w a s n o t p r e p a r e d t o accept such
e v i d e n c e a l o n e a s sufficient t o sustain t h e b u r d e n o f p r o o f b e y o n d
reasonable doubt:

T h e g o v e r n m e n t relies on t h e t e s t i m o n y of Lidoff given in 1966 at


t h e F T C p r o c e e d i n g s and in 1972 in a d e p o s i t i o n in this c a s e ,
w h e r e he a t t e m p t s to r e c o n s t r u c t his state of mind in 1954 d u r i n g
t h e p r o c e e d i n g s for t h e C o n o v e r p a t e n t . W e c a n n o t a c c e p t such
t e s t i m o n y as credible e v i d e n c e . Such evidence cannot constitute

189
Antitrust

t h e c l e a r , u n e q u i v o c a l and c o n v i n c i n g e v i d e n c e which a c h a r g e of
fraud r e q u i r e s .

M o r e o v e r , J u d g e W e i n e r held t h a t e v e n i f m i s l e a d i n g informa-
t i o n had b e e n p r o v i d e d t o t h e p a t e n t office, t h e g o v e r n m e n t had not
p r o v e d t h a t t h i s h a d b e e n d o n e with i n t e n t t o defraud:

T h e g o v e r n m e n t had the b u r d e n t o p r o v e t h a t M u r p h y and H u t z


n o t only w i t h h e l d o r m i s s t a t e d m a t e r i a l i n f o r m a t i o n , but that
t h e y did so w i t h t h e specific intent to defraud the P a t e n t Office.
T h e g o v e r n m e n t h a s failed t o p r o v e t h e fraudulent i n t e n t .

T h e J u s t i c e D e p a r t m e n t i s c o n s i d e r i n g w h e t h e r i t will a p p e a l
Judge Weiner's decision.

Tetracyclines today

R e g a r d l e s s of h o w badly t h e r e m a i n i n g u n s e t t l e d suits t u r n o u t for


t h e d e f e n d a n t s , t h e r e c a n b e little d o u b t t h a t t h e f i n a l s e t t l e m e n t s
will t o t a l only a fraction of t h e e x t r a profits t h e c o m p a n i e s m a d e
t h r o u g h a v o i d i n g c o m p e t i t i v e p r i c i n g . M o s t class a c t i o n s c l a i m e d
o n l y a p r o p o r t i o n o f t h e e s t i m a t e d d a m a g e s t o class m e m b e r s . M o s t
v i c t i m s w e r e not i n c l u d e d i n any c l a s s , p a r t i c u l a r l y t h e p o o r e s t
victims in the Third W o r l d .
T o d a y t e t r a c y c l i n e i s p e r h a p s t h e most p r i c e c o m p e t i t i v e o f any o f
t h e m a j o r t h e r a p e u t i c c l a s s e s of d r u g s , and c e r t a i n l y the least con-
c e n t r a t e d m a r k e t ( S l a t t e r , 1977: 1 0 4 - 5 ) . P r o b a b l y the a n t i t r u s t
c a s e s p l a y e d s o m e role i n c r e a t i n g this s i t u a t i o n . But t h e m o r e
f u n d a m e n t a l r e a s o n s are t h a t t e t r a c y c l i n e has b e e n off p a t e n t since
1972, a n d t h a t it is so large a m a r k e t as to a t t r a c t n e w major firms
w i t h b r a n d e d lines as late e n t r a n t s in a d d i t i o n to t h e small g e n e r i c
manufacturers.

The role of antitrust law in the pharmaceutical industry

R e a d e r s m i g h t be e x c u s e d for t h i n k i n g t h a t t h e issues of c o n c e r n in
t h i s c h a p t e r a r e less i m p o r t a n t t h a n t h o s e a d d r e s s e d i n the p r e v i o u s
t w o c h a p t e r s b e c a u s e w e a r e h e r e d e a l i n g only with m o n e y and not
t h r e a t s to h u m a n life. T h i s is a m i s t a k e n v i e w , a p r o d u c t o f W e s t e r n
m i d d l e - c l a s s affluence. M o s t o f t h e w o r l d ' s p o p u l a t i o n d o not
b e n e f i t from " w o n d e r d r u g s ' b e c a u s e t h e y c a n n o t afford t h e m . I n
I n d i a , 8 0 p e r c e n t o f t h e p o p u l a t i o n d o e s not h a v e access t o d r u g s

190
Antitrust

( L a l l , 1979a :22). T h e r e a s o n for b o t h this s i t u a t i o n and for t h e high


profits of p h a r m a c e u t i c a l c o m p a n i e s is the o l i g o p o l i s t i c s t r u c t u r e of
the industry.
A d m i t t e d l y , t h e classic i n t e r n a t i o n a l c a r t e l that w a s alleged with
t e t r a c y c l i n e is not a f e a t u r e o f t h e w o r l d m a r k e t in p h a r m a c e u t i c a l s
t o d a y : g o v e r n m e n t p r i c e c o n t r o l s m a k e this i m p o s s i b l e . But m o r e
t h a n t h a t , c o r p o r a t i o n s t o d a y are m o r e s o p h i s t i c a t e d t h a n t o risk the
b l a t a n t u n i f o r m i t y o f p r i c e s e v i d e n t with t e t r a c y c l i n e . P r i c e s might
b e m a i n t a i n e d w i t h i n b r o a d t o l e r a n c e levels b y ' m e m b e r s o f the
c l u b ' , but e x a c t u n i f o r m i t y w o u l d b e i m p o l i t i c . M o r e o v e r , o n e
s u s p e c t s t h a t t h e p r e s s u r e s a g a i n s t price c u t t i n g are m o r e subtle i n
a p p l i c a t i o n . If, for e x a m p l e , o n e c o m p a n y w e r e licensing a n o t h e r to
sell a m e - t o o d r u g it had d i s c o v e r e d , it w o u l d be s u r p r i s i n g if the
l i c e n s e e w e r e not a s k e d t h e price it i n t e n d e d to c h a r g e . A n d it
w o u l d b e e v e n m o r e s u r p r i s i n g i f t h e l i c e n c e w e r e g r a n t e d after a n
i n a p p r o p r i a t e a n s w e r w a s given. O f c o u r s e , a p o t e n t i a l licensee w h o
w a s t u r n e d a w a y w o u l d b e given s o m e r e a s o n o t h e r t h a n price for
the b r e a k d o w n o f t h e a g r e e m e n t so that there would be no grounds
for an a n t i t r u s t suit. A successful l i c e n s e e w h o w e n t o u t and c h a r g e d
a l o w e r p r i c e to t h a t i n d i c a t e d to t h e l i c e n s o r would be t h e subject of
a d v e r s e g o s s i p in p h a r m a c e u t i c a l circles a n d w o u l d be unlikely on
a n y future o c c a s i o n to be a d m i t t e d to t h e c l u b . T h e very fact that
c o m p a n i e s w h i c h d i s c o v e r a m e - t o o v a r i a n t on a p r o d u c t t h e y h a v e
u n d e r p a t e n t often licence t h e m e - t o o p r o d u c t to a c o m p e t i t o r is
e v i d e n c e o f t h e lack of t h r e a t from a c o m p e t i t o r which is kept within
2 1
the club.
It is impossible to generalise about these matters. Pharmaceutical
c o m p a n i e s are highly s o p h i s t i c a t e d in the way they r e s o l v e t h e i r
p r i c i n g d e c i s i o n s a c c o r d i n g t o t h e specific c i r c u m s t a n c e s w h i c h
a p p l y i n e a c h s i t u a t i o n t h e y c o n f r o n t . W h e r e a s t h e s e c o n d and third
c o m p a n i e s i n t o a m a r k e t m i g h t see it as in their i n t e r e s t s to j o i n the
c l u b , t h e f o u r t h and fifth m a r k e t e n t r a n t s m i g h t d e c i d e that t h e only
r o u t e to a significant m a r k e t s h a r e is d r a s t i c price c u t t i n g . As o n e
i n f o r m a n t e x p l a i n e d : i have to d e c i d e , is it b e t t e r for me to m a k e
w a v e s o r t o not m a k e w a v e s , t o j o i n t h e c l u b o r t o b r e a k o u t . ' Often
w h e n a c o u p l e of l a r g e c o m p a n i e s c h o o s e t h e l a t t e r as their rational
e c o n o m i c d e c i s i o n , t h e w h o l e price s t r u c t u r e will b r e a k d o w n . A t
t h e o t h e r e x t r e m e , o n e can still see s i t u a t i o n s t o d a y which o n
o c c a s i o n a p p r o a c h classic c a r t e l s . I n 1978, t h e C o m m i s s i o n o f t h e
E u r o p e a n C o m m u n i t i e s , sitting i n B r u s s e l s , s t o p p e d a D u t c h cartel
which controlled the m a r k e t i n g of pharmaceuticals in the

191
Antitrust

N e t h e r l a n d s . T h e C o m m i s s i o n found that most D u t c h m a n u -


f a c t u r e r s , i m p o r t e r s and d e a l e r s b e l o n g e d t o a n a s s o c i a t i o n which
a c c o u n t e d for 80 to 90 p e r cent of all p h a r m a c e u t i c a l sales in the
c o u n t r y . F u r t h e r , i t w a s ruled t h a t t h e a s s o c i a t i o n r e s t r i c t e d c o m -
p e t i t i o n i n t h e m a r k e t and t h e C o m m i s s i o n o b j e c t e d t o the resale
p r i c e m a i n t e n a n c e i m p o s e d by t h e a s s o c i a t i o n on all drug
2 2
products.
O n e o f t h e r e a s o n s t h a t classic c a r t e l s are fairly r a r e t o d a y i s that
m e t h o d s o f d e t e c t i n g t h e m a r e s o m u c h i m p r o v e d . T o d a y t h e r e are
c o m p u t e r p r o g r a m s w h i c h e n a b l e r e g u l a t o r s t o t h r o w into t h e
m a c h i n e all b i d s for a g i v e n p r o d u c t line o v e r a period of y e a r s to
d i s c e r n if t h e r e is a p a t t e r n in t h e b i d d i n g a l o n g the lines o f ' t o d a y
it's y o u r c o n t r a c t and next t i m e its m i n e ' ( E d e l h e r t z , 1979: 4 5 ) .
I m p r o v e d m e t h o d s o f d e t e c t i o n are o f limited v a l u e , h o w e v e r , i f the
c h a r g e s c a n n o t b e m a d e t o stick i n c o u r t .
T h e t e t r a c y c l i n e case study i l l u s t r a t e s in g r a n d style t h e limita-
t i o n s o f p r o s e c u t o r i a l s o l u t i o n s . H i s t o r i c a l l y , t h e w e a p o n s t h a t the
c r i m i n a l law d e v e l o p e d t o deal with c o n s p i r a c i e s i n o t h e r a r e a s have
b e e n glibly a p p l i e d t o price f i x i n g . H e n c e , the case law e n s h r i n e d
t h e i m p o r t a n c e o f e v i d e n c e o f c o n s p i r a t o r s g e t t i n g t o g e t h e r and
c o m m u n i c a t i n g with o n e a n o t h e r for t h e p u r p o s e o f r e s t r i c t i n g
c o m p e t i t i o n . T h i s e m p h a s i s on c o n s p i r a c y has had t h e effect of
e m p t y i n g a n t i t r u s t law of its e c o n o m i c c o n t e n t . D o e s it m a t t e r very
m u c h w h e t h e r lurid secret hotel m e e t i n g s t o o k p l a c e o r n o t ? W h y
c a n n o t t h e focus b e o n e c o n o m i c b e h a v i o u r r a t h e r t h a n c o n s p i r a -
torial intent? If there is e c o n o m i c evidence of unacceptable
u n i f o r m i t y of p r i c i n g , why not issue an o r d e r that the n e x u s of prices
m u s t be b r o k e n and t h a t s o m e f i n a n c i a l p e n a l t y be paid for the
e x c e s s profits w h i c h h a v e b e e n a c c r u e d from the n o n - c o m p e t i t i v e
p r i c i n g ? O b v i o u s l y it w o u l d be unjust to t h r o w individuals in jail on
the strength of proof of unacceptable corporate economic
b e h a v i o u r w i t h o u t any d e m o n s t r a t i o n o f individual i n t e n t . B u t i s i t
n e c e s s a r y to i m p r i s o n i n d i v i d u a l s to d e t e r collusive pricing effec-
t i v e l y ? S u r e l y m o r e cost-effective ( a n d h u m a n e ) d e t e r r e n c e would
r e s u l t from m a n y successful a c t i o n s against c o m p a n i e s for
u n a c c e p t a b l e p r i c i n g u n i f o r m i t y , r a t h e r t h a n from a small n u m b e r
o f p r o s e c u t i o n s a t m u c h g r e a t e r cost u n d e r the m o r e c o m p l e x legal
d e t e r m i n a t i o n s based on conspiracy.
A n o t h e r way of stating t h e p r o b l e m is to a r g u e that we should
m o v e a w a y from t h e t r a d i t i o n a l c r i m i n a l law p r e o c c u p a t i o n with
b l a m e w o r t h i n e s s a n d focus instead on effects. If c e r t a i n pricing

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Antitrust

p a t t e r n s h a v e e c o n o m i c effects w h i c h are u n a c c e p t a b l e , t h e n that


p r i c i n g b e h a v i o u r s h o u l d b e s t o p p e d . A n d i f such pricing p a t t e r n s
h a v e a l r e a d y led t o unjustifiable e n r i c h m e n t o f t h e c o m p a n i e s a t the
e x p e n s e o f t h e p u b l i c , t h e n t h o s e c o m p a n i e s should b e r e q u i r e d t o
pay b a c k at least a p a r t of t h a t unjustified e n r i c h m e n t . Such an
a p p r o a c h w o u l d r e t u r n e c o n o m i c c o n t e n t t o a n a r e a o f law w h i c h
w a s e n a c t e d for e c o n o m i c r e a s o n s . I t w o u l d avoid t h e p r o s e c u t i o n
of conspiracies which have minimal economic consequences, or
w h i c h a r e e v e n in t h e p u b l i c i n t e r e s t ( e . g . by securing e c o n o m i e s of
scale t h r o u g h g e o g r a p h i c p a r t i t i o n i n g of a m a r k e t ) . A n d it w o u l d
d e a l w i t h t h e p r o b l e m o f inability t o act against a n t i - c o m p e t i t i v e
b e h a v i o u r w h i c h has a d v e r s e effects w h e r e p r o o f o f c o n s p i r a c y i s
lacking.
T h e r e a s o n s for s t e e r i n g a w a y from n o t i o n s o f m o r a l b l a m e -
w o r t h i n e s s b e c o m e m o r e a p p a r e n t w h e n o n e c o n s i d e r s so-called
' t a c i t c o l l u s i o n ' . T a c i t c o l l u s i o n u n d o u b t e d l y c a u s e s m o r e social
h a r m in the p h a r m a c e u t i c a l industry than blatant cartels. The
c o n c e p t of tacit c o l l u s i o n is u n d e r p i n n e d by the i n t e r d e p e n d e n c e
t h e o r y o f o l i g o p o l y p r i c i n g , w h i c h P o s n e r ( 1 9 7 6 : 4 2 - 3 ) has
e x p l a i n e d as follows.

In a m a r k e t of m a n y s e l l e r s , t h e i n d i v i d u a l seller is t o o small for


his d e c i s i o n s on p r i c i n g and o u t p u t to affect t h e m a r k e t p r i c e . He
c a n sell all t h a t he c a n p r o d u c e at t h a t price and n o t h i n g at a
h i g h e r p r i c e . H e can s h a d e price w i t h o u t fear o f r e t a l i a t i o n
b e c a u s e t h e e x p a n s i o n of his o u t p u t r e s u l t i n g from a price
r e d u c t i o n will d i v e r t only a n i m p e r c e p t i b l e a m o u n t o f b u s i n e s s
from e a c h of his c o m p e t i t o r s . ( F o r e x a m p l e , in a m a r k e t of 100
s e l l e r s of e q u a l size, an e x p a n s i o n in o u t p u t o f 2 0 p e r c e n t by o n e
of t h e m will result in an a v e r a g e fall in o u t p u t of only a b o u t .2 of 1
p e r c e n t for e a c h o f t h e o t h e r s , so a seller need not w o r r y in
m a k i n g his p r i c i n g d e c i s i o n s a b o u t t h e r e a c t i o n s of his rivals.) In
c o n t r a s t , in a m a r k e t w h e r e t h e r e a r e few sellers (an ' o l i g o p o l y ' ) ,
a p r i c e cut t h a t p r o d u c e s a s u b s t a n t i a l e x p a n s i o n in t h e sales of
o n e seller will r e s u l t in so s u b s t a n t i a l a c o n t r a c t i o n in t h e sales of
t h e o t h e r s t h a t t h e y will p r o m p t l y m a t c h t h e cut. If, for e x a m p l e ,
t h e r e a r e t h r e e sellers o f e q u a l s i z e , a 2 0 - p e r c e n t e x p a n s i o n i n the
sales of o n e will c a u s e t h e sales of e a c h o f t h e o t h e r s to fall by an
a v e r a g e of 10 p e r c e n t - a sales loss the victims can hardly
o v e r l o o k . A n t i c i p a t i n g a p r o m p t r e a c t i o n by his rivals t h a t will
q u i c k l y nullify his g a i n s from price c u t t i n g , the seller in a highly

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c o n c e n t r a t e d m a r k e t will be less likely to initiate a price cut t h a n


his c o u n t e r p a r t i n t h e a t o m i z e d m a r k e t . O l i g o p o l i s t s a r e
' i n t e r d e p e n d e n t ' i n t h e i r pricing: t h e y b a s e their pricing d e c i s i o n s
in p a r t on a n t i c i p a t e d r e a c t i o n s to t h e m . T h e result is a t e n d e n c y
t o a v o i d v i g o r o u s price c o m p e t i t i o n .

It is difficult to c o n c e i v e of such i n t e r d e p e n d e n t pricing b e h a v i o u r


as m o r a l l y b l a m e w o r t h y , e v e n if it d o e s result in p e o p l e dying
t h r o u g h n o t b e i n g a b l e t o afford d r u g s . T u r n e r ( 1 9 6 2 : 6 5 5 - 6 ) a r g u e s
that:

t h e r a t i o n a l o l i g o p o l i s t is b e h a v i n g in exactly t h e s a m e way as is
t h e r a t i o n a l seller in a c o m p e t i t i v e l y s t r u c t u r e d i n d u s t r y ; he is
s i m p l y t a k i n g a n o t h e r factor into a c c o u n t [likely r e a c t i o n s o f
rivals to a p r i c e c u t ] . . . w h i c h he has to t a k e into a c c o u n t b e c a u s e
t h e s i t u a t i o n in w h i c h he finds h i m s e l f p u t s it t h e r e .

H o w can t h e o l i g o p o l i s t b e b l a m e w o r t h y w h e n it, n o differently


from t h e a c t o r in a c o m p e t i t i v e m a r k e t , follows t h e only e c o n o m i c -
ally r a t i o n a l c o u r s e o f c o n d u c t ? H e n c e , T u r n e r ( 1 9 6 2 : 669) a r g u e s
t h a t a n i n j u n c t i o n t h a t m e r e l y ' p r o h i b i t e d each d e f e n d a n t from
t a k i n g into a c c o u n t t h e p r o b a b l e price d e c i s i o n s o f his c o m p e t i t o r s
i n d e t e r m i n i n g his o w n p r i c e ' w o u l d ' d e m a n d such i r r a t i o n a l
b e h a v i o r t h a t full c o m p l i a n c e w o u l d be virtually i m p o s s i b l e . ' G i v e n
t h i s p r e d i c a m e n t , it s h o u l d not s u r p r i s e us to find, as r e p o r t e d in this
c h a p t e r , t h a t i n spite o f t h e long history o f a n t i t r u s t law, p h a r m a -
c e u t i c a l e x e c u t i v e s h a v e not i n t e r n a l i s e d a sense of i m m o r a l i t y
about antitrust violations.
T h e i n t e r d e p e n d e n c e t h e o r y o f o l i g o p o l y pricing leads t o t h e
c o n c l u s i o n t h a t it is i m p o s s i b l e to e l i m i n a t e c o n d u c t w h i c h follows
i n e v i t a b l y from a given i n d u s t r y s t r u c t u r e . S t r u c t u r a l r a t h e r t h a n
c o n d u c t r e m e d i e s are r e q u i r e d . L a t e r s o m e o f t h e s e s t r u c t u r a l
r e m e d i e s will b e c o n s i d e r e d .
First, we must p o n d e r some other traditional antitrust remedies.
In a price-fixing a g r e e m e n t , t h e m o s t crucial r e q u i r e m e n t is to be
able to detect cheating. Even an inadvertent undercutting of
c o m p e t i t o r s on a bid can lead to a g e n e r a l r o u n d of price c u t t i n g ; or
o n e c o m p a n y w h i c h is ( w r o n g l y ) s u s p e c t e d of c h e a t i n g to g r a s p a
b i g g e r m a r k e t s h a r e can c a u s e o t h e r s t o r e t a l i a t e . T h e historical
i n s t a b i l i t y of c a r t e l s is a result of t h e fact t h a t they are rife with
t e m p t a t i o n s and i n d u c e m e n t s to cheat. H e n c e the i m p o r t a n c e of
c o m m u n i c a t i o n b e t w e e n c o m p a n i e s of detailed information on

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Antitrust

p r i c i n g b e h a v i o u r ; and h e n c e t h e c o n c e r n o f m a n y a n t i t r u s t
e n f o r c e r s t o m a k e e x c h a n g e o f pricing i n f o r m a t i o n a m o n g c o m -
p e t i t o r s a perse a n t i t r u s t offence.
T h e p h a r m a c e u t i c a l i n d u s t r y has the last w o r d in m a r k e t intelli-
g e n c e t h r o u g h t h e p r i c i n g s u r v e y s o f p h a r m a c i s t s and o t h e r o u t l e t s
c o n d u c t e d in m o s t m a j o r c o u n t r i e s by the I M S c o m p a n y . Simply by
s u b s c r i b i n g t o I M S you can find e x a c t l y w h a t y o u r c o m p e t i t o r s are
c h a r g i n g for different d o s a g e forms a n d d o s a g e s t r e n g t h s o f a given
p r o d u c t . C o u l d w e s e r i o u s l y talk o f m a k i n g I M S illegal? N o t w i t h -
s t a n d i n g its i m p r a c t i c a l i t y , m a k i n g price i n f o r m a t i o n e x c h a n g e aper
se a n t i t r u s t v i o l a t i o n w o u l d be u n d e s i r a b l e b e c a u s e pricing intelli-
g e n c e c o n f e r s social benefits as well as c o s t s .

I n g e n e r a l , t h e m o r e i n f o r m a t i o n sellers h a v e a b o u t t h e prices
a n d o u t p u t o f t h e i r c o m p e t i t o r s t h e m o r e efficiently the m a r k e t
will o p e r a t e . A firm c a n n o t d e c i d e h o w m u c h to p r o d u c e , or
i n d e e d w h e t h e r t o p r o d u c e a t all, w i t h o u t k n o w i n g w h a t the
m a r k e t p r i c e is. . . . Y e t such i n f o r m a t i o n could also be useful in
e n a b l i n g a c a r t e l to restrict its o u t p u t by limiting t h e e x p a n s i o n of
p r o d u c t i v e c a p a c i t y . I n f o r m a t i o n is t h u s a t w o - e d g e d s w o r d : it is
n e c e s s a r y if t h e c o m p e t i t i v e p r o c e s s is to w o r k p r o p e r l y , but it can
a l s o facilitate c o l l u s i o n ( P o s n e r , 1976: 136).

S i m i l a r l y , t r a d e a s s o c i a t i o n m e e t i n g s are i n f a m o u s a s v e n u e s for
s w a p p i n g pricing plans. Some of the P h a r m a c e u t i c a l Manufac-
t u r e r s ' A s s o c i a t i o n s a r o u n d t h e w o r l d h a v e s u b c o m m i t t e e struc-
t u r e s b a s e d o n p r o d u c t g r o u p i n g s w h i c h w o u l d o b v i o u s l y facilitate
collusion a m o n g producers of therapeutically equivalent drugs.
Lilly clearly see t r a d e a s s o c i a t i o n m e e t i n g s a s p r o v i d i n g e x c e l l e n t
o p p o r t u n i t i e s for a n t i t r u s t v i o l a t i o n s w h e n they d e v o t e c o n s i d e r -
a b l e a t t e n t i o n to t h e m a t t e r in t h e i r Guidelines of Company Policy
( S e p t e m b e r , 1978):

H o w e v e r , t r a d e a s s o c i a t i o n m e e t i n g s are a l m o s t invariably a
f a v o r i t e a r e a of e x a m i n a t i o n by a n t i t r u s t e n f o r c e m e n t officials.
It is i m p o r t a n t t h a t e m p l o y e e s be p a r t i c u l a r l y careful to
c o n d u c t t h e m s e l v e s i n a m a n n e r t h a t i s a b o v e suspicion w h e n
a t t e n d i n g t h e s e m e e t i n g s . T h e following r u l e s should b e o b e y e d
carefully:
1 . A t t e n d only m e e t i n g s o f l e g i t i m a t e t r a d e and p r o f e s s i o n a l
a s s o c i a t i o n s held for p r o p e r b u s i n e s s , scientific, or
professional purposes.

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Antitrust

2. A p a r t from p u r e l y social affairs, n e v e r a t t e n d informal


gatherings of representatives of c o m p e t i t o r s before, during, or
after t h e formal b u s i n e s s s e s s i o n s of a t r a d e a s s o c i a t i o n
m e e t i n g . S u c h "rump* m e e t i n g s a r e a l w a y s suspect.
3. T a k e no p a r t in, or e v e n listen t o , any d i s c u s s i o n s of p r i c e ,
t e r m s of s a l e , b o y c o t t s , or blacklists at an a s s o c i a t i o n m e e t i n g .
H o w e v e r , d i s c u s s i o n s o f g e n e r a l e c o n o m i c t r e n d s are p r o p e r .
If t h e d i s c u s s i o n at an a s s o c i a t i o n m e e t i n g t u r n s to t h e subject
o f p r i c e s o r o t h e r p r o h i b i t e d t o p i c s , leave the r o o m .
4. If t h e a g e n d a of a f o r t h c o m i n g a s s o c i a t i o n m e e t i n g i n d i c a t e s
d o u b t f u l s u b j e c t s , check i n a d v a n c e w i t h y o u r s u p e r v i s i o n
before attending.
5 . A d v i s e y o u r s u p e r v i s i o n o r t h e a p p r o p r i a t e legal p e r s o n n e l
p r o m p t l y of any activity of an a s s o c i a t i o n that may a p p e a r to
be illegal or e v e n s u s p i c i o u s .

A g a i n , t r a d e a s s o c i a t i o n m e e t i n g s are a n a r e a which i s k n o w n t o
c a u s e p r o b l e m s , b u t which the law c a n n o t effectively deal with
b e c a u s e t h e a c t i v i t i e s t h a t t a k e p l a c e w i t h i n t h e m also confer social
b e n e f i t s ( e . g . diffusion of i n n o v a t i o n , p r o m o t i o n of self-regula-
tion).
C r e a t i n g v a r i o u s per se offences to p r o h i b i t b e h a v i o u r k n o w n to
be a s s o c i a t e d w i t h p r i c e fixing d o e s not s e e m a very p r o d u c t i v e
r e s p o n s e to the w i d e s p r e a d impossibility of proving conspiracy
( P o s n e r , 1976, 1977). An a l t e r n a t i v e r o u t e is to focus on structural
p r e c o n d i t i o n s r a t h e r t h a n the c o n d u c t which such s t r u c t u r e s
p r o d u c e . D i v e s t i t u r e o r d e r s and p r o h i b i t i o n o f m e r g e r s a r e the
m o s t w i d e l y s u p p o r t e d s t r u c t u r a l r e m e d i e s . Such m e a s u r e s d e m a n d
c o n s i d e r a b l e political will and for t h a t r e a s o n have not b e e n
a d o p t e d ( A d a m s , 1 9 5 1 ; E l z i n g a . 1969; P f u n d e r e t a l . , 1972). I n the
U n i t e d S t a t e s , t h e A n t i t r u s t D i v i s i o n o f t h e J u s t i c e D e p a r t m e n t has
p e r m i t t e d five m a s s i v e m e r g e r s a m o n g t r a n s n a t i o n a l p h a r m a -
c e u t i c a l c o m p a n i e s d u r i n g t h e last fifteen y e a r s : M e a d J o h n s o n and
B r i s t o l M y e r s ; P l o u g h and S c h e r i n g ; C i b a and G e i g y ; P a r k e D a v i s
a n d W a r n e r - L a m b e r t ; D o w and R i c h a r d s o n - M e r r e l l . I n any c a s e ,
one w o n d e r s how much would be achieved by attempts to break up
t h e i n d u s t r y . M a n y o f t h e p h a r m a c e u t i c a l c o m p a n i e s which h a v e
m e r g e d i n r e c e n t t i m e s w e r e not c o m p e t i t o r s (in the sense t h a t their
p r o d u c t lines w e r e not t h e r a p e u t i c a l l y s u b s t i t u t a b l e ) . E v e n t h e
c o m b i n a t i o n o f t w o m e m b e r s (or t h e b r e a k i n g i n t w o o f one
m e m b e r ) o f t h e s a m e o l i g o p o l y might not m a k e m u c h difference

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Antitrust

g i v e n w h a t w e k n o w a b o u t h o w little c o m p e t i t i o n t h e r e i s t o start
with in most o f t h e oligopolies. Finally, it is known that research
p r o d u c t i v i t y i n c r e a s e s with c o m p a n y size; s o i t b e c o m e s possible
t h a t a t t e m p t s t o b r e a k u p the industry m i g h t have m i n i m a l i m p a c t
on c o m p e t i t i o n w h i l e r e d u c i n g t h e flow of t h e r a p e u t i c b r e a k -
throughs.
T h e r e are a great many alternative types of structural remedies
available in the pharmaceutical industry, however. Abolishing
p a t e n t s i s t h e m o s t radical s o l u t i o n for r e s t o r i n g c o m p e t i t i o n . A s a n
a l t e r n a t i v e t o b r e a k i n g u p t h e large c o m p a n i e s , this w o u l d foster the
e n t r y o f m a n y s m a l l e r c o m p e t i t o r s t o c h a l l e n g e the g i a n t s . A s has
b e e n pointed out a l r e a d y , patents have the advantage of r e w a r d i n g ,
a n d t h e r e b y e n c o u r a g i n g i n v e s t m e n t i n i n n o v a t i o n . H o w e v e r , this
benefit s h o u l d n o t b e e x a g g e r a t e d . P a t e n t r e w a r d s , a s K n i g h t (1971)
p o i n t e d o u t , g o t o t h o s e w h o put t h e 'finishing t o u c h ' o n a n innova-
t i o n , w h e n t h e activity w h i c h is m o s t d e s e r v i n g of r e w a r d is basic
r e s e a r c h . T h e r o u t i n i s e r g e t s the i n c e n t i v e s w h i l e t h e real p i o n e e r -
ing and e x p l o r a t i o n are d o n e b y o t h e r s . M o r e o v e r , i n m e d i c i n e
p a t e n t s a r e r e s e r v e d for i n n o v a t o r s i n c h e m i c a l t r e a t m e n t s but not
i n n o v a t o r s i n n o n - c h e m i c a l t r e a t m e n t s . T h i s c o n c e n t r a t e s scarce
r e s e a r c h r e s o u r c e s a n d t a l e n t into c h e m i c a l s o l u t i o n s w h e n alter-
n a t i v e d i r e c t i o n s for r e s e a r c h m i g h t c o n f e r a g r e a t e r social b e n e f i t . "
T h e s e k i n d s o f a r g u m e n t s lead K n i g h t t o a r g u e a g a i n s t p a t e n t
m o n o p o l i e s : 'It w o u l d s e e m to be a m a t t e r of political i n t e l l i g e n c e
a n d a d m i n i s t r a t i v e c a p a c i t y t o r e p l a c e artificial m o n o p o l y w i t h
s o m e d i r e c t m e t h o d o f s t i m u l a t i n g and r e w a r d i n g r e s e a r c h . '
Such 'direct m e t h o d s of stimulating and rewarding research'
w o u l d , of c o u r s e , cost a g r e a t deal of p u b l i c m o n e y . W a l k e r (1971)
c o n c l u d e d o n t h e b a s i s o f his e c o n o m i c r e s e a r c h that t h e costs t o t h e
p u b l i c o f p a y i n g for all o f t h e r e s e a r c h c o n d u c t e d b y t h e p h a r m a -
c e u t i c a l i n d u s t r y w o u l d b e m o r e t h a n c o m p e n s a t e d for b y the
s a v i n g s in p r i c e r e d u c t i o n s which w o u l d follow from a b o l i s h i n g
p a t e n t s . P h a r m a c e u t i c a l c o m p a n i e s w o u l d n o t c o m p l e t e l y stop their
r e s e a r c h a c t i v i t i e s i f p a t e n t s w e r e a b o l i s h e d . T h e r e w o u l d still b e
g r e a t a d v a n t a g e s in b e i n g t h e first in t h e d o c t o r ' s surgery with a n e w
product.
M o r e o v e r , w e h a v e seen that t h e r e are c e r t a i n a d d i t i o n a l c o n s e -
q u e n c e s o f p a t e n t s w h i c h run c o u n t e r t o t h e p u b l i c interest a p a r t
from t h e i r a d v e r s e i m p a c t o n c o m p e t i t i o n . T h e S e c o n d W o r l d W a r
fiasco w i t h p e n i c i l l i n i l l u s t r a t e d o n e o f t h e m . T h e m o s t i m p o r t a n t i s
t h a t m o s t r e s e a r c h a n d safety t e s t i n g r e s o u r c e s are d i r e c t e d a t

197
Antitrust

efforts t o c i r c u m v e n t e x i s t i n g p a t e n t s with m e - t o o p r o d u c t s , instead


of at efforts to i m p r o v e h e a l t h . C o n s i s t e n t with K n i g h t ' s a r g u m e n t ,
t h e t e t r a c y c l i n e c a s e study i l l u s t r a t e s h o w quite a r b i t r a r y forces
w h i c h h a v e little to do with r e s e a r c h effort often s h a p e w h o gets a
p a t e n t and w h o d o e s not.
A final a r g u m e n t against p a t e n t s , t h o u g h p e r h a p s not a particu-
larly s t r o n g o n e , i s C o s t e l l o ' s ( 1 9 6 8 ) c o n t e n t i o n t h a t m o n o p o l y
p o w e r is in s o m e w a y s a d e t e r r e n t to i n n o v a t i o n (see also H a m b e r g ,
1966: 3 9 4 4 ) . A s e v i d e n c e o f t h i s , C o s t e l l o a r g u e s , for e x a m p l e ,
t h a t o n c e C y a n a m i d had p a t e n t e d c h l o r t e t r a c y c l i n e i t rested o n its
l a u r e l s , a b a n d o n i n g all further r e s e a r c h in t h e a r e a until the
stimulus o f t h e discovery of tetracycline by other companies (mainly
Pfizer) c a m e a l o n g .
W h e n all t h e a r g u m e n t s a g a i n s t p a t e n t s are a s s e m b l e d , their
j u s t i f i c a t i o n for e x i s t i n g at all s e e m s less o b v i o u s t h a n the industry
w o u l d h a v e u s b e l i e v e . G i v e n the p o w e r o f t h e p h a r m a c e u t i c a l
l o b b y , t h e political feasibility o f c o m p l e t e l y a b o l i s h i n g p a t e n t s
s e e m s m i n i m a l i n m o s t c o u n t r i e s . N e v e r t h e l e s s , all o f t h e a d v a n -
t a g e s o f p a t e n t s c o u l d surely b e a d e q u a t e l y p r o t e c t e d u n d e r a
r e d u c e d p e r i o d o f p a t e n t p r o t e c t i o n . T h e a d v a n t a g e s o f being first
on t h e m a r k e t are so great with p h a r m a c e u t i c a l s that 16-20 y e a r s of
p a t e n t p r o t e c t i o n is an e n o r m o u s cost in r e d u c e d c o m p e t i t i o n for an
i n c e n t i v e w h i c h i s e x c e s s i v e l y g r e a t e r t h a n that r e q u i r e d t o foster
innovation.

C o m p u l s o r y licensing is a n o t h e r s t r u c t u r a l reform for i n c r e a s e d


c o m p e t i t i o n . It p r o v i d e s i n c e n t i v e s for i n n o v a t i o n from r o y a l t i e s
r a t h e r t h a n m o n o p o l y profits. A n u m b e r o f W e s t e r n E u r o p e a n
c o u n t r i e s , C a n a d a , Israel and I n d i a , t o n a m e a few, h a v e p r o v i s i o n
for g o v e r n m e n t t o r e q u i r e c o m p a n i e s t o license t h e i r p a t e n t e d
p r o d u c t t o p o t e n t i a l c o m p e t i t o r s w h e n t h e g o v e r n m e n t ' s assess-
ment o f t h e public interest d e m a n d s .
A b o l i t i o n of b r a n d n a m e s is a s t r u c t u r a l p a t h to i n c r e a s e d c o m -
p e t i t i o n w h i c h h a s b e e n followed in a limited way by P a k i s t a n and
I n d i a . " It h a s b e e n seen t h a t e v e n after a p r o d u c t g o e s off p a t e n t ,
t h e m a r k e t d o m i n a n c e o f the o r i g i n a l p a t e n t - h o l d e r i s usually
r e t a i n e d b e c a u s e of established brand-prescribing habits among
d o c t o r s . T y p i c a l l y t h e m a r k e t share o f t h e l e a d e r r e m a i n s i m p e r -
v i o u s t o i n c u r s i o n s from price c u t t e r s . A b o l i s h i n g b r a n d n a m e s
a b o l i s h e s t h e a d v a n t a g e from p h y s i c i a n - p r e s c r i b i n g h a b i t s and
w o u l d o p e n t h e f l o o d g a t e s o f price c o m p e t i t i o n . P r o d u c t s w o u l d b e
p r o m o t e d a n d sold b y g e n e r i c n a m e o n l y . C o m p a n y r e p u t a t i o n

198
Antitrust

c o u l d still b e r e l e v a n t . V a l i u m w o u l d b e c o m e R o c h e d i a z e p a m and
w o u l d c o m p e t e w i t h d i a z e p a m sold b y v a r i o u s c o m p a n i e s , but the
magic o f t h e Valium brand name would disappear.
T h a l i d o m i d e d e m o n s t r a t e d t h e o t h e r i m p o r t a n t justification for
abolishing brand names. Many deformed babies were born because
o f t h e c o n f u s i o n s u r r o u n d i n g t h e d o z e n s o f different c o m m e r c i a l
n a m e s u n d e r w h i c h t h a l i d o m i d e w a s sold a r o u n d t h e w o r l d . I t
w o u l d be e a s i e r for d o c t o r s b o t h to get t h e i r initial t r a i n i n g a n d to
k e e p u p w i t h n e w d e v e l o p m e n t s i f only o n e n a m e w e r e a s s o c i a t e d
w i t h e a c h distinct m o l e c u l a r e n t i t y . I n t h e U n i t e d S t a t e s a t the
m o m e n t t h e r e are a l m o s t 3 0 r e g i s t e r e d b r a n d n a m e s for each p r e s -
cription drug on the m a r k e t ( U N C e n t r e on Transnational Corpor-
ations, 1979:47).
T h e r e a r e m a n y c o m p r o m i s e m e a s u r e s t h a t g o only part o f t h e
way towards undermining the quasi-monopolistic power of brand
n a m e s . All but four A m e r i c a n s t a t e s have n o w r e p e a l e d their a n t i -
s u b s t i t u t i o n l a w s , so t h a t p h a r m a c i s t s are e m p o w e r e d to s u b s t i t u t e a
c h e a p e r , b u t t h e r a p e u t i c a l l y e q u i v a l e n t , g e n e r i c p r o d u c t for t h e
b r a n d n a m e w h i c h t h e p h y s i c i a n w r i t e s o n the p r e s c r i p t i o n . I n s o m e
s t a t e s this cost s a v i n g can be m a d e only if t h e p h y s i c i a n e x p r e s s e s
a p p r o v a l o f g e n e r i c s u b s t i t u t i o n o n t h e p r e s c r i p t i o n form; i n o t h e r s
s u b s t i t u t i o n i s a u t o m a t i c a l l y p e r m i t t e d unless t h e physician
expressly indicates disapproval ofthe practice.
O t h e r c o m p r o m i s e m e a s u r e s aim t o r e d u c e c o n s u m e r costs b y
m a k i n g both physicians and pharmacists m o r e price conscious.
D r u g c o m p e n d i a with information on comparative therapeutic
efficacy and p r i c e s a r e p u b l i s h e d by g o v e r n m e n t s in t h e U n i t e d
K i n g d o m , S w e d e n and N o r w a y (Gereffi, 1979: 2 3 ) . I n the U n i t e d
S t a t e s , t h e D e p a r t m e n t o f H e a l t h and H u m a n S e r v i c e s n o w s e n d s
lists o f d r u g - p r i c e c o m p a r i s o n s t o p h y s i c i a n s and p h a r m a c i s t s t o
e n c o u r a g e t h e m t o l o w e r t h e i r p a t i e n t s ' e x p e n d i t u r e (Business
Week, 6 O c t o b e r 1 9 7 5 : 9 9 ) . A n u m b e r of c o u n t r i e s , a n d s o m e
A m e r i c a n s t a t e s , r e q u i r e t h e p o s t i n g o f p r e s c r i p t i o n prices i n phar-
m a c i e s t o facilitate cost-effective p u r c h a s i n g (Gereffi, 1979: 2 3 - 4 ) .
T h e g r e a t a d v a n t a g e o f s t r u c t u r a l r e m e d i e s such a s t h e a b o l i t i o n
o f b r a n d n a m e s , p a t e n t s , and a n t i - s u b s t i t u t i o n laws i s that they d o
n o t i n v o l v e t h e b u r e a u c r a t i c and legal costs o f a n t i t r u s t p r o s e c u t i o n s
and divestitures. S o m e progress is being m a d e towards a more
competitive pharmaceutical market. The proportion of United
S t a t e s d r u g p r e s c r i p t i o n s w h i c h are w r i t t e n g e n e t i c a l l y rose from
6 p e r c e n t in 1966 to 12.4 p e r cent in 1977 ( U N C e n t e r on

199
Antitrust

Transnational Corporations, 1979:80). I n c i d e n t s such a s the


C e n t r a f a r m a m b i t , and w i d e r d i s s e m i n a t i o n o f i n f o r m a t i o n o n
i n t e r n a t i o n a l price v a r i a t i o n s on t h e s a m e p r o d u c t , will lead to
g r o w i n g d e m a n d s for price r e d u c t i o n s in c o u n t r i e s with prices well
a b o v e w o r l d a v e r a g e s . T h e reality o f g r o w i n g p r i c e c o m p e t i t i o n
from g e n e r i c m a n u f a c t u r e r s has b e e n c o n f r o n t e d by a n u m b e r o f t h e
m a j o r t r a n s n a t i o n a l s w h o are n o w d e v e l o p i n g lines o f ' b r a n d e d
g e n e r i c s ' . T h e s e a r e simply g e n e r i c d r u g s t o c o m p e t e w i t h t h e
o f f - p a t e n t p r o d u c t s o f o t h e r t r a n s n a t i o n a l s , but which use the
c o m p a n y r e p u t a t i o n of the 'branded generic' manufacturer as a
promotional advantage.
In s p i t e of t h e g r e a t e r efficiency of t h e s t r u c t u r a l s o l u t i o n s to
b a r r i e r s t o c o m p e t i t i o n discussed a b o v e , t h e r e are still s i t u a t i o n s
w h e n c o n d u c t r e m e d i e s m u s t b e relied u p o n . W h i l e the real h o p e
for r e s t o r i n g c o m p e t i t i o n c o m e s from a r e a s o t h e r t h a n a n t i t r u s t law,
o n e w o u l d n o t w a n t to do away with t h e latter. C o n s i d e r , for
e x a m p l e , t h e p r o b l e m of a large c o m p a n y w h i c h has a drug in an
i n t r a v e n o u s l y i n j e c t a b l e , i n t r a m u s c u l a r l y injectable and orally
i n g e s t a b l e form. A c o m p e t i t o r e n t e r s t h e m a r k e t by p r o d u c i n g only
t h e i n t r a v e n o u s f o r m , in w h i c h it u n d e r c u t s the price of t h e first
c o m p a n y . T h e o r i g i n a l p r o d u c e r t h e n tells its h o s p i t a l c u s t o m e r s t o
b u y all t h r e e forms of t h e d r u g from t h e m , or t h e y will lose their
n o r m a l b u l k d i s c o u n t o n t h e t w o lines t h e y c o n t i n u e t o p u r c h a s e .
T h i s t y p e o f r e s t r i c t i v e t r a d e p r a c t i c e can really only b e d e a l t with b y
a c o n d u c t p r o s e c u t i o n or a civil a n t i t r u s t suit.
E a r l i e r i t w a s a r g u e d t h a t pricing p a t t e r n s which h a v e u n a c c e p t -
a b l e e c o n o m i c effects s h o u l d s o m e t i m e s b e s t o p p e d , for t h a t r e a s o n
a l o n e , w i t h o u t t h e r e q u i r e m e n t o f p r o v i n g c o n s p i r a c y , and o r d e r s
for t h e r e p a y m e n t of e x c e s s profits s h o u l d also be m a d e in s o m e of
t h e s e c a s e s . B u t w h o i s t o d e c i d e w h a t e c o n o m i c effects are un-
a c c e p t a b l e ? In some E u r o p e a n countries courts tend to make these
e c o n o m i c d e c i s i o n s w i t h o u t great difficulty and w i t h o u t slipping
i n t o t h e m o r a l b l a m e w o r t h i n e s s t r a p s w h i c h have b e e n t h e o u t c o m e
o f l e g a l i s m i n c o u n t r i e s such a s A u s t r a l i a , C a n a d a and J a p a n w h i c h
h a v e followed the A m e r i c a n antitrust m o d e l .
N e v e r t h e l e s s , o n e w o n d e r s w h e t h e r i t i s t h e role o f t h e c o u r t s t o
m a k e e c o n o m i c decisions. Perhaps the British M o n o p o l i e s Com-
m i s s i o n i n t e r v e n t i o n in t h e V a l i u m and L i b r i u m case study is closer
t o a n a p p r o p r i a t e m o d e l . C o u r t s h a v e n o t fared p a r t i c u l a r l y well i n
dealing with the complexities of antitrust matters. P e r h a p s much of
a n t i t r u s t s h o u l d be shifted from t h e legal d o m a i n to t h e political. A

200
Antitrust

p a r l i a m e n t a r y c o m m i t t e e , or a commission of economic experts


a p p o i n t e d b y t h e l e g i s l a t u r e , could h o l d p u b l i c h e a r i n g s and m a k e
r e c o m m e n d a t i o n s about the economic desirability of intervention
in t h e p r i c i n g s t r u c t u r e of a m o n o p o l i s t i c or o l i g o p o l i s t i c m a r k e t
w i t h o u t n e c e s s a r y r e f e r e n c e t o m o r a l b l a m e w o r t h i n e s s o r pre-
c e d e n t . The legislature (or perhaps the executive under the
A m e r i c a n s y s t e m ) c o u l d t h e n c h o o s e t o a c c e p t o r reject the r e c o m -
m e n d a t i o n . T h e political s y s t e m , like the legal s y s t e m , has its o w n
c h e c k s and b a l a n c e s a g a i n s t a b u s e s o f d e c i s i o n - m a k i n g p o w e r
( e l e c t i o n s , r e m o v a l o f m i n i s t e r s from office, r e q u i r e m e n t t o
p u b l i c l y justify d e c i s i o n s , e t c . ) . T h e d e m o c r a t i c political p r o c e s s ,
w i t h all its f a u l t s , is s u p e r i o r to t h e legal p r o c e s s for s o m e t y p e s of
2 5
d e c i s i o n - m a k i n g , and e c o n o m i c d e c i s i o n - m a k i n g i s one o f t h e m .
T h e legal s y s t e m w i t h its m o r e i n t r i c a t e p r o c e d u r a l safeguards is
c l e a r l y s u p e r i o r for d e c i s i o n s w h i c h t h r e a t e n t h e life and liberty of
i n d i v i d u a l p e r s o n s a c c u s e d of w r o n g d o i n g . If, h o w e v e r , o n e is
p r e p a r e d to eschew the option of punishing individuals (particularly
i n c a r c e r a t i o n , c o r p o r a l and c a p i t a l p u n i s h m e n t ) , t h e n t h e p r i m a r y
r a t i o n a l e for giving t h e c o u r t s r e s p o n s i b i l i t y for d e c i s i o n s a b o u t
u n i q u e and e v e r - c h a n g i n g e c o n o m i c s i t u a t i o n s i s n o longer t e n a b l e .
M y o w n view i s t h a t t h e r e p o r t o f t h e B r i t i s h M o n o p o l i e s C o m m i s -
sion on L i b r i u m and V a l i u m r e p r e s e n t s a m i l e s t o n e on the p a t h to a
m o r e constructive, more political, approach to antitrust.
This conclusion might be generalised beyond the pharmaceutical
i n d u s t r y . I f t h e U S g o v e r n m e n t w a n t e d t o b r e a k u p I B M i n 1969,
w h y did t h e y h a v e to go a b o u t it by tying up c o u r t s for 13 y e a r s and
s p e n d i n g t e n s of m i l l i o n s of t a x p a y e r s ' d o l l a r s in legal costs? T h e
p r e s u m e d a d v a n t a g e of c e r t a i n t y in law is feeble w h e n n e w and
r a p i d l y c h a n g i n g e c o n o m i c r e a l i t i e s , c o m b i n e d with a n i n e v i t a b l e
legal c o m p l e x i t y t o g r a p p l e with such flux, r e n d e r t h e o u t c o m e o f
l i t i g a t i o n a n y o n e ' s g u e s s . P r e s u m e d c e r t a i n t y of law is a d u b i o u s
benefit w h e n an i n d u s t r y m u s t suffer t e r r i b l e u n c e r t a i n t y for a
d e c a d e w h i l e c l u m s y c o u r t s a g o n i s e o v e r major e c o n o m i c d e c i s i o n s .
T h e polity is m o r e a b l e ( e v e n if not a l w a y s willing) to be d e c i s i v e .
S u r p r i s i n g l y , it can also be m o r e d e t e r m i n e d to b r e a k up m o n o p o l y
p o w e r t h a n t h e c o u r t s . O n e o f t h e ironies o f t h e o t h e r major U S
m o n o p o l i z a t i o n c a s e o f t h e 1970s - A T & T - w a s that the c o m p a n y
o p t e d for a legal s e t t l e m e n t in 1982 b e c a u s e of fear t h a t legislation
p e n d i n g in t h e C o n g r e s s w o u l d result in a m o r e severe b r e a k u p of
A T & T t h a n t h e c o u r t s w o u l d ever dish out (Sunday News Journal,
10 J a n u a r y 1982).

201
Antitrust

It t h e r e f o r e s e e m s u n d e s i r a b l e for a m a t t e r like t h e b r e a k - u p of a
c o m p a n y with $20 billion in assets to be d e c i d e d e i t h e r by the c o u r t s
o r t h r o u g h t h e secret p o w e r o f a d m i n i s t r a t i v e d e c i s i o n - m a k i n g .
S u r e l y t h e b r e a k - u p of I B M is a big e n o u g h political issue to be
d e b a t e d b y e l e c t e d r e p r e s e n t a t i v e s and v o t e d o n i n the C o n g r e s s .
C y n i c s w o u l d be justified in p o i n t i n g out t h a t political r e g u l a t i o n is
m o r e s u s c e p t i b l e t o t h e p o w e r o f big m o n e y t h a n legal r e g u l a t i o n .
C e r t a i n l y political r e g u l a t i o n must be a c c o m p a n i e d by s t r o n g
g u a r a n t e e s o f o p e n n e s s and effective laws p r o h i b i t i n g c o r p o r a t e
campaign contributions.

T h e t h r u s t of t h e c o n c l u s i o n to this c h a p t e r is t h e r e f o r e funda-
m e n t a l l y different from t h o s e o f t h e p r e v i o u s t w o . T h e p r e v i o u s t w o
c h a p t e r s p r e s e n t e d a r g u m e n t s for a g r e a t e r role for s e l f - r e g u l a t i o n ,
a g r e a t e r role for a d m i n i s t r a t i v e r e g u l a t i o n and a role for litigious
r e g u l a t i o n o f safety less c e n t r a l t h a n t h e o t h e r t w o s t r a t e g i e s . T h e
p r e s e n t c h a p t e r also a r g u e s for i n f r e q u e n t r e g u l a t i o n t h r o u g h t h e
c o u r t s , b u t i m p l i e s an i n c r e a s e d role for political r a t h e r t h a n
a d m i n i s t r a t i v e r e g u l a t i o n , and a m i n i m a l role for self-regulation.
W i t h safety m a t t e r s t h e r e is an i m p o r t a n t place for self-regulation
b e c a u s e up to a p o i n t g o v e r n m e n t a n d b u s i n e s s share a c o m m o n
i n t e r e s t in t h e sale of safe p r o d u c t s . In c o n t r a s t , c o m p a n i e s do not
g e n e r a l l y h a v e an i n t e r e s t in e n f o r c i n g t h e setting of l o w e r p r i c e s for
t h e i r p r o d u c t s . Since t h e m a r k e t and t h e c o u r t s have failed t o
r e g u l a t e p h a r m a c e u t i c a l p r i c e s effectively, and since self-regulation
of pricing w o u l d be to put Dracula in charge o f t h e blood bank, the
o n l y c o u r s e i s for g r e a t e r p o l i t i c a l - a d m i n i s t r a t i v e " price c o n t r o l .
As a r g u e d e a r l i e r , it is g e n e r a l l y p r e f e r a b l e to h a v e such c o n t r o l s
t o w a r d t h e political end o f t h e p o l i t i c a l - a d m i n i s t r a t i v e c o n t i n u u m .
H o w e v e r , voting in the legislature on every major antitrust matter
w o u l d clearly clog up t h e legislative p r o c e s s ( N e u s t a d t , 1980:
1 4 6 - 4 9 ) . L o w e r levels o f p o l i t i c i s a t i o n (such a s t h r o u g h a n i n d e -
p e n d e n t c o m m i s s i o n c o n d u c t i n g a n e n q u i r y and t h e n m a k i n g a
r e c o m m e n d a t i o n for c a b i n e t d e c i s i o n u n d e r t h e W e s t m i n s t e r
s y s t e m , o r p e r h a p s u n d e r the A m e r i c a n system a n i n d e p e n d e n t
c o m m i s s i o n m a k i n g r e c o m m e n d a t i o n s w h i c h will a u t o m a t i c a l l y b e
a d o p t e d u n l e s s t h e C o n g r e s s c h o o s e s t o v e t o t h e m within a fixed
p e r i o d ) , m u s t be a p p l i e d to all but t h e m o s t crucial a n t i t r u s t d e t e r -
m i n a t i o n s . To the extent that professional opinion is relevant to
t h e s e p o l i t i c a l d e c i s i o n s , it s h o u l d be p r i m a r i l y t h e professional
o p i n i o n s o f e c o n o m i s t s , not l a w y e r s . M o r e important than

202
Antitrust

p r o f e s s i o n a l o p i n i o n i s c o n s u m e r o p i n i o n . T h i s s h o u l d b e fostered
by f i n a n c i a l s u p p o r t for c o n s u m e r g r o u p s to m o u n t s u b m i s s i o n s to
g o v e r n m e n t , r e p r e s e n t a t i o n of c o n s u m e r groups on relevant com-
m i t t e e s of e n q u i r y a n d full p u b l i c a c c e s s to r e c o r d s of g o v e r n m e n t
d e l i b e r a t i o n s o n a n t i t r u s t m a t t e r s . W i t h o u t such g u a r a n t e e s ,
politicised antitrust would be captured by the superior power ofthe
c o r p o r a t i o n s i n t h e s a m e way t h a t legal a n t i t r u s t has b e e n .

203
6 The corporation as pusher

P e o p l e w h o foster d e p e n d e n c e on illicit d r u g s such as h e r o i n are


r e g a r d e d a s a m o n g t h e m o s t u n s c r u p u l o u s p a r i a h s o f m o d e r n civilis-
a t i o n . In c o n t r a s t , p u s h e r s of licit d r u g s tend to be v i e w e d as
a l t r u i s t i c a l l y m o t i v a t e d p u r v e y o r s o f a social g o o d . Yet d e p e n d e n c e
o n V a l i u m o r D a r v o n can h a v e c o n s e q u e n c e s j u s t a s frightening a s
h e r o i n a d d i c t i o n . C o n s t a n t l y i n t h e m e d i a w e read h o r r o r stories o f
b i z a r r e e x p l o i t s of p e o p l e u n d e r t h e influence of illicit d r u g s . It t o o k
t h e d r u g d e p e n d e n c e o f t h e wife o f a p r e s i d e n t , B e t t y F o r d , t o get
h e a d l i n e s a b o u t V a l i u m a d d i c t i o n into A m e r i c a n n e w s p a p e r s .
V a l i u m in i n t e r a c t i o n with alcohol c a n p r o d u c e a ' p a r a d o x i c a l
r a g e r e a c t i o n ' - p a r a d o x i c a l b e c a u s e V a l i u m is s u p p o s e d to bring
c a l m , n o t r a g e . F D A a d v e r s e r e a c t i o n files tell o f a w o m a n w h o ,
h a v i n g had a few d r i n k s , had an a r g u m e n t with h e r h u s b a n d . W h e n
he left t h e h o u s e , she t o o k several V a l i u m t a b l e t s to calm d o w n and
w e n t t o s l e e p . W o k e n b y t h e r e t u r n o f t h e h u s b a n d , she t o o k out a
p i s t o l a n d shot him d e a d . T h e story p r o v e s n o t h i n g . P e r h a p s the
F D A w e r e w r o n g t o classify this a s a n ' o b v i o u s a d v e r s e r a g e
r e a c t i o n ' t o V a l i u m . She m i g h t h a v e shot him w i t h o u t the V a l i u m .
T h e p o i n t is t h a t t h e r e is no n e w s v a l u e in anti-social c o n d u c t
p r e s u m e d to be c a u s e d by licit d r u g s . C o m p a r a b l e cases w h e r e illicit
d r u g s might be p r e s u m e d to cause anti-social behaviour decidedly
are news.
P u b l i c o p i n i o n r e g a r d s t h e p r o d u c t i o n and d i s t r i b u t i o n o f illicit
d r u g s as a m a l e v o l e n t c o n s p i r a c y of vast p r o p o r t i o n s . In a p r o -
v o c a t i v e p a p e r , G o r r i n g ( 1 9 7 8 : 82) a r g u e s t h a t t h e p u b l i c i m a g e o f
h e r o i n d i s t r i b u t i o n is really not a s o u n d d e s c r i p t i o n o f w h a t h a p p e n s
in t h e h e r o i n t r a d e , but is r e m a r k a b l y in a c c o r d with w h a t in fact

204
The corporation as pusher

h a p p e n s in t h e d i s t r i b u t i o n of legal d r u g s of a d d i c t i o n . Gorring
d e l i n e a t e s t h e c o m m o n l y held beliefs a b o u t h e r o i n as:

1. T h a t a h u g e a n d e l a b o r a t e o r g a n i z a t i o n , forming a n e t w o r k
a c r o s s i n t e r n a t i o n a l b o u n d a r i e s , exists t o h a n d l e it.
2 . T h a t t h e p o w e r b r o k e r s i n this o r g a n i z a t i o n , c o n c e r n e d only
w i t h m a x i m i z i n g profits w h i c h run t o t h o u s a n d s o f per c e n t ,
c o r n e r all s u p p l i e s o f t h e d r u g .
3. T h a t a d i s t r i b u t i o n h i e r a r c h y e x i s t s . At t h e t o p are faceless
m e n i n s o m e undefined foreign c o u n t r y i n t h e E a s t . B e l o w
t h e m a r e a g e n t s w h o a r r a n g e supply t o i m p o r t e r s i n o t h e r
countries. The importers, in turn, have agents who operate a
sales n e t w o r k t h r o u g h o u t their own c o u n t r y t o a c h i e v e
m a x i m u m d i s t r i b u t i o n . A t t h e lowest level i s t h e p u s h e r w h o s e
j o b it is to see t h a t , i r r e s p e c t i v e of c o n s e q u e n c e s , the
m a x i m u m n u m b e r o f c o n s u m e r s use a s m u c h o f t h e drug a s
t h e y can afford to pay for.
4. T h a t t h e c o n s u m e r ' s welfare is i m p o r t a n t only b e c a u s e a
d e a d c o n s u m e r n o l o n g e r uses d r u g s a n d , i f his d e a t h i s
a t t r i b u t e d to t h e use of d r u g s , it may d i s c o u r a g e o t h e r s from
taking them.
5 . T h a t t h e i m m o r a l i t y o f t h e o p e r a t i o n lies i n t h e d e l i b e r a t e ,
p r o f i t - m o t i v a t e d c r e a t i o n of a n e e d w h i c h is seen as
d e t r i m e n t a l to b o t h t h e c o n s u m e r and society as a w h o l e . T h e
fact t h a t t h e c o n s u m e r d e r i v e s t r a n s i e n t p l e a s u r e from the
g r a t i f i c a t i o n of this illicit n e e d i n c r e a s e s t h e i m m o r a l i t y .
6. T h a t o t h e r c r i m i n a l activities o c c u r in t h e p r o c e s s of
d i s t r i b u t i o n - b r i b e r y and c o r r u p t i o n of officials, r u t h l e s s
m e a s u r e s t a k e n to squeeze out rival distributors.

G o r r i n g a r g u e s t h a t t h e h e r o i n t r a d e is not as highly o r g a n i s e d as
p o p u l a r belief w o u l d h a v e it. O p i u m is g r o w n by p e a s a n t s and
p u r c h a s e d by small t r a d e r s . T h e factories w h e r e it is refined into
h e r o i n a r e small and often makeshift. W h i l e t h e r e are m a n y large
d e a l e r s (see M c C o y , 1980), e q u a l l y significant are t h e small s e l l e r s ,
w h o , far from cynically m a n i p u l a t i n g a d d i c t i o n i n o t h e r s , are
a d d i c t s t h e m s e l v e s w h o buy for their o w n use and sell excess to
f r i e n d s . C o n v e r s e l y , G o r r i n g ' s a r g u m e n t t h a t her six p o i n t s con-
stitute a m o r e a c c u r a t e depiction of the multinational p h a r m a -
c e u t i c a l i n d u s t r y h a r d l y n e e d s t o b e r e p e a t e d h e r e . T h i s c h a p t e r will
p r o v i d e f u r t h e r t e s t i m o n y to t h e validity of all t h e p o i n t s e x c e p t
n u m b e r 4 , w h i c h g o e s t o o far.

205
The corporation as pusher

A bit of history

S o m e q u i t e d i r e c t links b e t w e e n t h e licit and illicit d r u g t r a d e s can


b e m a d e . T o d a y t h e Swiss c o m p a n y H o f f m a n - L a R o c h e i s the
w o r l d ' s l e a d i n g seller o f legal p s y c h o t r o p i c d r u g s . E l m e r B o b s t w a s
p r e s i d e n t o f H o f f m a n - L a R o c h e i n the U n i t e d S t a t e s until t h e end
o f t h e S e c o n d W o r l d W a r , and in the 1960s r e i g n e d as p r e s i d e n t of
W a r n e r - L a m b e r t . I n his a u t o b i o g r a p h y , B o b s t r e v e a l e d t h a t R o c h e
w a s heavily involved in the supply of m o r p h i n e to the underworld
b e t w e e n t h e t w o w a r s ( B o b s t , 1973: 1 2 3 - 2 5 ) . T h e C a n t o n R o a d
s m u g g l i n g c a s e , h e a r d by t h e M i x e d C o u r t of S h a n g h a i in 1925,
r e v e a l e d t h e e x t e n s i v e i n v o l v e m e n t o f H o f f m a n - L a R o c h e i n the
illegal d r u g t r a d e . T h e c a s e i n v o l v e d 180 c h e s t s o f o p i u m s h i p p e d
from C o n s t a n t i n o p l e and sold in C h i n a , and 26 b o x e s c o n t a i n i n g
m o s t l y h e r o i n i m p o r t e d from B a s l e , S w i t z e r l a n d by a C h i n e s e
d e a l e r , G w a n d o . ' D o c u m e n t s p r o d u c e d a t t h e trial r e v e a l e d t h a t a
c o n s i d e r a b l e t r a d e had b e e n p l y i n g b e t w e e n G w a n d o a n d t h e Swiss
d r u g f i r m s H o f f m a n L a R o c h e and M a c D o n a l d and C o . ' ( B r u u n ,
1979: 3 ) .

The m i n u t e s of the L e a g u e of N a t i o n s O p i u m Advisory Com-


m i t t e e m e e t i n g of 1927 r e v e a l t h a t w h e n a n o t h e r case of traffic
i n v o l v i n g R o c h e w a s d i s c u s s e d , t h e c h a i r m a n o f t h e British d e l e g a -
t i o n , Sir J o h n C a m p b e l l a r g u e d t h a t h e ' h a d n o d o u b t w h a t e v e r t h a t
H o f f m a n La R o c h e a n d C o m p a n y w a s not a firm to which a licence
t o d e a l w i t h d r u g s s h o u l d b e g i v e n . ' R o c h e w a s not a l o n e . M a n y
s u p p o s e d l y l a w - a b i d i n g p h a r m a c e u t i c a l firms w e r e a l m o s t equally
n o t o r i o u s . A t t h e 1923 m e e t i n g o f t h e O p i u m A d v i s o r y C o m m i t t e e ,
t h e C h i n e s e r e p r e s e n t a t i v e s p o i n t e d out t h a t G e r m a n y , G r e a t
B r i t a i n , J a p a n , S w i t z e r l a n d a n d t h e U n i t e d S t a t e s w e r e all t u r n i n g
out ' m o r p h i n e by the ton, which was purchased by the smugglers by
the ton'.

S o m e o f t h e g r e a t p h a r m a c e u t i c a l c o m p a n i e s o f t o d a y o w e their
e x i s t e n c e to profits from t h e t r a d e in h e r o i n and m o r p h i n e in an era
w h i c h laid t h e f o u n d a t i o n s for the s e l f - p e r p e t u a t i n g cycles of
a d d i c t i o n t o t h e s e d r u g s i n m o d e r n s o c i e t i e s . T h e next g e n e r a t i o n
m i g h t l o o k b a c k on t h e a c t i v i t i e s of H o f f m a n - L a R o c h e in p u s h i n g
V a l i u m a n d L i b r i u m w i t h disgust e q u a l to that we feel t o d a y
t o w a r d s t h e i r h e r o i n sales b e t w e e n t h e w a r s . It is fair c o m m e n t to
say t h a t R o c h e h a s a l w a y s b e e n o n e step a h e a d o f public o p i n i o n ,
m a k i n g m a s s i v e profits from d r u g s of a d d i c t i o n in t h e e r a before t h e
d r u g b e c o m e s a m a t t e r o f w i d e s p r e a d p u b l i c c o n c e r n . O t h e r global

206
The corporation as pusher

p h a r m a c e u t i c a l c o m p a n i e s carry a similar legacy. At the t u r n of


the century B a y e r were applying the same mass-marketing tactics
to h e r o i n as it had used so successfully with a s p i r i n . B a y e r ' s
international advertising campaign p r o m o t e d heroin as a panacea
for infant r e s p i r a t o r y a i l m e n t s . A t a b o u t t h e s a m e t i m e P a r k e -
D a v i s w a s a p p l y i n g similar p r o m o t i o n a l e n t h u s i a s m t o t h e
t h e r a p e u t i c virtues of cocaine. As one o f t h e world's leading cocaine
manufacturers, Parke-Davis produced coca-cordial, cocaine
c i g a r e t t e s , h y p o d e r m i c c a p s u l e s , o i n t m e n t s and sprays ( M u s t o .
1973: 7 ) . A m p h e t a m i n e s a r e p r o d u c e d for t h e A m e r i c a n m a r k e t i n
q u a n t i t i e s w h i c h far e x c e e d any c o n c e i v a b l e level of l e g i t i m a t e
d e m a n d . M a n y o f t h e pills sold i n m a s s i v e o r d e r s t o M e x i c a n
p u r c h a s e r s are redirected back to the street trade in the United
States.
T h e r e is no e v i d e n c e of direct sales of a m p h e t a m i n e s to t h e
u n d e r w o r l d by today's reputable drug companies. Nevertheless,
t h e r e a r e s i m i l a r i t i e s b e t w e e n t h e role o f i n d u s t r y i n s u p p o r t i n g t h e
s t r e e t t r a d e i n a m p h e t a m i n e s and t h e role w h i c h i n d u s t r y played i n
h e r o i n distribution b e t w e e n the wars. Excess production is
u n l o a d e d w i t h full k n o w l e d g e of w h e r e t h a t e x c e s s will end u p .
T h e m o s t i m p o r t a n t link b e t w e e n licit and illicit d r u g use is
m e d i a t e d b y c u l t u r e . T h e c o n s t a n t b a r r a g e o f O T C (over t h e
c o u n t e r ) d r u g a d v e r t i s i n g o n t e l e v i s i o n , c o m b i n e d with t h e
h e g e m o n y o f d r u g t h e r a p y i n the m e d i c a l p r o f e s s i o n , c r e a t e s a
pill-popping culture. Y o u n g people need to develop a tolerance of
f r u s t r a t i o n t h r o u g h following adult role m o d e l s w h o w i t h s t a n d and
c o p e w i t h t h e s t r e s s e s and a n x i e t i e s o f e v e r y d a y life. But drug
a d v e r t i s i n g c o n s t a n t l y e x p o s e s c h i l d r e n t o o p p o s i t e role m o d e l s -
a d u l t s w h o i m m e d i a t e l y resort t o c h e m i c a l s o l u t i o n s t o frustration
r a n g i n g from h e a d a c h e s t o i n s o m n i a a n d mild a n x i e t y . A n d the
a d v e r t i s i n g i s p e r v a s i v e . B r i s t o l - M y e r s and A m e r i c a n H o m e
P r o d u c t s spend more on A m e r i c a n network TV advertising than
G e n e r a l M o t o r s . S e n a t o r G a y l o r d N e l s o n found t h a t the a n n u a l
e x p e n d i t u r e s on the advertising of psychoactive O T C drugs exceed
the federal g o v e r n m e n t ' s allocations to combat drug abuse (Hughes
a n d B r e w i n , 1 9 7 9 : 2 6 1 ) . T h e i m p o r t a n c e o f a d u l t role m o d e l s i n this
r e g a r d i s n o w fairly well e s t a b l i s h e d . T h e r e i s e v i d e n c e t h a t p a r e n t s
w h o a r e u s e r s o f t r a n q u i l l i s e r s , b a r b i t u r a t e s and s t i m u l a n t s are
m o r e likely t o h a v e c h i l d r e n w h o are u s e r s o f m a r i j u a n a , L S D , and
o t h e r d r u g s ( P e k k a n e n , 1973: 9 7 - 8 ) .

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The corporation as pusher

The overmedicated society

T h e s u b c o m m i t t e e h e a r d that o n e out o f every t w o h o s p i t a l i z e d


A m e r i c a n s w h o r e c e i v e s a n t i b i o t i c s this y e a r will be t a k i n g a drug
t h a t is i r r a t i o n a l l y p r e s c r i b e d and w h i c h may result in an a d v e r s e
d r u g r e a c t i o n . A s a n overall class, a d v e r s e drug r e a c t i o n s a l r e a d y
a c c o u n t for $2 billion in medical and hospital costs and 3 0 , 0 0 0
d e a t h s e a c h y e a r . E i g h t y p e r c e n t o f t h e s e r e a c t i o n s are t h o u g h t t o
be preventable (Senator Edward Kennedy, Subcommittee on
H e a l t h , 1974: 7 1 9 ) .

T h e n u m b e r o f d e a t h s from a d v e r s e d r u g r e a c t i o n s i n t h e U n i t e d
S t a t e s e a c h y e a r has b e e n a hotly d i s p u t e d q u e s t i o n , with s o m e
r e s e a r c h e r s c l a i m i n g t h a t the n u m b e r could be as high as 130,000 for
h o s p i t a l - i n d u c e d r e a c t i o n s alone ( e . g . S h a p i r o e t a l . , 1971). I r r e s -
p e c t i v e of w h e t h e r a m o r e a c c u r a t e figure is 30,000 or 130,000, it is
c e r t a i n t h a t A m e r i c a p a y s a heavy price for b e i n g an o v e r m e d i c a t e d
s o c i e t y . I n v a r i a b l y , d r u g s which are powerful e n o u g h to c o n t r o l a
d i s e a s e a r e also c a p a b l e o f c a u s i n g s e v e r e injury t o p a t i e n t s . A s one
c o r p o r a t e m e d i c a l d i r e c t o r e x p l a i n e d : ' P r e s c r i p t i o n d r u g s are n o
more than tamed poisons.'
T h e d i s e a s e s for w h i c h a d r u g is r e c o m m e n d e d a r e called its
i n d i c a t i o n s , and the d i s e a s e s for w h i c h it w o u l d be p a r t i c u l a r l y
d a n g e r o u s t o use t h e drug are its c o n t r a - i n d i c a t i o n s . P h a r m a -
c e u t i c a l c o m p a n i e s n a t u r a l l y have a n i n t e r e s t i n e x p a n d i n g m a r k e t s
b y p r o m o t i n g w i d e i n d i c a t i o n s a n d limiting c o n t r a - i n d i c a t i o n s .

T h e e x t e n t o f a d r u g ' s i n d i c a t i o n s is no a c a d e m i c q u e s t i o n . If, for


e x a m p l e , a d r u g is r e c o m m e n d e d and used for a d i s e a s e a g a i n s t
w h i c h it is n o t e f f e c t i v e , t h e n t h e d i s e a s e , p e r h a p s s e r i o u s , will be
left u n t r e a t e d . I n a d d i t i o n , and d e s p i t e t h e ineffectiveness o f t h e
d r u g , t h e p e r s o n using it still r u n s t h e risk ofits toxic effects. E v e n
i f t h e d r u g is effective, t h e p e r s o n m a y be s u b j e c t e d to
u n n e c e s s a r y risks if a less toxic d r u g w o u l d do t h e j o b as well
(Ledogar, 1975:7).

P h a r m a c e u t i c a l c o m p a n i e s e v e n m a n a g e t o invent n e w d i s e a s e s
as indications. M a d i s o n A v e n u e is able to respond creatively when
t h e p h a r m a c e u t i c a l c o m p a n y says: ' H e r e ' s t h e c u r e , find t h e
d i s e a s e . ' A n e x a m p l e o f such c r e a t i v i t y was t h e p r o m o t i o n o f
L i l l y ' s A v e n t y l for a n e w d i s e a s e called ' b e h a v i o r a l drift'.
B e h a v i o r a l drift, a c c o r d i n g t o t h e m e d i c a l j o u r n a l a d v e r t i s e m e n t s ,
is defined as:

208
The corporation as pusher

1st v i s i t . . . and t h e n I start crying for no real r e a s o n ; 2nd visit


. . . I c a n ' t sit still. It m a k e s me n e r v o u s to stay in o n e p l a c e ; 3rd
v i s i t . . . I s e e m to h a v e lost my p o w e r s of c o n c e n t r a t i o n ; 4th visit
. . . T h e least n o i s e and I'm r e a d y to c l i m b t h e w a l l s ; 5th visit. . .
M a y b e it's silly, but I t h i n k I have c a n c e r ; 6th v i s i t . . . I feel so
w o r t h l e s s all t h e t i m e ; 7th v i s i t . . . I c a n ' t fall a s l e e p , so I r o a m
t h r o u g h t h e h o u s e ; 8th v i s i t . . . D o c t o r , a r e you sure it's not
cancer?

T h e n t h e r e i s t h e m o r e basic s t r a t e g y o f defining i n d i c a t i o n s such


as d e p r e s s i o n as widely as possible. Dr Richard C r o u t , Director of
t h e F D A ' s B u r e a u o f D r u g s , gives t h e e x a m p l e o f a Pfizer v i d e o t a p e
d i s t r i b u t e d to h o s p i t a l s . T h e t a p e b e g i n s by a s s e r t i n g t h a t 4 to 8
m i l l i o n A m e r i c a n s suffer from d e p r e s s i o n , but later we are told t h a t
u n d e r a d e f i n i t i o n of d e p r e s s i o n as ' a b s e n c e of j o y ' t h e figure w o u l d
b e 2 0 m i l l i o n . C r o u t c o n c l u d e s t h a t Pfizer w e r e a t t e m p t i n g t o c r e a t e
t h e i m p r e s s i o n t h a t d e p r e s s i o n w a s ' e v e r y w h e r e and being u n d e r -
diagnosed'.
V a l i u m h a s b e e n t h e d r u g w h i c h has b e e n m o s t heavily and
successfully p r o m o t e d in this kind of w a y . T h e o v e r u s e of V a l i u m
has b r o u g h t a frightful c o s t . F o r a t w e l v e - m o n t h p e r i o d in 1 9 7 6 - 7 7 ,
o n e study found that 54,400 sought hospital emergency room
t r e a t m e n t in the United States concerning the use, o v e r u s e , or
a b u s e o f V a l i u m ( H u g h e s a n d B r e w i n , 1979: 8 - 9 ) . D u r i n g t h e s a m e
p e r i o d , the study, c o n d u c t e d by the National Institute of D r u g
A b u s e , f o u n d a t least 900 d e a t h s a t t r i b u t a b l e t o V a l i u m u s e , plus
a n o t h e r 2 0 0 d e a t h s linked t o its c h e m i c a l p r e d e c e s s o r , L i b r i u m .
M a n y of the d e a t h s were due to either accidental or intentional
o v e r d o s e . H e n c e t h e c o n c l u s i o n o f D r E d w a r d T o c u s , chief o f t h e
D r u g A b u s e Staff a t t h e F D A t h a t "We are d e v e l o p i n g a p o p u l a t i o n
d e p e n d e n t o n this d r u g e q u a l t o t h e n u m b e r o f a l c o h o l i c s i n this
c o u n t r y . We a r e in a s i t u a t i o n n o w w h e r e we see at least as m a n y
p e o p l e b e i n g h u r t by t h i s d r u g as a r e b e i n g helped by it' ( H u g h e s
a n d B r e w i n , 1979: 2 4 ) .

T h e N a t i o n a l I n s t i t u t e o f D r u g A b u s e c o n c l u d e s from its study


that Lilly's D a r v o n is an even bigger d a n g e r than Valium. It was
l i n k e d t o 1,100 d e a t h s d u r i n g t h e y e a r . D a r v o n has b e e n the subject
of a c o n c e r t e d p u b l i c - i n t e r e s t c a m p a i g n for w i t h d r a w a l from the
m a r k e t . Lilly d e f e n d s its p r o d u c t by p o i n t i n g out t h a t if used
p r o p e r l y a n d c a u t i o u s l y , i t has t h e r a p e u t i c v a l u e . T h e public-
i n t e r e s t m o v e m e n t , i n t u r n , r e p l i e s t h a t t h e p r o d u c t i s not being

209
The corporation as pusher

u s e d c a u t i o u s l y p r e c i s e l y b e c a u s e o f t h e a d v e r t i s i n g h y p e o f Lilly's
p r o m o t i o n o f D a r v o n in the y e a r s following its r e l e a s e .
T h e m o s t w a n t o n e x a m p l e o f t h e o v e r u s e o f a d r u g causing social
h a r m b e c a u s e of p r o m o t i o n for e x c e s s i v e i n d i c a t i o n s is that of
c h l o r a m p h e n i c o l by P a r k e - D a v i s ( n o w a s u b s i d i a r y of W a r n e r -
L a m b e r t ) . C h l o r a m p h e n i c o l is a r e m a r k a b l y effective a n t i b i o t i c in
t h e t r e a t m e n t of a limited r a n g e of infections - t y p h o i d fever,
h a e m o p h i l u s i n f l u e n z a , and a few o t h e r s . B u t it was p r o m o t e d as a
b r o a d - s p e c t r u m a n t i b i o t i c , and p r e s c r i b e d by d o c t o r s for every-
t h i n g from s o r e t h r o a t s to a c n e . In its first y e a r on the m a r k e t , 1 9 5 1 ,
P a r k e - D a v i s sold $52 million w o r t h o f c h l o r a m p h e n i c o l ( b r a n d
n a m e C h l o r o m y c e t i n ) , to put the c o m p a n y at the top of drug-
c o m p a n y e a r n i n g s for t h a t y e a r .
U n f o r t u n a t e l y , c h l o r a m p h e n i c o l w a s a s s o c i a t e d with a n u m b e r o f
s e r i o u s s i d e - e f f e c t s , t h e w o r s t being a p l a s t i c a n a e m i a . A p l a s t i c
a n a e m i a causes a terrible d e a t h , especially in children. The prob-
a b i l i t y o f t h e side-effect a p p e a r i n g w a s not high, s o i n the t r e a t m e n t
of a s e r i o u s d i s e a s e like t y p h o i d , it w a s a risk w o r t h t a k i n g . But for
t h e t r e a t m e n t o f c o m m o n cold and o t h e r trivial c o m p l a i n t s t h e risk
is u n c o n s c i o n a b l e . T h e F D A was c o n c e r n e d , and in 1952 issued an
official w a r n i n g t h a t c h l o r a m p h e n i c o l "should not be used indis-
c r i m i n a t e l y for m i n o r i n f e c t i o n s ' . P a r k e - D a v i s m i s r e p r e s e n t e d the
F D A w a r n i n g to its o w n sales r e p r e s e n t a t i v e s in a " P r e s i d e n t ' s
L e t t e r ' w h i c h r e a d : ' C h l o r o m y c e t i n [ c h l o r a m p h e n i c o l ] has b e e n
officially c l e a r e d b y t h e F D A and t h e N a t i o n a l R e s e a r c h C o u n c i l
w i t h no r e s t r i c t i o n s on t h e n u m b e r or t h e r a n g e of d i s e a s e s for w h i c h
C h l o r o m y c e t i n may be a d m i n i s t e r e d . ' The Nelson S u b c o m m i t t e e
d i s c o v e r e d in N o v e m b e r 1967 that 3.5 to 4 million A m e r i c a n s w e r e
b e i n g d o s e d w i t h P a r k e - D a v i s C h l o r o m y c e t i n e a c h year. I f the drug
h a d b e e n p r e s c r i b e d only for c o n d i t i o n s for which it w a s truly
i n d i c a t e d , it w a s e s t i m a t e d t h a t only 10,000 p e r s o n s at most w o u l d
h a v e r e c e i v e d it ( U S S e n a t e , 1968; P a r t 6: 2 5 6 6 ) . A n a t i o n a l survey
in 1975, m o r e t h e n t w e n t y y e a r s after the fatal side-effects of
c h o l o r a m p h e n i c o l w e r e clearly e s t a b l i s h e d , found that d u r i n g t h e
year 93,000 c h l o r a m p h e n i c o l prescriptions were written in the US
for u p p e r r e s p i r a t o r y infections ( S u b c o m m i t t e e o n H e a l t h , 1978:
664).

The costs of promotion

W h e n the p r o p o r t i o n ofthe G N P spent on health is never enough to

210
The corporation as pusher

p r o v i d e a d e q u a t e h e a l t h care for e v e r y o n e , it is tragic to see h e a l t h


c a r e r e s o u r c e s w a s t e d on a c t i v i t i e s w h i c h often do as m u c h h a r m as
g o o d . T h e F D A e s t i m a t e s that p h a r m a c e u t i c a l c o m p a n i e s i n the
U n i t e d S t a t e s s p e n d b e t w e e n $ 6 , 0 0 0 and $8,000 e a c h y e a r for every
d o c t o r i n t h e c o u n t r y o n p r e s c r i p t i o n d r u g p r o m o t i o n . T h e total
c o m e s t o o v e r a billion d o l l a r s , several t i m e s t h e U S g o v e r n m e n t ' s
e x p e n d i t u r e o n t h e n a t i o n ' s m e d i c a l s c h o o l s . O n o n e drug a l o n e ,
I n d e r a l , A m e r i c a n H o m e P r o d u c t s s p e n d s $ 4 million o n p r o m o t i o n
annually within the United States.
Much o f t h e pharmaceutical industry's promotional expenditure
a r o u n d t h e w o r l d g o e s o n p e r k s for d o c t o r s w h o p r e s c r i b e t h e
c o m p a n y ' s p r o d u c t s . D o c t o r s and t h e i r w i v e s are f l o w n t o all-
e x p e n s e s - p a i d ' c o n f e r e n c e s ' i n e x o t i c l o c a t i o n s such a s B e r m u d a ,
N i c e , t h e W a l d o r f A s t o r i a i n N e w Y o r k C i t y . ' S e l e c t e d influential
p h y s i c i a n s i n t h e T h i r d W o r l d can e x p e c t m u c h m o r e , a c c o r d i n g t o
S i l v e r m a n et al. ( 1 9 8 2 : 121), i n c l u d i n g free M e r c e d e s - B e n z s e d a n s ,
p r o s t i t u t e s laid o n , or simply a cash k i c k b a c k for e a c h p r e s c r i p t i o n
w r i t t e n . S i l v e r m a n et al. (1982: 123) q u o t e a well placed source in
N i g e r i a as s u g g e s t i n g t h a t a third o f t h e w h o l e s a l e cost of p r e s c r i p -
t i o n d r u g s g o e s on this graft.
T h e K e n n e d y S e n a t e h e a r i n g s d o c u m e n t e d gifts t o d o c t o r s o f
f r e e z e r s , t a p e r e c o r d e r s , s t e t h o s c o p e s , golf balls with Pfizer
s t a m p e d on t h e m ; i n d e e d , almost every type of c o n s u m e r product
imaginable ( S u b c o m m i t t e e on H e a l t h , 1974). T h e gifts are
d i s t r i b u t e d by t h e sales r e p r e s e n t a t i v e to c l i e n t s , the value of
t h e gifts b e a r i n g a r e l a t i o n s h i p to h o w heavy a p r e s c r i b e r of
t h e c o m p a n y ' s p r o d u c t s t h e d o c t o r is, or is likely to b e . A survey
b y K e n n e d y ' s staff r e v e a l e d t h a t , d u r i n g t h e c a l e n d a r y e a r 1973,
20 p h a r m a c e u t i c a l c o m p a n i e s gave 12.8 million gifts to m e m b e r s
o f t h e h e a l t h - c a r e p r o f e s s i o n s and o v e r t w o billion s a m p l e s o f
free d r u g s ( S u b c o m m i t t e e on H e a l t h , 1974: 1273). S o m e of t h e
gifts a r e so u n c t u o u s as to m a k e o n e w o n d e r why they do not
p r o d u c e a b a c k l a s h from t h e m e d i c a l p r o f e s s i o n . S e n a t o r K e n n e d y
p r o d u c e d a P e g g y L e e r e c o r d . I n s i d e t h e sleeve w a s a note w h i c h
said:

D e a r D o c t o r : F o r a n e n t e r t a i n e r , a p p l a u s e i s very p e r s o n a l and
an i m m e d i a t e sign of a p p r e c i a t i o n , so this a l b u m is my way of
a p p l a u d i n g you in t h e m e d i c a l p r o f e s s i o n . It is a special a l b u m
t h a t w e h a v e w o r k e d o u t w i t h A b b o t t L a b o r a t o r i e s , and m y g r e a t
h o p e is t h a t it will give you p l e a s u r e p e r h a p s at a t i m e you have a

211
The corporation as pusher

real n e e d for m o m e n t s of r e l a x a t i o n . W i t h t h a n k s for all you h a v e


d o n e , [signed] Peggy Lee

T h e b a c k of t h e s l e e v e r e a d s : 'Placidyl w h e n sleep is a part of


therapy.'
S o m e c o u n t r i e s h a v e b a n n e d the giving o f gifts t o d o c t o r s . B u t
t h e r e are m a n y w a y s a r o u n d such l a w s . O n e i s for t h e drug c o m p a n y
to l e n d ' e x p e n s i v e e q u i p m e n t for t h e s u r g e r y , but n e v e r ask for its
r e t u r n . T h e g r e e d o f s o m e d o c t o r s plays a n i m p o r t a n t part i n
p e r p e t u a t i n g t h e p r o c e s s . O n e e x e c u t i v e c o m p l a i n e d t o m e that h e
h a d r e c e n t l y b e e n c o n t a c t e d by a m e d i c a l a s s o c i a t i o n w h i c h w a s
h a v i n g a golf t o u r n a m e n t ( w h i c h had n o t h i n g to do with m e d i c i n e )
a n d w h i c h d e m a n d e d t h a t his c o m p a n y d o n a t e a n e x p e n s i v e t r o p h y .
A f o r m e r sales r e p r e s e n t a t i v e told t h e following story of d o c t o r
greed:

O n e ofthe most disconcerting experiences of my detailing career


i s w h e n o n e p h y s i c i a n told m e h e had several p o o r p a t i e n t s w h o
c o u l d n o t afford to buy t h e i r m e d i c a t i o n . I t h e r e f o r e gave him a
g e n e r o u s s u p p l y o f t h o s e p r o d u c t s w h i c h h e said t h o s e p a t i e n t s
were taking.
T h e following day I saw t h a t very s a m e p h y s i c i a n walk into one
o f m y p h a r m a c y a c c o u n t s with t w o s h o p p i n g bags filled with t h e
s a m p l e s I had g i v e n h i m , in a d d i t i o n to s a m p l e s which o t h e r
d e t a i l m e n had left w i t h h i m .
In r e t u r n for this d e l i v e r y of s a m p l e s t h e d o c t o r t o o k shaving
c r e a m , r a z o r b l a d e s , a n d a b o t t l e of c o l o g n e for his wife. T h e
p h a r m a c y m o s t likely filled t h e p r e s c r i p t i o n s at his r e g u l a r price
w i t h s a m p l e s t h a t t h e d o c t o r d r o p p e d off ( S u b c o m m i t t e e o n
H e a l t h , 1974: 7 2 5 - 6 ) .

U n f o r t u n a t e l y , t h e reselling of free p h y s i c i a n s ' s a m p l e s is a


c o m m o n p r a c t i c e i n m o s t p a r t s o f t h e w o r l d , a l t h o u g h limited
c o n t r o l s have recently been introduced in the United States. The
p r a c t i c e has b e e n s o c o m m o n t h a t b l a c k - m a r k e t c o u n t e r f e i t e r s o f
p r e s c r i p t i o n d r u g s , often p a r t o f o r g a n i s e d c r i m e , h a v e b e e n able t o
tell p h a r m a c i s t s t h a t t h e i r w a r e s w e r e ' p h y s i c i a n s ' s a m p l e s you can
h a v e c h e a p ' ( K r e i g , 1967: 2 0 4 ) .

Promotional expenditure pays off

I do not p r e s u m e to h a v e t h e c o m p e t e n c e to p r o n o u n c e on the

212
The corporation as pusher

difficult q u e s t i o n o f w h a t c o n s t i t u t e s r a t i o n a l p r e s c r i b i n g . H o w e v e r ,
w h e r e r e s e a r c h has b e e n d o n e b y p e o p l e with t h e r e l e v a n t e x p e r -
t i s e , e v i d e n c e o f o v e r p r e s c r i b i n g has b e e n found. A t t h e U n i v e r s i t y
of S o u t h e r n California Medical C e n t e r , w h e r e 600,000 prescrip-
t i o n s a r e w r i t t e n e a c h y e a r , a g r o u p of five p h y s i c i a n s a n d t w o
p h a r m a c i s t s , in c o l l a b o r a t i o n with h o s p i t a l staff from all special-
i t i e s , defined r a t i o n a l m a x i m u m p r e s c r i p t i o n s for 7 8 c o m m o n d r u g s
( M a r o n d e e t a l . , 1971). F o r s e d a t i v e s and t r a n q u i l l i s e r s 3 0 - 4 0 p e r
c e n t of p r e s c r i p t i o n s w r i t t e n w e r e found to be in excessive q u a n -
t i t i e s . T h a t is, r a t i o n a l p r e s c r i b i n g , solely i n t e r m s o f a m o u n t s
( w i t h o u t considering w h e t h e r it was rational to prescribe the
p r o d u c t at all) m i g h t r e s u l t in a d r o p in sales o f t h e o r d e r of 3 0 - 4 0
p e r c e n t . T h i s f i g u r e a l s o i g n o r e s o v e r m e d i c a t i o n resulting from
patients obtaining rational prescriptions independently from
n u m e r o u s p h y s i c i a n s . A further i n t e r e s t i n g finding w a s t h a t a l m o s t
half t h e e x c e s s i v e p r e s c r i p t i o n s c o u l d be a c c o u n t e d for by a small
m i n o r i t y o f 3.4 p e r cent o f t h e p h y s i c i a n s w h o w e r e super-
prescribers.
I n a n o t h e r s t u d y , Stolley e t al. (1972) found t h a t d o c t o r s w h o
w e r e , a c c o r d i n g t o t h e i r c r i t e r i a , r a t i o n a l p r e s c r i b e r s , relied m o r e
h e a v i l y o n t h e r e a d i n g o f m e d i c a l j o u r n a l s for i n f o r m a t i o n a b o u t
d r u g s than on industry p r o m o t i o n . But there is a wealth of evidence
from s u r v e y s o f d o c t o r s t o d e m o n s t r a t e t h a t o v e r w h e l m i n g l y t h e
most i m p o r t a n t source of information about drugs is the p h a r m a -
c e u t i c a l i n d u s t r y : sales r e p r e s e n t a t i v e s , p r o m o t i o n a l m a t e r i a l i n t h e
m a i l , j o u r n a l a d v e r t i s e m e n t s , m e e t i n g s , cocktail parties organised
2
by t h e i n d u s t r y , e t c . . . . (Office of H e a l t h E c o n o m i c s , 1978;
W a l k e r , 1 9 7 1 ; M i n t z , 1967: 8 6 ; M o s e r , 1974; American Medical
News, 1 9 7 3 ; E a t o n a n d P a r i s h , 1976).
T h e s e s u r v e y s a l s o s h o w t h a t t h e m o s t i m p o r t a n t single s o u r c e o f
i n f o r m a t i o n , particularly concerning new drugs, is the pharma-
c e u t i c a l c o m p a n y sales r e p r e s e n t a t i v e . T h e r e i s e v i d e n c e t h a t
p h y s i c i a n s w h o get m o r e visits from sales r e p r e s e n t a t i v e s w r i t e
m o r e p r e s c r i p t i o n s . W a l k e r ( 1 9 7 1 : 7 4 ) found t h a t d o c t o r s w h o w r i t e
o v e r 150 p r e s c r i p t i o n s a w e e k r e c e i v e m o r e t h a n eight visits a w e e k
from sales r e p r e s e n t a t i v e s . D o c t o r s w h o w r o t e fewer t h a n 5 0 p r e s -
c r i p t i o n s a w e e k r e c e i v e d fewer t h a n half t h i s n u m b e r of visits. This
n e e d n o t n e c e s s a r i l y m e a n t h a t t h e e x t r a visits c a u s e i n c r e a s e d s a l e s ,
b e c a u s e r e p r e s e n t a t i v e s select for special a t t e n t i o n d o c t o r s w h o are
k n o w n a s h e a v y p r e s c r i b e r s . M o r e c o n v i n c i n g i s t h e f i n d i n g that
a m o n g p h y s i c i a n s w h o w r o t e o v e r 5 0 p r e s c r i p t i o n s a w e e k , 8 0 per

213
The corporation as pusher

c e n t r e p o r t e d t h a t i n d u s t r y w a s t h e i r m o s t i m p o r t a n t source o f
information about new d r u g s ; a m o n g those writing 31-50 pres-
c r i p t i o n s p e r w e e k , half relied p r i m a r i l y o n industry s o u r c e s and
half p r i m a r i l y o n p r o f e s s i o n a l s o u r c e s ; and a m o n g d o c t o r s writing
30 or fewer p r e s c r i p t i o n s a w e e k , only 40 p e r cent relied p r i m a r i l y
on industry sources (Walker, 1971: 74).

Medical journal advertising

S h e is s t a n d i n g a l o n e b e f o r e a d a r k e n e d b a c k g r o u n d : a y o u n g
c o l l e g e g i r l , c a r r y i n g b o o k s . T h e c o r n e r s o f h e r m o u t h are t u r n e d
d o w n . It is n o t a grim e x p r e s s i o n b u t it e x h i b i t s c o n c e r n and
s u g g e s t s u n c e r t a i n t y . T h e copy u n d e r her p i c t u r e r e a d s : ' A
W h o l e N e w W o r l d . . . of A n x i e t y . ' S u r r o u n d i n g her on t h e
b a c k g r o u n d a r e italicised s u g g e s t i o n s o f w h a t t h e a n x i o u s world
m i g h t b e . ' T h e n e w c o l l e g e s t u d e n t may be afflicted by a sense of
lost i d e n t i t y in a s t r a n g e e n v i r o n m e n t . ' A n o t h e r s u g g e s t i o n :
' E x p o s u r e to n e w friends and o t h e r influences may force her to
r e e v a l u a t e herself and h e r g o a l s . ' Y e t a n o t h e r : ' H e r newly
s t i m u l a t e d i n t e l l e c t u a l c u r i o s i t y may m a k e h e r m o r e sensitive t o
a n d a p p r e h e n s i v e a b o u t u n s t a b l e n a t i o n a l and w o r l d c o n d i t i o n s . '
I f w o r l d affairs and p e e r p r e s s u r e d o n ' t m a k e h e r a n x i o u s , t h e a d
s u g g e s t s a n o t h e r c a u s e . M a y b e it's ' u n r e a l i s t i c p a r e n t a l
e x p e c t a t i o n s ' o r ' t o d a y ' s c h a n g i n g m o r a l i t y ' and ' n e w f r e e d o m '
t h a t a r e d o i n g it. E v e n t h o u g h this last p r o b l e m s e e m s t o suggest
h e r n e e d for b i r t h c o n t r o l pills m o r e t h a n a n y t h i n g e l s e , the real
a n s w e r to h e r w o e s is s o m e t h i n g different. 'To h e l p free h e r of
excessive anxiety . . . adjunctive L I B R I U M . ' O f course. ' W h e n
m o u n t i n g p r e s s u r e s c o m b i n e t o t h r e a t e n t h e e m o t i o n a l stability
o f t h e a n x i o u s s t u d e n t , a d j u n c t i v e use o f L i b r i u m can h e l p relieve
the s y m p t o m s caused by her excessive anxiety. T o g e t h e r with
y o u r ( t h e d o c t o r ' s ) c o u n s e l i n g and r e a s s u r a n c e , L i b r i u m , i f
i n d i c a t e d , can help the anxious student to handle the primary
p r o b l e m and to " g e t h e r b a c k on her feet" ' ( P e k k a n e n 1973:
77-8).

V a l i u m and L i b r i u m h a v e b e e n p r o m o t e d a s s o l u t i o n s t o almost
e v e r y p s y c h o l o g i c a l s t a t e which falls s h o r t of total s e r e n i t y . At the
s a m e t i m e V a l i u m has b e e n p r o m o t e d for 'psychic s u p p o r t for the
t e n s e i n s o m n i a c ' and for t h e ' a l w a y s w e a r y ' . P e r h a p s m o s t a p p e a l -
ingly of all to t h e m e d i c a l p r o f e s s i o n , V a l i u m has b e e n a d v e r t i s e d in

214
The corporation as pusher

a d o c t o r ' s m a g a z i n e as an aid in p r o d u c i n g 'a less d e m a n d i n g and


c o m p l a i n i n g p a t i e n t ' ( W a l d r o n , 1977: 4 1 ) . O t h e r p s y c h o t r o p i c
d r u g s h a v e b e e n t o u t e d i n e q u a l l y i r r e s p o n s i b l e w a y s . Pfizer
p r o m o t e d t h e t r a n q u i l l i s e r Vistaril b y s h o w i n g t h e t e a r - s t r e a k e d
face of a y o u n g girl a n d proffering its use for c h i l d r e n w h o are
frightened by 'school, the d a r k , separation, dental visits,
" m o n s t e r s " ' ( P e k k a n e n , 1973: 8 0 ) . Pfizer w a s also forced by F D A
to send a ' D e a r D o c t o r l e t t e r ' to p h y s i c i a n s i n d i c a t i n g t h a t its
a d v e r t i s e m e n t s for Vistaril and a n u m b e r of c h e m i c a l l y similar
p r o d u c t s failed t o d i s c l o s e t h a t t h e r e w a s r e s e a r c h e v i d e n c e
t o s u g g e s t t h a t t h e s e p r o d u c t s could b e d a n g e r o u s t o p r e g n a n t
women.
O n e o f M e r c k ' s m o s t successful d r u g s has b e e n its a n t i a r t h r i t i c ,
I n d o c i n . W h e n t h e p r o d u c t w a s first i n t r o d u c e d i n 1 9 6 3 , M e r c k had
only d e m o n s t r a t e d efficacy for four t y p e s of a r t h r i t i c d i s e a s e , yet it
w a s p r o m o t e d for use w i t h m a n y o t h e r s . T h e a d v e r t i s e m e n t s
r e p e a t e d l y d e s c r i b e d I n d o c i n a s 'safer' and ' m o r e effective',
w i t h o u t i n d i c a t i n g safer and m o r e effective t h a n w h a t . M e r c k said
t h a t ' s i n c e t h e e x p e r i e n c e with I n d o c i n in c h i l d r e n is l i m i t e d , it is
r e c o m m e n d e d t h a t this d r u g s h o u l d not b e a d m i n i s t e r e d t o p e d i a t r i c
a g e g r o u p s until t h e i n d i c a t i o n s for use and d o s a g e have b e e n
e s t a b l i s h e d . ' B u t S i l v e r m a n and L e e p o i n t out t h a t

The e x p e r i e n c e had not been that limited; the c o m p a n y was


a l r e a d y a w a r e t h a t t h e d r u g h a d b e e n t r i e d i n c h i l d r e n and had
evidently caused several d e a t h s . It was claimed that Indocin does
not increase susceptibility to infection, but Merck neglected to
m e n t i o n t h a t t h e claim w a s b a s e d on e x p e r i m e n t s w i t h a few rats
c h a l l e n g e d n o t w i t h infections b u t w i t h b a c t e r i a l e n d o t o x i n s .
W h e n h u m a n trials w e r e u n d e r t a k e n , i t w a s found t h a t I n d o c i n
i n c r e a s e s s u s c e p t i b i l i t y t o infection ( S i l v e r m a n and L e e , 1974:
61-2).

M o r e e m b a r r a s s i n g for M e r c k w a s t h e d i s c o v e r y b y S e n a t e
i n v e s t i g a t o r s of i n s t r u c t i o n s to its sales r e p r e s e n t a t i v e s w h i c h
e m p h a s i s e d c l a i m s for safety and efficacy far in e x c e s s of w h a t w a s
legal i n t h e s e n s e o f h a v i n g b e e n a p p r o v e d b y t h e F D A . T h e
i n s t r u c t i o n s a l s o said: it is o b v i o u s t h a t I n d o c i n will w o r k in t h a t
w h o l e h o s t o f r h e u m a t i c c r o c k s and c r u d s w h i c h e v e r y g e n e r a l
p r a c t i t i o n e r , i n t e r n i s t , a n d o r t h o p e d i c s u r g e o n sees every day i n his
p r a c t i c e . ' A c c o r d i n g t o t h e S e n a t e h e a r i n g s t h e i n s t r u c t i o n s con-
tinued:

215
The corporation as pusher

' T e l l ' e m a g a i n , a n d a g a i n , and a g a i n . '


' T e l l 'em until t h e y are sold and stay s o l d . '
'For these entities he is presently prescribing steroids,
a m i n o p y r i n e - l i k e b u t a z o n e s , a s p i r i n , o r limited a n a l g e s i c s like
D a r v o n a n d t h e a l m o s t w o r t h l e s s m u s c l e r e l a x a n t s . . . .'
' Y o u ' v e told t h i s story n o w . p r o b a b l y 130 t i m e s . T h e p h y s i c i a n ,
h o w e v e r , has h e a r d it only o n c e . S o , go b a c k , and tell it again and
a g a i n a n d a g a i n and a g a i n , until it is indelibly i m p r e s s e d in his
m i n d and he s t a r t s - and c o n t i n u e s - to p r e s c r i b e I n d o c i n . L e t ' s
g o . . . . " L e t ' s s t a n d on o u r little old t w o feet this m o n t h and sell
t h e benefits o f I n d o c i n . '
' T a k e off t h e kid g l o v e s . If he w a n t s to use aspirin as b a s e line
t h e r a p y , let him use it. C h a n c e s are t h e p a t i e n t is a l r e a d y t a k i n g
a s p i r i n . H e h a s c o m e t o t h e p h y s i c i a n b e c a u s e a s p i r i n a l o n e i s not
a f f o r d i n g s a t i s f a c t o r y , o p t i m a l effects. . . .'
' N o w e v e r y e x t r a b o t t l e of 1,000 I n d o c i n t h a t you sell is w o r t h an
e x t r a S2.80 in i n c e n t i v e p a y m e n t s . Go get it. Pile it in. . . .'

W h e n the Senate invited the c o m p a n y to explain, the president of


M e r c k said: ' L a n g u a g e is not a perfect m e t h o d of c o m m u n i c a t i o n
a n d it m a y well be t h a t w o r d s and p h r a s e s t h a t are used in t h e belief
t h a t t h e y m e a n o n e t h i n g may h a v e b e e n i n t e r p r e t e d b y s o m e
p h y s i c i a n s t o m e a n s o m e t h i n g else. Such are t h e c o m p l e x i t i e s o f
s e m a n t i c s ' ( G a d s d e n , 1968).
B y t h e e n d o f t h e 1960s M e r c k w a s b e i n g m o r e r e s p o n s i b l e i n t h e
p r o m o t i o n of I n d o c i n w i t h i n the U n i t e d S t a t e s . I n d o c i n w a s a highly
t o x i c d r u g w h i c h c o u l d c a u s e ' p e r f o r a t i o n s and h e m o r r h a g e o f t h e
e s o p h a g u s , s t o m a c h and small i n t e s t i n e s ; g a s t r o i n t e s t i n a l b l e e d i n g ;
r e t i n a l d i s t u r b a n c e s and b l u r r i n g o f vision; toxic h e p a t i t i s and
j a u n d i c e ; a c u t e r e s p i r a t o r y d i s t r e s s ; h e a r i n g d i s t u r b a n c e s ; loss o f
h a i r ; p s y c h o t i c e p i s o d e s ; c o m a and c o n v u l s i o n s . ' Y e t i n A u s t r a l i a
and many other parts o f t h e world, some of these warnings were
b e i n g w e a k e n e d a n d o t h e r s o m i t t e d . A d r u g w h i c h should b e used
i n only r e l a t i v e l y s e v e r e c a s e s o f a r t h r i t i s , and only t h e n w h e n o t h e r
less t o x i c t h e r a p i e s had failed, was b e i n g r e c o m m e n d e d i n A u s t r a l i a
as an a l t e r n a t i v e to a s p i r i n for the relief of p a i n following dental
s u r g e r y , for b u r s i t i s ( t e n n i s e l b o w ) and t e n d i n i t i s . T h e s e A u s t r a l i a n
i n d i c a t i o n s a p p e a r e d n o w h e r e in the A m e r i c a n literature (Sessor,
1971).

Afterman (1972: 119-121) has s u m m a r i s e d o n e o f t h e worst


instances of journal advertising misrepresentation.

216
The corporation as pusher

[ S e r a x ] w a s r e c o m m e n d e d i n the t r e a t m e n t o f a n x i e t y and t e n s i o n
of p a t i e n t s from all age g o u p s , i n c l u d i n g t h e e l d e r l y . T h e
advertisement which appeared in three medical journals,
e m p h a s i z e d t h e use o f t h e p r o d u c t for t h e t r e a t m e n t o f e l d e r l y
p a t i e n t s a n d i n c l u d e d a w a r n i n g in fine print t h a t g r e a t c a r e should
be t a k e n in s e l e c t i n g a d o s a g e , as a s t r o k e or d e a t h could result.
T h e a d v e r t i s e m e n t also r e f e r r e d to a study involving 148 'elderly
p a t i e n t s ' b u t failed to reveal t h a t t h e s a m p l e age r a n g e
c o m m e n c e d at 35 y e a r s for m a l e s a n d 33 y e a r s for f e m a l e s . A
d o s a g e o f t h e d r u g up to 40 m g . a day w a s q u o t e d from t h e study
d e s p i t e t h e fact t h a t t h e a p p r o v e d p a c k a g e labelling limited t h e
initial d o s a g e in o l d e r p a t i e n t s to 30 m g . a day.
O n e r e p o r t f a v o u r a b l y c o m p a r i n g a s p e c t s o f Serax t h e r a p y
w i t h a c o m p e t i n g p r o d u c t w a s r e p r o d u c e d i n the a d v e r t i s e m e n t .
S t u d i e s w h i c h reflected different c o n c l u s i o n s w e r e o m i t t e d . I t w a s
i m p l i e d t h a t t h e p a r t i c u l a r study q u o t e d r e p r e s e n t e d the m e d i c a l
c o n s e n s u s as to t h e p e r f o r m a n c e of S e r a x in r e l a t i o n to a
c o m p e t i n g p r o d u c t . F i n a l l y , t h e p r o d u c t w a s r e c o m m e n d e d for
t h e t r e a t m e n t o f ' a n x i e t y - l i n k e d d e p r e s s i o n ' , d e s p i t e the fact that
t h e t r e a t m e n t o f d e p r e s s i o n w a s specifically c o n t r a - i n d i c a t e d o n
the label.
O n t h e s e g r o u n d s t h e F . D . A . c o n s i d e r e d that t h e
a d v e r t i s e m e n t c o n t a i n e d n e i t h e r a fair nor factual b a l a n c e , and
p r o v i d e d t h e r e a d e r with d a n g e r o u s l y m i s l e a d i n g d o s a g e
i n f o r m a t i o n . It w a s also c o n s i d e r e d offensive b e c a u s e it
p r e s c r i b e d t h e d r u g for p u r p o s e s for w h i c h it w a s c o n t r a -
i n d i c a t e d . O n t h e basis o f t h e c o n t e n t s o f this a d v e r t i s e m e n t the
p r o d u c t was seized.

S o m e o f t h e a d v e r t i s i n g m i s r e p r e s e n t a t i o n s have b e e n m u c h
m o r e s u b t l e . O n e for A b b o t t ' s P l a c i d y l , a s l e e p i n g pill, c o n t a i n e d a
p i c t u r e of a p r e g n a n t w o m a n , with t h e h e a d i n g , 'give us her n i g h t s ' .
T h e small p r i n t at t h e b o t t o m of t h e ad i n d i c a t e d that Placidyl
s h o u l d not b e g i v e n t o w o m e n i n early p r e g n a n c y . A b b o t t a p p a r -
e n t l y a r g u e d t h a t this ad w a s lawful b e c a u s e t h e w o m a n in the
p i c t u r e w a s in late p r e g n a n c y .
O n e c o u l d c o n t i n u e ad infinitum w i t h p h a r m a c e u t i c a l a d v e r t i s e -
m e n t s w h i c h m a k e false, e x a g g e r a t e d o r m i s l e a d i n g c l a i m s . T h e
S a i n s b u r y C o m m i t t e e i n G r e a t B r i t a i n w a s p r e s e n t e d with the
results of a survey by W a d e and E l m e s o f t h e Q u e e n ' s University of
B e l f a s t w h i c h found t h a t 22 of 45 a d v e r t i s e m e n t s in t h e study

217
The corporation as pusher

i n c l u d e d u n w a r r a n t e d c l a i m s . I n a d d i t i o n i t w a s c o m m o n for
3
a d v e r s e effects to be o m i t t e d or glossed o v e r .
T h e r e is an infinite v a r i e t y of w a y s t h a t m i s l e a d i n g i m p r e s s i o n s
can be created in pharmaceutical advertisements. Advertising
a g e n c i e s a r e skilled a t d e s i g n i n g l a y o u t s w h i c h highlight the good
n e w s a n d n o t t h e b a d . W h e n a p r o d u c t a t t r a c t e d f a v o u r a b l e results
from e a r l y r e s e a r c h s t u d i e s , but u n f a v o u r a b l e findings from later
m o r e s o p h i s t i c a t e d w o r k , a d v e r t i s e m e n t s m i g h t only refer t o the
4
e a r l y s t u d i e s . N o t i n f r e q u e n t l y r e f e r e n c e s are m a d e t o o b s c u r e
j o u r n a l a r t i c l e s in such a way as to imply t h a t t h e source confirms the
c l a i m b e i n g m a d e w h e n this is not in fact t h e c a s e . T h e possibilities
for c o l o u r i n g reality are so m u l t i f a r i o u s t h a t u n d e r any system of
legal c o n t r o l s it is not difficult to s t e e r clear of b l a t a n t v i o l a t i o n s by
s k i r t i n g a r o u n d t h e b o u n d a r i e s o f legal r e q u i r e m e n t s . O n e regu-
l a t o r y affairs d i r e c t o r w a s r e m a r k a b l y h o n e s t o n this s c o r e :

T h e F D A a d v e r t i s i n g c o n t r o l s are very v a g u e l y defined. T h e r e


a r e t h r e e a p p r o a c h e s a c o m p a n y can t a k e . I t can m a k e
e x t r a v a g a n t c l a i m s w h i c h are clearly o u t s i d e t h e rules but which
will sell its p r o d u c t . Or it could be careful not to say a n y t h i n g t h a t
w o u l d not be s u p p o r t e d by scientific e v i d e n c e and have low
i m p a c t a d v e r t i s i n g . Or it could do a d v e r t i s e m e n t s which are in a
fairly l a r g e grey a r e a . We shoot for t h e grey a r e a . We tell o u r
a d v e r t i s i n g a g e n c y t h a t we w a n t to go as close as we can to w h a t
F D A will a l l o w .

T h e e d i t o r s o f m e d i c a l j o u r n a l s d o not h a v e a n illustrious record


of r e s t r a i n i n g m i s l e a d i n g d r u g a d v e r t i s i n g . P r i o r to t h e early 1950s
t h e A M A had a Seal o f A c c e p t a n c e p r o g r a m m e for a d v e r t i s e m e n t s
appearing in the Journal of the American Medical Association.
A d v e r t i s e m e n t s w o u l d not a p p e a r u n l e s s their claims had b e e n
a p p r o v e d by a d i s t i n g u i s h e d c o m m i t t e e of p h y s i c i a n s . A d r o p in
a d v e r t i s i n g r e v e n u e c a u s e d t h e A M A i n 1952 t o c o m m i s s i o n B e n
Gaffin and A s s o c i a t e s to find t h e r e a s o n s . T h e Gaffin survey found
t h a t t h e l a r g e p h a r m a c e u t i c a l c o m p a n i e s w e r e critical o f t h e restric-
t i o n s i m p o s e d o n a d v e r t i s e r s b y t h e Seal o f A c c e p t a n c e p r o g r a m m e .
A c c o r d i n g l y t h e C o n s u l t a n t s ' r e c o m m e n d a t i o n t h a t t h e Seal o f
Acceptance be abolished was accepted. JAMA advertising
r e v e n u e s j u m p e d d r a m a t i c a l l y i n t h e y e a r s following t h e liberalising
o f t h e r e s t r a i n t s o n its a d v e r t i s e r s .

The A M A have been s u b j e c t e d t o m u c h criticism for t h e


hypocrisy of their stances on the advertising question. Nothing

218
The corporation as pusher

c o u l d e x p r e s s t h e a n t a g o n i s m m o r e clearly t h a n the following


e x c h a n g e b e t w e e n S e n a t o r N e l s o n and D r J a m e s H . S a m m o n s ,
executive vice-president ofthe A M A .

S e n . N e l s o n : I t w o u l d b e nice i f t h e A M A w o u l d r e v i e w the ads


t h e y run for a c c u r a c y . . . b e c a u s e you run a d s in t h e A M A
Journal t h a t are disgracefully i n a c c u r a t e and the history of it is
c l e a r as a b e l l .
D r . S a m m o n s : S e n a t o r , e v e r y single o n e o f t h e w o r d s i n t h o s e ads
[ h a s ] t o h a v e F D A a p p r o v a l and if t h e r e is a long history of
i n a c c u r a c y , I s u b m i t to y o u t h e F D A will h a v e to share that
responsibility with whoever is responsible.
S e n . N e l s o n : T h e y see t h e ad after it r u n s . Do not try to shift it to
the F D A . You complain that they interfered in the medical
p r a c t i c e and y o u t h r o w t h e b l a m e o n t h e m w h e n they d o n o t
d e s e r v e it. T h e fact o f t h e m a t t e r is, d o c t o r , y o u h a v e run ads for
y e a r s t h a t p r o m o t e d very bad use o f d r u g s and w e have v o l u m e s
t h a t will p r o v e t h a t . [ N e l s o n t h e n cited a d s in the Journal
p r o m o t i n g P a r k e - D a v i s ' s a n t i b i o t i c C h l o r o m y c e t i n for g e n e r a l
u p p e r r e s p i r a t o r y illness.]

D r . S a m m o n s : L e t m e p o i n t o u t t o y o u t h a t t h e A M A was o n e o f
t h e first p e o p l e to p o i n t out t h e p o t e n t i a l harmful effects of
Chloromycetin.
S e n . N e l s o n : B u t t h e disgraceful p a r t is, you p o i n t e d it out and
c o n t i n u e d t o t a k e t h e ads t h a t p r o m o t e d i m p r o p e r use o f t h e
d r u g , a n d I can d e m o n s t r a t e t h a t to y o u .
D r . S a m m o n s : S e n a t o r , C h l o r o m y c e t i n still has a place in t h e
a r m a m e n t a r i u m in the practice of m e d i c i n e .
S e n . N e l s o n : T h a t is kind of a n o n s t a t e m e n t ; but it is m i s u s e d 90
t o 9 9 p e r c e n t o f t h e t i m e , and you t o o k ads t h a t p r o m o t e d t h e
m i s u s e a n d I t h i n k it is disgraceful ( S u b c o m m i t t e e on H e a l t h ,
1973).

T h e A M A and P M A ( P h a r m a c e u t i c a l M a n u f a c t u r e r s A s s o c i -
a t i o n ) , a n d t h e i r e q u i v a l e n t s i n o t h e r c o u n t r i e s , are f i r m l y linked
within the medical-industrial c o m p l e x . The two associations almost
i n v a r i a b l y s u p p o r t e a c h o t h e r before c o m m i t t e e s o f e n q u i r y , and
p r o v i d e m u t u a l aid for l o b b y i n g efforts in t h e c a p i t a l s o f t h e w o r l d .
T h e n e x u s is i n v a l u a b l e for t h e P M A in b e i n g able to c o u n t on
' i n d e p e n d e n t ' p r o f e s s i o n a l s u p p o r t for t h e i r p o s i t i o n , and for the
A M A it is basically a c a s h n e x u s . A P M A p u b l i c r e l a t i o n s p e r s o n
told m e t h a t w h e n t h e P M A r u n s its g e n e r a l a d v e r t i s e m e n t s

219
The corporation as pusher

e x t o l l i n g t h e benefits w h i c h the p h a r m a c e u t i c a l i n d u s t r y has


b e s t o w e d u p o n m a n k i n d and p r a i s i n g s e l f - r e g u l a t i o n , m a n y o f t h e
m e d i c a l j o u r n a l s run t h e s a m e a d s free of c h a r g e "as a service to the
industry which supports them'.

JB . : Why do they do that?


PR from P M A : T h e r e ' s a self-interest. If the industry sees t h a t
t h e j o u r n a l i s s u p p o r t i n g t h e m , they will s u p p o r t
it w i t h a d v e r t i s i n g .
•IB. : As a result of this your advertising space for your
money is doubled or something like that?
P R from P M A : More than doubled.

A t t i m e s t h e c a s h n e x u s w i t h i n the m e d i c a l - i n d u s t r i a l c o m p l e x
h a s v e r g e d o n t h e d o w n r i g h t c o r r u p t . H e n r y W e l c h served a s
d i r e c t o r o f t h e F D A ' s a n t i b i o t i c s division d u r i n g t h e b o o m p e r i o d
for a n t i b i o t i c s w h i c h c o i n c i d e d with t h e a l l e g e d t e t r a c y c l i n e pricing
conspiracy ( 1 9 5 3 - 6 0 ) . W e l c h was a target of public-interest-group
c r i t i c i s m for t h e zeal w i t h w h i c h he p u s h e d t h e use of a n t i b i o t i c s
( T u r n e r , 1976: 2 1 8 - 2 2 ) . T h r o u g h o u t his d i r e c t o r s h i p o f t h e a n t i -
biotics division, W e l c h was the editor of two private j o u r n a l s which
w e r e financially b a c k e d by a n t i b i o t i c m a n a u f a c t u r e r s such as Pfizer,
U p j o h n , S m i t h K l i n e and A b b o t t . A third W e l c h j o u r n a l failed, but
n o t b e f o r e P a r k e - D a v i s had sunk $ 1 0 0 , 0 0 0 into it. E d i t o r ' s h o n o r -
a r i u m s w e r e paid t o W e l c h . I n a d d i t i o n , b e t w e e n 1953 and 1960
W e l c h ' s s h a r e o f t h e profits, a s h a l f - o w n e r o f t h e c o m p a n y that
published the two journals, was $287,142.40.

J o u r n a l i s t s can also b e c o - o p t e d into t h e m e d i c a l - i n d u s t r i a l c o m -


p l e x . M i n t z ( 1 9 6 7 : 6 0 - 6 1 ) r e c o u n t s t h e story o f A l t o n L . B l a k e s l e e ,
a s c i e n c e w r i t e r o f t h e A s s o c i a t e d P r e s s , i n his o w n w o r d s .

R e c e n t l y , I w a s a p p r o a c h e d by a m a n w h o said he had an
o p p o r t u n i t y for me to p l a c e an article in a m a g a z i n e on a
f r e e - l a n c e b a s i s . He d e s c r i b e d very frankly his o w n r a t h e r c u r i o u s
o r g a n i z a t i o n . H e a n d his a s s o c i a t e s w e r e r e p r e s e n t i n g a c o m p a n y
w h i c h had d e v e l o p e d a n e w p r o d u c t to t r e a t a very c o m m o n
a i l m e n t . T h e y g u a r a n t e e d t o find t h e m e d i c a l r e s e a r c h e r s w h o
w o u l d test it, and had d o n e so. F u r t h e r , t h e y had a m e t h o d of
g e t t i n g it p u b l i s h e d m o r e quickly in a m e d i c a l j o u r n a l t h a n might
o t h e r w i s e be d o n e , so that it b e c a m e 'legitimate' news.
At t h i s p o i n t he w e n t to a m a g a z i n e and s u g g e s t e d a story on
t h e g e n e r a l t o p i c , a n d told t h e m a g a z i n e e d i t o r t h a t t h e c o m p a n y

220
The corporation as pusher

w o u l d p l a c e a large a m o u n t of a d v e r t i s i n g with t h e m if t h e story


w e r e u s e d . He a l s o v o l u n t e e r e d to find a science w r i t e r w h o
w o u l d w r i t e t h e s t o r y , and this i s w h a t h e w a s t a l k i n g t o m e a b o u t .
He said I w o u l d m a k e my deal with t h e m a g a z i n e e d i t o r , and
p e r h a p s be p a i d S 1,500 or $2,000 for t h e a r t i c l e , and all I had to do
w a s t o m e n t i o n this n e w p r o d u c t b y t r a d e n a m e t w i c e , and n e v e r
m e n t i o n any o t h e r p r o d u c t . T h e c o m p a n y , h e said, k n e w t h a t
w r i t e r s w e r e n e v e r paid w h a t t h e y w e r e w o r t h , s o the c o m p a n y
w o u l d give me $ 5 , 0 0 0 on t h e side. T h e n if t h e article w e r e picked
up a n d r e p r i n t e d by a c e r t a i n o u t l e t , I w o u l d get that r e p r i n t fee,
a n d t h e c o m p a n y w o u l d b e s o d e l i g h t e d w i t h the a d v e r t i s i n g
a c h i e v e d t h a t way t h e y w o u l d pay m e $ 1 0 , 0 0 0 m o r e .

D r u g c o m p a n i e s d i s p e n s e n e g a t i v e a s well a s p o s i t i v e s a n c t i o n s t o
m a s s m e d i a o u t l e t s a c c o r d i n g t o h o w they p e r f o r m . I n J a n u a r y 1976
t h e New York Times ran a s e r i e s of a r t i c l e s on m e d i c a l incom-
p e t e n c e , including the misuse of prescription drugs. Retaliation in
t h e form of c a n c e l l a t i o n of half a m i l l i o n d o l l a r s ' w o r t h of a d v e r -
t i s i n g in Modern Medicine, a j o u r n a l o w n e d by t h e Times c o m p a n y ,
w a s said t o h a v e b e e n e x a c t e d . T h e n e w s p a p e r q u o t e d a n officer o f
t h e m e d i c a l j o u r n a l a s saying t h a t t h e c o m p a n i e s c a n c e l l e d their
a d v e r t i s e m e n t s b e c a u s e t h e y felt 'you d o n ' t feed p e o p l e w h o beat
y o u u p ' ( H u g h e s a n d B r e w i n , 1979: 2 1 9 ) .
A s w e m o v e t o w a r d s t h e twenty-first c e n t u r y , p h a r m a c e u t i c a l
a d v e r t i s i n g i s finding n e w , m o r e effective, m o d a l i t i e s . I n t h e U n i t e d
S t a t e s , 8 0 , 0 0 0 d o c t o r s i n 3 5 cities h a v e b e e n p r o v i d e d , free o f
c h a r g e , w i t h F M r a d i o sets t u n e d t o t h e P h y s i c i a n s R a d i o N e t w o r k .
T h e r a d i o s c o n s t a n t l y c h u r n out m e d i c a l n e w s and f e a t u r e s o f
i n t e r e s t to p h y s i c i a n s . M i x e d in with this is p r o m o t i o n a l copy on
n e w a n d old d r u g s . T h e P h y s i c i a n s R a d i o N e t w o r k c l a i m s a 'signi-
f i c a n t l y h i g h e r " s h a r e o f m i n d " a m o n g r a d i o h o l d e r s ' t h a n can b e
g a i n e d by a d v e r t i s i n g by d i r e c t mail or in j o u r n a l s ( H u g h e s and
B r e w i n , 1979: 2 0 3 ) . T h e initial lists of d o c t o r s to get free r a d i o sets
w e r e s u p p l i e d by a d v e r t i s i n g d r u g c o m p a n i e s from their lists of
k n o w n high p r e s c r i b e r s . P e r h a p s it will soon be free v i d e o - s e t s .
B e f o r e w e h a v e r e a l l y b e g u n t o c o m e t o grips with r e g u l a t i o n o f
pharmaceutical advertising in traditional channels, new, more
p o w e r f u l m o d a l i t i e s a r e d e m a n d i n g a r e a s s e s s m e n t of h o w drug
pushing can be brought under control.

221
The corporation as pusher

The sales representative

O v e r 100,000 p e o p l e a r o u n d t h e w o r l d e a r n a living as sales r e p r e -


s e n t a t i v e s ( ' d e t a i l m e n * ) w h o visit d o c t o r s t o p e r s u a d e t h e m t o
p r e s c r i b e t h e i r c o m p a n y ' s p r o d u c t s . W e have seen t h a t surveys o f
d o c t o r s s h o w t h e s a l e s r e p r e s e n t a t i v e t o b e the m o s t i m p o r t a n t
s i n g l e s o u r c e o f d r u g i n f o r m a t i o n , p a r t i c u l a r l y with n e w p r o d u c t s .
I n t h e t e r m s o f G o r r i n g ' s ( 1 9 7 8 ) a n a l y s i s , t h e sales r e p r e s e n t a t i v e i s
t h e a n a l o g u e for licit d r u g s o f t h e s t r e e t p u s h e r of illicit d r u g s . A
1971 C i b a sales r e p o r t w a s e v e n so explicit as to u r g e sales r e p r e -
s e n t a t i v e s to be "more effective p u s h e r s ' of R i t a l i n :

' Y o u r ingenuity in the promotion of Ritalin FBP [Functional


B e h a v i o r P r o b l e m s ] is b e c o m i n g m o r e a p p a r e n t : Mr. Y [a
d e t a i l e r ] r e p o r t s t h a t a t a n i n s e r v i c e m e e t i n g o f special e d u c a t i o n
p e r s o n n e l . . . a physician brought two hyperactive children to
use i n a d e m o n s t r a t i o n o f t h e basic s y m p t o m s o f F u n c t i o n a l
B e h a v i o u r P r o b l e m s . T h a t ' s g e t t i n g i n v o l v e m e n t folks' (Hentoff,
1972: 2 1 ; c i t e d i n G r u n s p o o n and S t r i n g e r , 1973).

O b v i o u s l y it is m u c h m o r e difficult for h e a l t h a u t h o r i t i e s to
m o n i t o r t h e c l a i m s of sales r e p r e s e n t a t i v e s t h a n it is to m o n i t o r t h e
p r i n t e d w o r d . B u t s l i p - u p s o c c u r , such as w h e n a p r a c t i s i n g physi-
c i a n w h o h a p p e n e d to be a p a r t - t i m e F D A e m p l o y e e w a s told by a
P a r k e - D a v i s r e p r e s e n t a t i v e t h a t C h l o r o m y c e t i n p o s e d n o m o r e risk
of b l o o d d a m a g e t h a n any o t h e r a n t i b i o t i c - a claim t h a t the heavy
d e a t h toll from C h l o r o m y c e t i n can r e a d i l y d i s p r o v e ( e . g . B e s t ,
1967).
T h e M E R / 2 9 litigation unearthed a wealth of information about
t h e i n s t r u c t i o n s w h i c h w e n t o u t t o R i c h a r d s o n - M e r r e l l sales r e p r e -
s e n t a t i v e s o n h o w t o p u s h this d r u g :

H e r e ' s o n e t h a t s e e m s like a red hot i d e a for M E R / 2 9 . . . if it's


y o u r s t y l e . I t ' s from T i m B o w e n , C h a r l o t t e , N . C . A i m e d
p a r t i c u l a r l y a t t h e 'wait and s e e ' p h y s i c i a n , T i m ' s close [ i . e . , f i n a l
sales p i t c h to t h e d o c t o r ] g o e s s o m e t h i n g like this (we got it third
hand):

D o c t o r , I can a p p r e c i a t e and a d m i r e y o u r c a u t i o n a b o u t any


n e w d r u g , but M E R / 2 9 has b e e n o n t h e m a r k e t a l m o s t a y e a r
n o w a n d w a s s t u d i e d i n t h o u s a n d s o f p a t i e n t s for y e a r s before
t h a t . Its r a t e o f use i n d i c a t e s t h a t a c c e p t a n c e i s b r o a d e n i n g
rapidly. P e r h a p s these words of A l e x a n d e r Pope have some

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The corporation as pusher

b e a r i n g o n y o u r c o n s i d e r a t i o n o f M E R / 2 9 : ' B e not t h e first b y


w h o m t h e n e w is t r i e d , nor t h e last to lay t h e old a s i d e . '

L o t s of p o w e r t h e r e . . . can y o u r style be b e n t j u s t a bit to fit?


( F u l l e r , 1972: 8 8 ) .

B y a n d l a r g e , h o w e v e r , i t t a k e s e x t r a o r d i n a r y e v e n t s such a s t h e
M E R / 2 9 p r o s e c u t i o n s t o bring such a b u s e s t o t h e surface. A W H O
s u r v e y in 1968 s h o w e d t h a t m o s t g o v e r n m e n t s do not have legis-
l a t i o n w h i c h e n a b l e s t h e m t o c o n t r o l oral s t a t e m e n t s b y drug sales
r e p r e s e n t a t i v e s ( W H O , 1969). S o u t h Africa w a s t h e only e x c e p t i o n
f o u n d . T h e r e , w h e n e v e r a drug is a d v e r t i s e d orally for t h e first t i m e ,
w r i t t e n i n f o r m a t i o n e q u i v a l e n t t o t h a t r e q u i r e d for p a c k a g e inserts
m u s t be g i v e n to t h e p h y s i c i a n . In Yarrow v. Sterling Drug Inc. it
w a s held in t h e U n i t e d S t a t e s that a m a n u f a c t u r e r w a s liable for a
failure of its sales r e p r e s e n t a t i v e s to disclose side-effects, e v e n
w h e r e d i s c l o s u r e w a s m a d e i n labelling m a t e r i a l s ( A f t e r m a n , 1972).
In spite of t h e s e d e v e l o p m e n t s , it r e m a i n s a major irony t h a t the
m o s t influential m e t h o d o f d r u g p r o m o t i o n i s t h e least c o n s t r a i n e d
by l a w .
P h y s i c i a n s t h e m s e l v e s are t h e m o s t hopeful source o f c o n t r o l .
M a n y d o c t o r s enjoy g e t t i n g n e w s a m p l e s from t h e sales r e p r e s e n -
t a t i v e . A s o n e m e d i c a l d i r e c t o r e x p l a i n e d : ' D o c t o r s like n e w toys t o
p l a y w i t h . ' P h a r m a c e u t i c a l c o m p a n i e s d o not like t o upset d o c t o r s :

S a l e s r e p r e s e n t a t i v e s will be on t h e m a t if t h e y have r u b b e d
d o c t o r s u p t h e w r o n g w a y . O u r g r e a t c o n c e r n i s not s o m u c h
a v o i d i n g m i s r e p r e s e n t a t i o n , t h o u g h t h a t ' s i m p o r t a n t for its o w n
s a k e , but avoiding those kinds of m i s r e p r e s e n t a t i o n which upset
d o c t o r s . T h e c o m p a n y ' s credibility i s a l l - i m p o r t a n t .

D o c t o r s t h e r e f o r e i n v o k e a n effective c o n t r o l w h e n they w r i t e t o
t h e c o m p a n y t o c o m p l a i n a b o u t t h e c l a i m s o f a sales r e p r e s e n t a t i v e .
E v e n m o r e effective with a t r a n s n a t i o n a l is for t h e d o c t o r to c o m -
plain direct to world h e a d q u a r t e r s . A senior Australian executive
c o n c e d e d that doctors w h o have an intelligent understanding of
h o w t o sting t h e sales d e p a r t m e n t ' w o n ' t g o t h r o u g h t h e local p e o p l e
b e c a u s e t h e y will only c o v e r i t u p ' . C o r p o r a t e h e a d q u a r t e r s d o not
get a lot of f e e d b a c k a b o u t h o w its s u b s i d i a r i e s in far-flung p a r t s of
t h e w o r l d a r e p e r f o r m i n g , s o l e t t e r s from p h y s i c i a n s with s e r i o u s
c o m p l a i n t s can c r e a t e s o m e heat for t h e local sales d e p a r t m e n t . O n e
F D A official l a m e n t e d t h a t F D A c o m p l a i n t s t o t h e c o m p a n y a r e not
a l w a y s as effective a s a n c t i o n : 'Often t h e y will r e s p o n d to t h e

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The corporation as pusher

c o m p l a i n t b y t r a n s f e r r i n g the overly a g g r e s s i v e detail m a n to


a n o t h e r r e g i o n - o n e t h a t n e e d s its sales b o o s t e d along a bit.'
T h e l i m i t a t i o n o f d o c t o r c o m p l a i n t s is, h o w e v e r , t h a t c o m p a n i e s
will only be c o n c e r n e d a b o u t t h o s e t y p e s of claims w h i c h are an
i n s u l t to t h e i n t e l l i g e n c e of p h y s i c i a n s . It will not bring u n d e r
c o n t r o l t h e m o r e p e r v a s i v e subtle forms o f m i s r e p r e s e n t a t i o n . O n e
of t h e s e is t h e s e l e c t i v e use of a c c u r a t e i n f o r m a t i o n . An e x a m p l e
from o n e e x e c u t i v e :

A s h a d e o f g r e y a r e a w o u l d be w h e r e t h e c o m p a n y r e c o m m e n d s a
d o s a g e i n t h e r a n g e say 2 0 0 - 2 5 0 m i s . M a y b e m o s t specialists
a g r e e w i t h t h i s d o s a g e . B u t o n e specialist says to a sales
r e p r e s e n t a t i v e t h a t you really n e e d a d o s a g e of450 mis. T h e n t h e
s a l e s r e p r e s e n t a t i v e will go and say this to a G P : that such and
such a s p e c i a l i s t r e c o m m e n d s t h a t t h e d o s a g e really should be
450 mis.

T h e p h a r m a c e u t i c a l sales r e p r e s e n t a t i v e i s told b y the c o m p a n y


t h a t s/he has a dual r e s p o n s i b i l i t y : to sell and p r o m o t e the a d v a n -
t a g e s o f t h e p r o d u c t , but also t o e d u c a t e d o c t o r s a s t o t h e risks and
l i m i t a t i o n s o f t h e t h e r a p y . I n spite o f t h i s r h e t o r i c , ' T h e success o f
t h e r e p r e s e n t a t i v e s ' w o r k i s m e a s u r e d b y t h e v o l u m e o f s a l e s , and
not by i m p r o v e m e n t s in the k n o w l e d g e of the physicians'
( H e m m i n k i and P e s o n e n , 1977a: 111). I n d e e d , s/he is usually paid
s a l a r y and i n c e n t i v e s c o m m e n s u r a t e with success at selling, not on
the strength ofthe balance ofthe knowledge imparted. Newspaper
a d v e r t i s e m e n t s for p h a r m a c e u t i c a l sales r e p r e s e n t a t i v e s typically
a p p e a r u n d e r S for s a l e s m e n , a n d often ask for p r o v e n ability at
a g g r e s s i v e sales p e r f o r m a n c e .

S e n a t o r K e n n e d y o n c e d r e w a t t e n t i o n t o a J o h n s o n and J o h n s o n
t e a c h i n g m a n u a l w h i c h e m p h a s i s e d t h e selling r a t h e r t h a n the
i n f o r m a t i o n - p r o v i d i n g side of their w o r k : ' T h i n k s a l e s m e n and not
d e t a i l m e n . D e l e t e t h e w o r d " d e t a i l " from the v o c a b u l a r y and think
selling and s a l e s ' ( S u b c o m m i t t e e o n H e a l t h , 1974: 7 7 0 ) . T h e
p r e s s u r e to a c h i e v e sales m a k e s it difficult for the c o m p a n y r e p r e -
s e n t a t i v e t o b e o b j e c t i v e i n p r e s e n t i n g t h e a d v a n t a g e s and d i s a d v a n -
t a g e s , c o m p a r e d w i t h a l t e r n a t i v e t h e r a p i e s , o f t h e p r o d u c t s/he i s
p u s h i n g . I n d e e d , m a n y r e p r e s e n t a t i v e s discard any p r e t e n c e o f a
fair p r e s e n t a t i o n of risks and benefits. T h e former m e d i c a l d i r e c t o r
of S q u i b b , Dr A. D a l e C o n s o l e , said at o n e point in his t e s t i m o n y
b e f o r e t h e K e f a u v e r s u b c o m m i t t e e : ' T h e r e is a simple m a x i m , I

224
The corporation as pusher

l e a r n e d from detail m e n . . . . "If you c a n ' t c o n v i n c e t h e m , confuse


t h e m " ' ( M i n t z , 1967: 8 6 ) .
F o r m a n y p r o m o t i o n a l c a m p a i g n s , it is i m p o s s i b l e to see h o w a
s a l e s r e p r e s e n t a t i v e could afford t o b e o b j e c t i v e . M a d i s o n A v e n u e
f r e q u e n t l y c r e a t e s q u i t e artificial d i s t i n c t i o n s b e t w e e n p r o d u c t s
w h i c h a r e e s s e n t i a l l y similar t h e r a p e u t i c a l l y , i n o r d e r t o e m b r a c e
n e w m a r k e t s . C o n s i d e r t h e following i n f o r m a t i o n p r o v i d e d t o
S m i t h K l i n e sales r e p r e s e n t a t i v e s : ' " C o m p a z i n e " and " S t e l a z i n e "
a r e very s i m i l a r , clinically. D i f f e r e n c e s i n d o c t o r s ' a t t i t u d e s t o w a r d
t h e m a r e d u e m a i n l y t o o u r p r o m o t i o n ' ( N a d e r , 1973: 6 ) .
A f a s c i n a t i n g case study o f t h i s t y p e w a s t h e p r o m o t i o n of Serentil
( m e s o r i d a z i n e ) b y S a n d o z i n t h e U n i t e d S t a t e s . Serentil i s m e t a b o l -
ized i n e s s e n t i a l l y t h e s a m e w a y a s a n o t h e r S a n d o z p r o d u c t , Melloril
( t h i o m i d a z i n e ) , for t h e t r e a t m e n t o f s c h i z o p h r e n i a and o t h e r
psychoses involving disordered thinking. But Sandoz needed a new
m a r k e t . S o S e r e n t i l w a s p r o m o t e d 'for t h e anxiety t h a t c o m e s from
n o t fitting in' - a l o n g step from s c h i z o p h r e n i a . Serentil a d v e r t i s e -
m e n t s r e f e r r e d t o : ' T h e n e w c o m e r i n t o w n w h o can't m a k e friends.
T h e o r g a n i z a t i o n m a n w h o can't adjust to a l t e r e d status w i t h i n his
c o m p a n y . T h e w o m a n w h o can't get a l o n g w i t h her n e w d a u g h t e r -
i n - l a w ' , a n d s o on. T h e 'not f i t t i n g in' a d v e r t i s e m e n t w a s u n a c c e p t -
a b l e t o t h e F D A , and S a n d o z w e r e c o m p e l l e d t o run a r e m e d i a l
a d v e r t i s e m e n t which read:

T h e F D A s t a t e s t h a t t h e p r i n c i p a l t h e m e o f t h e a d suggests
u n a p p r o v e d uses of S e r e n t i l for relatively m i n o r or e v e r y d a y
a n x i e t y s i t u a t i o n s e n c o u n t e r e d often i n t h e n o r m a l c o u r s e o f
living. T h e fact is t h a t S e r e n t i l , a p h e n o t h i z i n e d r u g , is limited in
its use to c e r t a i n d i s e a s e s t a t e s . . . .

A c c o r d i n g t o a s e n i o r F D A official, S a n d o z sales r e p r e s e n t a t i v e s
w e r e h a v i n g difficulty in e x p l a i n i n g to d o c t o r s the fact that w h a t w a s
e s s e n t i a l l y t h e s a m e p r o d u c t c o u l d be u s e d for p s y c h o s i s on t h e one
h a n d , a n d for mild a n x i e t y o n t h e o t h e r . F D A r e g u l a t o r y action
a g a i n s t t h e S e r e n t i l a d v e r t i s i n g b r o u g h t t h e p r o d u c t differentiation
p r o b l e m to a h e a d . S a n d o z solved t h e p r o b l e m by selling t h e licence
to d i s t r i b u t e S e r e n t i l to a c o m p e t i t o r , B o e h r i n g e r - I n g e l h e i m ,
w h o s e sales r e p r e s e n t a t i v e s w o u l d not h a v e t h e p r o b l e m o f distin-
g u i s h i n g it from o t h e r p r o d u c t s in t h e i r line.
I n m o s t p a r t s o f t h e world sales r e p r e s e n t a t i v e s are paid b o n u s e s
a c c o r d i n g t o t h e i r sales p e r f o r m a n c e . T h e l a t t e r i s not a l w a y s easy t o
a s s e s s . T h e d o c t o r d o e s not place a n o r d e r w i t h t h e r e p r e s e n t a t i v e s .

225
The corporation as pusher

b u t will s i m p l y give an i n d i c a t i o n t h a t he or she m i g h t try the


p r o d u c t w i t h future p r e s c r i p t i o n s . H o w e v e r , c o m p a n i e s have good
m a r k e t i n t e l l i g e n c e o n h o w t h e i r p r o d u c t s are selling a t p h a r m a c i e s
w i t h i n e a c h sales r e g i o n . A H e l s i n k i study found that 94 per cent of
s a l e s r e p r e s e n t a t i v e s o b t a i n e d sales statistics - 17 per cent only
n a t i o n - w i d e , 18 p e r c e n t only from t h e i r own a r e a , and the o t h e r s
from t h e w h o l e c o u n t r y and their o w n a r e a ( H e m m i n k i and
P e s o n e n , 1977a: 108). I n m a n y p a r t s o f t h e w o r l d c o m p a n i e s d o
p r e s c r i p t i o n s u r v e y s w h e r e t h e p h a r m a c i s t ' s r e c o r d s are c h e c k e d t o
see w h i c h i n d i v i d u a l d o c t o r s h a v e p r e s c r i b e d a p a r t i c u l a r p r o d u c t in
n u m b e r s . O b v i o u s l y this p r a c t i c e e n t a i l s a c e r t a i n b r e a c h of con-
f i d e n t i a l i t y o n t h e part o f t h e p h a r m a c i s t . R o c h e d o e s t e l e p h o n e
s p o t - c h e c k s of d o c t o r s to d e t e r m i n e t h e last t i m e d o c t o r s saw a
R o c h e r e p r e s e n t a t i v e 'and w h a t d r u g s t h e y t a l k e d a b o u t ' . D o c t o r s
w e r e a l s o sent r e p o r t c a r d s t o r a t e R o c h e r e p r e s e n t a t i v e s a s
' e x c e l l e n t , g o o d o r p o o r ' . R o c h e sent t h e d o c t o r ' s medical school a
d o n a t i o n o f $10 for e a c h r e p o r t c o m p l e t e d ( H u g h e s and B r e w i n ,
1979: 2 0 6 ) .
O n e m u s t s p a r e a t h o u g h t for t h e sales r e p r e s e n t a t i v e as victim.
They are put u n d e r t r e m e n d o u s pressure to perform, pressure
w h i c h c a u s e s m a n y t o b r e a k d o w n . T h e y are i n d o c t r i n a t e d into
b e l i e v i n g t h a t t h e i r p r o d u c t s really are a b o o n t o m a n k i n d : ' Y o u
o w e it to y o u r s e l f - to y o u r c o m p a n y - to t h e millions of p e o p l e w h o
n e e d M E R / 2 9 - t o b e e n t h u s i a s t i c ' ( R i c h a r d s o n - M e r r e l l sales
m a n u a l ) ( S h a p o , 1979: 8 8 - 9 ) . T h e s t a t e m e n t o f a M e r c k sales
r e p r e s e n t a t i v e b e f o r e t h e K e n n e d y s u b c o m m i t t e e u n d e r l i n e s the
situation:

D e t a i l m e n a r e g e n u i n e l y c o n v i n c e d b y their e m p l o y e r s t h a t they
a r e w o r k i n g for t h e finest p h a r m a c e u t i c a l c o m p a n y in t h e
i n d u s t r y , a n d t h a t t h e i r p r o d u c t s are t h e best. M o r e t h a n t h i s ,
t h e y a r e c o n v i n c e d t h a t society is in n e e d of t h e i r e m p l o y e r s '
p r o d u c t s . T h e y m u s t t h e r e f o r e s p r e a d t h e word a s t o t h e w o r t h o f
t h e i r d r u g s ( S u b c o m m i t t e e o n H e a l t h , 1974: P a r t 3 : 7 3 3 ) .

O r , a s a n o t h e r sales r e p r e s e n t a t i v e put it: ' W h e n you k e e p saying


t h a t t h i s d r u g is g o o d and n e c e s s a r y for a w h o l e y e a r , you finally
b e l i e v e it yourself, t o o ' ( H e m m i n k i and P e s o n e n , 1977a: 109).
M a k i n g sales r e p r e s e n t a t i v e s more informed would help to under-
m i n e t h e t e n d e n c y t o w a r d s glib a c c e p t a n c e o f their c o m p a n y ' s
p r o p a g a n d a . T r a i n i n g c o u r s e s run b y d i s i n t e r e s t e d p a r t i e s o u t s i d e
the p h a r m a c e u t i c a l industry might help. At present, in most

226
The corporation as pusher

c o u n t r i e s a r o u n d the world, including the U n i t e d States, c o m p a n i e s


c o n d u c t i n - h o u s e t r a i n i n g c o u r s e s t h a t r u n for w e e k s r a t h e r t h a n
m o n t h s . W e l l - t r a i n e d science g r a d u a t e s are m o r e likely t o look
c r i t i c a l l y at t h e c l a i m s of an e m p l o y e r w h o is found to p r o v i d e t h e m
o n l y with j o u r n a l r e f e r e n c e s to s t u d i e s f a v o u r a b l e to a p r o d u c t .
S o m e c o m p a n i e s a r e b e t t e r t h a n o t h e r s . E i g h t y p e r c e n t o f Lilly's
sales r e p r e s e n t a t i v e s w i t h i n t h e U n i t e d S t a t e s are qualified p h a r m a -
c i s t s . C o s t a R i c a has g o n e so far as to r e q u i r e t h a t p h a r m a c e u t i c a l
r e p r e s e n t a t i v e s be pharmacy graduates. But in neighbouring
G u a t e m a l a , t h e s i t u a t i o n is d r a m a t i c a l l y different. W h e n I asked
t h e g e n e r a l m a n a g e r o f o n e c o m p a n y w h e t h e r his r e p r e s e n t a t i v e s
w e r e a s well t r a i n e d a s i n t h e U n i t e d S t a t e s , h e replied: ' N o . T h e y
g e t j u s t t h r e e o r four w e e k s o n basic s a l e s m a n s h i p and p r o d u c t
i n f o r m a t i o n . W e ' r e lucky i f w e can get high school g r a d u a t e s . S o m e
o f t h e m I w o u l d n ' t e m p l o y to . . . as j a n i t o r s . '

Doctor conflict of interest

Dr A. Dale Console, former Squibb medical director, testified


before the US Senate:

S o m e t i m e in 1956, w h e n I w a s still a m e d i c a l d i r e c t o r , t h e lagging


s a l e s o f o n e o f o u r p r o d u c t s led m a n a g e m e n t t o d e c i d e t h a t t h e
p r o d u c t n e e d e d a b o o s t . T h e boost t o o k t h e form o f o b t a i n i n g an
e n d o r s e m e n t from a p h y s i c i a n w h o w a s a p r o m i n e n t a u t h o r i t y in
t h e field. W e k n e w t h a t t h e p a r t i c u l a r p h y s i c i a n w a s being
s u b s i d i z e d b y a n o t h e r d r u g c o m p a n y and s o m a n a g e m e n t d e c i d e d
t h a t it w o u l d be s i m p l e for me as m e d i c a l d i r e c t o r to ' b u y ' him. I
o b j e c t e d since I felt t h a t t h e d o c t o r w a s i n c o r r u p t i b l e and b e c a u s e
I felt t h e p r o d u c t did not d e s e r v e e n d o r s e m e n t . My b u s i n e s s
c o l l e a g u e s o v e r r u l e d me and I w a s left w i t h a blank check to win
his favor. I w a s free to offer him a large g r a n t to s u p p o r t any
r e s e a r c h of his c h o i c e ' w i t h o u t s t r i n g s ' or to r e t a i n him as a
c o n s u l t a n t w i t h a g e n e r o u s a n n u a l c o m p e n s a t i o n . I w a s quite
c e r t a i n t h a t t h e d o c t o r w o u l d t h r o w me out of his office if I
a p p r o a c h e d him w i t h any o f t h e t e c h n i q u e s s u g g e s t e d b y m y
c o l l e a g u e s . T h e y all had t h e o b v i o u s o d o r of a b r i b e . I d e c i d e d ,
t h e r e f o r e , to use a s t r a t a g e m t h a t was m o r e likely to be effective
a n d t h a t I t h o u g h t (at t h e t i m e ) w o u l d be e a s i e r on my o w n
conscience.

I t o o k t h e d o c t o r to l u n c h , and after t h e usual two m a r t i n i s , I

227
The corporation as pusher

told him e x a c t l y w h a t had b e e n g o i n g on and my d i s a g r e e m e n t


w i t h my c o l l e a g u e s . In this m a n n e r we e s t a b l i s h e d a
p h y s i c i a n - t o - p h y s i c i a n r e l a t i o n s h i p i n which w e w e r e b o t h
d e p l o r i n g t h e q u e s t i o n a b l e tactics used b y t h e d r u g i n d u s t r y .
C o n v e r s a t i o n g r a d u a l l y shifted to t h e p r o d u c t a n d , to m a k e a long
story s h o r t , we got o u r e n d o r s e m e n t a l m o s t as a p e r s o n a l favor.
M y t r a v e l e x p e n s e s and t h e price o f t h e lunch m a d e u p the e n t i r e
cost t o t h e c o m p a n y ( P e k k a n e n , 1973: 7 3 ) .

O n e c o u l d p o i n t t o o t h e r e x a m p l e s o f this sort, but the m o r e


p e r v a s i v e conflict of i n t e r e s t w h i c h i m p i n g e s on physician drug
p u s h i n g is t h e o w n e r s h i p by d o c t o r s of s h a r e s in p h a r m a c e u t i c a l
c o m p a n i e s . M o s t d o c t o r s are affluent e n o u g h t o h a v e capital t o
invest, and the drug industry is one o f t h e more obvious investment
c h o i c e s for p e o p l e w h o in t h e c o u r s e of their professional w o r k are
k e p t i n f o r m e d a b o u t d e v e l o p m e n t s in t h a t i n d u s t r y . In 1979 w h e n I
w a s i n t h e U n i t e d S t a t e s , p h y s i c i a n s w e r e abuzz with interest i n the
s u c c e s s o f T a g a m e t , a n i m p r o v e d t h e r a p y for u l c e r s , and h o w this
h a d d o u b l e d S m i t h K l i n e s h a r e p r i c e s i n the c o u r s e o f six m o n t h s .
B u t t h e m o r e i n t e n s e conflict o f i n t e r e s t i s with s m a l l e r c o m p a n i e s
w h e r e i n d i v i d u a l p h y s i c i a n s , o r small g r o u p s o f physicians p u s h i n g
d r u g s , can h a v e a significant i m p a c t on profitability. In the U n i t e d
S t a t e s , M i n t z ( 1 9 6 7 : 3 2 0 - 3 2 5 d ) has forcefully b r o u g h t h o m e the
p r o b l e m s . H e p o i n t s o u t t h a t i n 1964, T e x a s p h y s i c i a n s had a n
i n t e r e s t in 1 in 25 o f t h e s t a t e ' s p h a r m a c i e s and in 26 o f t h e 126
Texas-licensed p h a r m a c e u t i c a l manufacturing firms. O n e of these
s m a l l c o m p a n i e s , M e r i t P h a r m a c e u t i c a l C o m p a n y I n c . , had 244
p h y s i c i a n s a m o n g its 4 6 6 s t o c k h o l d e r s . S e n a t o r H a r t d e s c r i b e d t h e
M e r i t s e t - u p before t h e S e n a t e :

D o c t o r s e n t e r e d into partnership with drug salesmen to p r o m o t e


c o m p a n y p r o d u c t s . . . t h e c o m p a n y split 5 0 - 5 0 w i t h t h e detail
m e n . T h e y in t u r n g a v e 25 p e r c e n t to p a r t i c i p a t i n g d o c t o r s . . .
t h i s a p p e a r s to be n o t h i n g but a k i c k - b a c k for p r e s c r i b i n g t h e
c o m p a n y p r o d u c t s . A n d for a p e r i o d o f t w o y e a r s d o c t o r s w e r e
f o u n d w h o w e r e willing to p a r t i c i p a t e in such a s c h e m e ( M i n t z
1967:320-1).

A n e x a m p l e from N e w O r l e a n s w a s C a r r t o n e L a b o r a t o r i e s . O f its
3 , 0 0 0 s t o c k h o l d e r s , at least 1,200 w e r e p h y s i c i a n s . In M a r c h 1964,
c o m p a n y president, Dr William W. F r y e , D e a n o f t h e Louisiana
S t a t e U n i v e r s i t y School o f M e d i c i n e , w r o t e t o t h e c o m p a n y ' s

228
The corporation as pusher

p h y s i c i a n - s h a r e h o l d e r s u r g i n g e a c h of t h e m to 'do j u s t a little bit


m o r e for his c o m p a n y ' , so t h a t it w o u l d 'start m a k i n g a sizeable
profit i m m e d i a t e l y ' .

L e t t e r s like t h i s d r e w a h e a r t w a r m i n g r e s p o n s e . I n t h e
s u b c o m m i t t e e h e a r i n g r e c o r d is a reply in w h i c h D r . J o s e p h A.
T h o m a s of N a t c h i t o c h e s , L o u i s i a n a , a g r e e d that 'it is up to us
s h a r e h o l d e r s t o m a k e o u r c o m p a n y g o and g r o w . ' F r o m
S h r e v e p o r t , D r . T. E. Strain w r o t e , 'I do a g r e e to p r e s c r i b e and
e n c o u r a g e m y a s s o c i a t e s t o use C a r r t o n e p r o d u c t s . ' Similar
l e t t e r s , s o m e o f t h e m m a k i n g i t clear t h a t t h e a u t h o r s w e r e glad t o
h e l p if to do so w a s c o n s i s t e n t with t h e p a t i e n t ' s h e a l t h n e e d s
c a m e from o t h e r s o u t h e r n states i n c l u d i n g A r k a n s a s , K e n t u c k y ,
a n d O k l a h o m a . D r . E . W a y n e Gilley o f C h a t t a n o o g a w r o t e t h a t
h e had ' s e n t p e r s o n a l l e t t e r s t o all d o c t o r s i n T e n n e s s e e w h o w e r e
k n o w n to have C a r r t o n e stock.' Dr. Boyce P. Griggs of
L i n c o l n t o n , N o r t h C a r o l i n a , a t t e m p t i n g t o initiate a c a m p a i g n o f
s u p p o r t for C a r r t o n e a m o n g his fellow p h y s i c i a n - s t o c k h o l d e r s ,
u r g e d t h a t ' w e . . . p r o m o t e o u r stock i n t e r e s t by way of actively
" p e n p u s h i n g " Carrtone products. . . . ' H e wrote them that
' C a r r t o n e ' s g r o w t h will r e w a r d you t h r o u g h y o u r h o l d i n g i n
C a r r t o n e stock . . . I l o o k u p o n C a r r t o n e a s a r o s e b u d a b o u t t o
b l o o m , s t o c k w i s e . . . L e t ' s p u s h t h e p e n for C a r r t o n e . . . .'
( M i n t z , 1967: 3 2 2 - 3 ) .

C a r r t o n e s u r v i v e d by s c h e m e s to sell its stock to d o c t o r s w h o


w o u l d agree to heavily prescribe C a r r t o n e products to e n h a n c e the
v a l u e of t h e i r i n v e s t m e n t . A letter from C. K. A v e r y , assistant
b u s i n e s s m a n a g e r o f t h e B r o u g h t o n State Hospital, was tabled in
t h e S e n a t e c o n c e r n i n g a c o n f e r e n c e t e l e p h o n e call a m o n g A v e r y ,
D r J o h n M c K e e J r . , s u p e r i n t e n d e n t o f t h e h o s p i t a l , and t h r e e
Carrtone people:

I do n o t k n o w w h o m a d e t h e s u g g e s t i o n , but it w a s m a d e a g a i n
a n d a g a i n t h a t t h e m e d i c a l staff b e a d v i s e d t o p u r c h a s e s u b s t a n t i a l
q u a n t i t i e s o f t h e c o m m o n stock i n C a r r t o n e L a b o r a t o r i e s w h i c h
w a s t h e n selling at a low price . . . a n d t h a t the H o s p i t a l t h e n
switch its e n t i r e b u s i n e s s t o C a r r t o n e L a b o r a t o r i e s .
W e w e r e ' g u a r a n t e e d ' t h a t t h e stock w o u l d triple o r q u a d r u p l e
i f w e t o o k such a c t i o n . . . [it] was t h e b a l d e s t p r o p o s i t i o n that I
h a v e e v e r h e a r d in 17 y e a r s of bulk p u r c h a s i n g ( M i n t z : 1967:
322-3).

229
The corporation as pusher

M i n t z i s r e l e n t l e s s i n using S e n a t e t e s t i m o n y t o d e m o n s t r a t e t h a t
p h y s i c i a n conflict of i n t e r e s t may be a p e r v a s i v e p r o b l e m .

In t h e 1967 H a r t h e a r i n g s , M a v e n J. M y e r s , an assistant professor


a t t h e P h i l a d e l p h i a C o l l e g e o f P h a r m a c y and S c i e n c e , testified
a b o u t a s u r v e y he had d o n e in a large but unidentified city, w h i c h
may have been M i l w a u k e e , about pharmaceutical repackaging
firms. F o u r such firms w e r e o w n e d by a total of 14 p h y s i c i a n s and
o s t e o p a t h s . A m o n g their p r i v a t e - l a b e l offerings w e r e p r o d u c t s
c o n t a i n i n g p e n i c i l l i n , t o w h i c h a n e s t i m a t e d 2 0 million A m e r i c a n s
a r e a l l e r g i c or s e n s i t i v e . M y e r s testified t h a t o u t of e v e r y 1,000
p r e s c r i p t i o n s w r i t t e n by t h e d o c t o r - o w n e r s , 104 w e r e for
p e n c i l l i n - c o n t a i n i n g p r o d u c t s . T h i s w a s a rate 2Vi t i m e s t h e
n a t i o n a l a v e r a g e ; it was 8 t i m e s that found a m o n g a control g r o u p
of p r e s c r i b i n g p h y s i c i a n s . A similar p a t t e r n a m o n g eye d o c t o r s
w a s testified to by D r . M a r c A n t h o n y . In his city of S p o k a n e ,
W a s h i n g t o n , h e told S e n a t o r H a r t , four o p h t h a l m o l o g i s t s w h o
sell e y e g l a s s e s s t i p u l a t e d in a c o u r t case t h a t each p r e s c r i b e s 2 , 2 0 0
p a i r s a y e a r . T h i s is 1,000 m o r e t h a n w e r e p r e s c r i b e d by t h e
e q u a l l y busy D r . A n t h o n y o r e a c h o f his litigant c o l l e a g u e s
w h o d o not d i s p e n s e . D r . A n t h o n y testified t h a t m o s t o f t h e
d i f f e r e n c e - an 83 p e r c e n t difference - w a s a c c o u n t e d for by
e x p l o i t a t i o n o f p a t i e n t s w h o s e old g l a s s e s 'are really ok' ( M i n t z ,
1967:325d).

O t h e r c o u n t r i e s h a v e not had t h e benefit o f t h e A m e r i c a n system


o f S e n a t e s u b c o m m i t t e e h e a r i n g s and t h e i n v e s t i g a t i v e j o u r n a l i s m
of a M o r t o n M i n t z to e x p o s e t h e e x t e n t of d o c t o r conflict of i n t e r e s t .
T h i s is not to say it d o e s not exist. In t h e late 1970s t h e r e w e r e
e x p r e s s i o n s of c o n c e r n in P a r a g u a y , for e x a m p l e , a b o u t a g r o w i n g
p h a r m a c e u t i c a l c o m p a n y with s i x t e e n d o c t o r s h a v i n g key s h a r e -
h o l d i n g s , a n d a n o t h e r c o m p a n y run b y t h e wives o f t e n d o c t o r s .

Towards effective control

It is t r i t e to say t h a t t h e r e is m u c h m o n e y to be m a d e from drug


a b u s e . B u t m o s t d o not realise h o w m u c h , o r h o w g e n e r a l l y true this
p r o p o s i t i o n is. W i n k l e r (1974) has d e m o n s t r a t e d its g e n e r a l i t y in
A u s t r a l i a w h e n he s h o w e d t h a t for a l c o h o l , 26 p e r cent of all sales
r e v e n u e c o m e s from h a z a r d o u s u s e r s ; for n i c o t i n e , 73 per c e n t ; for
a n a l g e s i c s , 33 per c e n t of sales w e r e to h a z a r d o u s u s e r s . If sales of
h a z a r d o u s s u b s t a n c e s w e r e limited only t o r e s p o n s i b l e u s e r s , t h e

230
The corporation as pusher

profits of a l c o h o l , t o b a c c o and d r u g c o m p a n i e s w o u l d be shot to


pieces.
F o r this r e a s o n c o n t r o l of a b u s e is b o u n d to be difficult. P h a r -
m a c e u t i c a l c o m p a n i e s fight h a r d a g a i n s t p e o p l e w h o c h a l l e n g e t h e
h a z a r d s from use o f t h e i r p r o d u c t s . C o n s i d e r , for e x a m p l e , t h e
l e t t e r from C h a r l e s S . B r o w n , E x e c u t i v e Vice P r e s i d e n t o f A b b o t t
L a b o r a t o r i e s to the Chancellor o f t h e University of Pittsburgh. It
c o m p l a i n s a b o u t a n a r t i c l e b y P r o f e s s o r Jack S c h u b e r t o f the
U n i v e r s i t y w h i c h w a s critical o f t h e h a z a r d s a s s o c i a t e d with
e x t e n s i v e use o f c y c l a m a t e s .

I m o s t s t r o n g l y p r o t e s t t h e use by a faculty m e m b e r of
publications ofthe University ofPittsburgh to make unwarranted
misleading s t a t e m e n t s about a product of A b b o t t
L a b o r a t o r i e s . . . . T h e scientific i n f o r m a t i o n we have - and it is
e x t e n s i v e - tells us c y c l a m a t e , at c u r r e n t l y used levels is safe and
useful in t h e h u m a n d i e t . . . . T h e p r i m e c o r p o r a t e i n t e r e s t of
A b b o t t L a b o r a t o r i e s is Health Care World Wide. . . . In Dr.
S c h u b e r t ' s s t a t e m e n t s , o u r p r o d u c t - and t h u s o u r r e p u t a t i o n - is
unjustifiably a t t a c k e d . F o r t h e s e r e a s o n s , w e m u s t p r o t e s t w h e n a
r e s p e c t e d a c a d e m i c i n s t i t u t i o n like t h e U n i v e r s i t y o f P i t t s b u r g h i s
u s e d to m a k e an u n w a r r a n t e d a t t a c k on t h e p r o d u c t of a
c o r p o r a t i o n t h a t is highly r e s p e c t e d for its scientific r e p u t a t i o n
a n d i n t e g r i t y . W e r e q u e s t t h a t you t a k e a p p r o p r i a t e action t o
c o r r e c t the misleading s t a t e m e n t s m a d e in the n a m e o f y o u r
U n i v e r s i t y ( T u r n e r 1976: 9 3 ) .

F o l l o w i n g visits from r e p r e s e n t a t i v e s o f A b b o t t ' s public r e l a t i o n s


firm a n d a p u b l i c a t t a c k by A b b o t t , P r o f e s s o r S c h u b e r t r e t a i n e d a
l a w y e r t o p r o t e c t his i n t e r e s t s .
In spite o f t h e p r o p e n s i t y for t h e p h a r m a c e u t i c a l industry to fight
its o p p o n e n t s v i g o r o u s l y , t h e industry is v u l n e r a b l e on the c h a r g e of
p u s h i n g t h e o v e r u s e o f p r e s c r i p t i o n d r u g s . R e f o r m will c o m e . A s i n
o t h e r a r e a s o f p h a r m a c e u t i c a l r e g u l a t i o n , reform follows crises
w h i c h b e c o m e visible t o t h e p u b l i c . B e l g i u m legislated for d r u g
a d v e r t i s i n g to be p r e - c l e a r e d with h e a l t h a u t h o r i t i e s in 1977 after a
f u r o r e l e a d i n g t o t h e b a n n i n g o f the so-called ' b r o n z e pill', w h i c h
m a n u f a c t u r e r s c l a i m e d w o u l d tan t h e skin w h e n t a k e n orally.
S i n c e t h e t h a l i d o m i d e d i s a s t e r , t h e A m e r i c a n F o o d , D r u g and
C o s m e t i c A c t h a s p r o v i d e d c r i m i n a l p e n a l t i e s for m i s l e a d i n g adver-
t i s i n g o f p h a r m a c e u t i c a l p r o d u c t s . T h e first c r i m i n a l p r o s e c u t i o n
t o o k p l a c e i n 1965 w h e n W a l l a c e L a b o r a t o r i e s w a s c h a r g e d with

231
The corporation as pusher

o m i t t i n g e s s e n t i a l side-effect and c o n t r a - i n d i c a t i o n i n f o r m a t i o n in
a d v e r t i s i n g for t h e d r u g , P r e e M. T. T h e m a x i m u m $2,000 fine w a s
i m p o s e d by t h e U n i t e d S t a t e s District C o u r t for N e w J e r s e y after a
p l e a of no c o n t e s t by t h e c o m p a n y . W i t h i n a few y e a r s t h e r e had
b e e n six c r i m i n a l p r o s e c u t i o n s c o n c e r n i n g a d v e r t i s i n g . T h e F o o d ,
D r u g and C o s m e t i c A c t also p r o v i d e s for g o v e r n m e n t seizure o f
p r o d u c t s which have been improperly advertised. This permits
F D A a civil c o u r s e of a c t i o n as an a l t e r n a t i v e to criminal p r o s e c u -
t i o n , o n e w h i c h has m o r e s e v e r e c o n s e q u e n c e s for t h e c o m p a n y
t h a n a fine o f a few t h o u s a n d d o l l a r s . B u t seizure is an o b v i o u s l y
d e f e c t i v e r e c o u r s e for m i s l e a d i n g a d v e r t i s i n g . W h e n p a t i e n t s read
t h a t s t o c k s o f a p r o d u c t h a v e b e e n s e i z e d , they a s s u m e this m e a n s
t h a t t h e p r o d u c t itself is defective in s o m e w a y . T h i s is not t h e case
w i t h s e i z u r e s a r i s i n g from e x t r a v a g a n t a d v e r t i s i n g . A m e r i c a n
s e i z u r e s o f t h i s t y p e h a v e b e e n found t o g e n e r a t e u n n e c e s s a r y w o r r y
a m o n g p a t i e n t s a b o u t w h e t h e r they should c o n t i n u e using the d r u g s
they have in their medicine chests. Of course when batches of
p r o d u c t really a r e physically d e f e c t i v e , seizure is an essential
protection.
T h e last d e c a d e has seen a shift a w a y from not only the use of
s e i z u r e s , b u t t h e use of any litigious s o l u t i o n to t h e c o n t r o l of
a d v e r t i s i n g c l a i m s ( R h e i n s t e i n and H u g s t a d , 1979). C r i m i n a l p r o s e -
c u t i o n s s i m p l y d o not o c c u r any m o r e . F D A r e a s o n i n g i s that the
c r i m i n a l s a n c t i o n is not sufficiently flexible a d e v i c e for d e a l i n g with
t h e p r o b l e m . It w o u l d typically t a k e t h r e e y e a r s to b r i n g a criminal
5
p r o s e c u t i o n to a c o n c l u s i o n . By t h e n an a d v e r t i s i n g c a m p a i g n
w o u l d h a v e long since run its c o u r s e . T h e p r e f e r r e d strategy w a s t o
s t r i k e at an a d v e r t i s i n g c a m p a i g n i m m e d i a t e l y , d u r i n g t h e period it
was believed to have an impact. So the most c o m m o n sanctions
became:

(a) Dear doctor letters: T h e c o m p a n y is r e q u i r e d to write to all


p h y s i c i a n s p o i n t i n g out that t h e c l a i m s m a d e i n r e c e n t
p r o m o t i o n a l m a t e r i a l w e r e u n r e a s o n a b l e i n c e r t a i n specified
ways.
(b) Remedial advertisements: T h e c o m p a n y is r e q u i r e d to include
in t h e issue of a j o u r n a l following o n e in w h i c h a m i s l e a d i n g
c l a i m w a s m a d e an a d v e r t i s e m e n t of e q u a l size and eye
a p p e a l refuting t h e c l a i m s o f t h e p r e v i o u s a d v e r t i s e m e n t .

T h e s e a r e effective s a n c t i o n s . P h a r m a c e u t i c a l c o m p a n i e s pay
a d v e r t i s i n g a g e n c i e s a g r e a t deal of m o n e y for effective a d v e r t i s i n g

232
The corporation as pusher

c a m p a i g n s , and t o see t h e m t u r n e d against t h e c o m p a n y i s e n o r -


m o u s l y p a i n f u l . R e m e d i a l a d v e r t i s e m e n t s and D e a r D o c t o r l e t t e r s
a r e p a r t i c u l a r l y c o u n t e r p r o d u c t i v e t o t h e c o m p a n y i n the way that
t h e y d e n t t h e i r r e p u t a t i o n for integrity a m o n g the p e o p l e w h o
m a t t e r m o s t - d o c t o r s . It also costs a lot of m o n e y to send a l e t t e r to
tens of t h o u s a n d s of d o c t o r s . The content of D e a r Doctor letters
a n d r e m e d i a l a d v e r t i s e m e n t s is a m a t t e r of t o u g h n e g o t i a t i o n
b e t w e e n t h e c o m p a n y and t h e F D A . But t h e F D A has the b a c k s t o p
of c r i m i n a l p r o s e c u t i o n , s u r r o u n d e d by all t h e a d v e r s e publicity it
can m u s t e r , i f t h e c o m p a n y refuses t o c o m p l y . T h e s e s o l u t i o n s ,
t h e n , a c c e p t t h e reality that p h a r m a c e u t i c a l a d v e r t i s e m e n t s have
such a s h o r t half-life that t h e c o u r t s p r o v i d e t o o s l o w - m o v i n g a
d e v i c e for r o u t i n e c o n t r o l .
N e v e r t h e l e s s , o n e w o u l d h a v e t h o u g h t t h a t t h e r e w o u l d b e a case
for o c c a s i o n a l p r o s e c u t i o n s t o foster g e n e r a l d e t e r r e n c e and m a i n -
t a i n t h e s t i g m a of t h e a s s o c i a t i o n of c r i m i n a l i t y with false a d v e r -
t i s i n g . In n e i t h e r t h e 1977 n o r 1978 financial y e a r s w e r e t h e r e any
legal a c t i o n s o f any sort i n s t i t u t e d a g a i n s t d r u g a d v e r t i s e m e n t s . "
I n d e e d , t h e r e w e r e only 3 D e a r D o c t o r l e t t e r s and 3 r e m e d i a l
a d v e r t i s e m e n t s d u r i n g t h e t w o y e a r s . T h e r e w e r e 125 a d v e r t i s e -
m e n t s c a n c e l l e d and 174 ' N o t i c e of V i o l a t i o n L e t t e r s ' sent out.
H e n c e , e v e n t h e use o f t h e n e w flexible s a n c t i o n s falls s o m e w h a t
s h o r t of a blitz. T h e s i t u a t i o n is similar in A u s t r a l i a , w h e r e even
t h o u g h states have the power to prosecute pharmaceutical com-
p a n i e s for false or m i s l e a d i n g a d v e r t i s i n g , p r o s e c u t i o n s never
h a p p e n ( A f t e r m a n , 1972; D a r v a l l , 1978, 1980).
F e e b l e t h o u g h t h e A m e r i c a n level o f e n f o r c e m e n t might s e e m t o
b e , it has c e r t a i n l y had an effect. In c o n t r a s t to t h e U n i t e d S t a t e s ,
G r e a t B r i t a i n and A u s t r a l i a h a v e not seen t h e direct i n t e r v e n t i o n o f
h e a l t h a u t h o r i t i e s in the control of j o u r n a l advertising.' Instead
i n d u s t r y s e l f - r e g u l a t i o n h a s b e e n the s t r a t e g y . In 1968 t h e British
A s s o c i a t i o n of P h a r m a c e u t i c a l Manufacturers succeeded in having
t h e g o v e r n m e n t a c c e p t a v a g u e l y w o r d e d v o l u n t a r y c o d e o f adver-
t i s i n g . A u s t r a l i a n s t a t e and F e d e r a l H e a l t h m i n i s t e r s a g r e e d i n
1974, in a r e m a r k a b l e m o m e n t of i n t e r s t a t e u n a n i m i t y , u p o n a set of
'Proposed R e q u i r e m e n t s for t h e A d v e r t i s i n g o f T h e r a p e u t i c
G o o d s ' . H o w e v e r , the Australian Pharmaceutical Manufacturers
A s s o c i a t i o n h a s successfully l o b b i e d to k e e p this legislation sitting
on t h e shelf. T h e t r a d e - o f f w a s a g a i n a v a g u e l y w o r d e d v o l u n t a r y
c o d e . N a j m a n e t al. ( 1 9 7 9 ) have s h o w n t h a t British and A u s t r a l i a n
s e l f - r e g u l a t i o n by v o l u n t a r y c o d e s has not p r o d u c e d t h e g o o d s in t h e

233
The corporation as pusher

w a y t h e A m e r i c a n F D A - i m p o s e d c o n t r o l h a s . W i t h the p r o g r e s s i v e
i n t r o d u c t i o n of US c o n t r o l s b e t w e e n 1961 and 1977 t h e p r o p o r t i o n
o f a d v e r t i s i n g s p a c e d e v o t e d t o side-effects and c o n t r a - i n d i c a t i o n s
increased markedly in t h e Journal of the American Medical
Association. In G r e a t B r i t a i n and A u s t r a l i a , in c o n t r a s t , i m p r o v e -
m e n t s w e r e n o t e v i d e n t d u r i n g this p e r i o d i n t h e c o u n t e r p a r t
j o u r n a l s . W h i l e m i n u s c u l e p r o p o r t i o n s o f t h e British and A u s t r a l i a n
a d v e r t i s i n g copy a r e d e v o t e d t o side-effects and c o n t r a - i n d i c a t i o n s ,
t h e p r o p o r t i o n of A m e r i c a n advertising space devoted to caution-
ary c o n t e n t is n o w a l m o s t as g r e a t as t h e s p a c e d e v o t e d to indi-
c a t i o n s . N o t w i t h s t a n d i n g t h i s , q u a n t i t y i s not q u a l i t y ; i t r e m a i n s t h e
i n d i c a t i o n s w h i c h a r e t h e subject o f e y e - c a t c h i n g copy i n t h e U n i t e d
1
States.
T h e r e is some e v i d e n c e suggesting that remedial advertisements
a r e effective from a s t u d y c o n d u c t e d for t h e F D A by A p p l i e d
M a n a g e m e n t S c i e n c e s ( S u b c o m m i t t e e o n H e a l t h , 1974: 2 0 0 3 - 3 0 ) .
T h e r e m e d i a l a d v e r t i s e m e n t is a t t r a c t i v e b e c a u s e it is such a public
k i n d of s a n c t i o n . H o p e f u l l y , all o t h e r m a n u f a c t u r e r s see it, and
g e n e r a l d e t e r r e n c e is fostered in t h e m o s t explicit way p o s s i b l e .
A p p l i e d M a n a g e m e n t Sciences asked a representative sample of
1,379 p h y s i c i a n s if t h e y had seen a r e m e d i a l a d v e r t i s e m e n t con-
c e r n i n g an o r a l c o n t r a c e p t i v e . A s u r p r i s i n g 2 4 . 6 p e r cent of the
s a m p l e saw and r e m e m b e r e d the r e m e d i a l a d v e r t i s e m e n t . M o r e
i m p o r t a n t l y , 3 6 . 8 p e r c e n t o f o b s t e t r i c i a n s and g y n a e c o l o g i s t s and
4 0 . 7 p e r c e n t o f p h y s i c i a n s w h o had e v e r p r e s c r i b e d t h a t b r a n d o f
o r a l c o n t r a c e p t i v e n o t i c e d t h e ad. T h i s surely can be c o u n t e d as
r e m a r k a b l y effective c o m m u n i c a t i o n of a r e g u l a t o r y action to the
relevant audience.
I n g e n e r a l , a d v e r s e publicity i s t h e m o s t f l e x i b l e , c h e a p , s p e e d y
a n d effective s a n c t i o n a g a i n s t p r o m o t i o n a l e x c e s s e s . T h e F D A has
legislative backing to disseminate information concerning drugs,
f o o d , d e v i c e s , or c o s m e t i c s which it c o n s i d e r s e i t h e r c o n s t i t u t e an
' i m m i n e n t d a n g e r to h e a l t h ' or i n v o l v e a ' g r o s s d e c e p t i o n of the
c o n s u m e r ' . T h e d i s c r e t i o n i s w i d e , p r o v i d i n g that ' n o t h i n g i n t h e
s e c t i o n shall be c o n s t r u e d to p r o h i b i t t h e S e c r e t a r y from . . . r e p o r t -
ing .. . t h e r e s u l t s of i n v e s t i g a t i o n s . . . .' It w a s held in Hoxsey
Cancer Clinic v. Folsom t h a t t h e F D A may issue such i n f o r m a t i o n
w i t h o u t a h e a r i n g , and t h a t no legal r e m e d y is a v a i l a b l e to p r e v e n t
its r e l e a s e to t h e p u b l i c ( A f t e r m a n , 1972: 122).

234
The corporation as pusher

T h e place of s e l f - r e g u l a t i o n

In arguing above that g o v e r n m e n t - i m p o s e d regulation of adver-


t i s i n g in t h e U n i t e d S t a t e s has b e e n m o r e effective t h a n self-
r e g u l a t i o n in G r e a t B r i t a i n and A u s t r a l i a , I did not m e a n to imply
t h a t s e l f - r e g u l a t i o n is u s e l e s s . I n d e e d , m u c h of t h e success of
g o v e r n m e n t r e g u l a t i o n in t h e U n i t e d S t a t e s is in a p e r v e r s e way
a t t r i b u t a b l e t o s e l f - r e g u l a t i o n . D r P e t e r R h e i n s t e i n , D i r e c t o r o f the
F D A ' s D i v i s i o n o f D r u g A d v e r t i s i n g , gets m a n y o f his best tip-offs
a b o u t a d v e r t i s i n g v i o l a t i o n s inside plain b r o w n e n v e l o p e s w h i c h
a p p e a r u n d e r his d o o r i n t h e d e a d o f night. S o m e c o m p a n i e s are less
r e t i r i n g , and c o m p l a i n verbally a b o u t v i o l a t i o n s c o m m i t t e d b y
c o m p e t i t o r s . S o m e t i m e s t h e s e c o n t a i n m a n y p a g e s o f legal o p i n i o n
on t h e a l l e g e d v i o l a t i o n . T h e s e tips are of g r e a t a s s i s t a n c e to a
p r o f e s s i o n a l staff of five w h o c a n n o t r e a d and hear all t h e p r o -
m o t i o n a l m a t e r i a l d i s s e m i n a t e d i n t h e U n i t e d S t a t e s each d a y .
C o m p a n i e s will often i n s t i t u t e c e r t a i n s e l f - r e g u l a t o r y m e a s u r e s t o
c l e a n u p t h e i r p r o m o t i o n i n r e s p o n s e t o r e m o n s t r a t i o n s from F D A .
F o r e x a m p l e , c o m p a n i e s s o m e t i m e s a g r e e t o d i s m i s s sales r e p r e -
s e n t a t i v e s w h o a r e t h e subject o f F D A c o m p l a i n t . T h e c a r e e r o f one
j u n i o r c o m p a n y e m p l o y e e m i g h t be r e g a r d e d as a small sacrifice to
e n a b l e s e n i o r m a n a g e m e n t t o d e m o n s t r a t e t h e i r g o o d faith t o F D A .
O n e can o n l y s y m p a t h i s e with t h e sales r e p r e s e n t a t i v e w h o s e guilt
or i n n o c e n c e m i g h t n o t be an issue.
Self-regulation is better than no regulation. The Australian
Pharmaceutical Manufacturers Association committee which
s c r u t i n i s e s all j o u r n a l a d v e r t i s e m e n t s o f m e m b e r s before they are
p u b l i s h e d d o e s , i n a small w a y , raise t h e lowest c o m m o n d e n o m i n -
a t o r of advertising s t a n d a r d s . The chairperson of the c o m m i t t e e
told m e t h a t w h e n e v e r t h e c o m m i t t e e t h i n k s t h a t a n a d g o e s t o o far,
he t e l e p h o n e s the m a n a g i n g director o f t h e c o m p a n y concerned.
' N o t o n c e h a s a m a n a g i n g d i r e c t o r refused to c o m p l y with the
r e q u e s t e d c h a n g e , e v e n in a c o u p l e of c a s e s w h e r e it w a s a non-
P M A m e m b e r . ' F o r its o w n m e m b e r s , A P M A has t h e s a n c t i o n o f
e x p e l l i n g t h e v i o l a t o r from t h e a s s o c i a t i o n . M a n y local m a n a g i n g
d i r e c t o r s of t r a n s n a t i o n a l s m i g h t be d i s m i s s e d if t h e y did s o m e t h i n g
w h i c h c a u s e d t h e c o m p a n y t o b e t h r o w n o u t o f t h e A P M A . B u t this
s a n c t i o n n e v e r has to be used. A m i n o r c h a n g e to o n e a d v e r t i s e m e n t
is n o t a m a t t e r w h i c h w o u l d justify falling o u t with o t h e r m e m b e r s of
t h e c l u b . T h e s e r e l a t i o n s h i p s m u s t b e p r e s e r v e d for m o r e i m p o r t a n t
m a t t e r s like ' o r d e r l y m a r k e t i n g ' . A t least w i t h respect t o the

235
The corporation as pusher

p h a r m a c e u t i c a l i n d u s t r y , the criticism of t r a d e a s s o c i a t i o n self-


r e g u l a t i o n is n o t t h a t it can n e v e r exact effective s a n c t i o n s to main-
t a i n c o m p l i a n c e , but t h a t t h e s t a n d a r d s i m p o s e d will be low o n e s
w h i c h are m u t u a l l y c o m f o r t a b l e a m o n g the industry l e a d e r s . T h e
c o m m i t t e e r a r e l y b r i n g s specialists o n t o t h e c o m m i t t e e t o discuss
t h e scientific m e r i t o f a specific claim or o m i s s i o n . W h a t they do not
k n o w a b o u t , t h e y n e e d not act u p o n . E x c e p t i n o c c a s i o n a l s t r u g g l e s
b e t w e e n c o m p e t i t o r s (when 'orderly marketing' breaks d o w n ) ,
t h e r e is no i n c e n t i v e for c o m m i t t e e m e m b e r s to do investigative
digging.

M o r e i m p o r t a n t t h a n t r a d e a s s o c i a t i o n self-regulation i s intra-
c o r p o r a t e s e l f - r e g u l a t i o n . O n e c o m p a n y I visited c l a i m e d that if
t h e r e w e r e 30 p a p e r s a s s o c i a t e d w i t h a given a d v e r t i s i n g c l a i m , t h e n
t h e legal d e p a r t m e n t , q u i t e a p a r t from t h e m e d i c a l d e p a r t m e n t ,
w o u l d r e a d e a c h o f t h o s e 3 0 p a p e r s . A g a i n w e have a s i t u a t i o n
w h e r e only l a r g e c o m p a n i e s can afford a legal d e p a r t m e n t o f a size
to be a b l e to do t h i s . A n d of c o u r s e it w o u l d be n a i v e to a s s u m e t h a t
in this kind of w o r k t h e legal d e p a r t m e n t ' s function is p r i m a r i l y
s e l f - r e g u l a t o r y ; it is e q u a l l y to a d v i s e m a r k e t i n g staff on w h a t t h e y
c a n get a w a y w i t h . N e v e r t h e l e s s , i t i s i m p o r t a n t t o g r a n t t h e p r o -
fessional c o n s t i t u e n c i e s within the organisation power to over-rule
marketing on promotional claims.

M o s t crucial is the p o w e r o f t h e medical director. In the better


c o m p a n i e s , t h e m e d i c a l d i r e c t o r a t h e a d q u a r t e r s and t h e local
m e d i c a l d i r e c t o r i n t h e s u b s i d i a r y has a n a b s o l u t e right o f v e t o o v e r
a n y p r o m o t i o n a l c l a i m sent u p from m a r k e t i n g . T o u n d e r s t a n d t h e
i m p o r t a n c e o f t h i s w e m u s t r e m e m b e r t h a t a large c o r p o r a t i o n i s not
a p r o f i t - m a x i m i s i n g m o n o l i t h . W h i l e t h e p e r f o r m a n c e of the
m a r k e t i n g d e p a r t m e n t i s m e a s u r e d b y s a l e s , the m e d i c a l d i r e c t o r ' s
s u c c e s s is a s s e s s e d in t e r m s of his or h e r c a p a c i t y to s t e e r the
c o r p o r a t i o n a w a y from a t h e r a p e u t i c / r e g u l a t o r y d i s a s t e r , and to
m a i n t a i n the c o m p a n y ' s credibility a m o n g the medical profession as
a socially r e s p o n s i b l e e n t e r p r i s e . T h i s is not to say t h a t t h e m e d i c a l
d i r e c t o r can afford to i g n o r e profit c o n s i d e r a t i o n s . N e v e r t h e l e s s , it
r e m a i n s true that to the extent that intra-corporate constituencies
w h i c h h a v e g r e a t e r e m p h a s i s o n social r e s p o n s i b i l i t y goals can b e
g i v e n n e g o t i a t i n g s t r e n g t h against c o n s t i t u e n c i e s w h o s e over-
w h e l m i n g c o n c e r n is short-term expansion of sales, better protec-
t i o n o f t h e p u b l i c will r e s u l t .

M o s t l a r g e c o m p a n i e s h a v e fairly c o m p l e x s y s t e m s for a p p r o v i n g
n e w p r o m o t i o n a l m a t e r i a l . T y p i c a l l y , t h e m a r k e t i n g m a n a g e r will

236
The corporation as pusher

first h a v e t o sign t h a t his d e p a r t m e n t a p p r o v e s t h e n e w m a t e r i a l .


T h e n t h e m e d i c a l d i r e c t o r will sign, t h e n t h e legal d e p a r t m e n t , t h e n
r e g u l a t o r y affairs. S o m e t i m e s t h e r e m a y b e a d o z e n p e o p l e w h o
m u s t sign off t h e i r a p p r o v a l , a l t h o u g h t h e e x t e n t t o which t h e i r
c o m m e n t s a r e h e e d e d will vary. I n t h e o r y , t h e S O P i s usually t h a t all
m u s t sign off b e f o r e t h e m a t e r i a l can go o u t ; in p r a c t i c e m i n o r
m o d i f i c a t i o n s will be n e g o t i a t e d in e x c h a n g e for a s i g n a t u r e . If
s o m e o n e , m o s t likely t h e m e d i c a l d i r e c t o r o r t h e legal d e p a r t m e n t ,
d i g s in t h e i r h e e l s , t h e n a m e e t i n g m u s t be called to t h r a s h o u t a
s e t t l e m e n t , or t h e d e a d l o c k must be referred to a h i g h e r a u t h o r i t y .
D e a d l o c k s occur rarely, however.

I n this p r o c e s s , o n e w o u l d h a v e t h o u g h t t h e legal d e p a r t m e n t
m i g h t afford as g r e a t a p r o t e c t i o n to t h e p u b l i c as t h e medical
d i r e c t o r . Y e t t h i s s e e m s not t o b e so. W h i l e t h e p r o f e s s i o n a l
s o c i a l i s a t i o n o f d o c t o r s i n d o c t r i n a t e s t h e m w i t h t h e ideal t h a t w h a t
t h e y a r e a b o u t i s p r o v i d i n g t h e best p o s s i b l e h e a l t h care t o the
p u b l i c , t h e s o c i a l i s a t i o n o f l a w y e r s e m p h a s i s e s serving the best
i n t e r e s t s o f t h e client ( w h o p a y s t h e bills) w h e t h e r t h e client i s right
o r w r o n g . P r o f e s s i o n a l i d e o l o g y p r o c l a i m s t h a t every p a r t i c i p a n t i n
a n a d v e r s a r y s y s t e m d e s e r v e s t h e best legal a d v i c e . C e r t a i n l y p r o -
fessional s o c i a l i s a t i o n b e c o m e s less and less i m p o r t a n t as b o t h
d o c t o r s and l a w y e r s b e c o m e l o o k - a l i k e o r g a n i s a t i o n p e r s o n s .
N e v e r t h e l e s s , t h e r e r e m a i n s o m e differences w h e r e b y d o c t o r s
c o n t i n u e t o see t h e i r u l t i m a t e mission a s being t o i m p r o v e t h e h e a l t h
o f t h e p u b l i c , w h i l e l a w y e r s see t h e i r r e s p o n s i b i l i t y a s t o p r o t e c t
t h e i r e m p l o y e r from t h e p u b l i c . O n e l a w y e r e x p r e s s e d a justifiable
c y n i c i s m w h e n I put t h e a b o v e i n t e r p r e t a t i o n to him: ' L a w y e r s are
o p e n a b o u t selling t h e i r skills t o t h e h i g h e s t b i d d e r ; but d o c t o r s
d e l u d e t h e m s e l v e s into b e l i e v i n g t h a t t h e y are serving s o m e o n e
o t h e r t h a n he w h o is p a y i n g t h e bills.' 1 r e s p o n d e d t h a t it is a
d e l u s i o n w h i c h m i g h t o c c a s i o n a l l y afford s o m e small p r o t e c t i o n t o
t h e p u b l i c . T h e l a w y e r a g r e e d t h a t this c o u l d b e .

L a w y e r s a r e , t h e n , self-consciously s e r v a n t s o f t h e c o r p o r a t e
i n t e r e s t r a t h e r t h a n t h e p u b l i c i n t e r e s t , e s s e n t i a l l y advising the
c o r p o r a t i o n o n w h a t t h e y can get a w a y w i t h . B u t this d o e s not m e a n
t h a t l a w y e r s see t h e i r m i s s i o n as profit m a x i m i s a t i o n for t h e
c o m p a n y . L a w y e r s see t h e i r goal as to be g o o d l a w y e r s , largely as
d e f i n e d by t h e i r p r o f e s s i o n a l s o c i a l i s a t i o n . It is t h e j o b of s e n i o r
m a n a g e m e n t t o a r t i c u l a t e t h e w o r k o f a s u b u n i t w h i c h d o e s good
l a w y e r i n g t o t h e o v e r a l l goals o f t h e o r g a n i s a t i o n :

237
The corporation as pusher

J. B.: When you finally sign off on approval of a new


piece of promotional material, do you do so as
the lawyer or the company man? Thatis, where
there is only a low product liability risk and a
high profit gain, do you take the point of view of
the company's overall profitability?
General counsel: I am paid to be a l a w y e r . If I d o n ' t r e p r e s e n t
legal i n t e r e s t s , I am not doing the j o b I'm paid
for.

Replacing advertising with information

W e h a v e s e e n t h a t t h e b u r d e n i m p o s e d o n t h e e c o n o m y b y phar-
m a c e u t i c a l p r o m o t i o n is t r e m e n d o u s . For the average A m e r i c a n
d o c t o r w h o writes $35,000 worth of prescriptions a year, about
$ 7 , 0 0 0 will h a v e b e e n spent in p e r s u a d i n g him or h e r to write t h o s e
p r e s c r i p t i o n s . T h i s i s c e r t a i n l y not a n a r e a w h e r e r e g u l a t i o n w o u l d
i m p o s e c o s t s t o b e p a s s e d o n t o t h e c o m m u n i t y . R e g u l a t i o n would
p r o d u c e s a v i n g s . H e a l t h a u t h o r i t i e s i n s o m e c o u n t r i e s have recog-
nised that excessive pharmaceutical p r o m o t i o n produces more
social h a r m t h a n g o o d and a r e acting t o r e d u c e c o r p o r a t e p r o m o -
t i o n a l e x p e n d i t u r e . T h e y can d o this b e c a u s e t h e i r g o v e r n m e n t s , a s
w e saw i n t h e last c h a p t e r , h a v e effective c o n t r o l o f d r u g p r i c e s . T h e
B r i t i s h g o v e r n m e n t i m p o s e s limits o n t h e a m o u n t s p h a r m a c e u t i c a l
c o m p a n i e s m a y s p e n d o n p r o m o t i o n . T h e pricing formula for N H S
p u r c h a s e s w a s r e v i s e d in 1978-9 to allow an a v e r a g e of 11 per cent of
s a l e s r e v e n u e t o g o o n p r o m o t i o n . T h i s has forced d o w n e x p e n d i -
t u r e on p r o m o t i o n by s e v e r a l p e r c e n t a g e p o i n t s in the last few y e a r s
to 12 p e r c e n t of r e v e n u e . T h i s is b e i n g further r e d u c e d as the
g o v e r n m e n t has n o w l o w e r e d the t a r g e t to 10 per c e n t . A similar
p r o c e s s has b e g u n i n F r a n c e , w h e r e t h e H e a l t h M i n i s t r y a d v i s e d
p h a r m a c e u t i c a l m a n u f a c t u r e r s in 1978 t h a t no firm will be allowed
to e x c e e d a m a x i m u m of 17 p e r c e n t of sales value on p r o m o t i o n for
social s e c u r i t y r e i m b u r s e d p r o d u c t s .

T h e A u s t r a l i a n H e a l t h D e p a r t m e n t also a r g u e d before t h e R a l p h
E n q u i r y t h a t i t s h o u l d b e e m p o w e r e d t o take steps t o r e d u c e
promotional expenditure:

T h e D e p a r t m e n t t a k e s t h e view t h a t m u c h o f t h e d r u g p r o m o t i o n
(mainly carried out by 'medical representatives' or 'drug
d e t a i l e r s ' ) is u n n e c e s s a r y , m u s t o b v i o u s l y i n c l u d e a significant

238
The corporation as pusher

bias a n d s h o u l d be largely r e p l a c e d by o b j e c t i v e i n f o r m a t i o n to
d o c t o r s from a u t h o r i t a t i v e and n o n - b i a s e d s o u r c e s , e.g. t h e
' A u s t r a l i a n P r e s c r i b e r ' ( A u s t r a l i a n D e p a r t m e n t o f H e a l t h , 1978:
66).

T h e citizen a s b o t h t a x p a y e r and c o n s u m e r o f d r u g s w o u l d benefit


from g o v e r n m e n t a c t i o n t o force d o w n p r o m o t i o n a l e x p e n d i t u r e
a n d use a p r o p o r t i o n of t h o s e savings on c o n t i n u i n g p h a r m a c o l o g i -
cal e d u c a t i o n for t h e m e d i c a l p r o f e s s i o n . T h e r e can n e v e r b e
effective c o n t r o l o v e r t h e b i a s e d oral p r e s e n t a t i o n s o f sales r e p r e -
s e n t a t i v e s . T h e only s o l u t i o n is g r a d u a l l y to do a w a y with t h e m and
substitute objective non-commercial information sources. Gradual-
ism is n e c e s s a r y b e c a u s e p h a r m a c e u t i c a l p r o m o t i o n d o e s fulfil an
u n d e n i a b l e p h y s i c i a n e d u c a t i o n function. I f o n e w e r e t o ban sales
r e p r e s e n t a t i v e s overnight, there would be no government or
p r o f e s s i o n a l s o u r c e o f effective i n f o r m a t i o n c o m m u n i c a t i o n ready
t o s t e p into t h e v a c u u m . T i g h t e n i n g t h e f i n a n c i a l s c r e w s o n p r o -
m o t i o n has t h e j o i n t a d v a n t a g e s o f g r a d u a l i s m and g e n e r a t i o n o f
s a v i n g s to finance o b j e c t i v e p r e s c r i b i n g i n f o r m a t i o n . If part of this
funding w e n t to e s t a b l i s h a t e r t i a r y c o u r s e for g o v e r n m e n t
' d e t a i l e r s ' , it might be desirable to require c o m p a n y detailers to
qualify in t h e s a m e c o u r s e . H o p e f u l l y such a c o u r s e w o u l d c o n t a i n a
hefty c o m p o n e n t o n p r o f e s s i o n a l e t h i c s .

C o m p l e m e n t a r y m e a s u r e s are also n e c e s s a r y , h o w e v e r . Im-


p r o v e d q u a l i t y can g o h a n d i n h a n d with r e d u c e d q u a n t i t y . O t h e r
c o u n t r i e s should adopt the F D A w e a p o n s of remedial advertise-
m e n t s a n d D e a r D o c t o r l e t t e r s a s t h e basic t o o l s t o c o n t r o l
p r o m o t i o n a l e x c e s s e s . M o r e o v e r , t h e r e is no r e a s o n < ihy r e m e d i a l
a d v e r t i s e m e n t s i n m e d i c a l j o u r n a l s s h o u l d not b e used t o r e d r e s s
e x c e s s i v e oral c l a i m s m a d e b y c o m p a n y sales r e p r e s e n t a t i v e s . I n the
C h l o r o m y c e t i n c a s e , for e x a m p l e , this w o u l d have b e e n a singularly
a p p r o p r i a t e r e m e d y t o t h e oral d i s c l a i m e r b y t h e P a r k e - D a v i s sales
r e p r e s e n t a t i v e a b o u t t h e effect o f t h e d r u g o n b l o o d d i s e a s e .

In a d d i t i o n , we s h o u l d n o t forget t h a t false a d v e r t i s i n g to p u s h t h e
e x c e s s i v e u s e of d a n g e r o u s d r u g s is so s e r i o u s a m a t t e r as to d e s e r v e
t h e s t i g m a o f t h e c r i m i n a l label. E x e m p l a r y p r o s e c u t i o n s o f c o m -
p a n i e s , p e r h a p s m a r k e t i n g m a n a g e r s , and c e r t a i n l y sales r e p r e s e n t -
atives are necessary to maintain stigma. Unlike many o f t h e matters
d i s c u s s e d i n p r e v i o u s c h a p t e r s , t h e s e a r e not c o m p l e x f e a t u r e s o f
c o r p o r a t e c o n d u c t w h i c h are difficult t o e x p l a i n i n c o u r t . T h e
p r i n t e d a d v e r t i s e m e n t is t h e r e for all to s e e , and it is not difficult to

239
The corporation as pusher

b r i n g a n u m b e r of d o c t o r s into c o u r t to testify t h a t a p a r t i c u l a r
c o m p a n y sales r e p r e s e n t a t i v e m a d e c e r t a i n specific claims t o t h e m .
P o l i c e officers w o u l d wish t h e y had it so easy in i n v e s t i g a t i n g m o s t
o t h e r t y p e s of c r i m i n a l offences. R e m e m b e r i n g that all I am
s u g g e s t i n g i s e x e m p l a r y p r o s e c u t i o n s , t h e task o f c o n v i c t i o n would
be e v e n e a s i e r by s e l e c t i n g o u t t h e m o s t b l a t a n t cases for court
action.
A n e n f o r c e m e n t a p p r o a c h i s n e c e s s a r y b e c a u s e t h e self-regu-
l a t o r y t r a c k r e c o r d of i n d u s t r y in c o n t r o l l i n g p r o m o t i o n is not g o o d .
S e l f - r e g u l a t i o n has b e e n tried and failed. It can c o m p l e m e n t
g o v e r n m e n t r e g u l a t i o n , b u t , i n this a r e a , can n e v e r b e a n a l t e r n a t i v e
to it.

Abolishing mass media advertising of drugs

M o s t c o u n t r i e s p e r m i t t h e a d v e r t i s i n g o f p r e s c r i p t i o n d r u g s only i n
m e d i a o u t l e t s d i r e c t e d specifically a t d o c t o r s ( e . g . medical
j o u r n a l s ) , and not t h r o u g h m a s s m e d i a . H o w e v e r , e x c e p t in a few
E u r o p e a n c o u n t r i e s , the advertising of non-prescription drugs
( O T C d r u g s ) i s p e r m i t t e d t h r o u g h all m e d i a o u t l e t s . T h e m a i n
c o n c e r n a b o u t m a s s m e d i a a d v e r t i s i n g o f d r u g s i s not specific c l a i m s
w h i c h a r e f r a u d u l e n t o r i n a c c u r a t e , b u t t h e c o n t r i b u t i o n the a d v e r -
tising m a k e s to producing a pill-popping culture. Mass advertising
f o s t e r s t h e ' m e d i c a l i z a t i o n o f e v e r y d a y life':

O n c e a h u m a n p r o b l e m is defined as a d i s e a s e , t h e t e c h n o l o g i c a l
a p p a r a t u s m a y be b r o u g h t in for its c u r e . It is t h e r e f o r e in the
i n t e r e s t s o f t h e p h a r m a c e u t i c a l i n d u s t r y t o e x p a n d its m a r k e t b y
e n c o u r a g i n g d o c t o r s t o e x p a n d t h e m e d i c a l m o d e l and t o
m a i n t a i n a p u b l i c belief t h a t h u m a n suffering and pain are not
o r d i n a r y c o n c o m i t a n t s o f living but a r e d i s e a s e s w h i c h m e d i c i n e
c a n be e x p e c t e d to end ( W i n k l e r , 1977: 7 ) .

T h e r e is a d r u g to put you to s l e e p , a d r u g to w a k e you u p , a drug


t o m a k e y o u feel g o o d , a n o t h e r t o h e l p you r e l a x , o n e t o k e e p the
k i d s q u i e t , still o t h e r s to c u r e a t e n s i o n h e a d a c h e , and best of all,
t h e r e a r e pills to m a k e you slim and beautiful. Little c o l o u r e d pills
to s o l v e all ills. If we w a n t to m o v e a w a y from a p i l l - p o p p i n g c u l t u r e ,
t h e n it is n o t t o o r e p r e s s i v e to b a n all m a s s m e d i a a d v e r t i s i n g of
d r u g s . It is not an u n c o n s c i o n a b l e t h r e a t to o u r liberalism t h a t we
forbid t h e a d v e r t i s i n g of m a r i j u a n a a n d h e r o i n : so why could we not
a c c e p t t h e b a n n i n g o f all m a s s a u d i e n c e d r u g a d v e r t i s i n g ( i n c l u d i n g

240
The corporation as pusher

o f a l c o h o l a n d t o b a c c o ) ? W h y e x p o s e c h i l d r e n t o the guiles o f
p u s h e r s of d r u g s , illegal or legal? A g a i n , this t y p e of r e g u l a t i o n
w o u l d r e d u c e costs, not increase t h e m .
If people need information about chemical solutions to problems
t h e y m i g h t h a v e , t h e n t h e y can go to t h e i r d o c t o r , or at least to a
p h a r m a c i s t w h o could p r o v i d e t h e m w i t h o b j e c t i v e l i t e r a t u r e and
a d v i c e a b o u t O T C d r u g s . T e l e v i s i o n a d v e r t i s i n g o f d r u g s has b e e n
b a n n e d in S w e d e n for m o r e t h a n a d e c a d e . A r g u i n g that t e l e v i s i o n
d r u g a d v e r t i s i n g fosters drug a b u s e a m o n g c h i l d r e n , t h e a t t o r n e y s -
g e n e r a l o f e i g h t e e n A m e r i c a n states o n c e p e t i t i o n e d t h e U S F e d e r a l
C o m m u n i c a t i o n s C o m m i s s i o n t o halt T V a d v e r t i s i n g o f O T C d r u g s
b e t w e e n 6 a . m . a n d 9 p . m . daily ( K a t z , 1 9 7 6 : 2 9 ) . C o r p o r a t i o n s use
t h e r h e t o r i c o f l i b e r a l i s m t o defend t h e i r r i g h t t o a d v e r t i s e . B u t
l i b e r a l i s m i s t r a d i t i o n a l l y c o n c e r n e d with t h e right o f t h e individual
to do a n y t h i n g he or she likes so long as it d o e s no h a r m to o t h e r s ,
n o t w i t h t h e right of powerful c o r p o r a t i o n s to do i m m e n s e h a r m to
i n d i v i d u a l s and t o society with i m p u n i t y .

Toward a more informed public


The p u r p o s e of b a n n i n g television advertising of drugs is to protect
c h i l d r e n from a w o r l d view w h i c h is s u i t a b l e to t h e d r u g p u s h e r , not
t o s h e l t e r a d u l t s from i n f o r m a t i o n a b o u t d r u g s . T h e p r i m a r y s o u r c e
o f i n f o r m a t i o n m u s t r e m a i n t h e p h y s i c i a n , but the e v i d e n c e i s
o v e r w h e l m i n g t h a t this i s not e n o u g h . M a n y s t u d i e s have d e m o n -
s t r a t e d t h e r e m a r k a b l e e x t e n t t o which p a t i e n t s forget t o t a k e d r u g s
or t a k e t h e m in q u a n t i t i e s and f r e q u e n c i e s t o t a l l y at o d d s with the
i n s t r u c t i o n s o f t h e i r p h y s i c i a n ( M a r s t o n , 1970; B o y d e t a l . , 1974;
S a c k e t t , 1976; M o r r i s and H a l p e r i n , 1979; B a r o f s k y , 1980).
E r r o n e o u s a n d wilful n o n c o m p l i a n c e with t h e d o c t o r ' s i n s t r u c t i o n s
p r o f o u n d l y u n d e r m i n e t h e effectiveness o f c h e m i c a l t h e r a p i e s
effectiveness established by studies conducted on patients who do
c o m p l y . T h e s t u d i e s listed a b o v e s h o w r a t e s o f n o n c o m p l i a n c e
r a n g i n g from 30 p e r cent to a s t a g g e r i n g 80 p e r c e n t .

T h e p r o b l e m has its r o o t s i n h o w ill-informed p e o p l e are a b o u t


d r u g s . O n e m a n i n H e i l b r o n n , W e s t G e r m a n y , c o m p l a i n e d t h a t his
wife had had six c h i l d r e n in seven y e a r s d e s p i t e t h e use of oral
c o n t r a c e p t i v e s - t h a t is, his use o f t h e Pill. B e c a u s e he did not trust
his wife to t a k e t h e Pill r e g u l a r l y , he had b e e n t a k i n g it himself
( S h a p o , 1979: 9 0 ) . O n e A m e r i c a n s u r v e y found t h a t i n spite o f t h e
e x p l i c i t b o x e d w a r n i n g o n t h e p a c k a g e label and t h e e x t e n s i v e

241
The corporation as pusher

p u b l i c i t y in t h e p r e s s , only 6 4 . 4 p e r cent of Pill users w e r e a w a r e that


it c o u l d c a u s e b l o o d c l o t t i n g a b n o r m a l i t i e s (cited in S h a p o , 1979:
132). S t u d i e s c o n d u c t e d in a clinic s h o w that p a t i e n t s r e m e m b e r
o n l y a b o u t half o f t h e s t a t e m e n t s m a d e t o t h e m a b o u t their t r e a t -
m e n t , e v e n w h e n t h e p a t i e n t s are i n t e r v i e w e d within m i n u t e s after
l e a v i n g t h e p h y s i c i a n ( J o y c e et a l . , 1960; Ley and S p e l l m a n , 1965).
In an a t t e m p t to improve patient understanding of their pro-
g r a m m e of m e d i c a t i o n , the F D A is trying to introduce patient
l a b e l l i n g r e q u i r e m e n t s for all p h a r m a c e u t i c a l p r o d u c t s . " T h e s e
w o u l d insist t h a t t h e m a n u f a c t u r e r p r e p a r e and d i s t r i b u t e p a t i e n t
information with the drug package. The information would be
w r i t t e n in n o n - t e c h n i c a l l a n g u a g e , not be p r o m o t i o n a l in t o n e or
c o n t e n t , and be based primarily on the information provided to
p h y s i c i a n s o n t h e p r o d u c t . T h e r e w o u l d b e i n f o r m a t i o n o n the
c i r c u m s t a n c e s u n d e r which t h e d r u g should not b e u s e d , s e r i o u s
a d v e r s e r e a c t i o n s , p r e c a u t i o n s the p a t i e n t should t a k e w h e n using
t h e p r o d u c t , i n f o r m a t i o n a b o u t side-effects, and o t h e r g e n e r a l
i n f o r m a t i o n a b o u t t h e use o f p r e s c r i p t i o n d r u g s . I n a d d i t i o n t o this
d e t a i l e d i n f o r m a t i o n , a s u m m a r y w o u l d be p r o v i d e d to e n c o u r a g e a
m o d i c u m of u n d e r s t a n d i n g a m o n g less diligent or less l i t e r a t e
patients.
T h e F D A p r e f a c e d its a r g u m e n t s for t h e r e g u l a t i o n s with survey
r e s e a r c h e v i d e n c e i n d i c a t i n g t h a t m o s t p a t i e n t s did d e s i r e m o r e
i n f o r m a t i o n a b o u t d r u g s they w e r e u s i n g . T h e p r i m a r y r e a s o n s for
the r e g u l a t i o n s were given as to

(1) p r o m o t e p a t i e n t u n d e r s t a n d i n g o f and a d h e r e n c e t o t h e drug


t h e r a p y , (2) p e r m i t t h e p a t i e n t t o a v o i d i n t e r a c t i o n s with o t h e r
d r u g s or f o o d s , (3) p r e p a r e t h e p a t i e n t for possible side effects,
(4) i n f o r m t h e p a t i e n t of p o s i t i v e and n e g a t i v e effects from t h e
use o f t h e d r u g p r o d u c t , (5) p e r m i t t h e p a t i e n t t o share i n t h e
d e c i s i o n t o use t h e d r u g p r o d u c t , (6) e n h a n c e t h e p a t i e n t /
p h y s i c i a n r e l a t i o n s h i p , and (7) p r o v i d e t h e p h a r m a c i s t and
p h y s i c i a n w i t h a basis for d i s c u s s i n g t h e use of a p r e s c r i p t i o n drug
p r o d u c t w i t h t h e p a t i e n t (Federal Register, 4 4 ( 1 3 1 ) , 6 July 1979:
40019).

T h e s e justifications are self-explanatory. H o w e v e r , a n u m b e r of


o b j e c t i o n s h a v e b e e n raised t o t h e p a t i e n t labelling r e g u l a t i o n s .
F i r s t , p a t i e n t l a b e l l i n g is said to e n c o u r a g e self-diagnosis and
t r a n s f e r o f p r e s c r i p t i o n d r u g s b e t w e e n p a t i e n t s . T h i s o f c o u r s e goes
o n a l r e a d y . I t m i g h t e v e n b e t h a t t h e w a r n i n g i n p a t i e n t labelling

242
The corporation as pusher

w h i c h i n d i c a t e s t h a t t h e p r o d u c t has b e e n p r e s c r i b e d for a p a r t i c u l a r
i n d i v i d u a l a n d s h o u l d not be given to o t h e r s will do m o r e to dis-
c o u r a g e t h a n e n c o u r a g e t h e p r a c t i c e . S e c o n d , i t i s a r g u e d that
p a t i e n t l a b e l l i n g could p r o d u c e a d v e r s e r e a c t i o n s i n p a t i e n t s
t h r o u g h s u g g e s t i o n . F D A a r g u e s t h a t s u g g e s t i o n effects play a
minimal role in causing serious adverse reactions. While patient
l a b e l l i n g m i g h t i n c r e a s e t h e reported i n c i d e n c e of a d v e r s e r e a c t i o n ,
a n u m b e r of s t u d i e s suggest t h a t t h e actual i n c i d e n c e of a d v e r s e
r e a c t i o n s will n o t i n c r e a s e ( M y e r s and C a l v e r t , 1 9 7 3 , 1 9 7 6 ; P a u l s o n
et a l . , 1976; E k l u n d and W e s s l i n g , 1976; B a s s and S u v e g e s , 1977;
W e i b e r t , 1977; K a n o u s e and M o r r i s , 1978). M o r e o v e r , t h e F D A
a r g u e d , at a p s y c h o l o g i c a l level t h e a d v a n t a g e s of p a t i e n t informa-
tion outweigh the disadvantages.

P a t i e n t s m a y b e m o r e sensitive t o ' w a r n i n g signals' o f s e r i o u s


a d v e r s e effects. A c c u r a t e e x p e c t a t i o n s m a y help r e d u c e
u n c e r t a i n t y and a n x i e t y a b o u t p o s s i b l e effects o f t r e a t m e n t . T h e
p a t i e n t m a y also b e b e t t e r able t o i n t e r p r e t and identify m o r e
a c c u r a t e l y t h e c a u s e o f d r u g - i n d u c e d r e a c t i o n s , and t r e a t m e n t s
c o u l d b e o n m o r e p r e c i s e i n f o r m a t i o n . A c c o r d i n g l y , t h e possible
p o s i t i v e effects of s u p p l y i n g a c c u r a t e side effect i n f o r m a t i o n
s u b s t a n t i a l l y o u t w e i g h t h e p o s s i b l e n e g a t i v e o n e s (Federal
Register 44(131), 6 July 1979: 4 0 0 2 3 ) .

A n o t h e r p s y c h o l o g i c a l factor, t h o u g h , i s t h a t informed p a t i e n t s
m a y be less likely to be a m e n a b l e to a d v a n t a g e o u s p l a c e b o effects.
On the c o n t r a r y , the F D A reply, ' B e c a u s e the patient would know
w h a t effects t o e x p e c t from t h e d r u g and b e c a u s e p a t i e n t labelling
may e n h a n c e patient/physician c o m m u n i c a t i o n s , information in
p a t i e n t l a b e l l i n g a b o u t t h e effects o f t h e d r u g may e v e n i n c r e a s e the
p l a c e b o effect of a d r u g p r o d u c t . ' (Federal Register 4 4 ( 1 3 1 ) , 6 July
1979: 4 0 0 2 3 ) .
A n o t h e r a t t a c k o n p a t i e n t labelling i s t h a t i t w o u l d c a u s e p a t i e n t s
a t t i m e s t o b e a l a r m e d , and put m o r e p r e s s u r e o n t h e t i m e o f d o c t o r s
w h o will h a v e to r e a s s u r e t h e m a b o u t c e r t a i n m a t t e r s . Surely such a
p a t i e n t / p h y s i c i a n d i a l o g u e is p r e c i s e l y w h a t is lacking at the
m o m e n t and explains much o f t h e a p p a r e n t patient ignorance. A
r e l a t e d c o n c e r n i s t h a t p a t i e n t s m i g h t lose confidence i n their
d o c t o r ' s j u d g m e n t , p a r t i c u l a r l y i f t h e d o c t o r ' s s t a t e m e n t s conflict
w i t h w h a t is said on t h e p a t i e n t i n f o r m a t i o n s h e e t . Surely if t h e
d o c t o r c a n n o t r e c o n c i l e and e x p l a i n a d i s c r e p a n c y b e t w e e n w h a t

243
The corporation as pusher

s/he says a n d a s t a t e m e n t in t h e p a t i e n t l a b e l l i n g , t h e n s/he d o e s not


d e s e r v e the confidence o f t h e patient.
W h i l e s o m e o f t h e o b j e c t i o n s t o p a t i e n t labelling are not w i t h o u t
s u b s t a n c e , t h e y a m o u n t to a fairly feeble case against a n e e d e d
1 0
reform. C o m m u n i t y e d u c a t i o n is p o s i t e d as a trite solution to
m a n y social p r o b l e m s w h e n t h e reality i s t h a t the c o m m u n i t y often
c a n n o t be b o t h e r e d to b e c o m e e d u c a t e d . Difficult as it is. c o m -
m u n i t y e d u c a t i o n i s the only u l t i m a t e s o l u t i o n t o p e o p l e b e c o m i n g
n e e d l e s s f o d d e r for pill p u s h e r s . If i n t e r e s t in h e a l t h d i e t s , c a n c e r
s c a r e s and keep-fit p r o g r a m m e s i s any i n d i c a t i o n , p e r h a p s e n o u g h
p e o p l e h a v e a n o b s e s s i v e c o n c e r n a b o u t t h e i r b o d i e s t o m a k e this
o n e a r e a w h e r e e d u c a t i o n can w o r k . I n d e e d , t h e r e i s e v i d e n c e that
t h e c r e s c e n d o of p u b l i c criticism of o v e r p r e s c r i b i n g of p s y c h o a c t i v e
d r u g s has a l r e a d y j o l t e d c o m m u n i t y c o n c e r n t o the point w h e r e
c o n s u m p t i o n of t h e s e d r u g s has d r o p p e d o v e r t h e last few y e a r s in
t h e U n i t e d S t a t e s ( R e i n h o l d , 1980).

T h e o n l y p r i n t e d i n f o r m a t i o n p a t i e n t s r e c e i v e d i n t h e past has
b e e n from d r u g c o m p a n y p u b l i c r e l a t i o n s d e p a r t m e n t s . T h e r e i s a
n e e d for d e m y s t i f i c a t i o n of s o m e o f t h i s 'information*. On a r e c e n t
visit to San F r a n c i s c o a p h a r m a c i s t g a v e me a R o c h e ' M e d i c a t i o n
E d u c a t i o n ' p a m p h l e t w h i c h told m e , a m o n g s o m e o t h e r q u i t e con-
s t r u c t i v e t h i n g s , t h a t ' E x t e n s i v e t e s t i n g i n t h e d e v e l o p m e n t a l stage
of a m e d i c a t i o n ' s life p r e d i c t s q u i t e a c c u r a t e l y w h a t it will do for
m o s t p a t i e n t s . . . . ' I n a q u i t e s u b t l e w a y , t h e d o c u m e n t says: trust
u s , do w h a t d o c t o r tells y o u , and all will be well.
P a t i e n t l a b e l l i n g r e g u l a t i o n s , like m o s t r e g u l a t i o n s , are e m p t y
g e s t u r e s u n l e s s t h e r e i s f o l l o w - u p t o e n s u r e that t h e y are i m p l e -
m e n t e d . The Australian Health D e p a r t m e n t became concerned in
t h e late 1970s o v e r t h e risk of c a n c e r from p r o l o n g e d o e s t r o g e n
r e p l a c e m e n t t h e r a p y . S o t h e drug c o m p a n i e s w e r e told t h a t a
w r i t t e n w a r n i n g w o u l d have to be e n c l o s e d w i t h the m e d i c a t i o n . A
F o u r C o r n e r s t e l e v i s i o n t e a m b o u g h t t h e m e d i c a t i o n from t e n
S y d n e y p h a r m a c i s t s i n late 1978. T h e w a r n i n g w a s e n c l o s e d with
only one o f t h e purchases.

244
7 Drug companies and the
Third World

T h e i n t e r n a t i o n a l p h a r m a c e u t i c a l i n d u s t r y has a p u b l i c - i m a g e
p r o b l e m i n t h e T h i r d W o r l d . A n A m e r i c a n c o m p a n y I visited i n
M e x i c o City w a s l o c a t e d i n t h e midst o f o n e o f t h e city's w o r s t s l u m s .
T h e c o m p a n y w a s kind e n o u g h t o h a v e m e d r i v e n back t o m y hotel
in a h u g e w h i t e l i m o u s i n e d r i v e n by a g e n t l e m a n in a p a r a - m i l i t a r y
u n i f o r m . A s w e w o u n d our way t h r o u g h t h e n a r r o w s t r e e t s o f the
s l u m , I c o u l d see a h e a d a g r o u p of c h i l d r e n p o i n t i n g at our car in
c o n s p i r a t o r i a l f a s h i o n . A s w e a p p r o a c h e d t h e y rolled u n d e r t h e
l i m o u s i n e a tin c a n w h i c h had b e e n i n g e n i o u s l y modified to p r o -
t r u d e s h a r p e d g e s w h i c h w o u l d p u n c t u r e any t y r e . A j o y o u s t i r a d e
o f S p a n i s h a c c o m p a n i e d t h e feat. Scoffing r e f e r e n c e t o ' A m e r i c a n o '
w a s all I could u n d e r s t a n d . F o r t u n a t e l y t h e tin c l a n g e d u n d e r the
l i m o u s i n e w i t h o u t t o u c h i n g t h e t y r e s and I w a s saved t h e e x p e r i e n c e
of e x p l a i n i n g t h a t I w a s ' A u s t r a l i a n o , no A m e r i c a n o ' .

It is s u r p r i s i n g h o w i n f o r m e d (ill-informed the c o m p a n i e s w o u l d
s a y ) m a n y o r d i n a r y p e o p l e i n t h e T h i r d W o r l d are a b o u t w h a t they
see a s t h e a b u s e s o f t r a n s n a t i o n a l p h a r m a c e u t i c a l c o m p a n i e s . W h e n
I e x p l a i n e d in very c a u t i o u s t e r m s w h a t I w a s d o i n g to a G u a t e m a l a n
taxi d r i v e r , h e s a i d , ' W h a t you should k n o w i s t h a t t h e s e c o m p a n i e s
u s e o u r p e o p l e a s g u i n e a pigs t o try out t h e i r n e w d r u g s . ' T h e
r e s e n t m e n t a g a i n s t t h e p h a r m a c e u t i c a l i n d u s t r y i s o f c o u r s e part o f
the w i d e r r e s e n t m e n t against exploitative activities by transnational
c o r p o r a t i o n s in g e n e r a l . A n d indeed the behaviour of pharma-
c e u t i c a l t r a n s n a t i o n a l s in c o u n t r i e s like G u a t e m a l a is difficult to
d i s t i n g u i s h from t h a t o f o t h e r t r a n s n a t i o n a l s . T h e y c o n s p i r e and use
t h e i r p o l i t i c a l influence t o s u b v e r t e g a l i t a r i a n tax r e f o r m s , and t o
p r e v e n t t h e f o r m a t i o n o f t r a d e u n i o n s a m o n g their e m p l o y e e s ; they

245
Drug companies and the Third World

c o - o p e r a t e w i t h t h e C I A and t h e r i g h t - w i n g military d i c t a t o r s h i p
w h i c h c o n t r o l s t h e c o u n t r y t o m a i n t a i n 'political stability'. U n f o r t u -
n a t e l y , t h e latter often r e s p o n d t o c o m p l a i n t s from A m e r i c a n c o m -
p a n i e s a b o u t s u b v e r s i v e w o r k e r s b y h a v i n g t h e m shot.
All t h i s d e t r a c t s from t h e fact t h a t t r a n s n a t i o n a l p h a r m a c e u t i c a l
c o m p a n i e s i n t h e T h i r d W o r l d tend t o h a v e h i g h e r s t a n d a r d s o f
q u a l i t y c o n t r o l t h a n local f i r m s , often t e n d t o b e m o r e c i r c u m s p e c t
t h a n locals i n t h e c l a i m s m a d e i n p r o d u c t p r o m o t i o n , i n m a n y cases
h a v e a l e s s e r p r o c l i v i t y to b r i b e h e a l t h officials, and pay their
w o r k e r s h i g h e r w a g e s t h a n local firms. A l t h o u g h t h e s e facts may say
m o r e a b o u t t h e l a m e n t a b l e s t a n d a r d s o f local capitalists t h a n t h e
u p r i g h t n e s s of t r a n s n a t i o n a l , an appreciation of them is necessary
for a b a l a n c e d p e r c e p t i o n . T h e b u s i n e s s p r a c t i c e s of t r a n s n a t i o n a l s
i n t h e T h i r d W o r l d are n o w o r s e , and i n m a n y w a y s b e t t e r , t h a n
t h o s e o f i n d i g e n o u s e n t e r p r i s e s . T h e m o r a l failure o f the t r a n s -
n a t i o n a l s lies in t h e i r w i l l i n g n e s s to settle for m u c h l o w e r s t a n d a r d s
a b r o a d than at h o m e .

Undermedicated societies

T h e r e i s o n e f u n d a m e n t a l way i n which t h e d r u g p r o b l e m i n the


T h i r d W o r l d is t h e r e v e r s e of t h a t in t h e d e v e l o p e d w o r l d . In
C h a p t e r 6 w e saw t h a t while p o o r s e g m e n t s o f t h e A m e r i c a n p o p u -
l a t i o n c a n n o t afford t h e d r u g s t h e y n e e d , t h e m o r e f u n d a m e n t a l
p r o b l e m i n t h e U n i t e d S t a t e s i s o v e r m e d i c a t i o n , p a r t i c u l a r l y with
p s y c h o t r o p i c drugs. In contrast, the Third World is overwhelmingly
u n d e r m e d i c a t e d . W o n d e r d r u g s a r e little use t o p e a s a n t s w h o
c a n n o t afford t o b u y t h e m . H o l l a n d c o n s u m e s a g r e a t e r q u a n t i t y o f
a n t i d i a b e t i c d r u g s t h a n t h e w h o l e o f L a t i n A m e r i c a . I n d i a uses only
0.1 p e r cent as m a n y a n t i h y p e r t e n s i v e d r u g s as B e l g i u m (Gereffi,
1979: 9 7 ) .

T h e s t a r k reality of m e d i c a t i o n for most p e o p l e on this p l a n e t is a


q u e u e of sick p e o p l e p a t i e n t l y w a i t i n g their t u r n o u t s i d e a village
d i s p e n s a r y w i t h virtually n o m o d e r n d r u g s o n its s h e l v e s . S e n a t o r
K e n n e d y c a p t u r e d this reality in a 1979 a d d r e s s :

W e a r e h e r e , i n t h i s I n t e r n a t i o n a l Y e a r o f t h e C h i l d , b e c a u s e 2.6
m i l l i o n c h i l d r e n will die this year from i m m u n i z a b l e d i s e a s e s
b e c a u s e they won't have access to already-developed vaccines.
T h e r e will be 72 m i l l i o n c a s e s of m e a s l e s in t h e w o r l d this y e a r .
A n d at a t i m e w h e n m e a s l e s is n e a r i n g e x t i n c t i o n in t h e U n i t e d

246
Drug companies and the Third World

S t a t e s , 1.2 m i l l i o n c h i l d r e n a r o u n d t h e w o r l d will fall victim to it


this y e a r . Six h u n d r e d t h o u s a n d p e o p l e , m o s t o f t h e m c h i l d r e n ,
will die from t e t a n u s this y e a r ; 2 0 0 , 0 0 0 will die from p o l i o , and
3 0 0 , 0 0 0 from w h o o p i n g c o u g h . M e a s l e s , t e t a n u s , w h o o p i n g
c o u g h , p o l i o - we h a v e v a c c i n e s for all of t h e m ( K e n n e d y . 1979:
4; for t h e d a t a on w h i c h this s t a t e m e n t is b a s e d see F o e g e , 1979).

Promotion in the Third World

T h i r d W o r l d c o u n t r i e s are not u n d e r m e d i c a t e d for a w a n t of efforts


t o i n f o r m t h e i r c i t i z e n s o f t h e benefits o f m e d i c i n e . T h e b a r r i e r i s
s i m p l y cost. I n d e e d t h e t r a g e d y o f p h a r m a c e u t i c a l s i n the T h i r d
W o r l d i s t h a t m i s l e a d i n g p r o m o t i o n m e a n s t h a t w h e n p a t i e n t s can
afford m e d i c a t i o n , w h a t t h e y get i s often t h o r o u g h l y i n a p p r o p r i a t e
t o , o r e x c e s s i v e for, t h e i r c o n d i t i o n .
T h e classic d e m o n s t r a t i o n o f t h e l o w e r p r o m o t i o n a l s t a n d a r d s set
by t r a n s n a t i o n a l p h a r m a c e u t i c a l c o m p a n i e s in the Third World was
S i l v e r m a n ' s ( 1 9 7 6 ) The Drugging of the Americas. Silverman was
a b l e to s h o w for a w i d e r a n g e of d r u g s h o w t h e i n d i c a t i o n s a p p r o v e d
in t h e U n i t e d S t a t e s Physician's Desk Reference e x p a n d e d into a
m u c h w i d e r array of indications in the c o m p a r a b l e Latin A m e r i c a n
p u b l i c a t i o n s ; w h i l e t h e r a n g e o f side-effects and c o n t r a - i n d i c a t i o n s
m e n t i o n e d was much narrower in Latin A m e r i c a .
We h a v e seen t h a t c h l o r a m p h e n i c o l is a d r u g w h i c h can h a v e
d a n g e r o u s side-effects and w h i c h s h o u l d only be used for a n a r r o w
r a n g e o f l i f e - t h r e a t e n i n g d i s e a s e s , m o s t n o t a b l y t y p h o i d fever. F o r
m a n y y e a r s c h l o r a m p h e n i c o l has b e e n p r o m o t e d i n t h e U n i t e d
S t a t e s for only t h e s e limited i n d i c a t i o n s . B u t S i l v e r m a n found that
i n M e x i c o , E c u a d o r a n d C o l o m b i a , P a r k e - D a v i s p r o m o t e d chlor-
a m p h e n i c o l for a d d i t i o n a l c o n d i t i o n s m a n y of w h i c h w e r e far from
l i f e - t h r e a t e n i n g : t o n s i l l i t i s , p h a r y n g i t i s , b r o n c h i t i s , u r i n a r y tract
infections, ulcerative colitis, staphylococcus infections, strepto-
c o c c u s i n f e c t i o n s , eye i n f e c t i o n s , y a w s , and g o n o r r h e a .

I n t h e U n i t e d S t a t e s , p h y s i c i a n s are w a r n e d t h a t use o f
c h l o r a m p h e n i c o l m a y result in s e r i o u s or fatal a p l a s t i c a n e m i a
a n d o t h e r b l o o d d y s c r a s i a s . P h y s i c i a n s in M e x i c o are given a
s i m i l a r w a r n i n g i n t h e p r o m o t i o n a l m a t e r i a l for P a r k e - D a v i s '
C h l o r o m y c e t i n , b u t no w a r n i n g s a r e listed for t h e same p r o d u c t in
C e n t r a l A m e r i c a ( S i l v e r m a n , 1977: 159).

W o r s e , w h e n S i l v e r m a n a p p e a r e d before t h e U S S e n a t e t o discuss

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Drug companies and the Third World

his f i n d i n g s . S e n a t o r B e a l l p o i n t e d o u t t h a t the I t a l i a n labelling for


P a r k e - D a v i s c h l o r a m p h e n i c o l said:

It is a very significant fact t h a t C h l o r o m y c e t i n t h e r a p y is


c o n s p i c u o u s l y d e v o i d of side effects. T h e m e d i c a t i o n enjoys a
h i g h d e g r e e o f t o l e r a n c e with b o t h a d u l t s and c h i l d r e n . I n t h e few
c a s e s w h e r e r e a c t i o n s h a v e o c c u r r e d , t h e s e are g e n e r a l l y limited
to mild n a u s e a or d i a r r h e a and only rarely d o e s their gravity
impose suspension of treatment (Subcommittee on Monopoly,
1976: 15359).

D r W e g m a r followed u p with a n e v e n m o r e r e m a r k a b l e revela-


t i o n from S p a i n :

I n 1 9 7 3 , t h e y e a r after t h e tragic d e a t h o f their d a u g h t e r .


P r o f e s s o r a n d M r s . Z a n d e r t r a v e l l e d i n Spain and b r o u g h t h o m e
this poster which was on the drugstore c o u n t e r s , C h l o r o s t r e p , a
p r o d u c t of P a r k e - D a v i s of S p a i n . T h e p o s t e r says, in effect,
' D o n ' t a l l o w d i a r r h e a t o interfere w i t h y o u r v a c a t i o n . T a k e
C h l o r o s t r e p at t h e first p r o b l e m . ' T h i s d r u g is a c o m b i n a t i o n of
c h l o r a m p h e n i c o l and d i h y d r o e s t r e p t o m i c i n e . A s you may k n o w ,
s t r e p t o m y c i n , a l t h o u g h n o t c o m m o n l y i n small d o s e s , c a r r i e s t h e
risk o f c a u s i n g d e a f n e s s . T h u s , i f you t a k e this f i n e c o m b i n a t i o n ,
y o u r u n t h e risk o f b e c o m i n g deaf before you d i e . A n d its
u s e f u l n e s s for m o s t c a u s e s of d i a r r h e a c o m m o n l y seen is
n e g l i g i b l e ( S u b c o m m i t t e e o n M o n o p o l y , 1976: 1 5 3 8 5 - 6 ) .

The greatest tragedy o f t h e overuse of c h l o r a m p h e n i c o l in the


T h i r d W o r l d w a s i l l u s t r a t e d w h e n in 1972-3 t h e r e was a t y p h o i d
fever e p i d e m i c i n M e x i c o . C h l o r a m p h e n i c o l i s a n i n v a l u a b l e treat-
m e n t for t y p h o i d fever. B u t m a n y of t h e 100,000 victims of the
M e x i c a n o u t b r e a k could not b e h e l p e d b e c a u s e the p a r t i c u l a r
t y p h o i d b a c t e r i a c o n c e r n e d had built up a r e s i s t a n c e to chlor-
a m p h e n i c o l t h r o u g h long e x p o s u r e . 2 0 , 0 0 0 t y p h o i d victims died i n
the o u t b r e a k .
A n o t h e r d i s t u r b i n g p i c t u r e w a s p a i n t e d b y S i l v e r m a n with
r e s p e c t t o o r a l c o n t r a c e p t i v e s m a r k e t e d b y S e a r l e , J o h n s o n and
J o h n s o n , W a r n e r - L a m b e r t and A m e r i c a n H o m e Products:

I n P D R [ P h y s i c i a n ' s D e s k R e f e r e n c e ] , all o f t h e s e are d e s c r i b e d


as i n d i c a t e d for only o n e use - c o n t r a c e p t i o n . In t h e L a t i n
A m e r i c a n c o u n t r i e s , t h e y are o p e n l y r e c o m m e n d e d for
c o n t r a c e p t i o n , a n d also for t h e c o n t r o l o f p r e m e n s t r u a l t e n s i o n ,

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Drug companies and the Third World

m e n s t r u a l p a i n , p r o b l e m s o f t h e m e n o p a u s e , and a host o f o t h e r
conditions.
I n t h e U n i t e d S t a t e s , p h y s i c i a n s are w a r n e d o f t h e possibility o f
m a n y s i d e - e f f e c t s , e s p e c i a l l y t h r o m b o e m b o l i c c h a n g e s t h a t can
lead to s e r i o u s or fatal b l o o d c l o t s .
In L a t i n A m e r i c a , for all t h e p r o d u c t s s t u d i e d h e r e , t h e risk of
t h r o m b o e m b o l i c c h a n g e s i s i g n o r e d . N o a d v e r s e r e a c t i o n s o f any
k i n d a r e g i v e n for t h e S e a r l e p r o d u c t i n E c u a d o r , C o l o m b i a , o r
B r a z i l for t h e P a r k e - D a v i s p r o d u c t in C e n t r a l A m e r i c a , and for
t h e W y e t h p r o d u c t i n E c u a d o r , C o l o m b i a , o r Brazil
( S u b c o m m i t t e e o n M o n o p o l y , 1976: 1 5 3 6 3 - 4 ) .

S a n d o z ' s p o w e r f u l a n t i p s y c h o t i c t r a n q u i l l i s e r Mellaril w a s found


to be p r o m o t e d in C e n t r a l A m e r i c a for a host of m i n o r n e u r o t i c
d i s o r d e r s n o t m e n t i o n e d i n U S p r o m o t i o n . T h e s e a d d i t i o n a l indica-
t i o n s i n c l u d e d use for c h i l d r e n w i t h b e h a v i o u r a l d i s o r d e r s , hostility
r e a c t i o n s , inability t o a d a p t i n s c h o o l , i n s o m n i a , sleep w a l k i n g ,
b e d - w e t t i n g and nail b i t i n g . M a n y a d v e r s e r e a c t i o n s o f Mellaril
w e r e d i s c l o s e d in t h e U n i t e d S t a t e s , a few in M e x i c o , but n o n e in
Central America, Colombia or Ecuador.
Silverman d o c u m e n t s many many other examples. In some cases,
t r i v i a l side-effects w e r e d e s c r i b e d i n g r e a t d e t a i l , while s e r i o u s and
p o t e n t i a l l y fatal r e a c t i o n s w e r e not m e n t i o n e d .
T h e i n d u s t r y d e f e n c e w a s t h a t they had not v i o l a t e d any local laws
by t h e i r p o l i c i e s of disclosing as little as t h e y could get a w a y w i t h .
B u t S i l v e r m a n p o i n t s o u t t h a t this w a s not a l w a y s t h e c a s e . I n s o m e
o f t h e L a t i n A m e r i c a n c o u n t r i e s t h e r e w e r e r e l e v a n t laws r e q u i r i n g
t h e d i s c l o s u r e o f h a z a r d s . I t w a s simply t h a t t h e r e w e r e n o r e s o u r c e s
for e n f o r c i n g t h e m . F u r t h e r , S i l v e r m a n p o i n t s o u t , t h e r e i s little
r e a l i s t i c p o s s i b i l i t y of civil a c t i o n against large p h a r m a c e u t i c a l
c o m p a n i e s for d a m a g e s i n p o o r c o u n t r i e s w h e r e t h e r e i s n o p r o -
vision in law for class a c t i o n s .
S i l v e r m a n ' s b o o k w a s o n e of t h o s e rare h a p p e n i n g s - r e s e a r c h by
an i n t e l l e c t u a l w h i c h had an influence on t h e c o u r s e o f e v e n t s . T h i r d
W o r l d g o v e r n m e n t s b e g a n to e v i d e n c e a less t r u s t i n g a t t i t u d e to t h e
p r o m o t i o n a l c l a i m s o f d r u g c o m p a n i e s . I n 1978 t h e S o u t h K o r e a n
M i n i s t r y of H e a l t h r e v i e w e d 2,058 i n d i c a t i o n s for 1,097 p r o d u c t s .
O n l y 50.2 p e r c e n t o f t h e i n d i c a t i o n s w e r e found t o b e valid. T h e
r e m a i n i n g 1,024 i n d i c a t i o n s w e r e d r o p p e d from p r o m o t i o n a l liter-
a t u r e . F o u r K o r e a n p h a r m a c e u t i c a l e x e c u t i v e s w e r e a r r e s t e d i n late
1979 a n d c h a r g e d in o n e c a s e with p r o m o t i n g a p r e p a r a t i o n officially

249
Drug companies and the Third World

i n d i c a t e d for night b l i n d n e s s as b e i n g effective against c a n c e r , and


in a n o t h e r case w i t h m a r k e t i n g a p r o d u c t with the a p p r o v e d indica-
t i o n of liver d i s e a s e in a d u l t s for t h e p r o m o t i o n of g r o w t h in
c h i l d r e n . T h e d r u g s had b e e n i m p o r t e d from G e r m a n and Italian
firms and resold at o v e r t e n t i m e s the i m p o r t p r i c e .
A n i m p o r t a n t e x t e n s i o n o f S i l v e r m a n ' s work w a s c o n d u c t e d
b y Y u d k i n ( 1 9 7 8 ) i n T a n z a n i a . Y u d k i n found that t h e r e was o n e
d r u g c o m p a n y sales r e p r e s e n t a t i v e for e v e r y four T a n z a n i a n
d o c t o r s , a l m o s t as high as t h e o n e to t h r e e ratio S i l v e r m a n had
f o u n d i n G u a t e m a l a . T h e s e T h i r d W o r l d d e t a i l e r s have enor-
m o u s influence o v e r d o c t o r s w h o d o not h a v e access t o the latest
m e d i c a l l i t e r a t u r e a n d are often paid m o r e t h a n t h e d o c t o r s .
In Tanzania pharmaceutical promotional expenditure averages
o v e r S4,(KK) p e r d o c t o r . L i k e S i l v e r m a n , Y u d k i n ' s m e t h o d o l o g y
w a s t o c o m p a r e t h e i n f o r m a t i o n p l a c e d b y m a n u f a c t u r e r s i n the
B r i t i s h a n d A f r i c a n v e r s i o n s of MIMS (Monthly Index of Medical
Specialties). Chloramphenicol was promoted by Lepetit for
r e s p i r a t o r y tract a n d a w i d e r a n g e of o t h e r m i n o r infections.
M e t h a d o n e , r e c o m m e n d e d i n B r i t a i n for s e v e r e p a i n , w a s included
in A f r i c a n MIMS as a c o u g h s u p p r e s s a n t by B u r r o u g h s - W e l l c o m e !
B e l o w a r e t h r e e o t h e r s t a g g e r i n g e x a m p l e s from Y u d k i n ' s ( 1 9 7 8 :
811) work:

A m i n o p y r i n e and d i p y r o n e a r e a n t i p y r e t i c a n a l g e s i c s which may


p r o d u c e a g r a n u l o c y t o s i s with a m o r t a l i t y as high as 0 . 5 7 % . In the
U n i t e d S t a t e s t h e y a r e licensed for use only in p a t i e n t s with
t e r m i n a l m a l i g n a n t d i s e a s e i n w h o m safer a n t i p y r e t i c s h a v e b e e n
u n s u c c e s s f u l . I n A f r i c a n M . I . M . S . ( N o v e m b e r , 1977), 3 1
p r e p a r a t i o n s c o n t a i n i n g these drugs are r e c o m m e n d e d as
a n a l g e s i c s for m i n o r c o n d i t i o n s . P a c k a g e i n s e r t s claim that they
h a v e a "wide m a r g i n of safety' ( ' A v a f o r t a n ' , A s t a W e r k e ) or that
t h e i r 'safety has b e e n p r o v e n and c o n f i r m e d in o v e r 500
p u b l i c a t i o n s t h r o u g h o u t the world' ('Buscopan C o m p o s i t u m '
containing dipyrone, Boehringer Ingelheim).
A n a b o l i c steroids may produce stunting of growth, irreversible
v i r i l i s a t i o n in g i r l s , and liver t u m o u r s . T h e y are used in Britain to
t r e a t o s t e o p o r o s i s , renal failure, t e r m i n a l m a l i g n a n t d i s e a s e , and
a p l a s t i c a n a e m i a . I n A f r i c a n M . I . M . S . , t h e y are p r o m o t e d a s
t r e a t m e n t for m a l n u t r i t i o n , w e i g h t loss, and k w a s h i o r k o r
( ' D e c a d u r a b o l i n ' , O r g a n o n ) , as appetite stimulants ('Winstrol',
W i n t h r o p ) , for e x h a u s t i o n states ( ' P r i m o b o l a n D e p o t ' , S c h e r i n g ;

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Drug companies and the Third World

' D i a n a b o l ' , C i b a G e i g y ) , and for ' e x c e s s i v e fatiguability' i n


school children ('Dianavit', Ciba G e i g y ) .
If a d o s e o f t h e a n t i h y p e r t e n s i v e d r u g c l o n i d i n e is missed by as
little as 12 h, s e v e r e r e b o u n d h y p e r t e n s i o n and s o m e t i m e s
c e r e b r a l h a e m o r r h a g e m a y result. I t s h o u l d t h u s b e a v o i d e d w h e n
p a t i e n t s a r e likely t o t a k e p r e s c r i b e d d r u g s i r r e g u l a r l y . I n Africa,
t r a n s p o r t difficulties and a d m i n i s t r a t i v e p r o b l e m s may h i n d e r the
r e g u l a r supply o f d r u g s d u r i n g t h e r a p y . I n a d d i t i o n , t h e c o n c e p t
o f a s y m p t o m a t i c d i s e a s e i s not w i d e l y a c c e p t e d , pills being t a k e n
only for relief of s y m p t o m s ; in o n e s t u d y only 2 0 % of p a t i e n t s
w e r e found t o t a k e t h e i r t a b l e t s r e g u l a r l y . C l o n i d i n e ( ' C a t a p r e s ' ,
B o e h r i n g e r I n g e l h e i m ) w a s i n t r o d u c e d i n t o the c o u n t r y i n 1975;
t h e c o m p a n y d i s t r i b u t e d free s a m p l e s o f t h e d r u g , sufficient for
only t w o o r t h r e e w e e k s ' u s e , before i t w a s a v a i l a b l e t h r o u g h the
G o v e r n m e n t c e n t r a l m e d i c a l s t o r e s ( C . M . S . ) . African M . I . M . S .
d o e s not m e n t i o n t h e d a n g e r o f s u d d e n l y s t o p p i n g c l o n i d i n e
t h e r a p y , although British M . I . M . S . d o e s ; in the manufacturers'
b o o k l e t t w o side-effects are m e n t i o n e d - c o m p a r e d to fifty in
A m e r i c a n a d v e r t i s e m e n t s - b u t n o t t h i s risk. B o e h r i n g e r
I n g e l h e i m h a v e only n o w a g r e e d t o m e n t i o n t h e d a n g e r i n future
package inserts.

A f u r t h e r long list of d o u b l e s t a n d a r d s h a s b e e n d o c u m e n t e d by
M e d a w a r ( 1 9 7 9 ) . A p a r t i c u l a r c o n t r i b u t i o n of M e d a w a r ' s w o r k is in
showing that r e c o m m e n d e d dosage is a n o t h e r area of abuse. For
e x a m p l e , t h e m a x i m u m r e c o m m e n d e d d o s a g e for B u r r o u g h s -
W e l l c o m e ' s Migril (for m i g r a i n e ) w a s t w i c e a s high, o r m o r e t h a n
t w i c e as h i g h , in A f r i c a and A s i a as in t h e U n i t e d S t a t e s and U n i t e d
K i n g d o m ( M e d a w a r , 1979: 1 1 6 - 7 ) .
T h e m o s t r e c e n t c o n t r i b u t i o n s t o t h i s t r a d i t i o n have b e e n b y
M e l r o s e ( 1 9 8 2 ) and M u l l e r ( 1 9 8 2 ) . M u l l e r ( 1 9 8 2 : 55) h a s , a m o n g
o t h e r r e v e l a t i o n s , d e m o n s t r a t e d t h e a b u s e o f d i u r e t i c s t o deal with
t h e b l o a t i n g and puffing s y m p t o m s of k w a s h i o r k o r , a form of child-
h o o d m a l n u t r i t i o n . M u l l e r q u o t e s from a B B C i n t e r v i e w with a
h e a l t h w o r k e r from B a n g l a d e s h :

t h e d r u g rep w a s t r y i n g t o p e r s u a d e this r a t h e r y o u n g d o c t o r that


f u r o s e m i d e . . . w a s a very good d r u g to use for c h i l d r e n w h o had
k w a s h i o r k o r or m a r a s m u s . These are deficiency diseases which
p r o d u c e s w e l l i n g all o v e r t h e b o d y and t h e r e p w a s s u g g e s t i n g that
this d r u g w a s very g o o d at r e d u c i n g t h i s o e d e m a . . . . W h e n it
w a s p o i n t e d o u t t h a t t h e swelling m i g h t g o d o w n but the child

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Drug companies and the Third World

w o u l d be killed . . . the d r u g r e p r e s e n t a t i v e said, ' W e l l , t h e child


is g o i n g to die a n y w a y . '

O n e o f t h e m o s t d i s t u r b i n g r e v e l a t i o n s b y M e l r o s e (1982: 102-6)
c o n c e r n e d the p r o m o t i o n of anabolic steroids as appetite stimulants
for c h i l d r e n in t h e T h i r d W o r l d .
All this a d d s up to a d e a d l y t e n d e n c y for Third W o r l d c o n s u m e r s
t o get i n a p p r o p r i a t e m e d i c a t i o n . T h e t e n d e n c y i s reinforced b y
n o n - e x i s t e n t , i n a d e q u a t e o r rarely e n f o r c e d p r e s c r i p t i o n laws. I n
a l m o s t all c o u n t r i e s in L a t i n A m e r i c a you can get practically any
d r u g from a p h a r m a c y w i t h o u t a p r e s c r i p t i o n . S i l v e r m a n told the
U S S e n a t e o f t h e following e x p e r i e n c e :

We w e r e in San J o s e , t h e capital o f C o s t a R i c a , and . . . we


n e e d e d s o m e o v e r - t h e - c o u n t e r d r u g . . . . T h e r e w a s a long
c o u n t e r w i t h a g r e a t m a n y p e o p l e in w h i t e j a c k e t s w a i t i n g on the
c u s t o m e r s . I s t o o d in line b e h i n d o n e nice little old lady. If I had
to m a k e a c u r b s t o n e d i a g n o s i s , I w o u l d p r o b a b l y say that she w a s
suffering from a s e v e r e t h y r o i d d i s e a s e . She w a s n e r v o u s , t e n s e ,
a n d j i t t e r y , and very t h i n . W h e n she c a m e up to the m a n to wait
on h e r , she r e a c h e d into h e r d r e s s and b r o u g h t out a scrap of
p a p e r - it w a s not a p r e s c r i p t i o n ; it w a s a piece of b u t c h e r p a p e r , I
t h i n k , o n w h i c h she had w r i t t e n s o m e t h i n g r e c o m m e n d e d b y
s o m e b o d y or o t h e r - a n d she a s k e d for a d r u g called L a r g a c t i l ,
w h i c h is o n e o f t h e t r a d e n a m e s for a very effective, very p o t e n t
t r a n q u i l i z e r used in t h e c o n t r o l of p s y c h o s i s .

T h e p h a r m a c i s t ' s a s s i s t a n t said, i f m y t r a n s l a t i o n w a s right, that


he had s o m e t h i n g m u c h b e t t e r . I w a t c h e d him carefully. He did
n o t look at any b o o k , he did not c o n s u l t with any of his
c o l l e a g u e s . He w e n t to a s h e l f b e h i n d h i m , and he b r o u g h t d o w n a
bottle of one o f t h e more potent antithyroid drugs. It is widely
u s e d , very e f f e c t i v e , b u t i t has k n o w n h a z a r d s . O r d i n a r i l y ,
p h y s i c i a n s in t h e U n i t e d S t a t e s w o u l d not p r e s c r i b e a d r u g like
this u n l e s s t h e y had s u b j e c t e d t h e p a t i e n t t o t h o r o u g h d i a g n o s t i c
s t u d i e s . S o m e p h y s i c i a n s will e v e n h o s p i t a l i z e their p a t i e n t s
b e f o r e t h e y start t h e m o n this d r u g . B u t i n this c a s e , t h e clerk j u s t
c o u n t e d out the prerequisite n u m b e r of tablets, collected the
p r o p e r n u m b e r o f c o l o n e s from t h e l a d y , w h o w a l k e d o u t . A n d
w e w a t c h e d this i n a m a z e m e n t . A f t e r w e got o u t o f t h e s t o r e , m y
c o l l e a g u e and I still c a n n o t a g r e e w h e t h e r this assistant w a s aged
14 or 13 or 12. I k n o w he had not b e g u n to shave yet
( S u b c o m m i t t e e o n M o n o p o l y , 1976: 15569).

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Drug companies and the Third World

S i l v e r m a n also g a v e a c c o u n t s o f L a t i n A m e r i c a n p h a r m a c i s t s
p r o v i d i n g a p a t i e n t with only a o n e - d a y supply of an a n t i b i o t i c
( w h e n it is e s s e n t i a l to use t h e d r u g for at least a w e e k ) b e c a u s e ' s h e
only had t h e m o n e y to buy e n o u g h for o n e d a y ' ; s u b s t i t u t i n g
c h l o r a m p h e n i c o l for a t e t r a c y c l i n e p r e s c r i p t i o n b e c a u s e t h e s h o p
had run o u t of t e t r a c y c l i n e , and similar p r a c t i c e s ( S i l v e r m a n , 1976:
125).
I d e c i d e d to e x p e r i e n c e this p h e n o m e n o n myself in M e x i c o City -
t h e l a r g e s t m e t r o p o l i s of t h e T h i r d W o r l d and surely o n e of t h e
p l a c e s w h e r e o n e w o u l d e x p e c t t o see o b s e r v a n c e o f p r e s c r i p t i o n
l a w s . I visited e i g h t p h a r m a c i e s in t h e affluent Z o n a R o s a a r e a of
t h e city c o m p l a i n i n g in b r o k e n S p a n i s h of 'la t o u r i s t a ' ( t r a v e l l e r ' s
d i a r r h o e a ) . At t h r e e of t h e p h a r m a c i e s I w a s offered L o m o t i l , a
p r e s c r i p t i o n d r u g w i t h w o r r y i n g side-effects, but n o d o u b t s o m e -
t h i n g a d o c t o r m i g h t h a v e given me a p r e s c r i p t i o n for. At a fourth
p h a r m a c y , I w a s offered c l i o q u i n o l ( C i b a - G e i g y E n t e r o v i o f o r m ) ;
a n d at a n o t h e r , a v a r i a t i o n on t h i s , C i b a - G e i g y M e x a f o r m a .
C l i o q u i n o l is b a n n e d in m a n y c o u n t r i e s , and in most c o u n t r i e s
w h e r e o n e can get c l i o q u i n o l on p r e s c r i p t i o n it is specifically w a r n e d
t h a t t h e d r u g s h o u l d not be a p p l i e d to its historical use - t r a v e l l e r ' s
d i a r r h o e a . I n J a p a n , c l i o q u i n o l used i n t h e t r e a t m e n t o f d i a r r h o e a
w a s a s s o c i a t e d w i t h s o m e 9,000 cases of a d i s e a s e called S M O N
(Subacute myelo-optic neuropathy) (WHO Drug Information,
O c t . - D e c , 1977: 9 - 1 5 ) . J a p a n e s e c o u r t s h a v e a l r e a d y a w a r d e d
S M O N v i c t i m s o f c l i o q u i n o l $456 million i n c o m p e n s a t i o n . T h e
d r u g is a s s o c i a t e d with s e r i o u s n e u r o t o x i c effects on t h e spinal c o r d ,
t h e n e r v e s o f t h e b o d y surfaces and t h e o p t i c n e r v e . W h i l e t h e
p r o b a b i l i t y of t h e s e side-effects is a p p a r e n t l y not so high as to justify
b a n n i n g t h e d r u g for limited u s e s , i n the light o f t h e S M O N d i s a s t e r
it is a g r o s s a b u s e to use c l i o q u i n o l for simple d i a r r h o e a .
T h e sixth p h a r m a c y offered a d r u g called Y o d o z o n o , m a n u -
f a c t u r e d b y t h e K a l o s c o m p a n y . T h i s m y s t e r i o u s p r o d u c t i s not
listed in t h e M e x i c a n Diccionario de Especialidades Farmaceuticas.
T h e n e x t p h a r m a c y offered m e T r e d a , a n a n t i b i o t i c p r o d u c e d b y t h e
S a n f e r c o m p a n y . A n d l o and b e h o l d , w h a t should b e the last
p r o d u c t d r a g g e d o u t o f t h e r e f r i g e r a t o r for m y M e x i c a n d i a r r h o e a ?
N o n e o t h e r t h a n o u r old friend, P a r k e - D a v i s C h l o r o m y c e t i n .

The corporate response to Silverman


W i t h i n m o n t h s after t h e p u b l i c a t i o n o f S i l v e r m a n ' s b o o k the council

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Drug companies and the Third World

o f t h e International Federation of Pharmaceutical Manufacturers'


A s s o c i a t i o n s a d o p t e d a r e s o l u t i o n s u b m i t t e d by t h e US d e l e g a t i o n
c a l l i n g for p r e s c r i p t i o n d r u g labelling to be c o n s i s t e n t with 'the b o d y
o f scientific and m e d i c a l e v i d e n c e p e r t a i n i n g t o t h a t p r o d u c t ' . I n
a d d i t i o n , ' p a r t i c u l a r c a r e should b e t a k e n t h a t essential i n f o r m a t i o n
as to m e d i c a l p r o d u c t s ' safety, c o n t r a i n d i c a t i o n s and side-effects is
a p p r o p r i a t e l y c o m m u n i c a t e d . ' Even t h o u g h the u n a n i m o u s I F P M A
v o t e w a s not on a t o u g h l y w o r d e d r e s o l u t i o n ( i n d e e d it w a s m e r e l y a
r e c o m m e n d a t i o n with no binding status) some change seems to
have followed.

M a n y of t h e A m e r i c a n c o m p a n i e s I visited c l a i m e d t h a t Silver-
m a n ' s b o o k had forced t h e m t o put t h e i r h o u s e i n o r d e r . T o varying
d e g r e e s t r a n s n a t i o n a l s h a v e pulled a t i g h t e r reign on t h e p r o -
m o t i o n a l c l a i m s m a d e b y s u b s i d i a r i e s . I n p a r t this c h a n g e has b e e n
m e d i a t e d b y s t r o n g i n t e r n a t i o n a l c o n s u m e r a t t a c k s against p h a r m a -
c e u t i c a l m a r k e t i n g p r a c t i c e s b y such c o a l i t i o n s a s H e a l t h A c t i o n
I n t e r n a t i o n a l . I n s o m e c o m p a n i e s , affiliates n o w m u s t g o t h r o u g h
q u i t e a n a r d u o u s p r o c e s s t o use v a r i a t i o n s from the p r o m o t i o n a l
c l a i m s a p p r o v e d b y h e a d q u a r t e r s . All subsidiary p r o m o t i o n a l
m a t e r i a l - j o u r n a l a d v e r t i s i n g , e n t r i e s in MIMS, p a t i e n t l a b e l l i n g -
in s o m e c o m p a n i e s m u s t be a p p r o v e d by a h e a d q u a r t e r s m e d i c a l
g r o u p . T h e basis o f t h e d e l i b e r a t i o n s o f such medical g r o u p s i s s o m e
form o f i n t e r n a t i o n a l p r o d u c t d i s c l o s u r e d o c u m e n t w h i c h c o n t a i n s
all t h e i m p o r t a n t side-effects, c o n t r a - i n d i c a t i o n s , and r e q u i r e d
w a r n i n g s for t h e p r o d u c t . Often t h e l a t t e r m i g h t not be as s t r i n g e n t
as F D A r e q u i r e m e n t s , b u t t h e y w o u l d set a fairly high i n t e r n a t i o n a l
minimum standard.

I c o u l d n o t h e l p but be i m p r e s s e d by s o m e of t h e s e c o r p o r a t e
medical g r o u p p e o p l e . They seemed to a p p r o a c h the challenge of
t i g h t e n i n g t h e p r o m o t i o n a l c l a i m s b e i n g m a d e i n s u b s i d i a r i e s from
G u a t e m a l a t o G h a n a w i t h a l m o s t m i s s i o n a r y zeal. I w a s s u r p r i s e d a t
the a d v e r s a r y stance they occasionally evidenced t o w a r d s sub-
sidiary general m a n a g e r s in their own corporation. The latter were
t h e e x p l o i t e r s , t h e e n e m y , a n d t h e c o m p a n y w a s going t o b e p u r g e d
of their a b u s e s . Of course in these intra-corporate struggles
b e t w e e n t h e forces o f ' g o o d ' and ' e v i l ' , it is often the l a t t e r w h o win
o u t . N e v e r t h e l e s s , w h a t s u r p r i s e d m e w a s t h a t the fight w a s being
f o u g h t w i t h such i n t e n s i t y . I t c e r t a i n l y s h a t t e r s t h e m o n o l i t h i c i m a g e
that outsiders have ofthe corporation. The other interesting point is
t h a t e a c h o f t h e s e c o r p o r a t e g r o u p s r e s p o n s i b l e for r e g u l a t i n g
p r o m o t i o n a r o u n d t h e w o r l d typically has m o r e staff r e s o u r c e s and

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Drug companies and the Third World

b e t t e r - t r a i n e d p e o p l e t h a n t h e i r c o u n t e r p a r t s i n any r e g u l a t o r y
a g e n c y i n t h e w o r l d , i n c l u d i n g t h e F D A (with five p r o f e s s i o n a l s
r e s p o n s i b l e for r e g u l a t i n g p r o m o t i o n ) . E v e n t h o u g h t h e s e intra-
c o r p o r a t e c r u s a d e r s for t h e c o n s u m e r i n t e r e s t often lose their
b a t t l e s , o n e s u s p e c t s t h a t t h e y save m o r e lives and p r e v e n t m o r e
u n n e c e s s a r y suffering t h a n t h e i r c o u n t e r p a r t s , t o t h e e x t e n t t h e y
e x i s t , i n t h e w o r l d ' s r e g u l a t o r y a g e n c i e s . T h e i r s t r u g g l e s are not
e a s y . O r g a n i z a t i o n a l c h a n g e s can b e m a d e t o isolate and n e u t r a l i z e
e x e c u t i v e s w h o h a v e t o o m u c h zeal for r e f o r m . T h e following
i n c i d e n t , for e x a m p l e , w a s r e p o r t e d b y D a l e C o n s o l e , S q u i b b ' s
former Medical Director:

T h e real e r u p t i o n o c c u r r e d in a b o u t 1955 w h e n , as I u n d e r s t o o d
it, P a r k e - D a v i s h a d offered S q u i b b a license to m a r k e t
c h l o r a m p h e n i c o l in some of Squibb's South A m e r i c a n
m a r k e t s . . . . I w a s p r e s e n t e d with t h e p r o s p e c t of m a r k e t i n g
c h l o r a m p h e n i c o l u n d e r t h e S q u i b b label m a k i n g all t h e excessive
c l a i m s for t h e d r u g and e x c l u d i n g a w a r n i n g s t a t e m e n t since it w a s
n o t r e q u i r e d in t h e c o u n t r i e s in w h i c h sale is p r o p o s e d . I refused
to a p p r o v e t h e t e n t a t i v e copy and m a d e it clear t h a t I w o u l d
t e n d e r my r e s i g n a t i o n b e f o r e I w o u l d a p p r o v e the c o p y .
A p p a r e n t l y my c o l l e a g u e s t h o u g h t I w a s sufficiently v a l u a b l e and
i n s t e a d of m a k i n g a c o n f r o n t a t i o n out o f t h e issue t h e y d e c i d e d to
use a n end p l a y . T h e O v e r s e a s D i v i s i o n a p p o i n t e d its o w n
Medical D i r e c t o r who was in no way responsible to me (US
S e n a t e , 1969: 4 4 9 6 ) .

T h e c o r p o r a t e o r r e g i o n a l ' m e d i c a l g r o u p frequently d o not have


t h e i r way b e c a u s e s u b s i d i a r y g e n e r a l m a n a g e r s m i g h t have t o
c o m p e t e w i t h local c o m p a n i e s w h o are n o t e n c u m b e r e d b y 'cor-
p o r a t e s t a n d a r d s ' a n d ' c o r p o r a t e d i s c l o s u r e d o c u m e n t s ' . A s one
p r o m o t i o n a l e x p e r t from E c u a d o r said t o S i l v e r m a n (1976: 112), i f
y o u r c o m p e t i t o r isn't d i s c l o s i n g t h e s e r i o u s side effects of his
p r o d u c t , it's e c o n o m i c a l l y suicidal for you to disclose t h e h a z a r d s of
y o u r s . ' W h i l e e c o n o m i c suicide w o u l d r a r e l y b e t h e c o n s e q u e n c e o f
h o n e s t d i s c l o s u r e , e s p e c i a l l y i n n o n - c o m p e t i t i v e s e c t o r s o f t h e phar-
m a c e u t i c a l i n d u s t r y , it is this r h e t o r i c w h i c h t h e local g e n e r a l
m a n a g e r s h a v e o n t h e i r side. C o n s i d e r a n o t h e r e x a m p l e from m y
interviews:

In c o u n t r i e s like Brazil [our p r o d u c t ] has to c o m p e t e w i t h 20 [sic]


p i r a t e c o m p e t i t o r s . N o w t h e s e p e o p l e p r o m o t e the p r o d u c t for

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Drug companies and the Third World

e v e r y infection i m a g i n a b l e . T h e y t h e r e f o r e get b e t t e r sales t h a n


w e w h o d e v e l o p e d t h e p r o d u c t . T h e i r n a m e gets b e t t e r k n o w n a s
t h e i r v e r s i o n g e t s m o r e w i d e l y p r e s c r i b e d . T h e n they even begin
to t a k e a w a y sales from us in the a r e a s w h e r e we t h i n k the drug is
indicated. Of course our Brazilian m a n a g e r then wants us to
e x p a n d the indications too.

T h e r e a r e a s m a n y t r a n s n a t i o n a l c o m p a n i e s a s t h e r e are w a y s i n
w h i c h a t t e m p t s a r e m a d e t o i m p o s e c o r p o r a t e p r o m o t i o n a l stan-
d a r d s o n s u b s i d i a r i e s . O n e c o m p a n y has a n i n t e r n a t i o n a l p r o d u c t
d i s c l o s u r e d o c u m e n t from w h i c h s u b s i d i a r i e s c a n n o t d e l e t e c o n t r a -
i n d i c a t i o n s and side-effects. Yet they may use their d i s c r e t i o n to
a d d i n d i c a t i o n s . M a n y t r a n s n a t i o n a l s are tightly r e g u l a t e d from
h e a d q u a r t e r s as to w h a t t h e y can p u t in semi-official p u b l i c a t i o n s
like MIMS, but h a v e total a u t o n o m y o v e r local m e d i c a l j o u r n a l
a d v e r t i s i n g . C o r p o r a t e m e d i c a l g r o u p s can use t h e c a r r o t o f cost
s a v i n g as well as t h e stick of h e a d q u a r t e r s c o n t r o l :

W e p r o v i d e p a c k a g e i n s e r t s and a d v e r t i s i n g p a c k a g e s from
[ h e a d q u a r t e r s ] . T h e s e a r e not a s e x h a u s t i v e s t a n d a r d s a s r e q u i r e d
by F D A . M i n o r side effects m i g h t be put u n d e r a g e n e r a l h e a d i n g
r a t h e r t h a n listed s e p a r a t e l y . B u t it's a h i g h e r s t a n d a r d t h a n t h e
s u b s i d i a r y w o u l d d o t h e m s e l v e s . T h e cost o f t h e subsidiary re-
d o i n g t h e w o r k often c a u s e s t h e m t o use our m a t e r i a l .

S i l v e r m a n , L e e and L y d e c k e r ( 1 9 8 2 : 150) recently did a follow-up


to c h e c k if t h i n g s really had i m p r o v e d in L a t i n A m e r i c a . T h e y found
t h a t t h e r e had b e e n a s u b s t a n t i a l e x p a n s i o n of d i s c l o s u r e of
w a r n i n g s , side-effects and c o n t r a - i n d i c a t i o n s . M e r c k , Lilly and
S y n t e x w e r e singled o u t for t h e i m p r o v e m e n t s t o labelling and
p r o m o t i o n t h e y had m a d e . W h i l e t h e r e have b e e n efforts b y t r a n s -
n a t i o n a l c o r p o r a t i o n s since the a p p e a r a n c e o f S i l v e r m a n ' s first book
t o e s t a b l i s h i n t e r n a t i o n a l m i n i m u m p r o m o t i o n a l s t a n d a r d s for their
far-flung o p e r a t i o n s , it w o u l d be a m i s t a k e to paint t o o rosy a
p i c t u r e o f w h a t has b e e n a c h i e v e d . C o r p o r a t i o n s have w r i t t e n rules
specifying t h a t v a r i a t i o n s from c o r p o r a t e d i s c l o s u r e r e q u i r e m e n t s
m u s t be a p p r o v e d by h e a d q u a r t e r s only to find that s u b s i d i a r y
g e n e r a l m a n a g e r s i g n o r e t h e rules and c o n t i n u e t o m a k e idiosyn-
c r a t i c p r o d u c t c l a i m s w i t h o u t a p p r o v a l . Just a s with g o v e r n m e n t
regulation, corporate rule-making without the provision of
a d e q u a t e e n f o r c e m e n t resources is no more than a gesture. Some
c o m p a n i e s h a v e m a d e only g e s t u r e s ; o t h e r s p r o d u c e d g e n u i n e

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r e f o r m . M o r e often t h a n n o t , t h e real p r o b l e m i s c o n v i n c i n g cor-


p o r a t i o n s t h a t t h e y s h o u l d s t o p m a k i n g a n u n w a r r a n t e d claim a s
quickly in t h e T h i r d W o r l d as in d e v e l o p e d c o u n t r i e s w h e r e they are
s u b j e c t to t h e s c r u t i n y of r e g u l a t o r s and p u b l i c interest g r o u p s . In
t h e classic i l l u s t r a t i o n , G r i i n e n t h a l w a r n e d l i c e n s e e s in late 1961 to
s t o p m a k i n g c l a i m s that t h a l i d o m i d e w a s ' n o n - t o x i c ' . But i n
p u b l i c i t y m a t e r i a l for W e s t Africa t h a l i d o m i d e c o n t i n u e d to be
d e s c r i b e d a s ' c o m p l e t e l y h a r m l e s s ' ( K n i g h t l e y e t a l . , 1979; 4 0 - 1 ) .
A s L e d o g a r ( 1 9 7 5 : 39) c o n c l u d e s : ' J u s t a s m a n u f a c t u r e r s are often
q u i c k to r e c o m m e n d a drug for a n e w i n d i c a t i o n , they can be very
slow to modify or r e m o v e o u t d a t e d i n d i c a t i o n s from their foreign
labelling and p r o m o t i o n . '
At an industry-wide level, the International Federation of
P h a r m a c e u t i c a l M a n u f a c t u r e r s ' A s s o c i a t i o n s in 1981 a d o p t e d a
c o d e o f e t h i c a l s t a n d a r d s i n m a r k e t i n g . T h e i n d u s t r y self-regulatory
c o d e has t h e s a m e defect as c o r p o r a t e s e l f - r e g u l a t o r y efforts - t h e r e
is no p r o v i s i o n for effective e n f o r c e m e n t a g a i n s t v i o l a t i o n s of the
r a t h e r vague provisions o f t h e c o d e . The escape clauses in the code
a r e a l s o i m a g i n a t i v e : for e x a m p l e , ' s t a t e m e n t s i n p r o m o t i o n a l
c o m m u n i c a t i o n s s h o u l d be b a s e d on s u b s t a n t i a l scientific e v i d e n c e
or other responsible medical opinion' (italics a d d e d ) .

Dumping

T o m M b o y a was the hope o f t h e western world. Bright,


e n e r g e t i c , p o p u l a r and inclined to be d e m o c r a t i c - he w a s a
b o r n l e a d e r w h o , W a s h i n g t o n h o p e d , w o u l d rise t o p o w e r i n
K e n y a a n d h e l p k e e p Africa safe for U n i t e d S t a t e s c o m m e r c e . I n
1969 he w a s shot d o w n in t h e s t r e e t s of N a i r o b i . An e m e r g e n c y
r e s c u e s q u a d w a s by his side in m i n u t e s . T h e y plugged him into
t h e latest g a d g e t in r e s u s c i t a t i v e t e c h n o l o g y . . . . W h a t the
r e s c u e t e a m d i d n ' t k n o w a s they w a t c h e d T o m M b o y a ' s life slip
a w a y w a s t h a t this m a r v e l o u s d e v i c e had b e e n recalled from the
A m e r i c a n m a r k e t by t h e U . S . g o v e r n m e n t . . . . T h e p a t i e n t
died.
L o s i n g M b o y a . . . w a s p e r h a p s a s u b t l e r e t r i b u t i o n for the
U . S . for to t h i s day we allow o u r b u s i n e s s l e a d e r s to sell, mostly to
Third W o r l d n a t i o n s , shiploads of defective medical devices,
l e t h a l d r u g s , k n o w n c a r c i n o g e n s , toxic p e s t i c i d e s , c o n t a m i n a t e d
foods and o t h e r p r o d u c t s found unfit for A m e r i c a n c o n s u m p t i o n
( D o w i e , 1979: 2 3 ) .

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Drug companies and the Third World

D o w i e ( 1 9 7 9 ) a n d his t e a m from Mother Jones m a g a z i n e have


s u b j e c t e d t h e d u m p i n g p h e n o m e n o n t o p e n e t r a t i n g scrutiny.
T h e i r m a i n p h a r m a c e u t i c a l case s t u d i e s are c o n t r a c e p t i v e s ,
specifically U p j o h n ' s D e p o - P r o v e r a and A . H . R o b i n s ' s D a l k o n
Shield. D e p o - P r o v e r a i s a n i n j e c t a b l e drug w h i c h p r e v e n t s
c o n c e p t i o n in w o m e n for t h r e e to six m o n t h s . It w a s found
t h r o u g h early A m e r i c a n r e s e a r c h to be a s s o c i a t e d with such a
w e l t e r o f side-effects t h a t t h e F D A has not only i n d i c a t e d t h a t the
p r o d u c t i s n o t a p p r o v a b l e i n t h e U S , but has f o r b i d d e n h u m a n
t e s t i n g o f t h e d r u g i n t h e U n i t e d S t a t e s . H u g e q u a n t i t i e s are being
d u m p e d o n t h e T h i r d W o r l d . T h r o u g h o u t C e n t r a l A m e r i c a o n e can
w a l k i n t o a p h a r m a c y and p u r c h a s e D e p o - P r o v e r a w i t h o u t a p r e s -
cription.
T h e D a l k o n Shield i s a n i n t r a - u t e r i n e d e v i c e w h i c h w a s recalled
from t h e A m e r i c a n m a r k e t after it had killed at least 17 w o m e n .
P r o b l e m s with t h e d e v i c e w e r e t h e s u b j e c t of s o m e t h i n g of a cover-
up by A. H. R o b i n s . On 12 J u n e 1973 in t e s t i m o n y before t h e H o u s e
of R e p r e s e n t a t i v e s I n t e r g o v e r n m e n t a l Relations s u b c o m m i t t e e , a
R o b i n s r e p r e s e n t a t i v e a d m i t t e d t h a t t h e c o m p a n y ' s files c o n t a i n e d
o v e r 4 0 0 ' u n f a v o r a b l e r e p o r t s ' from p h y s i c i a n s and o t h e r s a b o u t t h e
D a l k o n Shield. N o n e of these 'unfavourable reports' - including 75
i n s t a n c e s o f u t e r i n e p e r f o r a t i o n , 2 8 e c t o p i c p r e g n a n c i e s and a t least
o n e d e a t h - w e r e v o l u n t a r i l y r e p o r t e d b y t h e c o m p a n y t o the
( S u b c o m m i t t e e o n H e a l t h , 1973: 3 6 4 ) .
A . H . R o b i n s has d u m p e d D a l k o n S h i e l d s i n s o m e 4 0 Third
W o r l d c o u n t r i e s . T h e s t a g g e r i n g t h i n g a b o u t this has b e e n t h e
i n v o l v e m e n t o f t h e U S g o v e r n m e n t ' s Office o f P o p u l a t i o n with t h e
A I D . A I D p u r c h a s e d the c o n t r a c e p t i v e d e v i c e a t d i s c o u n t r a t e s for
' a s s i s t a n c e ' t o d e v e l o p i n g c o u n t r i e s after t h e p r o d u c t w a s b a n n e d i n
t h e U S . D o u b l e s t a n d a r d s for T h i r d W o r l d c o n s u m e r s w e r e e v e n
m o r e r e m a r k a b l e w h e n R o b i n s sold A I D unsterilised Shields i n bulk
p a c k a g e s a t a 4 8 p e r c e n t d i s c o u n t . A I D justifies t h e d i s c o u n t
D a l k o n d u m p o n t h e g r o u n d s o f g e t t i n g m o r e c o n t r a c e p t i o n for the
aid d o l l a r . B u t surely this is p u s h i n g t h e r a t i o n a l i t y of cost-
e f f e c t i v e n e s s b e y o n d its limits. T h e sale of an u n s t e r i l i s e d d e v i c e for
i m p l a n t i n g within the h u m a n body is an unconscionable under-
c u t t i n g o f any n o t i o n o f m i n i m u m safety s t a n d a r d s . O n e simply
c a n n o t c o u n t on h e a l t h w o r k e r s , least of all in j u n g l e clinics, to
effectively and c o n s c i e n t i o u s l y sterilise d e v i c e s which t h e y h a v e
c o m e to expect to be pre-sterilised.
D o w i e p r o d u c e d a list of s t r a t e g i e s used in d u m p s which s h a r e s

258
Drug companies and the Third World

r e m a r k a b l e s i m i l a r i t y with a list I c o l l e c t e d from my i n t e r v i e w s w i t h


pharmaceutical executives:

T H E N A M E C H A N G E : W h e n a p r o d u c t i s w i t h d r a w n from the
A m e r i c a n m a r k e t , r e c e i v i n g a lot of bad publicity in the p r o c e s s ,
t h e a s t u t e d u m p e r simply c h a n g e s its n a m e .
T H E L A S T M I N U T E P U L L O U T : W h e n it looks as if a chemical
being tested by the E n v i r o n m e n t a l Protection Agency won't
p a s s , t h e m a n u f a c t u r e r will w i t h d r a w t h e a p p l i c a t i o n for
r e g i s t r a t i o n and t h e n label t h e c h e m i c a l 'for e x p o r t o n l y . ' T h a t
w a y , t h e m a n u f a c t u r e r d o e s n ' t h a v e t o notify the i m p o r t i n g
c o u n t r y that the chemical is banned in the U . S .
D U M P T H E W H O L E F A C T O R Y : Many companies,
p a r t i c u l a r l y p e s t i c i d e m a n u f a c t u r e r s , will simply close d o w n their
A m e r i c a n p l a n t s and b e g i n m a n u f a c t u r i n g a h a z a r d o u s p r o d u c t i n
a c o u n t r y c l o s e to a g o o d m a r k e t .
T H E F O R M U L A C H A N G E : A favorite w i t h drug and p e s t i c i d e
c o m p a n i e s . C h a n g i n g a f o r m u l a slightly by a d d i n g or s u b t r a c t i n g
a n i n e r t i n g r e d i e n t p r e v e n t s d e t e c t i o n b y s p e c t r o m e t e r s and o t h e r
scanning devices keyed to certain molecular structures.
T H E S K I P : Brazil - a p r i m e d r u g m a r k e t w i t h its large p o p u l a t i o n
a n d v i r u l e n t t r o p i c a l d i s e a s e s - has a law t h a t says no o n e m a y
i m p o r t a d r u g t h a t is n o t a p p r o v e d for use in t h e c o u n t r y of o r i g i n .
A real c h a l l e n g e for t h e wily d u m p e r . H o w d o e s he do it?
G u a t e m a l a h a s no such l a w ; in fact, G u a t e m a l a s p e n d s very little
e a c h y e a r r e g u l a t i n g d r u g s . S o , t h e d r u g i s first s h i p p e d t o
G u a t e m a l a , which b e c o m e s the export nation.
T H E I N G R E D I E N T D U M P : Y o u r p r o d u c t w i n d s u p being
b a n n e d . D o n ' t d u m p it. S o m e w i s e - a s s r e p o r t e r from Mother
Jones will find a bill of l a d i n g and e x p o s e y o u . E x p o r t t h e
i n g r e d i e n t s s e p a r a t e l y - p e r h a p s via different r o u t e s - to a small
r e c o m b i n i n g facility or a s s e m b l y p l a n t you have set up w h e r e
y o u ' r e d u m p i n g it, or in a c o u n t r y a l o n g t h e w a y . R e a s s e m b l e
t h e m a n d d u m p t h e p r o d u c t ( D o w i e , 1979: 2 5 ) .

M o r e c o m m o n t h a n 'the s k i p ' , a s D o w i e d e s c r i b e s it, i s simply a


w o r l d w i d e s p r e a d o f m a n u f a c t u r i n g p l a n t s w h i c h always e n a b l e s the
p h a r m a c e u t i c a l c o m p a n y to s o u r c e d r u g s for a region from a con-
v e n i e n t l y l o c a t e d p l a n t in a c o u n t r y w h i c h will quickly g r a n t
a p p r o v a l . O n e of the reasons why so many transnationals have
p h a r m a c e u t i c a l manufacturing plants in G u a t e m a l a is that product
r e g i s t r a t i o n is rapid and really only a f o r m a l i t y . To my k n o w l e d g e a

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Drug companies and the Third World

p r o d u c t s u b m i t t e d for a p p r o v a l by a t r a n s n a t i o n a l c o m p a n y h a s
n e v e r b e e n r e j e c t e d . I m m e d i a t e l y the c o m p a n y is in a p o s i t i o n to
say t h a t t h e p r o d u c t is a p p r o v e d in the c o u n t r y of m a n u f a c t u r e .
G u a t e m a l a is a l s o an a t t r a c t i v e l o c a t i o n b e c a u s e t h e r e is effectively
no r e g u l a t i o n of t h e p h a r m a c e u t i c a l i n d u s t r y . Since factories are
n e v e r i n s p e c t e d by g o v e r n m e n t officials, t h e r e is wide scope for
e c o n o m i s i n g on quality control checks which would be mandatory
in t h e U n i t e d S t a t e s . A d o u b l e s t a n d a r d of m a n u f a c t u r i n g quality is
a l s o f r e q u e n t l y p e r p e t r a t e d by t h e t r a n s n a t i o n a l which g r a n t s a
l i c e n c e for m a n u f a c t u r e to local T h i r d W o r l d c o m p a n i e s n o t o r i o u s
for c u t t i n g c o r n e r s on quality.

All o f t h i s is fairly freely a d m i t t e d by all but the public r e l a t i o n s


staff of p h a r m a c e u t i c a l c o m p a n i e s . E v e n publicly, a V i c e - P r e s i d e n t
o f o n e o f t h e m o s t r e s p o n s i b l e p h a r m a c e u t i c a l c o m p a n i e s , Lilly, has
p l e a d e d b e f o r e t h e U S S e n a t e : ' T o t h e e x t e n t that t h e F e d e r a l
F o o d , D r u g , and C o s m e t i c A c t limits t h e e x p o r t o f d r u g s a p p r o v e d
for use a b r o a d , it c a u s e s , u n n e c e s s a r i l y , t h e e x p o r t of c a p i t a l ,
t e c h n o l o g y , and j o b s ' ( S u b c o m m i t t e e o n H e a l t h and the E n v i r o n -
m e n t . 1976: 5 2 7 ) .
P e r h a p s t h e m o s t c o m m o n form o f p h a r m a c e u t i c a l d u m p i n g i s o f
p r o d u c t s w h o s e shelf life has e x p i r e d . M e d a w a r (1979: 7 5 - 7 ) cites
c a s e s from M a l a y s i a w h e r e i m p o r t e d U S m e d i c i n e s had their date
s t a m p o b l i t e r a t e d , and other reported cases of expired drugs
( i n c l u d i n g o u r friend c h l o r a m p h e n i c o l ) i n t h e W e s t I n d i e s and
India. Two Hoffman-La Roche executives were jailed in Morocco
in 1981 for o b l i t e r a t i n g t h e e x p i r y d a t e s on a n u m b e r of p r o d u c t s to
e n a b l e t h e m to be sold after the d u e d a t e ( M u l l e r , 1982: 147). It is
difficult t o e s t i m a t e t h e e x t e n t t o w h i c h t r a n s n a t i o n a l d u m p
e x p i r e d d r u g s . O n e e x e c u t i v e w a s i n s i s t e n t t h a t this w o u l d n e v e r
h a p p e n quite so blatantly with an A m e r i c a n c o m p a n y : T h i s
c o m p a n y w o u l d n e v e r e x p o r t e x p i r e d d r u g s . B u t i t m i g h t send off
p r o d u c t w h i c h is n e a r e x p i r y k n o w i n g full well t h a t by t h e t i m e it got
to t h e c o n s u m e r it w o u l d be past e x p i r y . '

A n o t h e r p h e n o m e n o n that s o m e e x e c u t i v e s w e r e p r e p a r e d t o
c o n c e d e m i g h t h a p p e n from t i m e t o t i m e w a s t h e d u m p i n g i n t h e
T h i r d W o r l d of d r u g s w h i c h fail to m e e t t h e quality specifications of
the developed country w h e r e they are manufactured. An
A u s t r a l i a n e x e c u t i v e , w h o d e n i e d t h a t his c o m p a n y w o u l d ever
d u m p a b a t c h w h i c h fell b e l o w s p e c i f i c a t i o n s , did a d m i t t h a t w h e n a
J a p a n e s e c o n t r a c t had fallen t h r o u g h , t h e p r o d u c t w a s sold t o

260
Drug companies and the Third World

M a l a y s i a with J a p a n e s e l a b e l l i n g w h i c h M a l a y s i a n s w o u l d n o t h a v e
b e e n able t o r e a d .
An executive of the A u s t r a l i a n subsidiary of a n o t h e r trans-
n a t i o n a l a d m i t t e d t h a t b a t c h e s o f p r o d u c t w o u l d often b e s h i p p e d
from t h e U n i t e d S t a t e s t o A u s t r a l i a b e f o r e q u a l i t y c o n t r o l c h e c k s
w e r e c o m p l e t e d . S a m p l e s o f t h e final p r o d u c t w o u l d s i m p l y b e
t a k e n out and tested while the product was in transit. He claimed
t h a t 'All d r u g c o m p a n i e s o r p h a r m a c e u t i c a l c o m p a n i e s i n A u s t r a l i a
i m p o r t d r u g s i n a n t i c i p a t i o n like t h i s . ' T h e p r a c t i c e c u t s d o w n
d e l i v e r y d e l a y s . B u t t h e p r o b l e m a r i s e s w h e n t h e foreign s u b s i d i a r y
is told t h a t t h e b a t c h has failed to p a s s q u a l i t y c o n t r o l . I n s t e a d of
d e s t r o y i n g t h e b a t c h , t h e r e m i g h t be a s i t u a t i o n a l i n d u c e m e n t to sell
it to i m p a t i e n t c u s t o m e r s who resent d e l a y s , or even to m a k e some
m o n e y o n t h e side b y sales o n t h e black m a r k e t .
R e p u t a b l e p h a r m a c e u t i c a l c o m p a n i e s d o e n g a g e i n illegal drug
s m u g g l i n g . T h e c o r p o r a t i o n can d e n y r e s p o n s i b i l i t y for p o o r quality
p r o d u c t d u m p e d t h r o u g h t h e black m a r k e t . I n d o n e s i a , b e c a u s e o f
its strict r e q u i r e m e n t s for e s t a b l i s h i n g local m a n u f a c t u r i n g p l a n t s , is
a victim of m u c h s m u g g l i n g past c u s t o m s officials. T w o s e n i o r
A u s t r a l i a n executives of one A m e r i c a n transnational brazenly
admitted that their c o m p a n y entered the Indonesian m a r k e t by the
A u s t r a l i a n subsidiary posting the product to an agent in Singapore
w h o w o u l d s m u g g l e it into I n d o n e s i a for b l a c k m a r k e t s a l e s on a
o n e - t o - o n e basis t o I n d o n e s i a n p h a r m a c i s t s . I n this s i t u a t i o n , any
a d v e r s e r e a c t i o n s a r i s i n g from p o o r q u a l i t y i n t h e p r o d u c t c o u l d
easily be blamed on 'counterfeiters'. Trythall (1977) estimates that
15 p e r c e n t of t h e d r u g s sold in I n d o n e s i a are s m u g g l e d from
S i n g a p o r e . T h e r e i s only o n e c a s e w h e r e a n a l l e g a t i o n o f s m u g g l i n g
by a r e p u t a b l e c o m p a n y h a s g o n e p u b l i c :

I n C h i l e u n d e r t h e A l l e n d e g o v e r n m e n t , Pfizer's s u b s i d i a r y w a s
a c c u s e d o f s m u g g l i n g d r u g s illegally a c r o s s t h e b o r d e r t o Bolivia
a n d P e r u . T h e G o v e r n m e n t felt t h a t t h e o n l y w a y t o p r e v e n t such
activities w a s state control o f t h e c o m p a n y . Unfortunately the
m i l i t a r y c o u p o f S e p t e m b e r 1973 p r e v e n t e d t h e legal c a s e
r e a c h i n g any c o n c l u s i o n ( H e l l e r , 1977: 5 5 ) .

American attitudes to dumping

[My c o m p a n y ] a d o p t s t h e view that w h e n it has satisfied itself of


t h e safety a n d efficacy o f a d r u g , w h e n i t h a s r e a c h e d t h a t b e n c h

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Drug companies and the Third World

m a r k , satisfied o u r c o r p o r a t e c o n s c i e n c e if you like, t h e n we will


go to get it r e g i s t e r e d in e v e r y m a r k e t we can i r r e s p e c t i v e o f w h a t
t h e r e g u l a t i o n s of any c o u n t r y say. I f G u a t e m a l a will let us in first
b e c a u s e t h e y h a v e no r e g u l a t i o n s , t h e n we will get it r e g i s t e r e d in
G u a t e m a l a i n t h e f i r s t six m o n t h s .

T h e a b o v e view of a senior A m e r i c a n e x e c u t i v e reflects t h e m o r a l


s t a n c e t h a t i s m o s t typical o f p h a r m a c e u t i c a l e x e c u t i v e s w i t h r e s p e c t
to p r o d u c t r e g i s t r a t i o n : ' W e k n o w w h e n a d r u g is safe. So once
satisfied of safety, we go for b r o k e . " At p r e s e n t , US law d o e s not
p e r m i t p h a r m a c e u t i c a l c o m p a n i e s t o e x p o r t d r u g s from t h e U n i t e d
S t a t e s w h i c h a r e not a p p r o v e d for m a r k e t i n g within the U n i t e d
S t a t e s . T h i s d o e s not p r e v e n t m a n y c o m p a n i e s from b l a t a n t l y
v i o l a t i n g t h e law. A s o n e e x e c u t i v e r e m a r k e d , ' U n l e s s t h e p a c k a g e
b u r s t s o p e n o n t h e d o c k , you have n o c h a n c e o f b e i n g c a u g h t . ' I n the
last few y e a r s g r e a t p r e s s u r e has b e e n b u i l d i n g up to c h a n g e this law,
largely because it e n c o u r a g e s t h e shifting of m a n u f a c t u r i n g
o p e r a t i o n s offshore for d r u g s not a p p r o v e d i n the U n i t e d S t a t e s .
B u t i t has a l s o b e e n a r g u e d t h a t d o i n g a w a y w i t h t h e e x p o r t p r o h i b i -
t i o n w o u l d e n a b l e U S c o m p a n i e s t o m a k e a m o r e meaningful con-
t r i b u t i o n t o solving h e a l t h p r o b l e m s w h i c h a r e not significant within
the U n i t e d States but i m p o r t a n t e l s e w h e r e :

A g o o d e x a m p l e of this situation is a Pfizer d r u g , M a n c i l , for


s c h i s t o s o m i a s i s . T h i s is a s n a i l - b o r n e d i s e a s e t h a t affects 2 0 0 to
500 m i l l i o n p e o p l e t h r o u g h o u t t h e w o r l d . In Brazil a l o n e it affects
2 0 t o 4 0 m i l l i o n p e o p l e , o n e - t h i r d o f t h e p o p u l a t i o n . Pfizer, t h e
U . S . c o m p a n y w a n t e d t o s y n t h e s i z e t h e d r u g h e r e and e x p o r t i t t o
B r a z i l , but t h e y could n o t d o t h a t b e c a u s e o f t h e U . S . law. S o ,
t h e y are m a n u f a c t u r i n g o v e r s e a s in a m u c h less efficient way t h a n
t h e y w o u l d i f t h e y w e r e a b l e t o m a n u f a c t u r e and e x p o r t from t h e
U n i t e d S t a t e s ( S u b c o m m i t t e e o n H e a l t h , 1978: 1618).

I t h a s b e e n c o r r e c t l y p o i n t e d o u t t h a t different c o u n t r i e s have
d i f f e r e n t b e n e f i t - r i s k ratios for p a r t i c u l a r m e d i c i n e s . P e r h a p s in t h e
U n i t e d S t a t e s t h e a b u s e p o t e n t i a l of a d r u g with s e r i o u s side-effects
is so g r e a t t h a t b a n n i n g it is justified. B u t if t h e d i s e a s e a g a i n s t w h i c h
t h a t d r u g is m o s t useful is a s c o u r g e in t r o p i c a l c o u n t r i e s , t h e n t h o s e
c o u n t r i e s m i g h t be justified in d e c i d i n g t h a t , for t h e m , t h e benefits
outweigh the risks.
So t h e D r u g R e g u l a t i o n R e f o r m Bills of 1978 and 1979 p r o p o s e d
to the C o n g r e s s that export of drugs not a p p r o v e d in the United

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Drug companies and the Third World

States be allowed, provided that the recipient g o v e r n m e n t is


notified o f t h e r e g u l a t o r y s t a t u s o f t h e d r u g i n t h e U n i t e d S t a t e s and
signifies t h a t i t d o e s n o t object t o t h e i m p o r t a t i o n o f t h e d r u g . I n
a d d i t i o n , t h e 1978 D r u g R e f o r m Bill i n c l u d e d r e f e r e n c e to a vaguely
d e f i n e d right o f t h e F D A t o p r o h i b i t e x p o r t i f this w a s "contrary t o
t h e p u b l i c h e a l t h o f t h e foreign c o u n t r y o r t h e U n i t e d S t a t e s ' .
C l e a r l y , a n e x p o r t could b e c o n t r a r y t o t h e p u b l i c h e a l t h o f t h e
U n i t e d S t a t e s if a d r u g of a b u s e could be e x p o r t e d and t h e n
s m u g g l e d b a c k into t h e U n i t e d S t a t e s . B u t w h a t ' c o n t r a r y t o t h e
p u b l i c h e a l t h o f t h e foreign c o u n t r y ' m i g h t m e a n w a s not clear.
T h e a r g u m e n t s for d o i n g a w a y with t h e e x p o r t p r o h i b i t i o n s e e m
c o n v i n c i n g . T h e y h a v e a nice liberal ring a b o u t t h e m . A m e r i c a
s h o u l d g r a n t o t h e r g o v e r n m e n t s t h e s o v e r e i g n t y t o m a k e their o w n
r i s k - b e n e f i t d e c i s i o n s c o n c e r n i n g t h e h e a l t h o f their own c i t i z e n s .
H o w e v e r , A n i t a J o h n s o n of the E n v i r o n m e n t a l Defense Fund
argued that national sovereignty o f T h i r d World health regulatory
a g e n c i e s to m a k e t h e i r o w n c h o i c e s is a c h i m e r a :

C e r t i f i c a t i o n by foreign g o v e r n m e n t s in d e v e l o p i n g c o u n t r i e s is a
n e g l i g i b l e p r o t e c t i o n for c o n s u m e r s t h e r e . O f 2 2 L a t i n A m e r i c a n
c o u n t r i e s , for e x a m p l e , only 12 r e q u i r e any kind of r e g i s t r a t i o n of
i m p o r t e d d r u g s . Slightly u n d e r 20 r e q u i r e r e g i s t r a t i o n , but only a
small n u m b e r do medical review o f t h e drugs. Two of these are
medical reviews by doctors' trade associations, rather than by
p u b l i c h e a l t h officials. M a n y of t h e s e c o u n t r i e s do not have
s p e c i a l i s t s t o e v a l u a t e d r u g c o m p a n y p r o m o t i o n s . T h e large
m a j o r i t y d o not h a v e t h e t o p quality m e d i c a l l i b r a r i e s e v e n .
T h o s e d e v e l o p i n g c o u n t r i e s t h a t d o h a v e any kind o f drug c o n t r o l
a r e l o o k i n g at c h e m i c a l p u r i t y of d r u g e n t i t y , r a t h e r t h a n at the
d e s i g n a n d c o n d u c t of safety and effectiveness s t u d i e s
( S u b c o m m i t t e e o n H e a l t h , 1978: 1619).

I w a s in C u b a last m o n t h and d i s c o v e r e d , to my s h o c k , that the


N a t i o n a l M e d i c a l L i b r a r y o f C u b a has n o m e d i c a l l i t e r a t u r e
b e y o n d the time o f t h e revolution. The drug c o m p a n i e s are in a
p o s i t i o n w h e r e t h e y c a n g o d o w n t h e r e and lobby foreign officials,
m a k e e x t r a v a g a n t c l a i m s for their d r u g s , claims w h i c h w e k n o w
h a v e not b e e n p r o v e n , and t h e officials are essentially helpless
( S u b c o m m i t t e e o n H e a l t h , 1978: 6 4 9 ) .

T h e q u e s t i o n i s h o w high d o a b s t r a c t d e m o c r a t i c v a l u e s like
national sovereignty rate c o m p a r e d to protection of consumers

263
Drug companies and the Third World

from p r o d u c t s m a d e i n o n e ' s c o u n t r y ? O p p o n e n t s o f t h e reform


a r g u e t h a t t h e suffering o f c o n s u m e r s has s u b s t a n c e w h i l e n a t i o n a l
s o v e r e i g n t y has no s u b s t a n c e for w a n t of t r a i n e d g o v e r n m e n t
officials t o a p p l y t h e s o v e r e i g n t y . O n e m u s t also q u e s t i o n t h e i m p o r -
t a n c e o f t h e liberal d e m o c r a t i c ideal o f n a t i o n a l s o v e r e i g n t y w h e n
one is considering undemocratic regimes w h o , as demonstrated in
C h a p t e r 2, m a k e many of their decisions about the pharmaceutical
i n d u s t r y on the strength of bribes. Less national sovereignty than
t h e s o v e r e i g n t y o f t h e dollar! I t d o e s s e e m t h a t liberal A m e r i c a n s
a r e b e i n g s e d u c e d by a high political p r i n c i p l e into s u p p o r t i n g a
p o l i c y w h i c h will a l l o w powerful d r u g c o m p a n i e s t o h e a p u n t o l d
e x p l o i t a t i o n on the c o n s u m e r s of the Third World. The choice
b e t w e e n n a t i o n a l s o v e r e i g n t y and c o n s u m e r p r o t e c t i o n i s a m o r a l l y
p e r p l e x i n g o n e . B u t m a n y o f u s identify m o r e strongly with the
c o n s u m e r s w h o will die i n t h e T h i r d W o r l d t h a n with their g o v e r n -
m e n t s w h o s o often a r e t o t a l i t a r i a n and c o r r u p t .
P e r h a p s a n a c c e p t a b l e a n s w e r t o t h e m o r a l d i l e m m a w a s put
f o r w a r d by an A m e r i c a n c i t i z e n , Mr L. J. C o l l i n s , w h o in o p p o s i n g
t h e e x p o r t o f d r u g s w h i c h w e r e not fit for A m e r i c a n c o n s u m p t i o n ,
s a i d : ' A s a m a t t e r of p a t r i o t i s m , I o b j e c t w h e n they w o u l d be
m a r k e d , " M a d e in the United States" ' (Subcommittee on Health,
1978: 1332). S u r e l y n a t i o n s o w e t h e m s e l v e s t h e s a m e kind o f p r i d e
a s t h e c o m p a n y w h i c h says: 'In G u a t e m a l a t h e y ' l l t a k e a n y t h i n g , but
w e will n o t g i v e t h e m a n y t h i n g w h i c h d o e s not m e e t o u r c o r p o r a t e
s t a n d a r d . ' I n saying t h a t , t h e c o m p a n y i s q u i t e r i g h t l y d e n y i n g
national sovereignty in the name of pride in corporate standards.
D o e s the U n i t e d States no longer have pride in national standards?
A final w e a k n e s s o f t h e n a t i o n a l s o v e r e i g n t y a r g u m e n t is t h a t it
p r e s u p p o s e s that Third W o r l d g o v e r n m e n t s want sovereignty over
t h e safety o f i m p o r t e d p r o d u c t s . G a e d e k e and U d o - A k a (1974)
c o n d u c t e d a s u r v e y of g o v e r n m e n t r e p r e s e n t a t i v e s from 58
c o u n t r i e s - d e v e l o p e d and T h i r d W o r l d . T h e g o v e r n m e n t r e p r e -
s e n t a t i v e s w e r e a s k e d : ' W h o should set q u a l i t y and safety s t a n d a r d s
for p r o d u c t s sold i n t e r n a t i o n a l l y ? ' Forty-five per cent said the
r e s p o n s i b i l i t y s h o u l d lie with t h e i m p o r t i n g c o u n t r y ; 30 p e r c e n t said
w i t h t h e e x p o r t i n g c o u n t r y ; and 25 per c e n t o p t e d for c o n t r o l by an
i n d e p e n d e n t international body.
S u r e l y t h e p r o p e r p o s i t i o n is for g o v e r n m e n t s as a m a t t e r of
c o u r s e not t o a l l o w t h e e x p o r t o f p r o d u c t s w h i c h are r e g a r d e d
a s unsafe for t h e i r o w n citizens. F o r e i g n g o v e r n m e n t s w h o plead
for a l l o w i n g e x p o r t of a p r o d u c t w h i c h has a m o r e f a v o u r a b l e

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Drug companies and the Third World

r i s k - b e n e f i t r a t i o i n t h e i r p a r t o f t h e w o r l d s h o u l d b e listened t o . B u t
t h e b u r d e n o f p e r s u a s i o n should b e o n t h e foreign g o v e r n m e n t
w h i c h w a n t s t h e e x p o r t e r t o c o m p r o m i s e its n a t i o n a l s t a n d a r d s .
S i m p l y notifying t h e foreign g o v e r n m e n t t h a t t h e p r o d u c t i s b a n n e d
in t h e U S , and s a y i n g ' t a k e it at y o u r o w n peril' is not placing t h e
b u r d e n o f p r o o f o n t h e foreign g o v e r n m e n t .
I f t h e r e really w e r e a b u r d e n o f p r o o f placed o n g o v e r n m e n t s w h o
w a n t e d t o i m p o r t b a n n e d d r u g s from t h e U S , t h e n t h e F D A w o u l d
n o t b e i n u n d a t e d w i t h foreign g o v e r n m e n t s k n o c k i n g a t t h e i r d o o r .
W h i l e i t m i g h t b e t r u e t h a t r i s k - b e n e f i t ratios vary s o m e w h a t with
g e o g r a p h y , t h e m o r e f u n d a m e n t a l reality i s t h a t risk-benefit ratios
a c r o s s t h e b o a r d a r e a l m o s t i n v a r i a b l y w o r s e i n t h e Third W o r l d
t h a n i n t h e U n i t e d S t a t e s . A m e r i c a n p a t i e n t s w h o are a d m i n i s t e r e d
d r u g s with a high risk and high benefits h a v e t h e i r s y m p t o m s
m o n i t o r e d carefully by a qualified p h y s i c i a n . If this d o e s not
h a p p e n , t h e p h y s i c i a n can be sued. A G u a t e m a l a n will typically buy
t h e s a m e d r u g from a p h a r m a c y w i t h o u t a p r e s c r i p t i o n , and
p r o b a b l y t a k e i n a p p r o p r i a t e d o s a g e s ( M u l l e r , 1982: 1 1 0 - 1 1 ) . C o n -
c e i v a b l y t h e e x p i r y d a t e w h i c h w a s o n c e s t a m p e d o n the b o t t l e will
h a v e b e e n e r a s e d . T h e u n t r a i n e d ' p h a r m a c i s t ' , influenced b y
c o m p a n y sales r e p r e s e n t a t i v e s w h o s e c l a i m s are not subject t o
g o v e r n m e n t r e g u l a t i o n , m a y r e c o m m e n d t h e p o t e n t d r u g for a n
u n a p p r o v e d use u n t h i n k a b l e i n t h e U n i t e d S t a t e s . T o m a k e t h i n g s
w o r s e , t h e u n s u p e r v i s e d p a t i e n t m i g h t t a k e t h e d r u g with a l c o h o l o r
s o m e o t h e r d r u g w h i c h i n t e r a c t s d a n g e r o u s l y with it. T h e s e are j u s t
s o m e of the r e a s o n s why risk-benefit ratios are almost invariably
w o r s e in the Third W o r l d .

Third World guinea pigs


A g r e a t e r s o u r c e o f r e s e n t m e n t i n t h e T h i r d W o r l d t h a n the d u m p -
ing of old or u n s a f e d r u g s h a s b e e n t h e t e s t i n g of n e w d r u g s w h i c h
a r e r e g a r d e d a s h a v i n g r i s k s t o o high for t e s t i n g i n d e v e l o p e d
countries. The most celebrated example is the development of
c o n t r a c e p t i v e s . T h e first l a r g e - s c a l e clinical trials o n oral c o n t r a -
c e p t i v e s w e r e c o n d u c t e d b y S e a r l e i n P u e r t o R i c o a r o u n d 1953.
J o h n s o n a n d J o h n s o n and S y n t e x followed with testing i n P u e r t o
R i c o , H a i t i a n d M e x i c o . T h e first major U S clinical trials w e r e
c o n d u c t e d o n w o m e n from l o w - i n c o m e g r o u p s , 8 4 p e r cent o f w h o m
w e r e of M e x i c a n e x t r a c t i o n and 6 p e r cent black ( H e l l e r , 1977:
5 2 - 4 ) . L a t e r r e f i n e m e n t s i n t h e form o f l o w - d o s e oral p r o g e s t e r o n e s

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Drug companies and the Third World

w e r e initially t e s t e d i n C h i l e b y S y n t e x and M e r c k ( G e r m a n y ) . E v e n
w i t h i n C h i l e , t h e e m p h a s i s w a s o n illiterate l o w e s t - i n c o m e p e o p l e ,
t h e s e c o n s t i t u t i n g 345 o f t h e 390 w o m e n t e s t e d ( Z a n a r t u , 1968).

O t h e r m e t h o d s o f c o n t r a c e p t i o n r e c e i v e d their t e s t i n g i n this w a y ,
i n c l u d i ng v a r i o u s t e c h n i q u e s for t h e use of i n t r a - u t e r i n e d e v i c e s ,
and m o r e recently the addition of copper to these devices. This
w a s initially t e s t e d in C h i l e w i t h large scale follow-
up s u r v e y s in C o l u m b i a , I r a n , K o r e a , T a i w a n and T h a i l a n d . . . .
[ D e p o - P r o v e r a ] has b e e n t e s t e d i n B r a z i l . T h a i l a n d , C h i l e ,
P h i l i p p i n e s , Sri L a n k a , H o n g K o n g , E g y p t , H o n d u r a s , P e r u ,
M e x i c o and P a k i s t a n . W h e n r e s e a r c h into its possible effect on
t h e w e i g h t and b l o o d p r e s s u r e o f w o m e n t a k i n g the injections
w a s c a r r i e d o u t in S o u t h Africa, t h e r e s e a r c h e r s saw fit to
e x a m i n e t h e s e f e a t u r e s b y e x p e r i m e n t i n g with N e g r o (75 p e r
c e n t ) a n d A s i a t i c (25 per c e n t ) w o m e n , r a t h e r t h a n o n w o m e n
w i t h t h e s a m e c o l o u r e d skin a s t h e r e s e a r c h e r s ( H e l l e r , 1977:
52-4).

H e l l e r ' s s t a t e m e n t s e e m s t o imply t h a t d r u g c o m p a n i e s opt t o test


particularly d a n g e r o u s drugs in the Third World because poor
p e o p l e a r e r e g a r d e d a s m o r e d i s p e n s a b l e , and i n s o m e m e a s u r e this
i s u n d o u b t e d l y t r u e . B u t t h e r e are o t h e r m o r e p r a c t i c a l r e a s o n s for
g o i n g to t h e T h i r d W o r l d first with d r u g s for which fears of side-
effects a r e g r e a t . P e a s a n t s do not sue g l o b a l c o r p o r a t i o n s for injury.
I n f o r m e d c o n s e n t r e g u l a t i o n s for d r u g t e s t i n g do not exist in t h e
T h i r d W o r l d . M o r e o v e r , given t h a t t h e p a t e n t life of a n e w
d i s c o v e r y is finite, and t h a t m o n o p o l y profits will only a c c r u e while
t h e p a t e n t lives, t h e r e a r e i n c e n t i v e s for c o m p a n i e s to get a p r o d u c t
r e g i s t e r e d w h e r e v e r t h e y can as early as t h e y can. Clinical d a t a from
T h i r d W o r l d c o u n t r i e s d o e s c o u n t for s o m e t h i n g , but not very
m u c h , w i t h a g e n c i e s like t h e F D A . H o w e v e r , i f t h e p r o d u c t i s found
to be unsafe by s u b s e q u e n t , m o r e s o p h i s t i c a t e d , t e s t i n g in a
d e v e l o p e d c o u n t r y , t h e n a t least t h e c o m p a n y has m a d e s o m e
m o n e y i n t h e T h i r d W o r l d w h i l e t h e going w a s g o o d .

M o r e i m p o r t a n t l y , d i s t r i b u t i o n o f t h e d r u g i n t h e T h i r d W o r l d can
act as a d e v i c e for s c r e e n i n g o u t d r u g s w h i c h are o b v i o u s l y i n a p p r o -
p r i a t e for e v e n a t t e m p t i n g r e g i s t r a t i o n i n d e v e l o p e d c o u n t r i e s . I f
G u a t e m a l a n I n d i a n s fall ill at t h e first sniff of t h e d r u g , t h e n t h e
2
c o s t s o f m u c h e x p e n s i v e t e s t i n g i n t h e U n i t e d S t a t e s can b e s a v e d .
I r o n i c a l l y , G r a b o w s k i and V e r n o n , t w o p r o - i n d u s t r y e c o n o m i s t s .

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c o n f i r m t h a t t h e s e k i n d s o f c o n s i d e r a t i o n s d o c o m e into play with


drug research and d e v e l o p m e n t decisions.

M u l t i n a t i o n a l firms h a v e s o m e significant a d v a n t a g e s i n their


ability t o r e s p o n d t o t h e m o r e s t r i n g e n t r e g u l a t o r y c o n d i t i o n s that
h a v e e v o l v e d i n this c o u n t r y . F i r s t , t h e y can i n t r o d u c e n e w drug
p r o d u c t s i n foreign m a r k e t s ( w h e r e r e g u l a t o r y c o n d i t i o n s a r e less
s t r i n g e n t ) p r i o r to (or in lieu of) i n t r o d u c t i o n in the U n i t e d S t a t e s .
T h i s a l l o w s t h e m t o gain k n o w l e d g e and realize sales r e v e n u e s
w h i l e a n e w d r u g c o m p o u n d r e m a i n s u n d e r r e g u l a t o r y r e v i e w and
d e v e l o p m e n t in this c o u n t r y . . . . In a d d i t i o n , m u l t i n a t i o n a l firms
a l s o c a n p e r f o r m R & D a c t i v i t i e s i n foreign c o u n t r i e s i n o r d e r t o
r e d u c e t i m e d e l a y s and t h e overall costs o f d e v e l o p i n g n e w
p r o d u c t s . S o m e i m p o r t a n t i n s t i t u t i o n a l b a r r i e r s t o this strategy
d o e x i s t , h o w e v e r . H i s t o r i c a l l y t h e F D A has b e e n unwilling t o
a c c e p t d a t a from foreign clinical trials or p a t i e n t e x p e r i e n c e s .
T h u s U . S . f i r m s h a v e i n c e n t i v e s t o p e r f o r m t h e i r R & D i n this
c o u n t r y , e v e n i f t h e y c h o o s e t o i n t r o d u c e t h e i r n e w d r u g s first and
in g r e a t e r n u m b e r s a b r o a d . N e v e r t h e l e s s only a small fraction of
c o m p o u n d s e n t e r i n g clinical t e s t i n g i n t h e U n i t e d States ever
b e c o m e c o m m e r c i a l p r o d u c t s ( W a r d e l l and L a s a g n a indicate that
t h i s fraction is n o w less t h a n 10 p e r c e n t ) . M u l t i n a t i o n a l firms
t h e r e f o r e h a v e t h e o p t i o n o f s c r e e n i n g n e w d r u g s a b r o a d and
p e r f o r m i n g d u p l i c a t e U . S . trials o n t h e relatively small fraction o f
d r u g s for w h i c h n e w d r u g a p p l i c a t i o n s ( N D A s ) are s u b m i t t e d t o
t h e F D A . T h e y can also p e r f o r m different p h a s e s o f d e v e l o p m e n t
a l t e r n a t i v e l y h e r e a n d a b r o a d i n o r d e r t o r e d u c e r e g u l a t o r y lags
a n d b o t t l e n e c k s ( G r a b o w s k i and V e r n o n , 1979: 4 8 - 9 ) .

I n d e e d , G r a b o w s k i a n d V e r n o n g o o n t o cite L a s a g n a and
W a r d e l l ' s e v i d e n c e that because o f t h e 'regulatory n i g h t m a r e ' in the
U n i t e d S t a t e s , A m e r i c a n firms a r e i n c r e a s i n g l y shifting t h e i r initial
clinical t e s t i n g o f f s h o r e . L a s a g n a and W a r d e l l (1975) studied new
d r u g c o m p o u n d s clinically tested b y 1 5 large A m e r i c a n c o m p a n i e s
b e t w e e n 1960 a n d 1974. W h e r e a s b e f o r e 1966 t h e s e firms ( w h i c h
a c c o u n t for 80 per c e n t of US R & D e x p e n d i t u r e ) did virtually all
t h e i r clinical t e s t i n g first in t h e U n i t e d S t a t e s , by 1974 m o r e w e r e
b e i n g t e s t e d a b r o a d initially t h a n w e r e b e i n g t e s t e d first i n t h e U S .
I t has a l r e a d y b e e n p o i n t e d o u t that T h i r d W o r l d clinical d a t a are
n o t a g r e a t d e a l of use in influencing r e g i s t r a t i o n d e c i s i o n s in
d e v e l o p e d c o u n t r i e s . N e v e r t h e l e s s , t h e r e can b e indirect influences.
C l i n i c a l d a t a from a T h i r d W o r l d c o u n t r y m i g h t assist r e g i s t r a t i o n

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in, s a y , B e l g i u m o r s o m e o t h e r c o u n t r y w i t h m o d e r a t e but not high


r e g u l a t o r y s t a n d a r d s . T h e fact t h a t a d e v e l o p e d c o u n t r y such as
B e l g i u m has a p p r o v e d t h e drug m i g h t t h e n influence a p p r o v a l in a
r a n g e o f o t h e r c o u n t r i e s . B e l g i u m is in fact often c h o s e n by p h a r m a -
c e u t i c a l c o m p a n i e s as a s t r a t e g i c link in their i n t e r n a t i o n a l
m a r k e t i n g m a n o e u v r e s b e c a u s e it is a d e v e l o p e d c o u n t r y w i t h rapid
n e w d r u g a p p r o v a l ( n o r m a l l y six t o eight m o n t h s ) . T h e t r a n s -
n a t i o n a l will t h e n be able to start m a n u f a c t u r e in B e l g i u m w i t h the
benefit of a certificate of free sale ( i n d i c a t i n g that t h e p r o d u c t is
a p p r o v e d for sale in the c o u n t r y of o r i g i n ) from a d e v e l o p e d
country.

T h e r e a r e a m y r i a d of factors to c o n s i d e r in d e c i d i n g in which
c o u n t r i e s to c o m m e n c e clinical trials: w h e r e to go for a p p r o v a l first,
s e c o n d and t h i r d ; w h e r e t o set u p t h e first m a n u f a c t u r i n g - e x p o r t i n g
o p e r a t i o n s . V a r i a b l e s such a s a v e r a g e length o f t i m e before new
d r u g a p p r o v a l i n t h e c o u n t r y , c e n t r a l i t y o f t h e a p p r o v a l for w i n n i n g
a p p r o v a l i n o t h e r c o u n t r i e s , cost o f m a n u f a c t u r e , skill o f t h e phar-
maceutical workforce in that country, must be considered. Large
c o r p o r a t i o n s p u t s y s t e m s analysis g r o u p s o n t o t h e s e p r o b l e m s .
E x p e r t s t h r o w d a t a o n all o f t h e v a r i a b l e s into the c o m p u t e r t o c o m e
up w i t h an o p t i m a l s o l u t i o n . O f t e n t h e solution will c o m e o u t in t h e
form of a P E R T d i a g r a m , a simplified e x a m p l e of which is illus-
t r a t e d i n F i g u r e 7 . 1 . T h e figure i m a g i n e s t h a t a sensible solution t o
t h e h y p o t h e t i c a l p r o b l e m w o u l d be to first m a r k e t and clinically test
the drug in P a r a g u a y (where new product registration generally
t a k e s only a m o n t h ) . T h e n the d a t a from this clinical t e s t i n g ( p r e -
s u m a b l y t o g e t h e r w i t h a n i m a l t e s t i n g from t h e U n i t e d S t a t e s ) w o u l d
be used to a t t e m p t registration in Belgium. The Belgian approval
w o u l d t h e n be used to gain e n t r y to a n u m b e r of large T h i r d W o r l d
m a r k e t s such a s B r a z i l , and s o on. T h e h y p o t h e t i c a l P E R T d i a g r a m
in F i g u r e 7.1 is an oversimplified v e r s i o n of a realistic o n e , which
would include registration paths, manufacturing paths, marketing-
p r o m o t i o n a l p a t h s , and n u m e r o u s o t h e r s . Different sections o f t h e
P E R T m o d e l would be circulated to various constituencies in the
c o r p o r a t i o n w h o w o u l d send back c o m m e n t s o n h o w silly t h e
c o m p u t e r h a d b e e n , a n d m o d i f i c a t i o n s t o t h e g r a n d plan w o u l d b e
m a d e a c c o r d i n g l y . T o l e r a n c e s have t o b e built into t h e m o d e l with
" e x p e c t e d d a t e s ' qualified b y ' p r o b a b l e d e l a y s ' and ' p o s s i b l e d e l a y s ' .
F i n a l l y , it s h o u l d be p o i n t e d o u t t h a t m a n y large c o r p o r a t i o n s do
not go in for this kind of g r a n d p l a n n i n g very m u c h at all. S o m e
E u r o p e a n c o m p a n i e s g o for r e g i s t r a t i o n i n t h e i r h o m e c o u n t r y first.

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a n d t h e n s u b s i d i a r i e s m o r e or less h a v e a u t o n o m y to m a r k e t a n e w
p r o d u c t w h e n e v e r they decide.
A l l t h a t h a s b e e n a t t e m p t e d h e r e is to s h o w that using p e o p l e in
t h e T h i r d W o r l d as ' g u i n e a pigs' is often part of a very c o m p l e x
t o t a l i t y . It is a c o m p l e x i t y w h i c h m a n i f e s t s t h e r a t i o n a l i t y of t h e
t r a n s n a t i o n a l c o r p o r a t i o n in finding t h e line of least r e s i s t a n c e to
early m a r k e t i n g t h r o u g h the c o m p l e x j u n g l e of the international
r e g u l a t o r y n o n - s y s t e m . T r a n s n a t i o n a l s use system against non-
s y s t e m . W h i l e t h e t r a n s n a t i o n a l ' s w o r l d w i d e goals are c o h e r e n t , the
g o a l s of t h e r e g u l a t o r y a g e n c i e s of t h e world are conflicting.
C o r p o r a t i o n s t h e r e f o r e e x p l o i t t h e fact t h a t r e g u l a t o r y g o a l s only
h a v e c o h e r e n c e at a n a t i o n a l level w h i l e c o r p o r a t e c o h e r e n c e is
transnational.

The Third World push in pharmaceuticals

The W o r l d H e a l t h O r g a n i s a t i o n estimates that 60-80 p e r c e n t o f t h e


p o p u l a t i o n s o f m a n y d e v e l o p i n g c o u n t r i e s d o not have c o n s i s t e n t
access to even the most essential drugs ( U N Centre on Trans-
n a t i o n a l C o r p o r a t i o n s , 1979: 9 5 ) . T h e fact that A m e r i c a n and
E u r o p e a n c o n t r o l o f t h e i n t e r n a t i o n a l p h a r m a c e u t i c a l i n d u s t r y has
i m p o s e d t h e cost b u r d e n s w h i c h put d r u g s b e y o n d t h e r e a c h o f their
c i t i z e n s has p r o m p t e d t h e T h i r d W o r l d t o strike back a t t h e global
c o r p o r a t i o n s . T h e l e a d e r i n this m o v e m e n t has b e e n I n d i a ,
i n d i a n i s a t i o n ' of p h a r m a c e u t i c a l p r o d u c t i o n has p r o c e e d e d at a
r e m a r k a b l e r a t e , w i t h t h e value o f local m a n u f a c t u r e r e a c h i n g
U S $ 1 , 3 0 0 , 0 0 0 , 0 0 0 i n 1 9 7 7 - 8 . O n l y t r a n s n a t i o n a l s w h i c h m a k e high-
t e c h n o l o g y d r u g s a r e t o b e a l l o w e d t o r e t a i n m a j o r i t y equity p a r t i c i -
p a t i o n i n t h e i r s u b s i d i a r i e s . F u r t h e r , foreign c o m p a n i e s are t o b e
r e q u i r e d to i n v e s t at least 4 p e r c e n t of their local t u r n o v e r in
r e s e a r c h w i t h i n I n d i a . In t i m e this will h e l p to r e d r e s s t h e m e a g r e 5
per cent of the research e x p e n d i t u r e of the US pharmaceutical
i n d u s t r y w h i c h i s d e v o t e d t o T h i r d W o r l d h e a l t h p r o b l e m s such a s
t r o p i c a l d i s e a s e s ( S a r e t t , 1979: 134). O t h e r e l e m e n t s o f t h e I n d i a n
s t r a t e g y a r e strict p r i c e c o n t r o l s on d r u g s , a r e d u c t i o n of p a t e n t
p r o t e c t i o n , a n d a liberal i n t e r p r e t a t i o n of p a t e n t laws to favour
d o m e s t i c i m i t a t o r s o f f o r e i g n t e c h n o l o g y ( L a l l , 1979a).

I n d i a n o w has effectively set up its o w n ' m i n i m u l t i n a t i o n a l s '


which are exporting pharmaceutical technology to other parts o f t h e
T h i r d W o r l d . I n d i a D r u g s and P h a r m a c e u t i c a l s L t d , a p u b l i c - s e c t o r
firm, is selling t u r n k e y p l a n t t e c h n i c a l a s s i s t a n c e and t r a i n i n g

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s e r v i c e s t o A r a b c o u n t r i e s , Sri L a n k a , and B a n g l a d e s h . S a r a b h a i
C h e m i c a l s , a p r i v a t e c o m p a n y , has h e l p e d e s t a b l i s h a t u r n k e y plant
i n C u b a u n d e r a U N I D O p r o g r a m m e ( L a l l , 1979b: 2 3 8 ) .
T h e o t h e r d r a m a t i c T h i r d W o r l d reform initiative i n r e c e n t t i m e s
b e g a n in Sri L a n k a in 1972 with t h e e s t a b l i s h m e n t of a S t a t e P h a r -
maceuticals C o r p o r a t i o n ( S P C ) . The SPC introduced centralised
b u y i n g o f p h a r m a c e u t i c a l i m p o r t s for t h e w h o l e c o u n t r y . I m p o r t a -
t i o n w a s s t o p p e d for d r u g s r e g a r d e d a s t h e r a p e u t i c a l l y i r r a t i o n a l ,
t o o e x p e n s i v e c o m p a r e d with a l t e r n a t i v e t h e r a p i e s , o r excessively
toxic. The result was a reduction o f t h e n u m b e r of imported drugs
from 2 , 1 0 0 to 6 0 0 . W o r l d w i d e c o m p e t i t i v e t e n d e r i n g for large
q u a n t i t i e s of d r u g s on t h e limited list r e d u c e d t h e n a t i o n ' s drug bill
b y o v e r 4 0 p e r c e n t (Lall and B i b i l e , 1978). D r u g s w e r e not
i m p o r t e d by t h e S P C w h i c h did not c a r r y q u a l i t y certification from
a b r o a d or w h i c h failed to satisfy their o w n quality c o n t r o l labor-
a t o r y . B u t s o m e s u b s t a n d a r d g e n e r i c p r o d u c t s did slip t h r o u g h t h e
n e t , and t h e s e i n s t a n c e s w e r e highly p u b l i c i s e d b y t h e t r a n s n a t i o n a l
b r a n d - n a m e i m p o r t e r s . A n o t h e r part o f t h e p r o g r a m m e o f reform
was the r e p l a c e m e n t of brand n a m e s with generic prescribing. The
t r a n s n a t i o n a l s successfully f o m e n t e d s t r o n g o p p o s i t i o n t o this
a m o n g t h e Sri L a n k a n m e d i c a l p r o f e s s i o n . Sales r e p r e s e n t a t i v e s
b e c a m e l o b b y i s t s a n d political o r g a n i s e r s .
T h e r e l a t i o n s h i p b e t w e e n the S P C and t h e foreign f i r m s w a s bad.
D u r i n g 1974 Pfizer refused an S P C r e q u e s t to m a k e t e t r a c y c l i n e
c a p s u l e s from r a w m a t e r i a l w h i c h t h e g o v e r n m e n t had a l r e a d y
p u r c h a s e d from H o e c h s t . T h e result w a s t h a t t e t r a c y c l i n e c a p s u l e s
h a d to be airlifted into t h e c o u n t r y at g r e a t e x p e n s e (Lall and B i b i l e ,
1978). I n r e t a l i a t i o n , t h e S P C , with t h e s u p p o r t o f t h e M i n i s t e r for
I n d u s t r i e s , m o v e d for t h e n a t i o n a l i s a t i o n o f Pfizer. H o w e v e r , t h e
U S g o v e r n m e n t a c t e d decisively t o p r e v e n t n a t i o n a l i s a t i o n . ' T h e
U S A m b a s s a d o r p e r s o n a l l y i n t e r v e n e d with t h e P r i m e M i n i s t e r i n
t h e m a t t e r ' (Lall a n d B i b i l e , 1978: 3 1 4 ) . I n t h e final a n a l y s i s , t h e
s m a l l c o u n t r y p r o v e d n o m a t c h for t h e m i g h t o f t h e m u l t i n a t i o n a l s .
A l r e a d y the reforms were breaking d o w n when the election of a
n o n - s o c i a l i s t g o v e r n m e n t i n 1977 saw t h e a l m o s t total d i s m a n t l i n g
ofthe SPC.
T h i s k i n d of flexing of m u s c l e s by m u l t i n a t i o n a l s in the T h i r d
W o r l d i s all t o o c o m m o n . M u l l e r ( 1 9 8 2 : 3 7 - 8 ) has p r o v i d e d o n e
a c c o u n t of a w a r n i n g from t h e W e s t G e r m a n e m b a s s y to a
T a n z a n i a n u n i v e r s i t y a b o u t t h e i r d e p e n d e n c e o n G e r m a n aid t o
b u i l d a n e w e n g i n e e r i n g school after t w o of its m e d i c a l faculty

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c i r c u l a t e d a p a p e r criticizing t h e G e r m a n c o m p a n y , A s t a W e r k e ,
for m a r k e t i n g in Africa a d r u g which had b e e n b a n n e d in t h e UK
a n d U S o n safety g r o u n d s .
N e v e r t h e l e s s , t h e d r a m a t i c e v e n t s o f Sri L a n k a have n o w b e e n
r e p l a c e d by a b r o a d - b a s e d T h i r d W o r l d a s s a u l t on drug prices
s u p p o r t e d b y t h e U n i t e d N a t i o n s . W H O has p r o d u c e d a list o f 2 2 5
' e s s e n t i a l d r u g s ' w h i c h form a g u i d e l i n e for t h e g r o w i n g n u m b e r of
c o u n t r i e s w h i c h w i s h t o r e d u c e drug costs b y p r u n i n g n o n - e s s e n t i a l
i m p o r t s . T h e m o s t d r a m a t i c r e c e n t initiative has b e e n b y the
B a n g l a d e s h i g o v e r n m e n t w h i c h , i n J u n e 1982, w i t h d r e w 4 0 per cent
of t h e d r u g s on t h e m a r k e t (a total of 1,792 p r o d u c t s ) w h i c h t h e
g o v e r n m e n t v i e w e d as d a n g e r o u s , u s e l e s s or o v e r p r i c e d . A
n u m b e r o f c o u n t r i e s h a v e i n s t i t u t e d a c e n t r a l drug p r o c u r e m e n t
system: Algeria, Brazil, Chad, Egypt, Ethiopia, Guinea, India,
I r a q , R w a n d a , S y r i a , T a n z a n i a and U g a n d a , a m o n g o t h e r s
( G e r e f f i , 1979: 7 3 ) . C e n t r a l i s e d b u y i n g p r o v i d e s t h e cost a d v a n -
t a g e s o f bulk p u r c h a s e s , b a r g a i n i n g p o w e r , and s u p e r i o r p r o d u c t
information-gathering.
O b v i o u s l y , t h o u g h , t h e u l t i m a t e s o l u t i o n t o i m p o s s i b l e d r u g costs
is for t h e rest o f t h e T h i r d W o r l d to follow t h e I n d i a n e x a m p l e and
d e v e l o p their own manufacturing capacity. The interesting conse-
q u e n c e of such a shift from t h e point of view of this b o o k w o u l d be a
higher incidence of Good Manufacturing Practice violations,
i n d i a n i s a t i o n ' has p r o d u c e d o v e r 2,500 small drug p r o d u c e r s o n the
s u b - c o n t i n e n t . O v e r a n e i g h t - y e a r p e r i o d e n d i n g i n 1968, nearly o n e
fifth of t h e d r u g s a n a l y s e d in I n d i a w e r e found to be s u b s t a n d a r d
( A g a r w a l , 1978b: 6 1 ) . S i m i l a r l y , w h e n P a k i s t a n p r e c i p i t o u s l y
a t t e m p t e d t o a b o l i s h b r a n d n a m e s i n 1973, a d e q u a t e quality c h e c k s
o n t h e g e n e r i c s u b s t i t u t e s w h i c h f l o o d e d t h e m a r k e t w e r e not
p r o v i d e d for. T h e r e s e n t m e n t o f d o c t o r s o v e r the quality p r o b l e m s ,
c o m b i n e d w i t h l o b b y i n g b y t h e t r a n s n a t i o n a l s ( i n c l u d i n g total with-
d r a w a l from P a k i s t a n b y C i b a - G e i g y ) , c a u s e d t h e e x p e r i m e n t t o
fail.
Q u a l i t y p r o b l e m s on a large scale a r e not i n e v i t a b l e if a d e q u a t e
G M P i n s p e c t i o n a n d a well-staffed n a t i o n a l t e s t i n g l a b o r a t o r y are
p r o v i d e d for. C e r t a i n l y t h e e v i d e n c e is, a s w e saw i n C h a p t e r 4 , that
i t i s t h e t r a n s n a t i o n a l s w h o , o n a v e r a g e , have the highest G M P
s t a n d a r d s . N e v e r t h e l e s s , it is p o s s i b l e to find individual g e n e r i c
m a n u f a c t u r e r s w h o h a v e s t a n d a r d s t o m a t c h the t r a n s n a t i o n a l s .
I n d e e d t h e t r a n s n a t i o n a l s t h e m s e l v e s r e c o g n i s e this w h e n t h e y buy
from, o r license o u t p r o d u c t i o n t o , g e n e r i c m a n u f a c t u r e r s .

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A m e r i c a n t r a n s n a t i o n a l s have e v e n b e e n k n o w n o n o c c a s i o n s t o
b u y d r u g s from E a s t e r n E u r o p e a n m a n u f a c t u r e r s . N e v e r t h e l e s s ,
T h i r d W o r l d g o v e r n m e n t s w h o m o v e t o foster i n d i g e n o u s p r o d u c -
t i o n c a n n o t afford t o lose sight o f t h e reality t h a t , u n l e s s r e g u l a t e d ,
t h e c u t t i n g of c o r n e r s on quality will be e n d e m i c in small-scale drug
production.
I n t h e final a n a l y s i s , t h e T h i r d W o r l d c a n n o t d o w i t h o u t the
t r a n s n a t i o n a l s . M o s t o f t h e t o p r e s e a r c h and d e v e l o p m e n t e x p e r t i s e
in t h e w o r l d is a c c u m u l a t e d w i t h i n t h e t r a n s n a t i o n a l s . It will
c o n t i n u e t o b e t h e t o p t w e n t y c o m p a n i e s w h o will p r o v i d e most o f
t h e i m p o r t a n t t h e r a p e u t i c b r e a k t h r o u g h s . T h e T h i r d W o r l d has a n
i n t e r e s t i n e n t i c i n g t h e t r a n s n a t i o n a l s t o d e v o t e m o r e than the
m i n u s c u l e p r o p o r t i o n o f t h e i r r e s e a r c h t a l e n t w h i c h they c u r r e n t l y
a l l o c a t e t o t r o p i c a l d i s e a s e s . W h i l e t h e T h i r d W o r l d c a n n o t afford
to cut itself off c o m p l e t e l y from the flow of i n n o v a t i o n s from t h e
t r a n s n a t i o n a l s , n e i t h e r can it afford to buy d r u g s on the t r a n s -
n a t i o n a l s ' t e r m s . W h y should d e v e l o p i n g c o u n t r i e s pay a gross
p r e m i u m for r e s e a r c h and d e v e l o p m e n t e x p e n d i t u r e w h i c h i s
p r i m a r i l y d i r e c t e d a t 'rich m a n ' s d i s e a s e s ' ?
T h e r e a r e t w o s o u n d r e a s o n s why i t i s d e f e n s i b l e for d e v e l o p i n g
c o u n t r i e s t o cut t h e i r d e p e n d e n c y o n the t r a n s n a t i o n a l s , e v e n w h e n
t h a t r e s u l t s in t h e i r c o n s u m e r s g e t t i n g d r u g s w h i c h have a higher
i n c i d e n c e o f q u a l i t y failure. T h e first i s t h a t i n d i g e n o u s p r o d u c t i o n
s t a n d a r d s will r e m a i n low so long as local m a n u f a c t u r e r s are
a l l o w e d to o p e r a t e only on t h e fringe o f t h e i n d u s t r y . At one t i m e all
the t r a n s n a t i o n a l s were b a c k r o o m o p e r a t o r s . They developed
s t a n d a r d s o f e x c e l l e n c e w h e n t h e y w e r e given o p p o r t u n i t i e s t o
e x p a n d . S e c o n d l y , it is not really p u t t i n g m o n e y a h e a d of p e o p l e to
justify t o l e r a t i n g c h e a p d r u g s which d o not a l w a y s r e a c h the h i g h e s t
s t a n d a r d s o f q u a l i t y . I n c o u n t r i e s w h e r e t h e r e i s not e n o u g h
m e d i c i n e t o g o a r o u n d , d r u g s b e l o w half price can m e a n twice a s
m a n y p e o p l e g e t t i n g m e d i c i n e . O b v i o u s l y t h e r e is a cut-off point
b e y o n d w h i c h such a t e r r i b l e trade-off could not be c o u n t e n a n c e d .
E v e n m o r e i m p o r t a n t i s t h e t r a d e - o f f b e t w e e n public e x p e n d i t u r e
o n d r u g s and e x p e n d i t u r e o n o t h e r h e a l t h p r i o r i t i e s . Third W o r l d
c o u n t r i e s s p e n d a n u n a c c e p t a b l y high p r o p o r t i o n (often o v e r 4 0 per
c e n t ( M e d a w a r , 1982: 2 2 ) ) o f t h e i r small h e a l t h b u d g e t s o n d r u g s ,
w h e n d r u g s a r e far from t h e highest p r i o r i t y . T h e g r e a t e s t a t t e n t i o n
n e e d s to be d e v o t e d to the underlying causes of Third World health
p r o b l e m s i n m a l n u t r i t i o n and p o o r s a n i t a t i o n . P r e v e n t i v e m e d i c i n e
is a h i g h e r p r i o r i t y t h a n pills; clean w a t e r is m o r e i m p o r t a n t t h a n

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Drug companies and the Third World

a n t i b i o t i c s , food m o r e i m p o r t a n t t h a n v i t a m i n pills. W h e n s o m e o f
t h e m o n e y n o w b e i n g s p e n t o n d r u g s can b e r e d i r e c t e d t o c l e a n i n g
up t h e s e u n d e r l y i n g p r o b l e m s , m o r e lives will be saved.
M o r e o v e r , as M u l l e r (1982: 112-13) has persuasively a r g u e d , it can
be s o u n d h e a l t h policy even to k e e p d r u g s off the m a r k e t which have
b e e n p r o v e n effective in clinical studies w h e n s t a n d a r d s of medical
p r a c t i c e a r e m o r e likely t o d e l i v e r t h e side-effects t h a n t h e c u r e :

It is so e a s y to select a g r o u p of p a t i e n t s all suffering from t h e


s a m e c o m p l a i n t , t r e a t t h e m with a drug u n d e r c o n t r o l l e d
c o n d i t i o n s , and s h o w t h a t it is effective. It is quite a n o t h e r thing
to l a u n c h a d r u g into a c o m m u n i t y w h e r e t h e r e is no c o n t r o l o v e r
t h e q u a l i t y o f t h e d i a g n o s i s , nor o f t r e a t m e n t , nor o f t h e p a t i e n t ' s
ability to buy t h e d r u g or t a k e it as i n s t r u c t e d .
E v i d e n c e from t h e d e v e l o p e d c o u n t r i e s is not e n c o u r a g i n g in
t h i s r e g a r d . W h a t s t u d i e s h a v e b e e n d o n e suggest that d o c t o r s '
d i a g n o s e s a r e often right only 5 0 p e r c e n t o f t h e t i m e ; their
p r e s c r i p t i o n s err s i m i l a r l y ; further, less t h a n half their p a t i e n t s
t a k e t h e i r m e d i c i n e a s i n s t r u c t e d . T h i s implies t h a t p e r h a p s only
o n e in e i g h t t i m e s is t h e right p e r s o n going to get t h e right
m e d i c i n e at t h e right t i m e . T h e r e is e v e r y r e a s o n to e x p e c t t h e
situation in the developing world to be w o r s e .

Towards effective regulation in the Third World

P h a r m a c e u t i c a l c o r p o r a t i o n s a r e forever k e e n t o p o i n t out t h a t they


a l w a y s a b i d e by t h e laws o f t h e c o u n t r y in w h i c h they o p e r a t e . I am
n o t a w a r e o f a n y p h a r m a c e u t i c a l t r a n s n a t i o n a l for which that w o u l d
be t r u e . E v e n if it w e r e , for m a n y T h i r d W o r l d c o u n t r i e s this
a m o u n t s t o s a y i n g t h a t t h e y d o n ' t b r e a k laws which d o n ' t exist. Such
l a w s as do exist a r e not e n f o r c e d . I a d o p t e d t h e p r a c t i c e of asking
e x e c u t i v e s in G u a t e m a l a w h a t t h e r e g u l a t i o n s (basically a health
c o d e d a t i n g from 1946) had to say a b o u t a p a r t i c u l a r q u e s t i o n w h i c h
w a s u n d e r d i s c u s s i o n . N o n e of t h e m w a s a b l e to lay h a n d s on a copy
o f t h e r e g u l a t i o n s . S o i r r e l e v a n t w e r e g o v e r n m e n t health regula-
tions to the running of the c o m p a n y that some even doubted
w h e t h e r t h e c o m p a n y had a c o p y , or if it d i d , t h e y did not k n o w h o w
to g e t hold of it. W i t h r e s p e c t to drug r e g i s t r a t i o n , one e x e c u t i v e
e x p l a i n e d : ' S o long as we h a v e t h e right a p p l i c a t i o n form and fill it
o u t c o r r e c t l y , w e n e v e r get o u r a p p l i c a t i o n r e j e c t e d . ' A n o t h e r
d e s c r i b e d the situation as 'practical a n a r c h y ' .

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P r a c t i c a l a n a r c h y d e s c r i b e s the r e g u l a t o r y s i t u a t i o n i n most Third


W o r l d c o u n t r i e s . E v e n i n the m o s t s o p h i s t i c a t e d p h a r m a c e u t i c a l
m a r k e t s i n t h e T h i r d W o r l d t h e s i t u a t i o n i s frightening. T a k e B r a z i l ,
t h e l a r g e s t d r u g m a r k e t i n the T h i r d W o r l d and t h e second largest
m a n u f a c t u r e r o f d r u g s b e h i n d I n d i a . Brazil c o n s u m e s m o r e d r u g s
than the United Kingdom (James, in UN Centre on Transnational
C o r p o r a t i o n s , 1979: 114). It has by far t h e m o s t s o p h i s t i c a t e d
n a t i o n a l t e s t i n g l a b o r a t o r y i n L a t i n A m e r i c a , staffed b y fourteen
s c i e n t i s t s . B u t for t h e w h o l e c o u n t r y t h e r e are only two p h a r m a -
c e u t i c a l i n s p e c t o r s . T h e s e t w o i n s p e c t o r s have r e s p o n s i b i l i t i e s that
r a n g e o v e r r e c o r d s for p r i c e c o n t r o l s , G M P s , G L P s , t h e lot. M o s t
L a t i n A m e r i c a n c o u n t r i e s h a v e n o i n s p e c t o r s . T h e s i t u a t i o n has not
i m p r o v e d g r e a t l y since t h e P a n A m e r i c a n H e a l t h O r g a n i s a t i o n
c o n d u c t e d a s u r v e y of L a t i n A m e r i c a i n c l u d i n g the C a r i b b e a n in
1968: ' T h e c o u n t r i e s o f L a t i n A m e r i c a are e x p e n d i n g only
$ 3 , 2 2 1 , 0 0 0 p e r y e a r for i n s p e c t i n g their 2,200 drug firms and testing
t h e $ 1 , 4 9 2 , 0 0 0 , 0 0 0 o f d r u g s c o n s u m e d per year b y their c i t i z e n s '
( Y a k o w i t z , 1971).

N e v e r t h e l e s s , t h e r e a r e r u m b l i n g s o f r e f o r m . R e a l i s i n g t h a t the
c o s t s o f effective n a t i o n a l r e g u l a t o r y a g e n c i e s are b e y o n d their
r e a c h . T h i r d W o r l d c o u n t r i e s are b e g i n n i n g t o d e v e l o p r e g i o n a l
r e g u l a t o r y s y s t e m s . T h e C a r i b b e a n c o m m u n i t y , with U n i t e d
N a t i o n s a s s i s t a n c e , is l e a d i n g t h i s m o v e m e n t by setting up a r e g i o n a l
drug testing laboratory in Jamaica. The World Health Organisation
is d e v e l o p i n g s i m p l e t e s t s for d r u g quality w h i c h can confirm the
i d e n t i t y a n d basic efficacy of d r u g s in s i t u a t i o n s w h e r e l a b o r a t o r i e s
d o n o t exist. T h e i d e a i s t h a t p r i m a r y h e a l t h care w o r k e r s a l o n g the
d i s t r i b u t i o n c h a i n can d o p e r i o d i c basic t e s t i n g . W H O i s also assist-
ing b e l e a g u e r e d T h i r d W o r l d r e g u l a t o r y a g e n c i e s b y t h e p u b l i c a t i o n
of a q u a r t e r l y b u l l e t i n p r o v i d i n g i n f o r m a t i o n on t h e r e g u l a t o r y
s t a t u s i n different p a r t s o f t h e w o r l d o f n e w and old d r u g s .

T h e e m e r g i n g i n t e r n a t i o n a l and r e g i o n a l c o - o p e r a t i o n i n the
T h i r d W o r l d is e n c o u r a g i n g , as is t h e c o n s t r u c t i v e role b e i n g played
by an array of UN agencies ( W H O , U N C T A D , U N I D O , U N D P
and U N I C E F (see A g a r w a l , 1978b)). Third World countries which
c a n n o t afford effective r e g u l a t i o n n a t i o n a l l y h a v e most to gain from
i n t e r n a t i o n a l r e g u l a t o r y initiatives such a s t h e Certification S c h e m e
on the Quality of Pharmaceutical P r o d u c t s Moving in International
C o m m e r c e (see C h a p t e r 4 ) and W H O ' s i n t e r n a t i o n a l d r u g a d v e r s e -
reaction-reporting scheme.-' In addition to United Nations
i n i t i a t i v e s t o t r a n s f e r quality c o n t r o l t e c h n o l o g y t o t h e T h i r d W o r l d ,

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t h e S w e d i s h g o v e r n m e n t is p l a y i n g an i m p o r t a n t r o l e . A S w e d i s h
s t a t e - o w n e d p h a r m a c e u t i c a l company is helping developing coun-
t r i e s to e s t a b l i s h p l a n t s to m a n u f a c t u r e their o w n essential d r u g s of
high quality.
G r o w i n g n u m b e r s o f d e v e l o p i n g c o u n t r i e s are d e m a n d i n g certifi-
c a t e s of free sale b e f o r e t h e y will a l l o w d r u g s to be i m p o r t e d - that
i s , a d o c u m e n t i n d i c a t i n g t h a t t h e drug is a p p r o v e d for c o n s u m p t i o n
4
in t h e e x p o r t i n g c o u n t r y . W h i l e this p r o v i d e s s o m e g u a r a n t e e s for a
g o v e r n m e n t w h i c h c a n n o t afford its o w n e x h a u s t i v e scientific evalu-
a t i o n of a p r o d u c t , we h a v e seen in this c h a p t e r t h a t t r a n s n a t i o n a l
c o r p o r a t i o n s h a v e g r e a t flexibility in p l a y i n g t h e w o r l d system to
c i r c u m v e n t such p r o t e c t i o n s . A r e g i s t r a t i o n - m a r k e t i n g strategy can
b e d e v e l o p e d t h a t c o n c e n t r a t e s o n early s t r a t e g i c n e w drug
a p p r o v a l s in foreign c o u n t r i e s from w h i c h initial e x p o r t s will be
sourced.
E l s e w h e r e ( B r a i t h w a i t e , 1979a, 1980) I have d e s c r i b e d law
evasion as a more p r e d o m i n a n t m o d u s operandi of transnational
c o r p o r a t i o n s t h a n b l a t a n t law v i o l a t i o n . T h e c o r p o r a t i o n e x p l o i t s
d i f f e r e n c e s in n a t i o n a l laws to find t h e line of least r e s i s t a n c e to
a c h i e v i n g its e n d s . T r a n s f e r p r i c i n g , w h i c h will be discussed in t h e
n e x t c h a p t e r , is a n o t h e r classic i l l u s t r a t i o n of a law e v a s i o n strategy
( t a x l a w s a r e n o t v i o l a t e d , but e v a d e d ) . T h e c o n d u c t o f clinical
t e s t i n g o n T h i r d W o r l d ' g u i n e a p i g s ' w h i c h w o u l d not b e p e r m i t t e d
as safe in d e v e l o p e d c o u n t r i e s and d u m p i n g are i l l u s t r a t i o n s of
i n t e r n a t i o n a l law e v a s i o n par e x c e l l e n c e . O n e e v a d e s laws on h o w a
p r o d u c t s h o u l d be i n t r o d u c e d to t h e m a r k e t ; the o t h e r e v a d e s a law
t h a t t h e p r o d u c t s h o u l d b e w i t h d r a w n from the m a r k e t .
T h e s o l u t i o n to t h e p r o b l e m of global c o r p o r a t i o n s p l a y i n g off the
r e g u l a t o r y s t a n d a r d s of o n e c o u n t r y a g a i n s t t h o s e of a n o t h e r is a
d e g r e e of h a r m o n i s a t i o n of those standards. The United Nations is
a l r e a d y f o s t e r i n g i n t e r n a t i o n a l m i n i m u m s t a n d a r d s with r e s p e c t t o
G M P s , t e s t i n g o f d r u g q u a l i t y , p r o t e c t i o n o f t h e subjects o f h u m a n
e x p e r i m e n t a t i o n , and industrial h e a l t h and safety. W h i l e cynicism is
t h e m o s t c o m m o n r e s p o n s e t o such U N a g r e e m e n t s , t h e y d o have
v a l u e w h e n t h e a c c o r d is struck w i t h i n t h e c o n t e x t of a w i d e r will to
r e f o r m . T h e r e is a will in m o s t c o u n t r i e s t o d a y to t i g h t e n up the
u n e v e n n e s s in the regulatory stringency applied to the p h a r m a -
c e u t i c a l i n d u s t r y . I n s o m e cases e v e n t h e t r a n s n a t i o n a l c o m p a n i e s
a r e p r e p a r e d t o s u p p o r t t o u g h e r r e g u l a t o r y c o n t r o l s w h e r e t h e y can
see t h a t this will i m p o s e costs on local c o m p e t i t o r s w h i c h t h e t r a n s -
nationals already meet.

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G o v e r n m e n t s o f t h e w o r l d d o not have t o h a r m o n i s e their laws


perfectly to p r e v e n t t r a n s n a t i o n a l s from p l a y i n g o n e set of laws off
a g a i n s t a n o t h e r . I n d e e d t h e p r a c t i c a l e c o n o m i c c o n s t r a i n t s o f law
e v a s i o n are often such t h a t o n e c o u n t r y t h a t sets h i g h e r r e g u l a t o r y
s t a n d a r d s can effectively i m p o s e its h i g h e r s t a n d a r d s on all o t h e r
c o u n t r i e s i n t h e r e g i o n . S t r a t e g i c g o v e r n m e n t a c t i o n can c h a n g e
lowest-common-denominator regulation into highest-common-
factor r e g u l a t i o n . F o r e x a m p l e , a C e n t r a l A m e r i c a n r e g i o n a l
d i r e c t o r for a t r a n s n a t i o n a l said t h a t w h e n C o s t a Rica b a n n e d a
s u s p e c t e d c a r c i n o g e n i c a d d i t i v e i n o n e o f its p r o d u c t s , t h e c o m p a n y
t o o k o u t t h e a d d i t i v e from all p r o d u c t s being d i s t r i b u t e d in all
C e n t r a l A m e r i c a n c o u n t r i e s since t h e cost o f special p r o d u c t i o n
r u n s for t h e C o s t a R i c a n m a r k e t w a s p r o h i b i t i v e . S i m i l a r l y , C o s t a
R i c a h a s ruled t h a t all d i s c l o s u r e s and w a r n i n g s m a d e o n t h e drug
p a c k a g e s a n d i n s e r t s in t h e c o u n t r y of origin should be identically
m a d e i n C o s t a R i c a . T h e s a m e e x e c u t i v e e x p l a i n e d : ' F r o m o u r point
of v i e w t h a t m e a n s t h e y all h a v e to say w h a t we say in [our h o m e
c o u n t r y ] b e c a u s e t h e cost of h a v i n g different p a c k a g i n g for t h e
different C e n t r a l A m e r i c a n countries is too great.'
A g a i n , t h o u g h , because of the capacity of the transnational to
shift its a c t i v i t i e s a r o u n d t h e w o r l d , t h e r e are limits to h o w high
C o s t a R i c a can p u s h u p all C e n t r a l A m e r i c a n s t a n d a r d s : ' L e t m e put
it t h i s w a y . It w o u l d not be in our i n t e r e s t s to l o c a t e m o r e of o u r
m a n u f a c t u r i n g in the U n i t e d States. For [one o f t h e c o m p a n y ' s main
p r o d u c t s ] our literature in E u r o p e , Africa, Australia, South
A m e r i c a a n d so on c l a i m s s o m e 10 i n d i c a t i o n s for t h e p r o d u c t . In
t h e U S , t h e F D A a p p r o v e s only t h r e e . W e d o n ' t w a n t t o b e forced
b y C o s t a R i c a and o t h e r s t o suggest only t h r e e i n d i c a t i o n s world-
w i d e w h e n w e b e l i e v e i n 10.' E v e n t h o u g h C o s t a R i c a d o e s not push
u p s t a n d a r d s t o t h e level o f t h e U n i t e d S t a t e s , t h e e n c o u r a g i n g t h i n g
is t h a t t h e y can p u s h t h e m up to s o m e d e g r e e a c r o s s the w h o l e of
C e n t r a l A m e r i c a . W h e r e i n t e r n a t i o n a l c o n v e n t i o n s fail, little C o s t a
R i c a can s u c c e e d i n a c h i e v i n g s o m e i n t e r n a t i o n a l h a r m o n i s i n g o f
minimum standards.
B e c a u s e the F D A is the world's p r e m i e r regulatory agency, the
U n i t e d S t a t e s can a c h i e v e m o r e t h a n any c o u n t r y i n raising regu-
l a t o r y s t a n d a r d s w o r l d w i d e . A s soon a s t h e F D A a p p r o v e s a d r u g ,
m a n y c o u n t r i e s follow t h e i r lead. T h e F D A i s n o l o n g e r only t h e
g u a r d i a n ofthe health of A m e r i c a n s ; it is the guardian o f t h e health
o f t h e w o r l d . I n C h a p t e r 4 w e saw t h a t w h e n t h e F D A i n t r o d u c e d
G L P r e g u l a t i o n s , B r i t i s h c o n t r a c t l a b o r a t o r i e s p l e a d e d with t h e m

277
Drug companies and the Third World

for an i n s p e c t i o n so t h a t t h e y m i g h t a n n o u n c e to their c u s t o m e r s
t h a t t h e y h a d b e e n certified a s m e e t i n g F D A s t a n d a r d s . E v e n t h e
S w i s s t r a n s n a t i o n a l set m a n y o f t h e i r w o r l d w i d e p r o c e d u r e s i n
a r e a s like t e s t i n g for sterility and p o t e n c y t o m e e t F D A r e q u i r e -
m e n t s . F o r m a n y m a t t e r s i t m a k e s e c o n o m i c sense t o m e e t t h e
h i g h e s t s t a n d a r d s e v e r y w h e r e r a t h e r t h a n t o confuse e m p l o y e e s b y
c h o p p i n g and c h a n g i n g . H o f f m a n - L a R o c h e p l a n t s i n I n d o n e s i a , t h e
P h i l i p p i n e s , a n d S w i t z e r l a n d itself all o p e r a t e to m e e t m a n y
s t a n d a r d s w h i c h w e r e w r i t t e n i n W a s h i n g t o n . T h e U n i t e d States
e n j o y s t h e e c o n o m i c benefits from d o m i n a t i n g the w o r l d ' s p h a r m a -
c e u t i c a l m a r k e t s . I t c a n n o t enjoy t h o s e benefits w h i l e d e n y i n g its
r e s p o n s i b i l i t y for uplifting w o r l d w i d e standards of c o n s u m e r
protection.

278
8 Fiddling

Briloff ( 1 9 7 2 : 1-2) tells o f t h e o w n e r of a g r o w i n g c o m p a n y w h o


w a n t e d to i n c r e a s e its r e s p e c t a b i l i t y by h a v i n g t h e b o o k s a u d i t e d by
o n e o f t h e l a r g e s t a c c o u n t i n g f i r m s . T h e p a r t n e r s o f t h e first t h r e e
firms i n t e r v i e w e d w e r e a s k e d , ' W h a t d o e s 2 plus 2 e q u a l ? ' . E a c h
r e p l i e d ' F o u r , o f c o u r s e . ' T h e n e x t firm i n t e r v i e w e d w o n t h e client
w h e n , after s e r i o u s reflection, t h e p a r t n e r a n s w e r e d , ' W h a t n u m b e r
did y o u h a v e i n m i n d ? '
A b o o k on c o r p o r a t e c r i m e in i n t e r n a t i o n a l b u s i n e s s w o u l d not be
c o m p l e t e w i t h o u t m e n t i o n o f t h e r a n g e o f financial a b u s e s w h i c h
t a k e p l a c e . W h i l e i t i s t h e k i n d s o f w h e e l i n g s and d e a l i n g s fleetingly
c o v e r e d in this c h a p t e r which constitute the layperson's e p i t o m e of
c o r p o r a t e c r i m e , i n m a n y w a y s t h e y a r e t h e least s e r i o u s forms o f
l a w b r e a k i n g i n t h e p h a r m a c e u t i c a l i n d u s t r y . I n most cases they
p o s e no d i r e c t t h r e a t to h u m a n life and l i m b . In m a n y cases t h e y
involve the victimisation of one corporation by another, rather than
t h e v i c t i m i s a t i o n o f c o n s u m e r s o r w o r k e r s . I n d e e d , i n m a n y cases
t h e y i n v o l v e a mix of c o r p o r a t e c r i m e by o n e c o r p o r a t i o n against
a n o t h e r a n d w h i t e - c o l l a r c r i m e b y a n i n d i v i d u a l e m p l o y e e against
his or h e r e m p l o y e r . T h e l a t t e r on its o w n w o u l d not c o n s t i t u t e
c o r p o r a t e c r i m e a s i t has b e e n defined h e r e .

The making ofthe McKesson empire

I n t h e 1920s, D r F . D o n a l d C o s t e r t o o k c o n t r o l o f M c K e s s o n and
R o b b i n s , a n old and r e s p e c t e d p h a r m a c e u t i c a l c o m p a n y , but h a r d l y
a h i g h flyer on t h e stock e x c h a n g e . C o s t e r , e v e r y o n e b e l i e v e d , w a s a
f i n a n c i a l g e n i u s . ' By 1938 he had built up t h e c o m p a n y to o n e o f t h e

279
Fiddling
t h r e e l a r g e s t p h a r m a c e u t i c a l c o m p a n i e s i n the U n i t e d S t a t e s . I n
p a r t , D r C o s t e r built u p t h e e m p i r e b y selling c o m p a n y p r o d u c t s
w h i c h h a d high a l c o h o l c o n t e n t ( m a i n l y hair t o n i c ) t o u n d e r w o r l d
b o o t l e g g e r s d u r i n g p r o h i b i t i o n . H o w e v e r , C o s t e r ' s real g e n i u s w a s
i n c o n v i n c i n g b a n k s t h a t M c K e s s o n and R o b b i n s had assets w h i c h i t
did not i n fact h a v e . W h i l e o t h e r c o m p a n i e s c r u m b l e d d u r i n g the
d e p r e s s i o n , b a n k s c o n t i n u e d t o p o u r c a p i t a l into M c K e s s o n and
Robbins.
Dr C o s t e r a c h i e v e d such a r e p u t a t i o n for m a n a g e r i a l brilliance
a n d social r e s p e c t a b i l i t y t h a t in 1937 he w a s a p p r o a c h e d by influen-
tial s e c t i o n s of t h e R e p u b l i c a n Party to run a g a i n s t R o o s e v e l t for
p r e s i d e n t . A d v i s e d l y , h e d e c l i n e d . I n 1938 C o s t e r ' s m a s q u e r a d e
w a s d i s c o v e r e d . T h e p r e s i d e n t o f M c K e s s o n and R o b b i n s w a s i n
fact P h i l l i p M u s i c a , o n e of t h e g r e a t e s t con men in A m e r i c a n
h i s t o r y . As P h i l l i p M u s i c a he had b a n k r u p t e d a n u m b e r of c o m -
p a n i e s after f r a u d u l e n t l y p r o c u r i n g l o a n s o n t h e s t r e n g t h o f non-
existent assets. Before the c o m p a n i e s were b a n k r u p t e d , however,
t h e l o a n m o n e y s had b e e n d i v e r t e d t o M u s i c a family c o m p a n i e s .
M u s i c a had s e r v e d t w o prison s e n t e n c e s . O n e s e n t e n c e for b r i b i n g
c u s t o m s officials had b e e n p r e m a t u r e l y t e r m i n a t e d w h e n M u s i c a
s w u n g a p a r d o n from no less t h a n P r e s i d e n t Taft. ' D r C o s t e r ' s '
m u c h v a u n t e d M D a n d Phd d e g r e e s from the U n i v e r s i t y o f
H e i d e l b e r g were fake.
D u r i n g his p e r i o d a t t h e h e l m o f M c K e s s o n and R o b b i n s , ' D r
C o s t e r ' s i p h o n e d off a b o u t $20 million in c o m p a n y funds by having
t h e c o m p a n y pay to build up an i n c r e a s i n g i n v e n t o r y of bulk d r u g s in
its C a n a d i a n w a r e h o u s e . T h e i n v e n t o r y w a s , i n fact, virtually non-
e x i s t e n t . M o n e y t o pay for t h e i m a g i n a r y b u l k d r u g s w a s being
d i r e c t e d t h r o u g h a d u m m y c o m p a n y to the president of M c K e s s o n
a n d his family. It is b e l i e v e d t h a t s o m e of this m o n e y w a s used to pay
off b l a c k m a i l e r s ( a m o n g t h e m , D u t c h S c h u l t z ) w h o w e r e t h r e a t e n -
ing t o r e v e a l ' D r C o s t e r ' s ' past t o t h e b o a r d .
B u t M c K e s s o n a n d R o b b i n s could h a r d l y c o m p l a i n a b o u t the
d e p r e d a t i o n s o f t h e i r p r e s i d e n t . T h e c o m p a n y had b e e n a g r e a t e r
beneficiary o f ' C o s t e r ' s ' a c u m e n at materialising non-existent assets
t h a n ' C o s t e r ' himself. S i n g l e h a n d e d l y , ' C o s t e r ' built u p t h e e m p i r e .
I f t h e r e w e r e any real v i c t i m s , t h e y w e r e t h e b a n k s and t h e c o m -
p e t i t o r s ' C o s t e r ' had c r u s h e d , and t h e r e p u t a t i o n o f t h e c o m p a n y ' s
a u d i t o r s , Price W a t e r h o u s e .
'Coster' committed suicide after t h e persistent company
t r e a s u r e r d i s c o v e r e d t h a t t h e C a n a d i a n s t o c k p i l e o f bulk d r u g s w a s

280
Fiddling

n o t a real c o m p a n y asset. ' C o s t e r ' had left M c K e s s o n and R o b b i n s


w i t h e n o u g h s t r e n g t h t o r e c o v e r from t h e o v e r n i g h t e v a p o r a t i o n o f
a large slice of its p r e s u m e d a s s e t s . W i t h i n six m o n t h s the c o m p a n y
h a d t u r n e d t h e c o r n e r o n t h e loss o f confidence and a d v e r s e
p u b l i c i t y it suffered ( B a l d w i n and B e a c h , 1940). Sixty-six cities
w e r e b o m b a r d e d with a n e w s p a p e r campaign of 'Facts A b o u t
M c K e s s o n & R o b b i n s ' to r e s t o r e c o n f i d e n c e in t h e i m a g e of
t h e c o m p a n y . S e v e r a l o f t h e o t h e r largest p h a r m a c e u t i c a l c o m -
p a n i e s j o i n e d with M c K e s s o n ' s p u b l i c r e l a t i o n s firm t o apply
p r e s s u r e to dissuade two motion picture producers who wished
to m a k e a film a b o u t C o s t e r - M u s i c a . M c K e s s o n and R o b b i n s is
t o d a y n o w h e r e n e a r its z e n i t h a s o n e o f t h e t h r e e t o p p h a r m a -
c e u t i c a l c o m p a n i e s i n t h e U S . B u t this i s not b e c a u s e o f t h e 1938
s e t b a c k . F o r e m o s t , M c K e s s o n , as it is t o d a y , h a s not evolved as a
r e s e a r c h - b a s e d p h a r m a c e u t i c a l c o m p a n y and t h e r e f o r e missed t h e
b e n e f i t s o f m o n o p o l y profits from p r o d u c t s u n d e r p a t e n t . N e v e r -
t h e l e s s , with a n n u a l c o r p o r a t e sales of o v e r $3 billion, it r e m a i n s
t o d a y p e r h a p s t h e l a r g e s t g e n e r i c m a n u f a c t u r e r and d i s t r i b u t o r i n
the world.

C o m p a n y rips off c o m p a n y

C o r p o r a t e c r i m e s i n w h i c h o n e c o m p a n y f i n a n c i a l l y victimises
a n o t h e r are c o m m o n p l a c e in the international pharmaceutical
i n d u s t r y . I n 1979 J o h n s o n and J o h n s o n successfully sued t h r e e firms
( W a s h i n g t o n W h o l e s a l e D r u g E x c h a n g e , J a y e s H o l d i n g Inter-
n a t i o n a l , a n d J a y e s E x p o r t ) c o m p l a i n i n g t h a t t h e y had illegally
c o n s p i r e d to o b t a i n d r u g s at d i s c o u n t r a t e s r e s e r v e d for d e v e l o p i n g
c o u n t r i e s . J a y e s H o l d i n g I n t e r n a t i o n a l p u r c h a s e d 5,764 cases o f
O r t h o - N o v u m b i r t h c o n t r o l pills and Sultrin t a b l e t s a t t h e d i s c o u n t
rate by p r e t e n d i n g to represent the N i g e r i a n g o v e r n m e n t . J o h n s o n
and J o h n s o n c o m p l a i n e d that the fraudulently obtained discount
cost t h e m S2.3 m i l l i o n .

D r u g c o m p a n i e s are also victimised b y n o n - d r u g c o m p a n i e s ,


f r e q u e n t l y w i t h a s s i s t a n c e from i n s i d e r s . K i c k b a c k s to insiders from
s u p p l i e r s often m e a n t h a t d r u g c o m p a n i e s d o not m a k e t h e best
p u r c h a s e s t h a t t h e m a r k e t can offer. T h e f i n a n c e d i r e c t o r o f o n e
p h a r m a c e u t i c a l c o m p a n y told of a car d e a l e r w h o , in b i d d i n g for t h e
l e a s e of e l e v e n n e w c a r s to t h e firm, offered to p r o v i d e an e x t r a car
for t h e f i n a n c e d i r e c t o r . He i n t e n d e d to r e c o u p t h e cost of t h e
g i v e a w a y by a d d i n g an e x t r a e l e v e n t h on to the n o r m a l price of e a c h

281
Fiddling

of the eleven cars. A p p r o p r i a t e l y , the company concerned was


called Fair Deal M o t o r s .
C e r t a i n F D A officials b e l i e v e t h a t t h e r e i s o p e r a t i n g within t h e
U n i t e d S t a t e s a g a n g of c o r p o r a t e c r i m i n a l s w h o specialise in t a k i n g
o v e r pharmaceutical companies. They have managerial experience
in p h a r m a c e u t i c a l s a n d o p e r a t e by p u r c h a s i n g s h a r e s in a c o m p a n y
w h i c h is on a d o w n w a r d p a t h in t h e s t o c k m a r k e t . U l t i m a t e l y , by a
2
v a r i e t y o f m e a n s t h e y gain effective c o n t r o l o f t h e c o m p a n y . I t i s
b e l i e v e d t h a t i n o n e c a s e t h e g r o u p w a s actually invited b y d e s p e r a t e
m a n a g e m e n t t o t a k e c o n t r o l o f t h e d e c l i n i n g p e r f o r m a n c e o f their
c o m p a n y . Having taken control, the corporate criminals then
i n t e n t i o n a l l y d e p r e s s t h e s h a r e p r i c e s further. This can be d o n e , for
e x a m p l e , b y p a y i n g out v a r i o u s a c c r u e d d e b t s m o r e quickly t h a n
t h e y a r e d u e . W h e n t h e s h a r e s d r o p e n o u g h the g r o u p b u y s u p e v e n
m o r e a t rock b o t t o m v a l u e .
T h e n e x t s t a g e o f t h e s t r a t e g y is to t a k e o v e r a c o m p a n y w h i c h is
s i t t i n g on a lot of c a s h , but w h o s e s h a r e h o l d e r s are willing to sell
c h e a p l y . In p h a r m a c e u t i c a l s it is often e a s i e r t h a n in o t h e r i n d u s t r i e s
to find a c o m p a n y w i t h fat e a r n i n g s and s h a r e h o l d e r s w h o are
n e v e r t h e l e s s willing t o sell. P e r h a p s t h e t a r g e t c o m p a n y has o n e
m o d e r a t e l y successful p r e s c r i p t i o n d r u g p r o d u c i n g solid e a r n i n g s
o n w h i c h t h e c o m p a n y i s t o t a l l y d e p e n d e n t . But t h e s h a r e h o l d e r s
a r e willing to sell c h e a p l y b e c a u s e they k n o w that this o n e p r o d u c t is
a b o u t to go off p a t e n t , to be t a k e n off t h e m a r k e t by F D A , or to be
s u p e r s e d e d by a c o m p e t i t o r ' s n e w d i s c o v e r y .
B e f o r e t h e c r a s h c o m e s , t h e h e a l t h y e a r n i n g s o f t h e n e w acquisi-
t i o n p u s h u p t h e e a r n i n g s p e r f o r m a n c e o f the c o m p a n y i n t h e
control of the c o r p o r a t e criminals. The paper performance looks
g o o d a n d t h e n e w m a n a g e m e n t t e a m i s c r e d i t e d with setting t h e
c o m p a n y b a c k o n a n u p w a r d p a t h . W h e n t h e share prices a p p r o a c h
t h e i r z e n i t h , t h e g r o u p sells out w i t h a h e a l t h y capital gain on the
o r i g i n a l cost o f t h e s h a r e s .

The Revco Medicaid fraud

I n a d d i t i o n t o c o r p o r a t e c r i m e s w h i c h involve victimising o t h e r
c o m p a n i e s , t h e r e a r e t h o s e w h e r e g o v e r n m e n t s are v i c t i m s . O n e
such c a s e w a s t h e R e v c o M e d i c a i d fraud, subject of an i m p r e s s i v e
s t u d y by V a u g h a n ( 1 9 8 0 ) . R e v c o is not a p h a r m a c e u t i c a l m a n u -
f a c t u r e r , b u t a r e t a i l e r , a very large o n e listed in the F o r t u n e 500.
R e v c o a n d t w o of its e x e c u t i v e s p l e a d e d no c o n t e s t to a n u m b e r of

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falsification c o u n t s . T h e e x e c u t i v e s w e r e fined $2,000 e a c h and the


c o r p o r a t i o n $5().(XK), in a d d i t i o n to b e i n g r e q u i r e d to m a k e restitu-
t i o n of $ 5 2 1 , 5 2 1 to t h e O h i o D e p a r t m e n t of P u b l i c W e l f a r e for the
illegally paid M e d i c a i d p a y m e n t s . R e v c o stock suffered a limited
d o w n t u r n for a short p e r i o d of t i m e ( V a u g h a n . 1979: 2 0 0 ) .
T h e case is i n t e r e s t i n g in t h a t it i l l u s t r a t e s h o w , e v e n in the a r e a of
financial c r i m e s , an a v a r i c i o u s d e s i r e for i l l e g i t i m a t e profits c a n n o t
e x p l a i n s o m e m a j o r offences. W h e n R e v c o m o v e d its c o r p o r a t e
h e a d q u a r t e r s in 1975 b o x e s of c l a i m s for p r e s c r i p t i o n s given to
M e d i c a i d r e c i p i e n t s b y R e v c o p h a r m a c i e s w e r e found. T h e s e w e r e
c l a i m s w h i c h had b e e n rejected b y t h e O h i o D e p a r t m e n t o f Public-
Welfare for r e i m b u r s e m e n t . The government's computerised
s c r e e n i n g s y s t e m for d e t e c t i n g e r r o r s had sent b a c k t h e c l a i m s for
r e s u b m i s s i o n . F o r s o m e r e a s o n ( d e f e c t i v e S O P s ? ) t h e rejects had
n o t b e e n d e a l t w i t h as t h e y c a m e in and had piled u p .
O n c e the boxes were discovered, the two convicted executives
h a d i n s t i g a t e d a p l a n to bring t h e c o m p a n y ' s a c c o u n t s r e c e i v a b l e
b a c k i n t o b a l a n c e . T h e y m a d e t h e j u d g m e n t t h a t e x a m i n i n g each o f
t h e 5 0 , 0 0 0 c l a i m s a n d l e g i t i m a t e l y c o r r e c t i n g t h e e r r o r s w o u l d cost
more time than it was worth.

R a t h e r t h a n c o r r e c t t h e rejected c l a i m s for r e s u b m i s s i o n t o t h e
s t a t e , clerical w o r k e r s a t R e v c o h e a d q u a r t e r s w e r e i n s t r u c t e d t o
m a n u a l l y r e w r i t e c l a i m forms i n n u m b e r s e q u i v a l e n t t o the
r e j e c t e d c l a i m s . T h e y used m o d e l c l a i m s - claims w h i c h a l r e a d y
had b e e n a c c e p t e d b y t h e state and paid. D a t e s w e r e c h a n g e d ,
a n d t h e last t h r e e digits o f t h e six digit p r e s c r i p t i o n n u m b e r s w e r e
t r a n s p o s e d . N o a t t e m p t w a s m a d e t o alter a m o u n t s o f t h e
individual claims. The two executives believed that because of
the large n u m b e r of claims involved, the a m o u n t s would average
o u t ( V a u g h a n . 1980).

T h e R e v c o e x e c u t i v e s w e r e not a t t e m p t i n g t o e a r n illegitimate
p r o f i t s ; t h e y w e r e t r y i n g t o r e c o v e r m o n e y s t o which they w e r e ,
m o r e o r l e s s , e n t i t l e d . H o w e v e r , t h e y w e r e s u b s t i t u t i n g the legiti-
m a t e m e a n s for a c h i e v i n g t h a t goal with a c h e a p e r and m o r e con-
v e n i e n t i l l e g i t i m a t e m e a n s . Risk o f d e t e c t i o n o f t h e fraud w a s low
s i n c e t h e illicit c l a i m s w e r e w r i t t e n explicitly to satisfy t h e r e q u i r e -
m e n t s o f t h e c o m p u t e r . T h e g o v e r n m e n t ' s d i s c o v e r y o f t h e fraud
was accidental.
V a u g h a n ( 1 9 8 0 ) p o i n t s o u t t h a t R e v c o ' s i n t e r p r e t a t i o n o f the
c r i m e w a s t h a t i t w a s v i c t i m - p r e c i p i t a t e d . W i t h o u t t h e welfare

283
Fiddling

d e p a r t m e n t ' s unnecessarily bureaucratic rules, intolerable delays,


a n d c o m p u t e r p r o c e s s i n g lacking i n d i s c r e t i o n o r c o m m o n sense the
c r i m e w o u l d not h a v e o c c u r r e d . I t may b e , t h e n , that t h e c r i m e can
be e x p l a i n e d by d e f e c t i v e S O P s on t h e part of b o t h t h e o r g a n i s -
a t i o n a l victim and t h e o r g a n i s a t i o n a l offender.

Intracompany transfer pricing

A l a r g e p r o p o r t i o n of t h e t r a n s a c t i o n s on t h e b o o k s of an inter-
n a t i o n a l c o m p a n y a r e sales from p a r e n t t o s u b s i d i a r y , s u b s i d i a r y t o
p a r e n t o r o n e s u b s i d i a r y t o a n o t h e r . I n t r a c o m p a n y transfer prices
can effectively shift profits from o n e part of the w o r l d to a n o t h e r .
F o r e x a m p l e , d r u g s m i g h t be s h i p p e d from a h i g h - t a x c o u n t r y to a
l o w - t a x c o u n t r y at b e l o w m a r k e t p r i c e s in o r d e r to shift profits to
w h e r e t h e y will a t t r a c t least tax. T r a n s f e r pricing is t h e r e f o r e a
c l a s s i c law e v a s i o n s t r a t e g y . T a x laws o f t h e h i g h - t a x c o u n t r y are not
v i o l a t e d , t h e y a r e e v a d e d . T h i s n e e d not n e c e s s a r i l y b e t r u e , h o w -
e v e r , a s t h e h i g h - t a x c o u n t r y may h a v e e n a c t e d laws r e q u i r i n g that
t r a n s f e r p r i c e s be set on an "arms l e n g t h ' basis ( t h a t is, as if the
c o m p a n y w e r e selling t o a n o t h e r r a t h e r t h a n t o itself).

In r e c e n t y e a r s a n u m b e r of d r u g - t r a n s f e r pricing cases have b e e n


h e a r d i n F r e n c h c o u r t s ( D e l m a s - M a r t y and T i e d e m a n n , 1979).
A b o u t forty p h a r m a c e u t i c a l c o m p a n i e s a r e said t o b e u n d e r investi-
g a t i o n . Essentially the c o m p a n i e s attempt to evade company taxes
i n F r a n c e b y high i m p o r t p r i c e s w h i c h v i o l a t e F r e n c h tax laws. F o r
e x a m p l e , in 1973 following an i n v e s t i g a t i o n of M e r c k ' s transfer
p r i c e s for I n d o c i d 2 5 , t h e c o m p a n y a g r e e d t o pay t h e F r e n c h
g o v e r n m e n t $10 million i n ' r e d r e s s m e n t ' .
S o m e c o m p a n i e s s h u n t t h e i r p r o d u c t a r o u n d a E u r o p e a n circuit
i n c r e a s i n g t h e p r i c e a t e a c h p o i n t . I n o n e c e l e b r a t e d case v i t a m i n s
w e r e m a n u f a c t u r e d in F r a n c e at a cost of Fr 50 p e r k i l o , e x p o r t e d to
W e s t G e r m a n y , from t h e r e sent t o S w i t z e r l a n d , t h e n c e M o n a c o ,
a n d e v e n t u a l l y r e i m p o r t e d to F r a n c e at Fr 250 per kilo u n d e r a
different t r a d e n a m e . I t s o m e t i m e s h a p p e n s with such cases that
s h u n t i n g a r o u n d t h e circuit h a p p e n s only o n p a p e r w i t h o u t the
c o r r e s p o n d i n g physical m o v e m e n t of materials.
T a x h a v e n s a r e used t o g r e a t a d v a n t a g e b y t h e i n t e r n a t i o n a l
p h a r m a c e u t i c a l i n d u s t r y . T h e N e t h e r l a n d s A n t i l l e s i s one o f t h e
w o r l d ' s m o r e n o t o r i o u s tax h a v e n s . C u t t e r L a b o r a t o r i e s , the signi-
ficant A m e r i c a n t r a n s n a t i o n a l b a s e d in S a n F r a n c i s c o , is o w n e d by a
N e t h e r l a n d s Antilles holding company which in turn is owned by

284
Fiddling

t h e G e r m a n g i a n t , B a y e r . I n r e c e n t y e a r s I r e l a n d has a t t r a c t e d
m a n y n e w p h a r m a c e u t i c a l m a n u f a c t u r i n g p l a n t s partly b e c a u s e o f
its t a x a d v a n t a g e s . B u t t h e m o s t i m p o r t a n t tax h a v e n i n t h e p h a r m a -
ceutical industry is P u e r t o Rico.
M a n y A m e r i c a n t r a n s n a t i o n a l s h a v e sizeable m a n u f a c t u r i n g
p l a n t s in P u e r t o R i c o , and a large p r o p o r t i o n of t r a n s a c t i o n s
b e t w e e n t h e U n i t e d S t a t e s and o t h e r p a r t s o f t h e w o r l d g o t h r o u g h
P u e r t o R i c o , l e a v i n g s o m e e x t r a cash i n P u e r t o R i c o each t i m e . T h i s
e x p l a i n s the e x t r a o r d i n a r y return on pharmaceutical investment in
P u e r t o R i c o c a l c u l a t e d b y Wall S t r e e t a n a l y s t J o h n S . B u t t l e s I I .
B u t t l e s c a l c u l a t e s t h a t W a r n e r - L a m b e r t had a 110 per cent r e t u r n
on its i n v e s t m e n t in P u e r t o R i c a n p l a n t and e q u i p m e n t in 1976. F o r
A b b o t t t h e figure w a s 101 p e r c e n t , w h i l e for S c h e r i n g it w a s a
m e a g r e 90 p e r cent (Business Week, 22 M a y 1978: 154-6). In 1977,
a c c o r d i n g t o d a t a s u p p l i e d t o B u s i n e s s W e e k b y O p p e n h e i m e r and
C o . , S c h e r i n g r e c o r d e d 59.2 p e r cent of its w o r l d w i d e profits in
P u e r t o R i c o . F o r S q u i b b t h e f i g u r e w a s 53.7 per c e n t ; A b b o t t , 4 8 . 4
p e r c e n t ; S m i t h K l i n e , 4 5 . 7 per cent. All t h e s e c o m p a n i e s w e r e
o u t d o n e by S e a r l e w h i c h in b o t h 1976 and 1977 m a n a g e d to r e c o r d
o v e r 100 p e r cent of its w o r l d w i d e profits in P u e r t o R i c o . W h i l e the
rest of t h e w o r l d ran at a l o s s , large profits w e r e r e c o r d e d for
Searle's Puerto Rican subsidiary.
W h e n T h i r d W o r l d c o u n t r i e s a r e t h e v i c t i m s o f transfer pricing
the c o n s e q u e n c e s are most serious. Vaitsos (1974) conducted the
classic s t u d y o f high t r a n s f e r prices into Third W o r l d c o u n t r i e s .
H e f o u n d t h a t p h a r m a c e u t i c a l i m p o r t s into C o l o m b i a b y foreign-
o w n e d c o m p a n i e s w e r e o v e r p r i c e d b y 155 per c e n t , very m u c h
h i g h e r t h a n t h e o v e r p r i c i n g o f o t h e r i m p o r t s (specifically r u b b e r ,
c h e m i c a l s a n d e l e c t r o n i c s ) . - ' V a i t s o s e s t i m a t e d that i f C o l o m b i a
h a d b e e n p a y i n g a v e r a g e w o r l d p r i c e s for its p h a r m a c e u t i c a l
i m p o r t s , t h e c o u n t r y w o u l d h a v e s a v e d a c h a r g e of $20 million to
t h e C o l o m b i a n b a l a n c e o f p a y m e n t s i n 1968. A p p r o x i m a t e l y half o f
t h e e s t i m a t e d $20 m i l l i o n in e x c e s s profits r e p a t r i a t e d by t h e
transfer pricing would have gone to the C o l o m b i a n g o v e r n m e n t
i n t a x e s . V a i t s o s a l s o found t h a t several o f t h e largest t r a n s n a t i o n a l
p h a r m a c e u t i c a l c o m p a n i e s r e t u r n e d t h e i r profits via a h o l d i n g
c o m p a n y i n P a n a m a w h i c h , a t t h a t t i m e , w a s a tax h a v e n . T h e
s t u d y c o n c l u d e d t h a t t h e effective r a t e o f r e t u r n o n C o l o m b i a n
o p e r a t i o n s for fifteen global d r u g c o r p o r a t i o n s ranged from a low
of 3 8 . 1 p e r c e n t to a high of 962.1 per cent with an a v e r a g e of
7 9 . 1 p e r c e n t . Y e t t h a t y e a r t h e a v e r a g e d e c l a r e d profits s u b m i t t e d

285
Fiddling

by t h e s e s u b s i d i a r i e s to t h e C o l o m b i a n tax a u t h o r i t i e s was 6.7 p e r


cent.
R e p a t r i a t i o n of profits from the T h i r d W o r l d can be a c h i e v e d by
fiddling t h e p a c k a g e s as well as fiddling t h e b o o k s . A E u r o p e a n
t r a n s n a t i o n a l w a s found t o b e i m p o r t i n g i n t o S o u t h A m e r i c a sealed
p a c k i n g c a s e s o f d r u g s w h i c h c o n t a i n e d less t h a n 3 0 p e r c e n t o f t h e
d e c l a r e d c o n t e n t s . B y p a y i n g 100 p e r cent o f t h e d e c l a r e d cost t o the
p a r e n t c o m p a n y ( t h r o u g h a tax h a v e n ) t h e subsidiary w a s able t o
t r a n s f e r 300 p e r cent i n c r e a s e d profits to t h e p a r e n t ( H e l l e r , 1977:
55).
T h e r e a r e m a n y r e a s o n s a p a r t from e v a d i n g tax for a p a r e n t to
c h a r g e high p r i c e s for i n t r a c o m p a n y sales to an affiliate, and low
p r i c e s for sales from affiliate to p a r e n t . It might be d o n e to circum-
vent dividend repatriation restrictions, r e d u c e t h e affiliate's
e x p o s u r e t o c u r r e n c y d e v a l u a t i o n and e x p r o p r i a t i o n r i s k s , l o w e r
a p p a r e n t profits w h e n e x c e s s i v e profits m i g h t e n c o u r a g e l a b o u r
u n i o n s t o e s c a l a t e w a g e d e m a n d s o r local c u s t o m e r s (and g o v e r n -
m e n t s ) t o d e m a n d p r i c e r e d u c t i o n s , o r simply t o a l l o c a t e m a r k e t s b y
m a k i n g t h e e x p o r t s o f a s u b s i d i a r y n o n c o m p e t i t i v e . W h i l e incen-
t i v e s t h a t run in this d i r e c t i o n a r e the m o s t i m p o r t a n t in t h e inter-
n a t i o n a l p h a r m a c e u t i c a l i n d u s t r y , t h e r e can b e r e v e r s e i n c e n t i v e s
w h i c h e n c o u r a g e l o w - i m p o r t and h i g h - e x p o r t p r i c e s . C o u n t r i e s
w h i c h h a v e high c u s t o m s a n d excise d u t i e s o b v i o u s l y h a v e incen-
t i v e s in t h e d i r e c t i o n of low i m p o r t p r i c e s . A t r a n s n a t i o n a l might
d e s i r e t h r o u g h t r a n s f e r p r i c i n g t o i n c r e a s e t h e profitability o f a new
s u b s i d i a r y d u r i n g a s t a r t - u p p e r i o d and t h e r e b y i m p r o v e its ability to
g e t local c r e d i t .

W h e n t h e r e a r e conflicting r e a s o n s for b o t h high and low i m p o r t


p r i c e s , i n g e n i o u s s o l u t i o n s can e v e n b e found t o a c c o m m o d a t e t h e
conflicting f i n a n c i a l g o a l s . P e r h a p s t h e m o s t c o m m o n r a t i o n a l e for
high i n t r a c o m p a n y i m p o r t p r i c e s with p h a r m a c e u t i c a l s i s t o con-
v i n c e g o v e r n m e n t t h a t a p r i c e i n c r e a s e s h o u l d be g r a n t e d b e c a u s e of
t h e high cost o f t h e m a t e r i a l s i m p o r t e d t o m a k e t h e d r u g s . G o v e r n -
m e n t d r u g - p u r c h a s i n g a n d price-fixing a u t h o r i t i e s t a k e a c c o u n t o f
t h e c o s t s of i m p o r t e d m a t e r i a l s in d e c i d i n g a fair price for t h e
p r o d u c t . H e r e is a trick used by t h e A u s t r a l i a n subsidiary of o n e
t r a n s n a t i o n a l . S u p p o s e t h e p a r e n t c o m p a n y for its a c c o u n t i n g
r e a s o n s insists t h a t t h e A u s t r a l i a n s u b s i d i a r y pay it exactly $5 a g r a m
for a c e r t a i n p r o d u c t . N o w t h e A u s t r a l i a n s u b s i d i a r y is after a price
i n c r e a s e from t h e H e a l t h D e p a r t m e n t for t h e P h a r m a c e u t i c a l
4
B e n e f i t s S c h e m e . So it a s k s t h e p a r e n t c o m p a n y to invoice it for

286
Fiddling

half t h e s h i p m e n t at $10 p e r g r a m and to send t h e o t h e r half free of


c h a r g e 'for use in c o n d u c t i n g t r i a l s ' . H e a d q u a r t e r s t h e n gets its
r e q u i r e d p r i c e for total s h i p m e n t , w h i l e t h e s u b s i d i a r y is a b l e to
w a v e an i n v o i c e u n d e r t h e n o s e of a H e a l t h D e p a r t m e n t official to
p r o v e t h a t this e x p e n s i v e p r o d u c t c o s t s $10 a g r a m .
T r a n s f e r p r i c i n g is often s u p p o r t e d by r e s t r i c t i v e b u s i n e s s
p r a c t i c e s i n t h e T h i r d W o r l d . T h e d a n g e r for t h e t r a n s n a t i o n a l
i s t h a t t h e T h i r d W o r l d g o v e r n m e n t will p o i n t o u t t h a t i m p o r t e d raw
m a t e r i a l s can be p u r c h a s e d more cheaply than the intracompany
t r a n s f e r p r i c e from o t h e r s u p p l i e r s . To e n s u r e against d e m a n d s for
p u r c h a s e from t h e c h e a p e s t a v a i l a b l e s u p p l i e r the p a r e n t c o m p a n y
m i g h t w r i t e into its a g r e e m e n t w i t h a s u b s i d i a r y a tied p u r c h a s e
c l a u s e . Tying certain types of purchases to one supplier would be
a v i o l a t i o n of a n t i t r u s t laws in m o s t d e v e l o p e d c o u n t r i e s . M o s t
T h i r d W o r l d c o u n t r i e s , h o w e v e r , d o not have a n t i t r u s t laws. S o m e
c o u n t r i e s , n o t a b l y A r g e n t i n a , P e r u , B o l i v i a and M e x i c o , have
b e g u n t o s c r e e n a g r e e m e n t s with t r a n s n a t i o n a l s t o r e m o v e
r e s t r i c t i v e b u s i n e s s c l a u s e s . B r a z i l , C h i l e , E c u a d o r , C o l o m b i a and
I n d i a also n o w specifically p r o h i b i t c e r t a i n t y p e s o f tied p u r c h a s e
schemes.

B r a z i l is a l e a d e r in fostering e x c h a n g e of i n f o r m a t i o n b e t w e e n
c o u n t r i e s o n p h a r m a c e u t i c a l transfer p r i c e s . K n o w l e d g e i s p o w e r i n
n e g o t i a t i o n w i t h t r a n s n a t i o n a l s . G o v e r n m e n t s can d e m a n d l o w e r
t r a n s f e r p r i c e s only w h e n t h e y k n o w w h a t transfer p r i c e s are being
p a i d b y o t h e r c o u n t r i e s o n t h e s a m e p r o d u c t s . W h e n the B r a z i l i a n s
find t h a t a s u p p l i e r is a v a i l a b l e with p r i c e s m u c h c h e a p e r t h a n the
i n t r a c o m p a n y t r a n s f e r p r i c e , t h e y insist t h a t t h e t r a n s n a t i o n a l
s o u r c e from t h e c h e a p e r s u p p l i e r . I n t h e i n t e r n a t i o n a l transfer
p r i c i n g g a m e t h e i r o n y is t h a t t h e r h e t o r i c o f t h e free m a r k e t is often
empty without government intervention.

T h e m a i n p r o b l e m for d e v e l o p i n g c o u n t r i e s is a lack of r e s o u r c e s
t o m o u n t a c o n t i n u o u s , s o p h i s t i c a t e d and c o m p r e h e n s i v e m o n i t o r -
ing o f t r a n s f e r p r i c e s . G u a t e m a l a , for e x a m p l e , has rules against
c l a i m i n g e x c e s s i v e l y high transfer p r i c e s for i m p o r t e d m a t e r i a l s
w h e n s e e k i n g p r i c e i n c r e a s e s from t h e g o v e r n m e n t . H o w e v e r , i t
s e e m s t h a t n o o n e c h e c k s t h e cost f i g u r e s supplied b y t h e c o m -
p a n i e s . E f f e c t i v e l y , t h e c o m p a n i e s can get away with a n y t h i n g .
W i t h tax e v a s i o n t h r o u g h transfer p r i c i n g , d e v e l o p e d e c o n o m i e s are
p r o g r e s s i n g t o w a r d s e x c h a n g e o f i n f o r m a t i o n b e t w e e n tax a u t h o r i -
t i e s a n d e v e n i n t e r n a t i o n a l tax a u d i t s ( e . g . C a n a d a with t h e U n i t e d
S t a t e s ) . In contrast, poor countries a r e ' i n danger of being excluded

287
Fiddling

from a p r i v i l e g e d c l u b of efficient tax a d m i n i s t r a t i o n s ' ( L a l l , 1979b:


245).
All t h e familiar t r i c k s of large c o m p a n i e s for e v a d i n g tax in the
d e v e l o p e d w o r l d c a n also b e seen i n t h e T h i r d W o r l d . T h e differ-
e n c e i s t h a t i n t h e T h i r d W o r l d t h e y a r e typically m o u n t e d with
i m p u n i t y . Officials w h o s h o w signs of p u t t i n g o b s t a c l e s in the
c o m p a n y ' s w a y can be n e u t r a l i s e d w i t h a b r i b e . In G u a t e m a l a ,
A m e r i c a n t r a n s n a t i o n a l s split their i n c o m e a m o n g a s m a n y a s six
h o l d i n g c o m p a n i e s t o s p r e a d t h e i r m a r g i n a l tax liability.
The investigation by the Audit C o m m i t t e e o f t h e Board o f t h e
A m e r i c a n H o s p i t a l S u p p l y C o r p o r a t i o n , p u r s u a n t t o their b r i b e r y
c o n s e n t d e c r e e (see C h a p t e r 2 ) , i l l u s t r a t e s s o m e o f the activities
w h i c h c a n b e g o i n g o n q u i t e u n b e k n o w n t o T h i r d W o r l d tax a u t h o r i -
t i e s . A H S e m p l o y e e s i n s o m e c o u n t r i e s w e r e r e c e i v i n g part o f their
s a l a r y in local c u r r e n c y in t h e i r c o u n t r y of r e s i d e n c e , and the
r e m a i n d e r i n U S d o l l a r s , d e p o s i t e d b y A H S into U S b a n k a c c o u n t s .
I n t h e c a s e o f n o n - U S c i t i z e n s , n e i t h e r t h e U S n o r foreign tax
a u t h o r i t e s w e r e notified o f this U S b a n k c o m p e n s a t i o n . I n one
c o u n t r y A H S a l s o had a n illegal s c h e m e for u n d e r s t a t i n g sales tax.
G o o d s w e r e sold t o a m a r k e t i n g s u b s i d i a r y o w n e d b y A H S . T h e
b a s e for c a l c u l a t i n g sales tax liability w a s t h e value of sales to t h e
m a r k e t i n g s u b s i d i a r y . W h e n t h e l a t t e r i s o w n e d b y the original
s e l l e r t h e c o r r e c t b a s e for c a l c u l a t i n g tax liability is t h e value of sales
from t h e m a r k e t i n g s u b s i d i a r y .

Conclusion

T h e financial m a n i p u l a t i o n s d i s c u s s e d i n this c h a p t e r s e e m t o r e p r e -
s e n t t y p e s o f c o r p o r a t e c r i m e which a r e q u a l i t a t i v e l y different from
t h o s e d i s c u s s e d e a r l i e r . R e a d e r s may feel t h a t i n a t t e m p t i n g t o
c o v e r c o m p r e h e n s i v e l y t h e s p e c t r u m o f c o r p o r a t e c r i m e s which
o c c u r in o n e i n d u s t r y , we a r e left with a m u d d l e of d i s p a r a t e
c r i m i n a l f o r m s . Y e t in the final c h a p t e r it will b e c o m e clear that
t h e s e v a r i o u s forms o f c o r p o r a t e c r i m e d o have i m p o r t a n t c h a r a c -
teristics in c o m m o n .
W h a t do a Dr F. D o n a l d C o s t e r g a m e with i m a g i n a r y assets and a
M E R / 2 9 g a m e with i m a g i n a r y r a t s and m o n k e y s h a v e i n c o m m o n ?
A t t h e i r r o o t , t h e p r o b l e m s h a v e similar s o l u t i o n s . B o t h c r i m e s
w e r e r e n d e r e d p o s s i b l e by t h e fact t h a t key i n d i v i d u a l s had a u t o -
c r a t i c c o n t r o l of e i t h e r a w h o l e o r g a n i s a t i o n , or a division within an
o r g a n i s a t i o n . C o n t r o l s t r a t e g i e s for b o t h t y p e s o f c r i m e m u s t focus

288
Fiddling

on rendering unaccountable organisational power more account-


a b l e , or, m o r e simply, exposing the exercise of that power to
s c r u t i n y b y o t h e r s . E v e n i f t h e o t h e r s w h o o b s e r v e t h e exercise o f
p o w e r h a v e no formal right of c h a l l e n g e (as in t h e case o f t h e lowly
t r e a s u r e r a t M c K e s s o n and R o b b i n s ) t h e m e r e fact that o n e ' s
actions are o b s e r v e d by others constitutes a situational deterrent.
H e n c e , we saw in C h a p t e r 3 t h a t a m a t r i x r e s e a r c h o r g a n i s a t i o n
m a k e s fraud m o r e difficult t h a n in a t r a d i t i o n a l h i e r a r c h i c a l
r e s e a r c h o r g a n i s a t i o n . W i t h t h e f o r m e r , w h e r e m a n y p e o p l e are
i n v o l v e d in a d e c i s i o n , it is h a r d e r to k e e p t h e lid on illegality.
C o m p a r a b l e p r o t e c t i o n s against illegality a r e p r o v i d e d by a rule
which requires that loans to company directors must be approved
b y , a n d r e c o r d e d in t h e m i n u t e s of, t h e full b o a r d m e e t i n g , or by a
r u l e w h i c h insists t h a t a variety of p e o p l e p a r t i c i p a t e in a p p r o v i n g a
drug p r o m o t i o n a l claim, rather than the m a r k e t i n g d e p a r t m e n t
alone.
A n e n c o u r a g i n g t h i n g a b o u t t h e study o f c o r p o r a t e c r i m e is,
t h e r e f o r e , t h a t t h e s a m e g e n e r a l p r i n c i p l e s o f c o n t r o l may apply t o
the most dissimilar types of crime imaginable. Fiddling the books
c a n b e m a d e m o r e difficult b y h a v i n g t h e b o o k s g o t h r o u g h m o r e
h a n d s a n d b y d i s c l o s u r e r e q u i r e m e n t s w h i c h m a k e their c o n t e n t s
m o r e a c c e s s i b l e t o s h a r e h o l d e r s and o t h e r i n t e r e s t e d p a r t i e s . Inter-
n a t i o n a l fiddles m u s t be dealt with by j o i n t a u d i t s and e x c h a n g e of
information between national regulatory agencies. Multiple
a p p r o v a l s , disclosures, international exchange of information:
t h e s e a r e f u n d a m e n t a l s in t h e c o n t r o l of all the t y p e s of c o r p o r a t e
c r i m e c o v e r e d i n this b o o k . I n s i d e r t r a d i n g hides b e h i n d t h e
c o m p l e x i t y o f t h e c o m m e r c i a l w o r l d j u s t a s f r a u d u l e n t safety-testing
p r o g r a m m e s hide behind the complexity of science. Both types of
c r i m e d e m a n d a r e t h i n k i n g of p r o c e d u r a l s a f e g u a r d s in c r i m i n a l
c o u r t s w h i c h w e a l t h y d e f e n d a n t s e x p l o i t t o p r e v e n t c o u r t s from
untangling the web of complexity.
O f c o u r s e , t h e s e g e n e r a l p r i n c i p l e s m u s t b e given q u i t e specific
c o n t e n t for different t y p e s of c r i m e . Y e t we will see in t h e final
c h a p t e r t h a t g e n e r a l i s a t i o n s are p o s s i b l e a b o u t t h e c i r c u m s t a n c e s i n
w h i c h s e l f - r e g u l a t i o n can and c a n n o t c o m p l e m e n t e x t e r n a l l y
i m p o s e d r e g u l a t i o n . A n d w e will see t h a t t r a n s f e r pricing and using
T h i r d W o r l d c i t i z e n s as g u i n e a pigs in t h e safety t e s t i n g of d r u g s are
m e r e l y specific m a n i f e s t a t i o n s o f t h e u n d e r l y i n g reality o f t h e way
t r a n s n a t i o n a l c o r p o r a t i o n s deal with t h e c o n s t r a i n t s o f n a t i o n a l
laws.

289
9 Strategies for controlling
corporate crime

T h e p u r p o s e of this c h a p t e r is to shift from specific t y p e s of


c o r p o r a t e c r i m e to a m o r e g e n e r a l set of l e s s o n s to be l e a r n e d from
the p h a r m a c e u t i c a l industry about the control o f c o r p o r a t e crime. It
is for o t h e r s to do case s t u d i e s of c o r p o r a t e c r i m e in different
industries to assess w h e t h e r these generalisations based on an
e x a m i n a t i o n o f d i s p a r a t e t y p e s o f r e g u l a t i o n within o n e industry
have wider relevance.

The a r g u m e n t in outline

In t h e s u c c e e d i n g p a g e s an a t t e m p t will be m a d e to d e v e l o p a
b a l a n c e d p e r s p e c t i v e o n w h a t law can and c a n n o t a c h i e v e with
r e s p e c t to t h e p r o b l e m of c o r p o r a t e c r i m e as manifested in the
p h a r m a c e u t i c a l i n d u s t r y . It will be a r g u e d that an e m p i r i c a l u n d e r -
s t a n d i n g o f c o r p o r a t e c r i m e i n this i n d u s t r y implies t h a t law c a n n o t
a c h i e v e s i m u l t a n e o u s l y all t h e goals e x p e c t e d of it. E v e n t h o u g h
these goals are compatible within theories of j u r i s p r u d e n c e ,
e m p i r i c a l l y t h e y a r e often i n c o m p a t i b l e , not j u s t at t h e level of
i n d i v i d u a l c a s e s , but for t h e c r i m i n a l j u s t i c e system as a t o t a l i t y .
L e t us b e g i n with w h a t law can a c h i e v e . It will be a r g u e d t h a t law
e n f o r c e m e n t can r e d u c e c o r p o r a t e c r i m e i n t h e p h a r m a c e u t i c a l
i n d u s t r y , p r o b a b l y d r a m a t i c a l l y . T h e c r i m e r e d u c t i o n goal can b e
a c h i e v e d via a n u m b e r of s u b g o a l s . F i r s t , d e t e r r e n c e - b o t h specific
( a g a i n s t o f f e n d e r s ) and g e n e r a l ( a g a i n s t t h o s e w h o w i t n e s s t h e
s a n c t i o n i n g of o t h e r s ) - can be effective. This is so b e c a u s e cor-
p o r a t e o f f e n d e r s , w i t h m o r e t o lose t h a n t r a d i t i o n a l b l u e - c o l l a r
offenders, are inherently more deferrable.

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Strategies for controlling corporate crime

S e c o n d , t h e law can effectively i m p o s e r e h a b i l i t a t i o n on cor-


p o r a t e o f f e n d e r s . R e h a b i l i t a t i o n is a m o r e w o r k a b l e goal for
c o r p o r a t e c r i m i n a l law t h a n for i n d i v i d u a l c r i m i n a l law b e c a u s e
o r g a n i s a t i o n c h a r t s and S O P s can m o r e easily b e r e a r r a n g e d t h a n
human personalities.
T h i r d , t h e law can readily r e q u i r e r e s t i t u t i o n to victims of
c o r p o r a t e c r i m e and r e p a r a t i o n t o t h e c o m m u n i t y . This i s b e c a u s e
t h e c o r p o r a t i o n n o r m a l l y h a s an i n o r d i n a t e c a p a c i t y to p a y , and a
p o o l o f e x p e r t i s e w h i c h m a k e s p o s s i b l e r e p a r a t o r y acts o f c o m -
m u n i t y service o f e n o r m o u s social v a l u e . R e s t i t u t i o n i m p o s e d b y
l a w , p a r t i c u l a r l y t h r o u g h t h e m e c h a n i s m o f class a c t i o n s , also has
i n v a l u a b l e d e t e r r e n t effects.
T h e s e t h r e e g o a l s c a n b e a c h i e v e d w i t h o u t resort t o the r e p r e s s i v e
m e a s u r e s ( i m p r i s o n m e n t , c o r p o r a l p u n i s h m e n t , capital p u n i s h -
m e n t ) w h i c h h a v e b e e n s o unsuccessful i n a t t e m p t s t o c o n t r o l t r a d i -
t i o n a l i n d i v i d u a l c r i m e . A w i d e a r r a y of s a n c t i o n s - fines, r e s t i t u t i o n
o r d e r s , c o m m u n i t y service o r d e r s , i n t e r v e n t i o n i n the c o r p o r a t i o n ' s
m a n a g e m e n t system, licence r e v o c a t i o n , injunction, seizure,
r e m e d i a l a d v e r t i s i n g - all h a v e i m p o r t a n t p l a c e s in t h e a r m o u r i e s of
r e g u l a t o r y a g e n c i e s . G e n e r a l l y , t h o u g h not e x c l u s i v e l y , it will be
s u g g e s t e d t h a t c o r p o r a t e c r i m i n a l liability r a t h e r t h a n individual
liability i m p o s e d by t h e c o u r t s r e s u l t s in m o r e efficient crime
c o n t r o l . I n d i v i d u a l liability can often be effectively d e l e g a t e d from
t h e c o u r t t o t h e c o r p o r a t i o n itself. H o w e v e r , i m p o s i n g individual
liability on c h i e f e x e c u t i v e officers m u s t r e m a i n an i m p o r t a n t
responsibility o f c o u r t s .
T h e r e i s a n i r r e c o n c i l a b l e i n c o m p a t i b i l i t y b e t w e e n the c a p a c i t y o f
l a w to a c h i e v e c o r p o r a t e c r i m e r e d u c t i o n and its c a p a c i t y to
d i s p e n s e j u s t i c e . C o r p o r a t e c r i m e i n t h e p h a r m a c e u t i c a l industry
kills p e o p l e . It will be a r g u e d that c h o i c e s m u s t be m a d e b e t w e e n
s a v i n g m o r e lives a n d b e i n g m o r e j u s t . A total c o m m i t m e n t t o
u n i f o r m i t y and c o n s i s t e n c y i n t h e t r e a t m e n t o f c o r p o r a t e offenders
s h o u l d be e s c h e w e d . A policy of d i s p e n s i n g 'just d e s e r t s ' to all
c o r p o r a t i o n s found t o b r e a k t h e law w o u l d i m p o s e f i n a n c i a l b u r d e n s
b e y o n d t h e c a p a c i t y o f any g o v e r n m e n t . I n d e e d , t o even a p p r o a c h
t h a t r a t e o f c l e a r - u p a n d p r o s e c u t i o n w h i c h w e have c o m e t o e x p e c t
w i t h i n d i v i d u a l c r i m i n a l offenders w o u l d c a u s e n a t i o n a l b a n k -
r u p t c y . M o r e i m p o r t a n t l y , i t will b e a r g u e d t h a t giving r e g u l a t o r s
d i s c r e t i o n t o d o d e a l s w i t h guilty c o r p o r a t i o n s , t o selectively forget
'just d e s e r t s ' in o r d e r to get c o r p o r a t i o n s to c o - o p e r a t e w i t h , for
e x a m p l e , s c h e m e s t o r a p i d l y recall d a n g e r o u s p r o d u c t s , i s i n the

291
Strategies for controlling corporate crime

p u b l i c i n t e r e s t . T h e uniform and j u s t t r e a t m e n t o f offenders should


n e v e r t a k e p r e c e d e n c e o v e r p r o t e c t i o n o f h u m a n life a s t h e p r i m a r y
r e s p o n s i b i l i t y of p h a r m a c e u t i c a l i n d u s t r y r e g u l a t o r s . If this prin-
c i p l e is a c c e p t e d , t h e n e m p i r i c a l l y we will see that t h e r e can be little
j u s t i c e i n t h e p u n i s h m e n t o f c o r p o r a t e c r i m e within the p h a r m a -
c e u t i c a l i n d u s t r y . M o r e o v e r , gross d i s p a r i t y b e t w e e n t h e way
j u s t i c e i s d i s p e n s e d t o p o w e r l e s s i n d i v i d u a l s c o m p a r e d with p o w e r -
ful c o r p o r a t i o n s will c o n t i n u e .
B e c a u s e m o s t s c h o l a r s w h o s t u d y c o r p o r a t e c r i m e have b e e n
l a w y e r s , insufficient a t t e n t i o n has b e e n d e v o t e d t o non-legal
a p p r o a c h e s to the p r o b l e m . In practice, most control of c o r p o r a t e
c r i m e i s t h r o u g h n e g o t i a t i o n b e t w e e n r e g u l a t o r s and c o r p o r a t i o n s .
C r i m i n a l law is i m p o r t a n t in this p r o c e s s as t h e u l t i m a t e s a n c t i o n to
b a c k u p t h e t h r e a t s o f r e g u l a t o r s . I n a d d i t i o n t o e n s u r i n g that
c r i m i n a l law b a c k u p is a v a i l a b l e , t h e i m p o r t a n c e of s t r a t e g i e s for
g i v i n g r e g u l a t o r s n e g o t i a t i n g clout c a n n o t b e o v e r e m p h a s i s e d . I n
t h e final a n a l y s i s , b a r g a i n i n g m u s c l e for r e g u l a t o r s can save m o r e
lives t h a n finely t u n e d laws. A m o n g t h e m o s t c o n s t r u c t i v e w a y s t h a t
r e g u l a t o r y p o w e r can be a p p l i e d is in forcing c o r p o r a t i o n s to set up
effective s e l f - r e g u l a t o r y s y s t e m s w i t h i n their o r g a n i s a t i o n s .
N o w to the a r g u m e n t in detail.

The cost of regulation

W h i l e it w a s s e e n in C h a p t e r 4 t h a t r e g u l a t i o n can have a social cost,


i t w a s t h e e c o n o m i c cost w h i c h w a s o f m o s t c o n c e r n t o the e x e c u -
t i v e s i n t e r v i e w e d . I n t h e U n i t e d S t a t e s a b o v e all t h e g r e a t e s t
c o n c e r n w a s with t h e s o - c a l l e d d r u g lag - t h e t e n d e n c y for n e w d r u g s
to t a k e l o n g e r to be a p p r o v e d for m a r k e t i n g in the U n i t e d S t a t e s
t h a n i n o t h e r c o u n t r i e s . I n d u s t r y a l l e g e s t h a t the m o u n t a i n s o f
d o c u m e n t a t i o n a n d e x p e r i m e n t a t i o n r e q u i r e d before the F D A will
a p p r o v e a n e w d r u g is a d i s i n c e n t i v e to n e w d r u g d e v e l o p m e n t
( C o c k s , 1 9 7 3 ; G r a b o w s k i , 1976; S c h w a r t z m a n , 1976; W a r d e l l .
1 9 7 9 ; W i g g i n s , 1979). A t p r e s e n t i t c o s t s a n a v e r a g e o f s o m e $ 5 0
m i l l i o n to get a d r u g to the point of F D A a p p r o v a l . M o r e o v e r ,
i n d u s t r y a r g u e s , t h e d e l a y d u r i n g which n e w d r u g s a r e m a r k e t e d i n
o t h e r p a r t s o f t h e w o r l d , but not A m e r i c a , costs p a t i e n t s i n t h e
U n i t e d S t a t e s a price in suffering.

T h e c o n s u m e r m o v e m e n t c o u n t e r s w i t h t h e claim that A m e r i c a
h a s a ' d e a t h lag' r a t h e r t h a n a ' d r u g lag'. T h e y point out t h a t the
U n i t e d S t a t e s w a s o n e o f t h e few c o u n t r i e s t o p r e v e n t t h e m a r k e t i n g
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Strategies for controlling corporate crime

of t h a l i d o m i d e precisely b e c a u s e of the more cautious attitude of


t h e F D A . T h e superficial case for the US drug lag is easy to m a k e .
S i n c e t h e t o u g h e n i n g o f t h e F o o d , D r u g a n d C o s m e t i c A c t i n 1962
t h e a n n u a l n u m b e r o f n e w d r u g a p p r o v a l s i n t h e U n i t e d S t a t e s has
d r o p p e d , t h e cost has i n c r e a s e d , and t h e a v e r a g e t i m e lag b e t w e e n
s u b m i s s i o n a n d a p p r o v a l has i n c r e a s e d . H o w e v e r , m o s t o f t h a t
d e l a y is d u e to t h e lag in F D A a p p r o v a l of m e - t o o d r u g s w h i c h
p r o v i d e no t h e r a p e u t i c a d v a n c e s over existing p r o d u c t s . The F D A ,
a n d m a n y o t h e r n a t i o n a l drug r e g u l a t o r y a g e n c i e s , have p r i o r i t i e s
w h e r e b y d r u g s t h a t offer no t h e r a p e u t i c a d v a n c e sit on the b o t t o m
of t h e pile w h i l e p r o d u c t s w h i c h offer t h e r a p e u t i c gains are dealt
with considerably more quickly.'
E v e r y c o u n t r y h a s a d r u g lag. A s w e s a w i n C h a p t e r 7 , p h a r m a -
c e u t i c a l c o m p a n i e s h a v e a v a r i e t y of r e a s o n s for w a n t i n g to s u b m i t a
n e w p r o d u c t for r e g i s t r a t i o n i n c e r t a i n c o u n t r i e s before o t h e r s .
K e n n e d y ( 1 9 7 8 ) has c o m p a r e d t h e p e r c e n t a g e o f significant n e w
c h e m i c a l e n t i t i e s i n t r o d u c e d i n t h e six m a j o r d r u g d e v e l o p m e n t
c o u n t r i e s ( E n g l a n d , F r a n c e , G e r m a n y , Italy, J a p a n and the United
S t a t e s ) i n 1976. F o r t y - s e v e n per cent o f t h e n e w c h e m i c a l e n t i t i e s
a p p r o v e d in t h e U n i t e d S t a t e s in t h a t y e a r w e r e not a v a i l a b l e in
E n g l a n d , 73 per cent w e r e not a v a i l a b l e in F r a n c e , 60 per cent in
G e r m a n y , 7 3 p e r c e n t i n I t a l y , and 8 7 p e r cent i n J a p a n .
O n l y 47 per cent o f t h e US new approvals had been approved in
any of t h e o t h e r five c o u n t r i e s before 1976. T h i s figure c o m p a r e d
f a v o u r a b l y w i t h t h e o t h e r five c o u n t r i e s for w h o m t h e p e r c e n t a g e o f
n e w a p p r o v a l s w h i c h had a l r e a d y b e e n a p p r o v e d e l s e w h e r e r a n g e d
from 33 p e r c e n t to 86 p e r c e n t .
It is not my i n t e n t i o n to s y s t e m a t i c a l l y e v a l u a t e t h e e v i d e n c e on
w h e r e t h e d r u g - l a g - d e a t h - l a g i s w o r s t . M y p u r p o s e i s simply t o show
t h a t t h e lag i s e v e r y w h e r e a n d t h a t d e t e r m i n i n g w h e r e i t i s w o r s t i s
p r o b l e m a t i c . T h e only way t o a d d r e s s this q u e s t i o n a d e q u a t e l y i s t o
l o o k a t specific c a s e s r a t h e r t h a n play statistical g a m e s . H o w m u c h
d a t a a r e n e c e s s a r y to satisfy e x p e r t s t h a t a p a r t i c u l a r p r o d u c t has
b e n e f i t s w h i c h justify its risks is b e y o n d my e x p e r t i s e .
In a n y c a s e , t h i s b o o k is a b o u t c o r p o r a t e c r i m e . It is a c r i m e to go
a h e a d a n d m a r k e t a d r u g before i t has w o n g o v e r n m e n t a p p r o v a l .
T h e q u e s t i o n r e l e v a n t to t h e i m m e d i a t e d i s c u s s i o n is w h e t h e r a law
r e q u i r i n g g o v e r n m e n t p r e c l e a r a n c e of d r u g s is n e c e s s a r y . In all
c o u n t r i e s p h a r m a c e u t i c a l s are t h e only p r o d u c t s w h i c h must b e
p r e c l e a r e d o n t h e b a s i s o f r e s e a r c h s u b m i t t e d t o g o v e r n m e n t before
t h e y a r e a l l o w e d o n t h e m a r k e t . T h e r e s e e m s t o b e a l m o s t total
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Strategies for controlling corporate crime

c o n s e n s u s t h a t such p r e c l e a r a n c e laws are n e c e s s a r y . T h e only


c o m m e n t a t o r w h o seems to have argued to the contrary is none
o t h e r t h a n M i l t o n F r i e d m a n . F r i e d m a n b e l i e v e s that m a r k e t forces
can w e e d o u t d a n g e r o u s d r u g s , and i n d e e d s u g g e s t s that the F D A
itself s h o u l d be a b o l i s h e d (Newsweek, 8 J a n u a r y 1 9 7 3 : 4 9 ) !
O n e w o n d e r s a b o u t the r e l e v a n c e of the r h e t o r i c of the free
m a r k e t to an i n d u s t r y w h e r e t h e d e c i s i o n to buy is m a d e by a
p h y s i c i a n r a t h e r t h a n by t h e p e r s o n w h o will suffer the injury.
I n d e e d w e h a v e seen t h a t such t w o - s t e p p r o c e s s e s u n d e r m i n e the
c a p a c i t y of c o m p e t i t i o n to r e g u l a t e a b u s e s at all levels in t h e phar-
maceutical industry. For example, a pharmaceutical company
w h i c h c h o o s e s a c h e a p c o n t r a c t l a b o r a t o r y for t e s t i n g might not
suffer if t h e d a t a a r e s h o d d y . It m i g h t benefit w h e n the l a b o r a t o r y
tells it w h a t it w a n t s to h e a r . T h e c o m p a n y benefits from the c h e a p
r e s e a r c h but p a s s e s t h e r i s k o n t o t h e c o n s u m e r . H e r e m a r k e t forces
m a y e n c o u r a g e l o w e r s t a n d a r d s , not h i g h e r o n e s .

H e n c e , o n e m u s t d i s m i s s t h e p r o p o s i t i o n t h a t laws r e q u i r i n g the
p r e c l e a r a n c e of d r u g s can be r e p l a c e d by t h e free o p e r a t i o n of
m a r k e t f o r c e s . N e v e r t h e l e s s , t h e r e is a case for m a k i n g the new drug
a p p r o v a l p r o c e s s less of an all or n o n e affair. O n c e n e w p r o d u c t s
d e m o n s t r a t e c e r t a i n m i n i m u m safety r e q u i r e m e n t s they could b e
g i v e n s o m e form o f c o n d i t i o n a l a p p r o v a l for limited m a r k e t i n g .
D u r i n g t h e p r o b a t i o n p e r i o d t h e p r o d u c t w o u l d b e subject t o
s t r i n g e n t p o s t m a r k e t i n g s u r v e i l l a n c e . I m m e d i a t e l y a significant
p r o b l e m a p p e a r e d , the product would be withdrawn. At the
m o m e n t , o n c e a p r o d u c t has b e e n a p p r o v e d , w i t h d r a w a l i s a n
a r d u o u s p r o c e s s for a r e g u l a t o r y a g e n c y . I n d u s t r y also claims that
t h e a p o c a l y p t i c n a t u r e o f a n u n c o n d i t i o n a l a p p r o v a l forces regula-
t o r s to be o v e r c a u t i o u s in w e i g h i n g up risks and benefits. T h e
official h a s m u c h to lose by a p p r o v i n g a s e c o n d t h a l i d o m i d e , but
little to gain by a p p r o v i n g a n e w p r o d u c t w h i c h confers a m o d e r a t e
therapeutic advance.

T h e r e is a shift in p r o f e s s i o n a l o p i n i o n in favour of g r a d u a t e d
a p p r o v a l in the U n i t e d States, as evidenced by the Congressional
t e s t i m o n y o n t h e 1978 a n d 1979 D r u g R e f o r m Bills. Y e t t h e m o s t
c o m p e l l i n g a r g u m e n t a g a i n s t t h e d r u g lag as it exists in t h e U n i t e d
S t a t e s a t t h e m o m e n t i s o n e n e v e r voiced b y t h e i n d u s t r y : t h a t t h e
d r u g lag will shift t h e n e x t t h a l i d o m i d e d i s a s t e r from t h e d e v e l o p e d
world to the Third World w h e r e p o s t m a r k e t i n g surveillance of new
d r u g s is virtually non-existent (and w h e r e , c o n s e q u e n t l y , more
p e o p l e will die b e f o r e t h e d i s a s t e r i s d i s c o v e r e d ) . O n c e d i s c o v e r e d ,
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Strategies for controlling corporate crime

recall will be s l o w e r and less efficient in t h e T h i r d W o r l d , t r e a t m e n t


a n d social w e l f a r e s u p p o r t for t h e victims will be i n a d e q u a t e . An
a r g u m e n t for q u i c k e r a p p r o v a l i n t h e U n i t e d S t a t e s qualified b y
m o r e t h o r o u g h p o s t - m a r k e t i n g s u r v e i l l a n c e i s t h a t t h e suffering
from t h e n e x t t h a l i d o m i d e , and all the m i n i - t h a l i d o m i d e s , will be
c o n t a i n e d . On the other hand, currently many Third World coun-
t r i e s a p p r o v e n e w d r u g s a s soon a s they see F D A a p p r o v a l . U n l e s s
g r a d u a t e d US approval were a c c o m p a n i e d by a more guarded
w i l l i n g n e s s o f d e v e l o p i n g c o u n t r i e s t o follow t h e A m e r i c a n lead, t h e
a b o v e - m e n t i o n e d benefits w o u l d b e illusory.

N o t all r e g u l a t i o n s a r e a b u r d e n o n t h e e c o n o m y . R e g u l a t i o n s
w h i c h b a n c e r t a i n t y p e s o f a d v e r t i s i n g o r limit a d v e r t i s i n g e x p e n d i -
t u r e o b v i o u s l y reduce c o s t s (see C h a p t e r 6 ) . W h e r e a n t i t r u s t laws
effectively i n c r e a s e c o m p e t i t i o n , this m i g h t b r i n g c o s t - r e d u c i n g
p r e s s u r e s i n t o play. O c c u p a t i o n a l h e a l t h and safety r e g u l a t i o n s
m i g h t i m p o s e a cost b u r d e n on t h e m a n u f a c t u r e r , but in the final
a n a l y s i s , may also i n c r e a s e t h e G r o s s N a t i o n a l P r o d u c t b y r e d u c i n g
t h e n u m b e r of d a y s lost t h r o u g h injury and t h e m e d i c a l costs of
t r e a t m e n t . N e v e r t h e l e s s , there are many regulations which impose
c o s t s o u t of all p r o p o r t i o n to c o m m u n i t y benefits. Often t h e s e are
r e g u l a t i o n s w h i c h w e r e o n c e cost-effective but w h i c h h a v e b e c o m e
a n a c h r o n i s m s t h r o u g h t e c h n o l o g i c a l o r e c o n o m i c c h a n g e . A n irony
o f i r r a t i o n a l r e g u l a t i o n s i s t h a t they i m p o s e p r o p o r t i o n a t e l y t h e
g r e a t e s t c o s t s on small b u s i n e s s e s . As a cost b a r r i e r to m a r k e t entry
for small c o m p e t i t o r s , o n e set of r e g u l a t o r y goals conflicts with
a n o t h e r (antitrust law).

T h e r e a r e s o l u t i o n s . M a j o r n e w r e g u l a t i o n s s h o u l d b e subject t o
cost o f r e g u l a t i o n i m p a c t s t a t e m e n t s . I t m u s t b e c a u t i o n e d , how-
e v e r , t h a t p r e p a r i n g a cost of r e g u l a t i o n impact s t a t e m e n t itself
i m p o s e s a c o n s i d e r a b l e cost. S u c h i m p a c t s t a t e m e n t s should t h e r e -
fore be p r e p a r e d only for m a j o r r e g u l a t o r y initiatives. If industry
d i s a g r e e s with an a g e n c y d e c i s i o n t h a t a n e w r e g u l a t i o n is not of
sufficient i m p o r t a n c e to justify t h e cost of an i m p a c t s t u d y , t h e n
i n d u s t r y s h o u l d be e n c o u r a g e d to c o n d u c t t h e study at its o w n
e x p e n s e w i t h i n t h e g u i d e l i n e s set d o w n b y t h e r e g u l a t o r y a g e n c y .
F o r e x i s t i n g r e g u l a t i o n s , sunset l e g i s l a t i o n has a n i m p o r t a n t
p l a c e . S u n s e t l e g i s l a t i o n is s o m e t h i n g of a c u r r e n t c r a z e in the
U n i t e d S t a t e s , b e g u n b y t h e C o l o r a d o s t a t e l e g i s l a t u r e i n 1976. T h e
s u n s e t p r i n c i p l e is t h a t r e g u l a t i o n s be given a finite life. At t h e end
of a p r e d e t e r m i n e d p e r i o d , r e g u l a t i o n s are r e v i e w e d . T h e y are
e i t h e r a b o l i s h e d , r e a u t h o r i s e d or r e w r i t t e n . S u n s e t legislation is a

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s o u n d w a y o f c u l l i n g cost-ineffective r e g u l a t i o n s , s t o p p i n g t h e un-
w a r r a n t e d e x p a n s i o n o f self-serving b u r e a u c r a t i c e m p i r e s , and
i m p o s i n g on a g e n c i e s a n e e d to e v a l u a t e their p e r f o r m a n c e . It could
m a k e r o u t i n e t h e a b o l i t i o n o f e n t i r e b u r e a u c r a c i e s w h i c h have
s e r v e d t h e i r h i s t o r i c a l p u r p o s e . H o w e v e r , the p r o b l e m with s u n s e t
l e g i s l a t i o n is a g a i n t h a t t h e r e v i e w p r o c e s s itself i m p o s e s c o n s i d e r -
a b l e c o s t s . In t h e U n i t e d S t a t e s it has r e q u i r e d an e x p a n s i o n of
l e g i s l a t i v e staffs t o i m p l e m e n t t h e d e t a i l e d o v e r s i g h t r e q u i r e d o f t h e
l e g i s l a t u r e . I n p r a c t i c a l t e r m s any l e g i s l a t u r e c o u l d afford t h e t i m e
to t h o r o u g h l y r e v i e w only o n e of its m a j o r r e g u l a t o r y a g e n c i e s a
year.

O n e s t r a t e g y for r e d u c i n g the cost of r e g u l a t i o n is setting per-


f o r m a n c e s t a n d a r d s and letting c o m p a n i e s d e c i d e h o w t o m e e t
t h e m , i n s t e a d o f i m p o s i n g design s t a n d a r d s .

O S H A is u s i n g this a p p r o a c h ; it is c u t t i n g its fire p r e v e n t i o n


s t a n d a r d s , for e x a m p l e , from 400 p a g e s d o w n t o 30. E P A has
a d o p t e d a ' b u b b l e ' policy which sets p l a n t - w i d e limits on air
e m i s s i o n s r a t h e r t h a n c o n t r o l l i n g e a c h s o u r c e ; t h e cost o f c o n t r o l
v a r i e s w i d e l y from s o u r c e to s o u r c e , so this policy lets plant
m a n a g e r s save m i l l i o n s o f d o l l a r s w i t h o u t any h a r m t o p o l l u t i o n
c o n t r o l . D u P o n t , for e x a m p l e , figures i t c a n save $80 m i l l i o n -
60 p e r c e n t of its air c l e a n i n g c o s t s .
Marketable Rights. R e g u l a t o r s can get results by letting p r i v a t e
p a r t i e s e x c h a n g e g o v e r n m e n t - c o n f e r r e d r i g h t s . E P A ' s 'offsets'
p o l i c y is an e x a m p l e : it lets a c o m p a n y build up a n e w plant by
p a y i n g o t h e r s to c l e a n up t h e i r facilities. E P A also is c o n s i d e r i n g a
m a r k e t s y s t e m t o limit f l u o r o c a r b o n p r o d u c t i o n ( N e u s t a d t , 1980:
141).

Such a p p r o a c h e s , which a m o u n t to decriminalising some types of


c o r p o r a t e c r i m e , h a v e v a l u e in a v a r i e t y of a r e a s . T h e i r a p p l i c a b i l i t y
t o t h e p h a r m a c e u t i c a l i n d u s t r y i s very l i m i t e d , h o w e v e r . U n i f o r m ,
rigid s t a n d a r d s a r e n o r m a l l y r e q u i r e d for t h e c o n t r o l o f h a z a r d o u s
p r o d u c t s w h i c h p o s e a d i r e c t t h r e a t to h u m a n life. M o r e o v e r , as
s h o w n i n C h a p t e r 4 , t h e t e s t i n g o f final o u t p u t p r o v i d e s only w e a k
a s s u r a n c e s of d r u g q u a l i t y . ' W h i l e it is easy to e n f o r c e a design
s t a n d a r d - o n e n e e d s only to look at t h e e q u i p m e n t - it is often h a r d
t o m o n i t o r p e r f o r m a n c e . ' ( N e u s t a d t , 1980: 142).
T h e r e is an u n d e n i a b l e n e e d for r e f o r m s to e n s u r e t h e d e m i s e of
i r r a t i o n a l and c o s t - i n e f f e c t i v e r e g u l a t i o n s . Y e t c o m m e n t a t o r s s h o w
a t e n d e n c y to o v e r - r e a c t to i n d u s t r y a r g u m e n t s a b o u t the costs of

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Strategies for controlling corporate crime
2
r e g u l a t i o n , well d o c u m e n t e d a s they a r e . T h i s i s b e c a u s e t h e
b e n e f i t s of r e g u l a t i o n are not so well d o c u m e n t e d . W h i l e i n d u s t r y
has an i n c e n t i v e to m e a s u r e a c c u r a t e l y the costs of installing air
p o l l u t i o n c o n t r o l d e v i c e s , w h o could m e a s u r e e v e n t h e e c o n o m i c
2
b e n e f i t s i n r e d u c e d h e a l t h c o s t s with any a c c u r a c y ? N o o n e has
e v e n a t t e m p t e d t o d o t h e s u m s t o e s t i m a t e t h e total f i n a n c i a l cost t o
t h e c o m m u n i t y o f t h e t h a l i d o m i d e d i s a s t e r . W e t e n d t o lose per-
s p e c t i v e b y b e i n g h a m m e r e d w i t h only o n e side o f t h e cost-benefit
equation.
I n a g g r e g a t e , g o v e r n m e n t s should s p e n d m o r e , not less, o n regu-
l a t i n g b u s i n e s s . T h e s u m s n e e d e d a r e not s o e n o r m o u s . T h e P a n
A m e r i c a n H e a l t h O r g a n i s a t i o n has set its m e m b e r c o u n t r i e s t h e
t a r g e t o f s p e n d i n g 0.5 p e r cent o f t h e v a l u e o f d r u g sales i n their
c o u n t r i e s o n d r u g c o n t r o l r e g u l a t i o n . M o s t o f its m e m b e r c o u n t r i e s
s p e n d less t h a n half t h a t a m o u n t a t p r e s e n t .
T h e d i s c u s s i o n in t h e p r e c e d i n g p a r a g r a p h s suffers from a kind
o f u n r e a l i t y . C h o i c e s a b o u t h o w m u c h m o n e y w e are willing t o
s p e n d i n a t t e m p t s t o p r e v e n t h u m a n suffering a r e not subject t o
r a t i o n a l n u m e r i c a l c a l c u l a t i o n . S u c h c h o i c e s reflect t h e p r o f o u n d
i r r a t i o n a l i t y t h a t s u r r o u n d s our a t t i t u d e s t o h u m a n suffering. N o
one would dare suggest that an attempt to rescue trapped miners be
a b a n d o n e d b e c a u s e it w o u l d cost t o o m u c h . Y e t cost is a major
o b j e c t i o n t o m a n y o c c u p a t i o n a l h e a l t h and safety p r o t e c t i o n s w h i c h
c a n b e s h o w n t o s a v e lives. A t t i t u d e s a r e d r a m a t i c a l l y t r a n s f o r m e d
as we shift from identifiable victims to a n o n y m o u s statistical
v i c t i m s . T h e p u n d i t s of cost-benefit a n a l y s i s will d e s e r v e a b e t t e r
h e a r i n g w h e n t h e y a r e p r e p a r e d t o a p p l y their t e c h n i q u e s t o situ-
a t i o n s i n w h i c h t h e r e a r e identifiable v i c t i m s .
It c a n be a r g u e d t h a t p o l i t i c i a n s effectively put a dollar value on
h u m a n lives w h e n t h e y d e c i d e t h e v o l u m e o f t a x e s t h e y will raise t o
fund r e g u l a t o r y a g e n c i e s . B u t civil s e r v a n t s really do not h a v e to
m a k e t h i s kind o f j u d g m e n t . W h a t they m u s t d o , h o w e v e r , i s use
t h e i r finite r e g u l a t o r y b u d g e t to save as m a n y lives and p r e v e n t as
m u c h i l l - h e a l t h a s p o s s i b l e . S o m e t i m e s this will m e a n r e j e c t i n g
c o s t l y p r o g r a m m e s w h i c h will p r e v e n t suffering in favour of an
a l t e r n a t i v e d e p l o y m e n t of funds which will p r e v e n t g r e a t e r suffer-
ing e l s e w h e r e . R e g u l a t o r s c o n c e r n e d t o a c h i e v e t h e g r e a t e s t good
for t h e g r e a t e s t n u m b e r n e e d not c a l c u l a t e h o w m a n y d o l l a r s a life is
w o r t h ; b u t t h e y m u s t m a x i m i s e t h e n u m b e r o f lives saved for the
dollar.

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Strategies for controlling corporate crime

Regulatory agencies: captives of industry?

O n e w o u l d a s s u m e from the d e b a t e on t h e cost of r e g u l a t i o n that all


r e g u l a t o r y a g e n c i e s d o i s i m p o s e costs o n i n d u s t r y . O n the c o n t r a r y ,
m a n y a g e n c y a c t i v i t i e s r e p r e s e n t a subsidy to i n d u s t r y . T a k e the
f o l l o w i n g e x a m p l e from a n A u s t r a l i a n i n f o r m a n t :

We had a s a l m o n e l l a infected b a t c h of p r o d u c t i m p o r t e d from


o v e r s e a s . W e w o r k e d with N B S L [the H e a l t h D e p a r t m e n t ] t o
w o r k o u t a m e t h o d of sterilizing it using r a d i a t i o n . T h e y t e s t e d all
t h e s t e r i l i z e d s a m p l e s for free.

M o r e dramatically, Fred L a m b , a Richardson-Merrell lawyer,


h a s said o f F r a n c e s K e l s e y , t h e F D A scientist w h o s t o p p e d t h e m
from m a r k e t i n g t h a l i d o m i d e : ' S h e ' s a h e r o . If it h a d n ' t b e e n for h e r ,
w e ' d be out of b u s i n e s s . '
T h e r e c u r r e n t criticism o f r e g u l a t o r y a g e n c i e s from c o n s u m e r
g r o u p s i s t h a t t h e y are s e r v a n t s o f i n d u s t r y r a t h e r t h a n a d v e r s a r i e s .
It is a t r u i s m t h a t t h e p o w e r of r e g u l a t o r y a g e n c i e s is small c o m -
p a r e d t o t h e p o w e r o f t h e i n d u s t r i e s t h e y r e g u l a t e . I n d u s t r y can use
p o l i t i c a l l o b b y i n g a g a i n s t a r e g u l a t o r t h e y do n o t like, and t h e
p r o s p e c t o f a j o b in i n d u s t r y for r e g u l a t o r s w h o do the right t h i n g by
t h e m . C o n s u m e r a d v o c a t e s criticise t h e ' r e v o l v i n g d o o r ' r e l a t i o n -
ship b e t w e e n industry and regulatory agency. It is true that industry
f r e q u e n t l y b u y s o u t g o v e r n m e n t officials t o apply their e x p e r i e n c e
o n t h e o t h e r side o f t h e fence. C o n v e r s e l y , m a n y officials i n h e a l t h
r e g u l a t o r y a g e n c i e s formerly w o r k e d i n t h e i n d u s t r y . C o n s u m e r
c r i t i c i s m o f t h e r e v o l v i n g d o o r has r e n d e r e d t h e F D A , i n p a r t i c u l a r ,
m o r e w a r y o f a p p o i n t m e n t s from i n d u s t r y , w h i l e industry has con-
t i n u e d w i t h o u t t h e slightest c o n c e r n o v e r t h e s o u r c e o f its a p p o i n t -
m e n t s . C o n s e q u e n t l y , t h e F D A is left with a staff w h o have a lesser
u n d e r s t a n d i n g o f t h e t h i n k i n g and s t r a t e g i e s o f t h e o t h e r s i d e , w h i l e
i n d u s t r y c o n t i n u e s t o enjoy c o u n s e l from t h e best p e o p l e m o n e y can
buy.
I n d u s t r y a d o p t s t h e ( a c c u r a t e ) view t h a t t h e m e n t a l i t y o f b u r e a u -
c r a t s in g o v e r n m e n t a n d b u s i n e s s is q u i t e similar. To be successful,
y o u play as well as you can for t h e t e a m y o u ' r e on at the m o m e n t .
Life for successful p e o p l e in t h e n e w i n d u s t r i a l state is r a t h e r like t h e
c a r e e r o f a p r o f e s s i o n a l footballer. T h e e s s e n c e o f success i s selling
o n e ' s skills to different b i d d e r s d u r i n g a c a r e e r cycle. Y o u play y o u r
h e a r t o u t for y o u r p r e s e n t t e a m e v e n i f y o u are p l a y i n g a g a i n s t t h e
old h o m e t e a m . T h e infinite c a p a c i t y of p e o p l e to switch loyalties is

298
Strategies for controlling corporate crime

an old r e a l i t y , b u t o n e w h i c h has e x t e n d e d to n e w d i m e n s i o n s in t h e
late c a p i t a l i s t era. Critics of r e g u l a t o r y a g e n c i e s which sign up t o p
p l a y e r s from t h e o t h e r side are fixed at a n o s t a l g i c n i n e t e e n t h -
c e n t u r y view o f t h e p e r m a n e n c y o f l o y a l t i e s .
T h e a d v a n t a g e s o f e m p l o y i n g p e o p l e with e x p e r i e n c e i n the
o p p o s i t i o n i s t r a n s p a r e n t e n o u g h . C o r p o r a t i o n s have c o m p l i a n c e
g r o u p s w h i c h t h e y wish t o h a v e r o u t i n e c o m m i t m e n t t o d o i n g their
j o b w e l l . W h a t i n t e r n a l r e g u l a t o r s do is not very different from
g o v e r n m e n t r e g u l a t o r s , and t h e r e f o r e g o v e r n m e n t e x p e r i e n c e i s
useful. ' I ' m d o i n g basically t h e s a m e t h i n g inside t h e c o m p a n y t h a t I
w a s d o i n g a s a r e g u l a t o r . T h e y view u s a s t h e i n t e r n a l F D A . ' T h e
s a m e i n f o r m a n t t h e n e x p r e s s e d a view on w h a t he could c o n t r i b u t e
if he w e n t t h r o u g h t h e r e v o l v i n g d o o r a g a i n : 'If I w e n t b a c k n o w I'd
be a b l e to do a m u c h b e t t e r j o b . I get to k n o w t h e inside story on
t h i n g s t h a t I w o u l d h a v e b e e n frozen o u t from as a r e g u l a t o r . '
B e f o r e i n d u s t r y signs up a n e w p l a y e r they go to c o n s i d e r a b l e
l e n g t h s to e n s u r e t h a t he or she will be a loyal and d e d i c a t e d player.
E q u a l l y , r e g u l a t o r y a g e n c i e s s h o u l d not e m p l o y industry p e o p l e
w h o d o n o t h a v e t h e i r h e a r t i n t h e right p l a c e . T h e r e v o l v i n g d o o r
u n d o u b t e d l y h a s a d v e r s e c o n s e q u e n c e s . R e g u l a t o r s and r e g u l a t e d
c o m e to share a c o m m o n b u r e a u c r a t i c mentality whereby the
g e n e r a l p u b l i c a r e v i e w e d a s a n h y s t e r i c a l and i r r a t i o n a l m o b w h o
s h o u l d b e p r o t e c t e d from any s u g g e s t i o n o f p r o d u c t h a z a r d s .
P r o b l e m s c a n b e s o r t e d o u t a m i a b l y b e t w e e n t h e official a d v e r s a r i e s
w i t h o u t p u b l i c p a r t i c i p a t i o n . I t i s r a t h e r like t h e c o n d e s c e n d i n g
a t t i t u d e s to c l i e n t s s n a r e d by o p p o s i n g c o u n s e l in law c o u r t s
( B l u m b e r g , 1967). L a t e r I will a r g u e t h a t it is not d e s i r a b l e to
exclude public participation in health regulatory matters. There
a r e , t h e n , u n d e s i r a b l e c o n s e q u e n c e s from t h e r e v o l v i n g d o o r .
H o w e v e r , g i v e n t h a t it w o u l d be difficult to s t o p t h e traffic b e t w e e n
g o v e r n m e n t and i n d u s t r y , to s t o p traffic in t h e o t h e r d i r e c t i o n would
b e t o h a m s t r i n g g o v e r n m e n t efforts t o get t h e m o s t e x p e r i e n c e d
p e o p l e for c e r t a i n j o b s .
E v i d e n c e t h a t t h e p h a r m a c e u t i c a l i n d u s t r y has g r e a t influence
o v e r h e a l t h r e g u l a t o r y a u t h o r i t i e s i s o v e r w h e l m i n g . A n official o f
the A s s o c i a t i o n of the British P h a r m a c e u t i c a l Manufacturing
I n d u s t r y told m e t h a t m a n y B r i t i s h g o v e r n m e n t r e g u l a t i o n s w e r e
w r i t t e n i n t h e i r offices. S i m i l a r l y , J o s e p h S t e t l e r , former p r e s i d e n t
o f t h e A m e r i c a n P M A o n c e c o m m e n t e d : "As I l o o k back o v e r t h r e e
o r four y e a r s , w e h a v e c o m m e n t e d o n 6 0 different p r o p o s e d r e g u -
l a t i o n s . At least a t h i r d w e r e n e v e r p u b l i s h e d in final form. A n d

299
Strategies for controlling corporate crime

e v e r y o n e , w i t h o u t e x c e p t i o n , picked up a significant part of o u r


s u g g e s t i o n s ' ( H u g h e s a n d B r e w i n , 1979: 2 2 9 ) .
It is n o t only civil s e r v a n t s w h o a r e in d a n g e r of c a p t u r e by t h e
i n d u s t r y . C a m p a i g n c o n t r i b u t i o n s can r e n d e r t h e l e g i s l a t u r e
a m e n a b l e as well. L a n g (1974: 257) has r e p o r t e d on a d o n a t i o n of
£20,000 to the British Conservative Party by B e e c h a m . More
r e c e n t l y , L a n g a r g u e s , such d o n a t i o n s h a v e b e c o m e less n e c e s s a r y
a s i n d u s t r y p e o p l e h a v e found their way into p a r l i a m e n t . A c c o r d i n g
t o L a n g , t h e s e m e m b e r s o f p a r l i a m e n t i n c l u d e Sir Tufton H .
B e a m i s h , a S m i t h K l i n e d i r e c t o r ; Sir H e r b e r t W. B u t c h e r , a
B e e c h a m d i r e c t o r ; D r W y n d h a m D a v i e s , a f o r m e r senior m e d i c a l
a d v i s o r t o N i c h o l a s a n d British S c h e r i n g ; Sir A r t h u r V e r e H a r v e y ,
c h a i r m a n o f C i b a ( U K ) and a d i r e c t o r o f C i b a ( S w i t z e r l a n d ) ; D a v i d
E. C. P r i c e , an e x - e c o n o m i c c o n s u l t a n t to ICI and formerly
p e r s o n a l a s s i s t a n t to t h e c h a i r m a n of I C I ; Nigel T. F i s h e r , a former
d i r e c t o r o f B a y e r and W i n t h r o p ; Sir F r e d e r i c k B e n n e t t , a former
S q u i b b d i r e c t o r ; D a v i d C r o u c h , a Pfizer d i r e c t o r ; and D u d l e y
S m i t h , a S m i t h K l i n e d i r e c t o r . O n t h e o t h e r side o f t h e A t l a n t i c , one
e x e c u t i v e w a s frank a b o u t w h a t h e t h o u g h t o f t h a t t h o r n i n t h e side
o f t h e p h a r m a c e u t i c a l i n d u s t r y , the late S e n a t o r K e f a u v e r : ' W e i n
t h e i n d u s t r y m a d e a m i s t a k e i n t h e way w e h a n d l e d K e f a u v e r . W e
s h o u l d h a v e d e a l t with t h e p r o b l e m publicly b y w o r k i n g against him
in T e n n e s s e e . '

I n d e e d , all m a n n e r o f r e l e v a n t c o n s t i t u e n c i e s c o m e within t h e
p a y o f t h e p h a r m a c e u t i c a l i n d u s t r y . I r e m e m b e r sharing a lift with a
g r o u p of p h a r m a c e u t i c a l e x e c u t i v e s after a h e a r i n g of t h e R a l p h
e n q u i r y i n t o A u s t r a l i a ' s P h a r m a c e u t i c a l Benefits S c h e m e . S o m e
d o c t o r s h a d j u s t testified t h a t t h e P B S w a s t o o slow t o a d m i t c e r t a i n
n e w d r u g s . A n e x e c u t i v e from a c o m p a n y which m a n u f a c t u r e d
t h e s e d r u g s b o a s t e d t o his c o l l e a g u e s from t h e o t h e r c o m p a n i e s :
' T h e d o c t o r s h a v e d o n e a g o o d j o b t o d a y . ' A n o t h e r ruefully r e p l i e d :
' W e s h o u l d h a v e lined up a d o c t o r to say t h a t b e t a - b l o c k e r s are
d i s a d v a n t a g e d b y t h e P B S ' (see also H e m m i n k i and P e s o n e n ,
1977b).

I n 1974 e l e v e n F D A m e d i c a l officers testified before S e n a t o r


K e n n e d y ' s c o m m i t t e e ( S u b c o m m i t t e e o n H e a l t h , 1974) t o t h e effect
t h a t t h e y had b e e n v i c t i m i s e d b y s e n i o r m a n a g e m e n t o f t h e F D A
b e c a u s e o f t h e adversarial stance they a d o p t e d towards industry.
A n i n v e s t i g a t i o n b y F D A C o m m i s s i o n e r S c h m i d t c l e a r e d t h e alle-
g a t i o n s . H o w e v e r , a D e p a r t m e n t o f H e a l t h E d u c a t i o n and W e l f a r e
review o f t h e Schmidt investigation ordered reinvestigation by an

300
Strategies for controlling corporate crime

i n d e p e n d e n t panel chaired by N o r m a n Dorsen, chairperson o f t h e


N e w Y o r k U n i v e r s i t y L a w S c h o o l . O v e r a l l , t h e D o r s e n r e p o r t also
c l e a r e d t h e F D A o f p r o - i n d u s t r y b i a s , w h i l e a d m i t t i n g t h a t i t found
m a n y i n d i v i d u a l c a s e s o f i m p r o p e r d e a l i n g s with d r u g c o m p a n i e s .
I f p r o - i n d u s t r y bias w a s not t h e finding o f t h e D o r s e n r e p o r t , i t
c e r t a i n l y did c o n c l u d e t h a t t h e F D A c o n s c i e n t i o u s l y b e l i e v e d t h a t i t
w a s better to have a co-operative than an adversarial relationship
w i t h i n d u s t r y . S u c h a p o s i t i o n , it w a s c o n c l u d e d , a r o s e not from a
v e n a l p r o p e n s i t y to be t o o l s of i n d u s t r y , b u t b e c a u s e of a sincere
b e l i e f w i t h i n t h e a g e n c y t h a t b e i n g ' r e a s o n a b l e ' , ' c o - o p e r a t i v e ' and
n o n a d v e r s a r i a l w a s t h e m o s t effective w a y o f g e t t i n g t h e i r j o b d o n e .
D o r s e n found t h a t l o w e r - l e v e l officers w h o m a d e t h i n g s difficult for
i n d u s t r y (for e x a m p l e , by h o l d i n g up a p p r o v a l of a n e w d r u g ) w e r e
from t i m e to t i m e shifted to less sensitive p o s i t i o n s . I n d e e d , this w a s
a ' s y s t e m a t i c p a t t e r n o f i n v o l u n t a r y t r a n s f e r s and o t h e r u n f a v o r a b l e
actions against employees who were more adversarial towards
industry than m a n a g e m e n t was'.

F D A has b e e n m a n a g e d , d u r i n g t h e p e r i o d i n q u e s t i o n , b y
i n d i v i d u a l s w h o h a v e m a d e a c o n s c i o u s d e t e r m i n a t i o n that t h e
a g e n c y shall b e c o o p e r a t i v e w i t h , r a t h e r t h a n a d v e r s a r i a l
t o w a r d s , t h e p h a r m a c e u t i c a l i n d u s t r y . W i t h that d e c i s i o n f i r m l y
m a d e , m a n a g e m e n t asserted control over a group of medical
officers w h o s e a p p r o a c h to i n d u s t r y w a s m o r e a d v e r s a r i a l in a
m a n n e r w h i c h c o u l d aptly b e d e s c r i b e d a s 'political h a r d b a l l ' . T h e
d i s s e n t e r s w e r e effectively s u p p r e s s e d , p r i m a r i l y b y resort t o
involuntary transfers. M o r e o v e r , m a n a g e m e n t ' s execution ofthis
policy w a s often u n t r u t h f u l , usually u n k i n d , s o m e t i m e s unlawful,
and consistently unprofessional (Review Panel on New Drug
R e g u l a t i o n , 1977).

T h e D o r s e n c o m m i t t e e r e p o r t i s t h e r e f o r e a r a t h e r schizoid
d o c u m e n t , c l a i m i n g a n a b s e n c e o v e r a l l o f agency d o m i n a t i o n b y
i n d u s t r y , yet pointing to abuses which would seem to indicate the
o p p o s i t e . I r r e s p e c t i v e o f t h e p e r v a s i v e n e s s o f i n d u s t r y influence
o v e r g i v e n r e g u l a t o r y a g e n c i e s , i t i s u n d e n i a b l e t h a t t h e r e are t i m e s
w h e n civil s e r v a n t s sell o u t t h e p u b l i c i n t e r e s t t o p h a r m a c e u t i c a l
i n d u s t r y p r e s s u r e . T h e r e is a d a n g e r to be g u a r d e d against by
s t r i n g e n t l y e n f o r c e d conflict o f i n t e r e s t r u l e s , and b y o m b u d s m e n
w h o c a n e i t h e r e n c o u r a g e m o r e a d v e r s a r i a l officers t o lodge c o m -
p l a i n t s o f s t a n d o v e r t a c t i c s quietly a n d w i t h o u t r e p e r c u s s i o n , o r
e v e n e n c o u r a g e p u b l i c w h i s t l e b l o w i n g . A t t e n t i o n should b e d r a w n

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Strategies for controlling corporate crime

t o t h e r o l e t h e K e n n e d y s u b c o m m i t t e e p l a y e d i n p r o v i d i n g a forum
for t h e e l e v e n w h i s t l e b l o w e r s w h o set i n t r a i n the c o n s t r u c t i v e
examination of industry-agency relationships.
T o t h e e x t e n t t h a t r e g u l a t o r y a g e n c i e s a r e c a p t i v e s o f industry
i n t e r e s t s , a c t i v e p u b l i c i n t e r e s t m o v e m e n t s p r o v i d e vital safe-
g u a r d s . In one area in particular, the control of carcinogens, public
interest groups have provided a greater stimulus to regulation than
g o v e r n m e n t a g e n c i e s . Wolfe (1977) c o n c l u d e s that of 26 US regu-
l a t o r y actions on c a r c i n o g e n s in the w o r k p l a c e or in c o n s u m e r
p r o d u c t s , unions or public interest groups were the initiators o f t h e
a c t i o n in 22 c a s e s . In only 4 c a s e s w a s g o v e r n m e n t classified as t h e
i n i t i a t o r (see also E p s t e i n , 1978: 4 1 6 ) .
T h e w a t c h d o g e f f e c t i v e n e s s o f c o n s u m e r g r o u p s has not b e e n a s
g r e a t i n o t h e r c o u n t r i e s a s i n t h e U n i t e d S t a t e s . P a r t l y this i s b e c a u s e
t h e y h a v e not had t h e t o o l s t o d o so. T h e U n i t e d S t a t e s i s t h e only
c o u n t r y h a v i n g a F r e e d o m o f I n f o r m a t i o n A c t with any b i t e . I n
m a n y c o u n t r i e s c o n s u m e r g r o u p s are not a c c o r d e d t h e legal s t a n d -
ing t o c h a l l e n g e r e g u l a t o r y d e c i s i o n s i n c o u r t . E v e n i n the U n i t e d
S t a t e s , p u b l i c p a r t i c i p a t i o n n e e d s t o b e o p e n e d u p further. A s
a r g u e d i n C h a p t e r 3 , r e s u l t s o f r e s e a r c h o n t h e safety t e s t i n g o f n e w
d r u g s s h o u l d n o t b e t r e a t e d a s t r a d e s e c r e t s . Such results should b e
a v a i l a b l e t o a n y o n e i n t h e scientific c o m m u n i t y w h o w i s h e s t o bring
t h e i r critical faculties t o b e a r o n t h e q u a l i t y o f t h e d a t a . Scientific
a d v a n c e in all a r e a s is f o s t e r e d by t h e p u b l i c clash of ideas in l e a r n e d
j o u r n a l s . U n d e r c o n d i t i o n s o f secrecy i t w i t h e r s .

I n s i d e r s in the regulation g a m e do not want public participation.


R e g u l a t o r s d o n ' t w a n t i t b e c a u s e i t will e x p o s e t h e i r p e r f o r m a n c e t o
p u b l i c criticism. Industry doesn't want it because they know that
o p e n g o v e r n m e n t w o u l d e x p o s e s i t u a t i o n s i n which r e g u l a t o r s have
f o u n d c o m f o r t a b l e a c c o m m o d a t i o n s with t h e m . P r e s s u r e for
t o u g h e r a g e n c y s t a n c e s w o u l d m o u n t . L a w y e r s o n b o t h sides d o n ' t
w a n t i t b e c a u s e t h e y see p u b l i c p a r t i c i p a t i o n a s c o m p r o m i s i n g dis-
p a s s i o n a t e d u e p r o c e s s . Political heat is seen to be an i n a p p r o p r i a t e
c l i m a t e i n w h i c h t o d e c i d e i m p o r t a n t m a t t e r s o f law. Scientists o n
b o t h s i d e s d o n ' t w a n t i t b e c a u s e ' s c i e n c e a n d politics d o n ' t m i x ' .

T h e r e a r e e l e m e n t s o f t r u t h i n all t h e s e v i e w p o i n t s . I n p a r t i c u l a r ,
o n e m u s t s h a r e s y m p a t h y w i t h t h e c o n c e r n o f i n d u s t r y and g o v e r n -
m e n t s c i e n t i s t s a t t h e w a y t h a t t h e m a s s m e d i a oversimplify and
s e n s a t i o n a l i s e scientific d i s p u t e s . O n t h e o t h e r h a n d , scientific
i s s u e s d o not e n t e r t h e political a r e n a u n l e s s ( a ) t h e y are i m p o r t a n t
a n d ( b ) t h e r e i s significant d i s a g r e e m e n t a m o n g scientists o v e r

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Strategies for controlling corporate crime

t h e m . P o l i t i c i a n s , c o n s u m e r g r o u p s and t h e m a s s m e d i a are not s o


s t u p i d as to t a k e up scientific q u e s t i o n s u n l e s s t h e r e is s o m e b o d y of
s u p p o r t for t h e i r p o s i t i o n w i t h i n t h e scientific c o m m u n i t y . Unfor-
t u n a t e l y t h e political p r o c e s s , r e p o r t e d in a free p r e s s , is the only
v i a b l e m e c h a n i s m w e h a v e for d e a l i n g w i t h d i s p u t e s a m o n g rival
e x p e r t s . T o x i c o l o g i s t s w h o d i s a g r e e o v e r t h e safety of a d r u g must
h a v e t h e i r d i s a g r e e m e n t r e s o l v e d at a political level, j u s t as the
d i s a g r e e m e n t s b e t w e e n e c o n o m i s t s o v e r inflation must b e r e s o l v e d
at a p o l i t i c a l level. To t a k e a n o t h e r e x a m p l e , most of us prefer
d i s p u t e s b e t w e e n t o w n p l a n n e r s on t h e future of our cities to be
r e s o l v e d in t h e u l t i m a t e by a d e m o c r a t i c political p r o c e s s . To t h e
e x t e n t t h a t d i s p u t e s a r e b r o u g h t o u t i n t h e o p e n , the messy b u s i n e s s
o f d e m o c r a c y can a r b i t r a t e m o r e i n f o r m a t i v e l y and less c o r r u p t l y .
If d i s p u t e s w e r e settled by a ' s u p r e m e c o u r t of s c i e n c e ' or a
' s u p r e m e c o u r t o f e c o n o m i c s ' w e m i g h t s o m e t i m e s benefit from
m o r e r a t i o n a l d e c i s i o n s . B u t t h e cost w o u l d be a less p a r t i c i p a t o r y
s o c i e t y w h e r e p e o p l e lose s e l f - d e t e r m i n a t i o n b y h a n d i n g o v e r their
d e s t i n y to e x p e r t s . My s u s p i c i o n is t h a t a h e a l t h i e r society will be
o n e w h e r e o r d i n a r y c i t i z e n s h a v e o p i n i o n s a b o u t w h a t t h e y are
doing to their bodies with the drugs they ingest, even though those
o p i n i o n s will often lead to i r r a t i o n a l and scientifically ill-informed
b e h a v i o u r . T h e r e a s o n s for this belief h a v e b e e n a r g u e d i n C h a p t e r
6.
Before leaving the question of relationships b e t w e e n regulatory
a g e n c i e s a n d i n d u s t r y , i t m u s t b e r e a l i s e d t h a t t h e r e are justifica-
t i o n s for r e g u l a t o r s m a i n t a i n i n g r e l a t i o n s h i p s with industry w h i c h
are ' r e a s o n a b l e ' and 'co-operative'. While public interest groups
c a n n o t be expected to routinely accept the a c c o m m o d a t i o n s
r e a c h e d b e t w e e n r e g u l a t o r s and i n d u s t r y , they s h o u l d b e sensitive
t o t h e n e e d for t h e t w o g r o u p s t o h a v e o p e n c h a n n e l s o f c o m m u n i -
c a t i o n . We s a w in C h a p t e r s 3 and 4 h o w t h e i n s p e c t o r ' s task is often
o n e of c o n c e i v i n g a s o l u t i o n to a p r o b l e m in c o n j u n c t i o n with t h e
p e o p l e in t h e i n d u s t r y w h o m u s t i m p l e m e n t it. T h e r e s o l u t i o n to a
G M P p r o b l e m m i g h t i n v o l v e a s u p e r i o r s o l u t i o n t o t h a t set d o w n i n
t h e r e g u l a t i o n s . I n s p e c t o r s d o not w a n t t o e n c o u r a g e t h e view t h a t
c o m p a n i e s s h o u l d b e slavish rule f o l l o w e r s a n d n o m o r e . T h e r e are
t o o m a n y s h a d e s of grey and i n h e r e n t p o s s i b i l i t i e s for l o o p h o l i n g to
m a k e t h a t d e s i r a b l e . I n s p e c t o r s s h o u l d see p a r t o f their role a s
f o s t e r i n g safety i n n o v a t i o n a n d e n c o u r a g i n g m a n u f a c t u r e r s t o g o
the extra mile.
S o m e o f m y i n d u s t r y i n f o r m a n t s c o m p l a i n e d o f F D A officers w h o

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Strategies for controlling corporate crime

a v o i d e d b e i n g s e e n with t h e m a t c o n f e r e n c e s lest t h a t b e i n t e r p r e t e d
as e v i d e n c e of b e i n g in bed with i n d u s t r y . O t h e r s c o m p l a i n e d of
r e g u l a t o r s w h o had a ' g o t c h a ' a t t i t u d e , w h o w e r e 'only i n t e r e s t e d
i n n o t c h e s o n t h e i r g u n ' . T h e e x e c u t i v e s b e l i e v e d that t h e s e
r e g u l a t o r s , rather than forewarn t h e m , would allow them to go
a h e a d and m a k e m i s t a k e s s o they could c a t c h t h e m i n c o n t r a v e n t i o n
o f t h e r e g u l a t i o n s . T h e r e w e r e s o m e F D A officers w h o m i t w a s
i m p o s s i b l e t o t e l e p h o n e a n d p r e c l e a r a p r a c t i c e before p r o c e e d i n g .
To do so w o u l d be to 'tip t h e m off: in any case t h e official w o u l d be
u n w i l l i n g to give t h e g r e e n light, in case a n o t h e r official might
subsequently come to a different c o n c l u s i o n following an
inspection.
It is not d e s i r a b l e for i n s p e c t o r s to see their role as primarily
s a n c t i o n i n g r a t h e r t h a n p r i m a r i l y p r o b l e m - s o l v i n g . T h e r e is a need
for m o r e f r e q u e n t p r o s e c u t i o n s of flagrant v i o l a t i o n s of r e g u l a t i o n s
in t h e p h a r m a c e u t i c a l i n d u s t r y . B u t t h e i n s p e c t o r should be able to
say: T j u s t w r o t e up t h e facts in my r e p o r t and t h e g e n e r a l c o u n s e l
p i c k e d it up and d e c i d e d to p r o s e c u t e . It w a s not my d e c i s i o n . '
T h e i n s p e c t o r n e e d s a store of g o o d w i l l to p e r s u a d e a m a n u -
f a c t u r e r t o g o t h e e x t r a mile w i t h safety i m p r o v e m e n t s . T h a t g o o d -
will can be w o n by a p r e t e n c e of i n t e r c e d i n g on b e h a l f of the
m a n u f a c t u r e r a g a i n s t p r o s e c u t i o n in a case that w a s clearly a
m i s t a k e r a t h e r t h a n a flagrant v i o l a t i o n . To p r o s e c u t e v i o l a t i o n s
w h i c h a r e m i n o r m i s t a k e s i s t o foster r e s e n t m e n t and dissipate
m o t i v a t i o n to o b e y t h e r e g u l a t i o n s . E v e r y local police officer or
s c h o o l t e a c h e r knows the psychology of building motivation to obey
t h e r u l e s by telling a m i s c r e a n t of basically r e p u t a b l e c h a r a c t e r that
s/he will give him a s e c o n d c h a n c e . E q u a l l y , t h e y k n o w h o w
c o u n t e r p r o d u c t i v e such g e s t u r e s can be w h e n d i r e c t e d at less
r e p u t a b l e i n d i v i d u a l s w h o s h o w no signs of m o t i v a t i o n to follow the
r u l e s . T h e fact t h a t such d i s c r e t i o n is in t h e i n t e r e s t s of c r i m e c o n t r o l
i s o f c o n c e r n t o legalists p r e o c c u p i e d w i t h e q u i t a b l e e n f o r c e m e n t o f
t h e law. T h e e q u i t y issue will be t a k e n up in t h e next section.
T h e final w a y t h a t r e g u l a t o r s can m a i n t a i n t h e requisite goodwill
from i n d u s t r y is to c o u n t e r b a l a n c e t h e i n c r e a s e d use of p r o s e c u t i o n
with r e c o u r s e to positive sanctions. Stone has been an advocate of
such an a p p r o a c h .

D u r i n g W o r l d W a r I I , for e x a m p l e , ' E ' a w a r d s w e r e b e s t o w e d o n


d e f e n s e c o m p a n i e s t h a t had e x c e e d e d t h e i r allotted p r o d u c t i o n .
T h e p r e s e n t a t i o n o f t h e ' E ' t o a qualifying c o r p o r a t i o n w a s t h e

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Strategies for controlling corporate crime

o c c a s i o n of a high c e r e m o n y , at w h i c h g o v e r n m e n t r e p r e s e n t a -
t i v e s , e x e c u t i v e s , and w o r k e r s j o i n e d . T h e c o m p a n y w o u l d get a
f l a g , and e a c h o f t h e w o r k e r s a n ' E ' pin. W h y should not t h e
E n v i r o n m e n t a l P r o t e c t i o n A g e n c y , for e x a m p l e , b e a u t h o r i z e d
t o g i v e out its o w n E n v i r o n m e n t a l P r o t e c t i o n ' E ' s t o c o m p a n i e s
that accelerate beyond their 'cleanup' timetables, or come up
with ingenious new environment-protecting methods? (Stone,
1975: 2 4 3 ) .

In t h e p h a r m a c e u t i c a l i n d u s t r y it w o u l d not be difficult to a l l o c a t e
a w a r d s for o u t s t a n d i n g a c h i e v e m e n t i n c o m p l i a n c e with G M P s o r
G L P s o r for o u t s t a n d i n g a d v a n c e s i n safety i n n o v a t i o n .

The question of equity

R a d i c a l critics o f c r i m i n a l ( i n ) j u s t i c e s y s t e m s c o r r e c t l y p o i n t out
t h a t w h i l e p o o r p e o p l e get long p r i s o n s e n t e n c e s for m i n o r p r o p e r t y
c r i m e s , c o m p a n y e x e c u t i v e s can fix p r i c e s , defraud c o n s u m e r s o f
m i l l i o n s , and kill and m a i m w o r k e r s w i t h i m p u n i t y . Social j u s t i c e
w o u l d s e e m t o d e m a n d that w e p u r s u e and p r o s e c u t e c o r p o r a t e
c r i m i n a l s w i t h at least as m u c h v i g o u r as t r a d i t i o n a l c r i m i n a l s .
C e r t a i n l y i f t h e law w e r e e n f o r c e d e q u i t a b l y , t h e r e w o u l d b e m o r e
w h i t e - c o l l a r c r i m i n a l s in prison t h a n t h e r e w o u l d be of the blue-
c o l l a r v a r i e t y ( s e e B r a i t h w a i t e , 1979b: 1 7 9 - 2 0 1 ; B r a i t h w a i t e , 1982).
M a n y c r i m i n o l o g i s t s , i n c l u d i n g t h e a u t h o r , favour r e s o l v i n g this
i n e q u i t y by l e t t i n g m o s t of t h e b l u e - c o l l a r offenders o u t of prison
a n d p u n i s h i n g t h e i r c r i m e s with less c o u n t e r p r o d u c t i v e s a n c t i o n s
t h a n a r e c u r r e n t l y a p p l i e d . But for p e o p l e w h o d o not favour that
s o l u t i o n t h e r e is a difficult m o r a l c h o i c e to be m a d e . C a n society
afford t h e u n i m a g i n a b l e cost o f i n v e s t i g a t i n g , p r o c e s s i n g t h r o u g h
t h e c o u r t s and i n c a r c e r a t i n g c o r p o r a t e c r i m i n a l s with t h e same
d e g r e e o f c e r t a i n t y and severity t h a t w e apply t o t r a d i t i o n a l
offenders? Because o f t h e greater complexity of corporate cases,
t h e cost w o u l d b e g r e a t e r t h a n t h e w h o l e a p p a r a t u s o f criminal
justice that we have at the m o m e n t . But the choice is more than
s i m p l y a m a t t e r of cost.

I t has b e e n a r g u e d i n t h e p r e v i o u s s e c t i o n , and t h r o u g h case


s t u d i e s such a s t h a t o f t h e a n o n y m o u s t r a n s n a t i o n a l i n C h a p t e r 4 ,
t h a t u s i n g t h e full force of the law is not always t h e best way of
p r o t e c t i n g t h e p u b l i c i n t e r e s t w h e n a c o r p o r a t e c r i m e has o c c u r r e d .
O f t e n c o n s u m e r s will be b e t t e r p r o t e c t e d by a deal w h e r e b y t h e

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Strategies for controlling corporate crime

c o m p a n y agrees to dismiss certain responsible e m p l o y e e s , imme-


d i a t e l y recall c e r t a i n p r o d u c t s from the m a r k e t , institute r e s t i t u t i v e
m e a s u r e s and r e h a b i l i t a t e its o r g a n i s a t i o n a l p r o c e s s e s t o e n s u r e that
t h e offence will not be r e p e a t e d . L e g a l i s t s w h o opt for an a b s o l u t i s t
p r i n c i p l e o f t h e e v e n - h a n d e d e n f o r c e m e n t o f t h e law w o u l d c a u s e
t h e d e a t h s o f c o n s u m e r s w h i l e s o m e cases slowly d r a g g e d t h r o u g h
the courts.
In some m e a s u r e a choice must be m a d e between equal treatment
u n d e r law and p r o t e c t i n g t h e h e a l t h o f c o n s u m e r s . M y c h o i c e i s
to give p r i o r i t y to t h e latter. F o r this r e a s o n I s u p p o r t the
t h o r o u g h l y i n e q u i t a b l e p r o v i s i o n i n S e c t i o n 306 o f t h e U S F o o d ,
D r u g a n d C o s m e t i c A c t t h a t ' n o t h i n g i n this A c t shall b e c o n s t r u e d
as r e q u i r i n g t h e S e c r e t a r y to r e p o r t for p r o s e c u t i o n , or for t h e
4
i n s t i t u t i o n of libel or i n j u n c t i o n p r o c e e d i n g s , m i n o r v i o l a t i o n s of
this A c t w h e n e v e r he b e l i e v e s that t h e p u b l i c interest will be
a d e q u a t e l y s e r v e d by a s u i t a b l e w r i t t e n n o t i c e or w a r n i n g . ' E v e n the
m i n o r i t y of t r a d i t i o n a l c r i m i n a l offenders w h o benefit from pre-trial
d i v e r s i o n p r o g r a m m e s m e e t d e m a n d s and suffer i n c o n v e n i e n c e
w h i c h w o u l d m a k e t h e m a j o r i t y o p t i o n for food and drug offenders
- r e c e i v i n g a l e t t e r of a d m o n i t i o n in t h e mail - s e e m very a t t r a c t i v e .
T r a d i t i o n a l c r i m i n a l o f f e n d e r s also do n o t g e n e r a l l y benefit from
t h e r o u t i n e F D A policy o f only p r o s e c u t i n g after t h e offender has
b e e n w a r n e d o n c e and failed t o t a k e h e e d . B u r g l a r s w o u l d benefit
e n o r m o u s l y from a c o n s i s t e n t policy of a w a r n i n g only for a first
offence.
I t c o u l d b e a r g u e d t h a t t h e difference b e t w e e n p h a r m a c e u t i c a l
industry crimes and traditional crimes in discretion to prosecute is
o n e o f d e g r e e r a t h e r t h a n o f kind. P r o s e c u t o r i a l d i s c r e t i o n with
t r a d i t i o n a l c r i m e i s , after all, e n o r m o u s ( D a v i s , 1 9 7 1 , 1976;
G a b b a y , 1973). I f r e a d e r s a r e not p e r s u a d e d a b o u t how great the
d i f f e r e n c e is e m p i r i c a l l y , t h e y m i g h t a g r e e with h o w great t h e
d i f f e r e n c e ought to be in t e r m s of p r i n c i p l e s of p r o s e c u t o r i a l dis-
c r e t i o n . W i t h t r a d i t i o n a l i n d i v i d u a l c r i m e , w h i l e t h e r e is a recog-
n i t i o n t h a t e q u a l i t y b e f o r e t h e law is a fiction, we still s u b s c r i b e to
e q u a l i t y b e f o r e t h e law as an ideal to w h i c h we o u g h t to s t r i v e , no
m a t t e r h o w i m p e r f e c t l y . L e g a l fictions fulfil i m p o r t a n t p u r p o s e s , a s
Fuller (1967) pointed out. Some theoreticians of traditional crime
s u g g e s t t h a t e q u a l i t y and u n i f o r m i t y o f t r e a t m e n t (or 'just d e s e r t s ' )
s h o u l d b e t h e p r i m a r y aim o f s e n t e n c i n g p r a c t i c e s , while c r i m e
p r e v e n t i o n s h o u l d be m e r e l y a c o n s t r a i n t w h i c h sets limits to this
g o a l ( e . g . von H i r s c h , 1976). O b v e r s e l y , o t h e r s suggest that c r i m e

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Strategies for controlling corporate crime

p r e v e n t i o n ought to be the primary goal, with equity the constraint,


p r e v e n t i n g e x c e s s i v e l y unfair p e n a l t i e s from b e i n g i m p o s e d for the
s a k e o f c r i m e p r e v e n t i o n ( e . g . M o r r i s . 1974). W h a t I a m a d v o c a t i n g
w i t h r e s p e c t t o c o r p o r a t e c r i m e i n t h e p h a r m a c e u t i c a l industry i s
t h a t e q u a l i t y of t r e a t m e n t u n d e r law be n e i t h e r a p r i m a r y goal n o r a
c o n s t r a i n t . T h e p r i m a r y goal should b e r e d u c t i o n o f risk t o h u m a n
h e a l t h ( c r i m e p r e v e n t i o n ) , and e q u i t y c o n s i d e r a t i o n s should never
c o n s t r a i n t h e a t t a i n m e n t o f this p r i m a r y g o a l . A m o r e e q u i ' a b l e
p r o s e c u t o r i a l or s e n t e n c i n g p r a c t i c e s h o u l d be p r e f e r r e d to a less
e q u i t a b l e o n e if, a n d only if, t h e former d o e s not increase risks to
h u m a n h e a l t h i n c o m p a r i s o n with t h e latter.
F o o d a n d d r u g l a w y e r s t e n d to have a c o n c e r n o v e r w h a t I w o u l d
call p e t t y e q u a l i t y or p e t t y u n i f o r m i t y of t r e a t m e n t of offenders
while ignoring gross inequities in the criminal justice system. Rule-
m a k i n g to c o n s t r a i n a d m i n i s t r a t i v e d i s c r e t i o n which leads to in-
e q u i t a b l e t r e a t m e n t o f food and d r u g offenders a t t r a c t s their
s u p p o r t . Y e t i n e q u a l i t y b e t w e e n the t r e a t m e n t o f food and drug
v e r s u s o t h e r t y p e s of offenders is not an i s s u e . E l i m i n a t i o n of petty
i n e q u a l i t y is, in itself, d e s i r a b l e . H o w e v e r , r e d u c i n g petty sen-
t e n c i n g d i s p a r i t i e s can w i d e n t h e m o r e f u n d a m e n t a l d i s p a r i t i e s
b e t w e e n w h i t e - c o l l a r and t r a d i t i o n a l o f f e n d e r s . T h i s is a feature of
efforts to r e d u c e any kind of p e t t y i n e q u a l i t y w h i c h i g n o r e s global
inequality. For e x a m p l e , equalising income disparities among
d o c t o r s b y i n c r e a s i n g t h e r e m u n e r a t i o n o f G P s t o t h a t o f specialists
a c h i e v e s p e t t y e q u a l i t y a m o n g d o c t o r s . H o w e v e r , i t also i n c r e a s e s
s o c i e t a l i n e q u a l i t y by further w i d e n i n g t h e gap b e t w e e n d o c t o r s as a
c l a s s a n d t h e rest o f t h e p o p u l a t i o n .
T h e F D A s e t t l e s for a w a r n i n g r a t h e r t h a n a p r o s e c u t i o n for o v e r
90 p e r c e n t of first offences. So why not e n a c t a rule which elimin-
a t e s t h e d i s c r e t i o n to victimise a m i n o r i t y by specifying that no first
offence will be p r o s e c u t e d ? O n e a n s w e r is t h a t t h e petty e q u a l i t y is
a c h i e v e d a t t h e e x p e n s e o f e v e n g r e a t e r i n e q u a l i t y b e t w e e n food
a n d d r u g first o f f e n d e r s and o t h e r t y p e s o f criminal offenders w h o
a r e t h r o w n into jail o n t h e i r first offence. M o r e o v e r , petty e q u a l i t y
c a n conflict w i t h o t h e r s u b s t a n t i v e c r i m i n a l j u s t i c e g o a l s . A rule t h a t
n o o n e will b e p r o s e c u t e d u n l e s s t h e y h a v e b e e n p r e v i o u s l y w a r n e d
r e d u c e s i n c e n t i v e s for law o b s e r v a n c e a m o n g firms w h o have not yet
b e e n w a r n e d ( K r e i s b e r g , 1976: 1113). By all m e a n s let us have m o r e
p e t t y e q u a l i t y w h e n its p u r s u i t d o e s not i n c r e a s e t h e r i s k t o h u m a n
health." A d v o c a t e s of this, however, must question the extent to
which it confounds broader justice goals.

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Strategies for controlling corporate crime

The limits ofcriminal law

L e t us e x a m i n e s o m e o f t h e difficulties in a p p l y i n g legal s o l u t i o n s to
m a n y o f t h e p r o b l e m s which occur in the pharmaceutical industry.
As will be c o n s i d e r e d in m o r e detail l a t e r , t h e p r o b l e m of locating
c u l p a b l e i n d i v i d u a l s i s p a r t i c u l a r l y difficult b e c a u s e o f t h e t e n d e n c y
to scapegoat. O n e executive explained that in pharmaceutical com-
p a n i e s . T h e r e ' s a M u r p h y ' s L a w of a kind: If s o m e o n e else can be
b l a m e d , t h e y will."
To my a m a z e m e n t , two A m e r i c a n executives I interviewed
e x p l a i n e d t h a t t h e y h a d held t h e p o s i t i o n o f "vice-president r e s p o n -
sible for g o i n g to j a i l ' and I w a s told of this p o s i t i o n existing in a third
c o m p a n y . L i n e s o f a c c o u n t a b i l i t y had b e e n d r a w n i n t h e o r g a n i s -
a t i o n s u c h t h a t i f t h e r e w e r e a p r o b l e m a n d s o m e o n e ' s h e a d had t o
go on t h e c h o p p i n g b l o c k , it w o u l d be t h a t of the ' v i c e - p r e s i d e n t
r e s p o n s i b l e for going to jail". As will be seen in the next s e c t i o n ,
s t r u c t u r i n g a c c o u n t a b i l i t y in t h i s w a y is m u c h m o r e difficult in t h e
U n i t e d S t a t e s since t h e Park c a s e . Of c o u r s e the c h a n c e s of the
v i c e - p r e s i d e n t a c t u a l l y g o i n g to j a i l , or e v e n b e i n g p r o s e c u t e d for an
o f f e n c e , a r e very slim i n d e e d . T h e s e e x e c u t i v e s p r o b a b l y w o u l d not
h a v e b e e n p r o m o t e d t o v i c e - p r e s i d e n t had they not b e e n willing t o
act as s c a p e g o a t s . If t h e y p e r f o r m w e l l , p r e s u m a b l y they w o u l d be
shifted s i d e w a y s to a safer v i c e - p r e s i d e n c y . C o r p o r a t i o n s can t h e r e -
fore pay s o m e o n e to be t h e i r fall guy. T h i s can be d o n e in v a r i o u s
w a y s . I n r e t u r n for t a k i n g the r a p , g e n e r o u s s e v e r a n c e pay may b e
f o r t h c o m i n g . T h e g e n e r a l p o i n t i s t h a t with c o r p o r a t e c r i m e ,
d e c i s i o n s as to w h i c h i n d i v i d u a l s will be called to a c c o u n t h a v e little
to do w i t h e q u i t y , j u s t i c e or guilt.

L a r g e c o r p o r a t i o n s c a n be q u i t e planful in h o w they set up struc-


t u r e s for a l l o c a t i n g b l a m e . C h a p t e r 3 s h o w e d h o w c o m p a n i e s can
g e t c o n t r a c t o r s t o d o t h e i r dirty w o r k . B i o m e t r i c T e s t i n g I n c . , itself
a safety t e s t i n g c o n t r a c t o r to larger p h a r m a c e u t i c a l c o m p a n i e s ,
s u b c o n t r a c t e d s o m e o f its w o r k t o o t h e r c o m p a n i e s , m a k i n g t h e
t e s t s t w o s t e p s r e m o v e d from t h e c o r p o r a t i o n w h i c h w o u l d p r e s e n t
t h e m to t h e r e g u l a t o r y a g e n c y . S i m i l a r l y , in C h a p t e r 2 t h e use of
a g e n t s outside the c o m p a n y to pass bribes was d o c u m e n t e d . The
l a r g e r t h e c o r p o r a t i o n and t h e m o r e c o m p l e x t h e c o r p o r a t e c r i m e
t h e g r e a t e r t h e d i s t a n c e which can b e p l a c e d b e t w e e n the criminal
m i n d a n d t h e c r i m i n a l act.

P a r t i c u l a r l y from t h e case s t u d i e s in C h a p t e r s 3 and 4, it w a s


c o n c l u d e d t h a t t h e m o s t f u n d a m e n t a l p r o b l e m with t r a d i t i o n a l legal

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Strategies for controlling corporate crime

s o l u t i o n s to c o r p o r a t e crime in the p h a r m a c e u t i c a l industry is that


legal s a n c t i o n s a r e r e s e r v e d for specific harmful acts w h i c h o c c u r at
a p a r t i c u l a r p o i n t in t i m e . T h e p r o b l e m in the p h a r m a c e u t i c a l
i n d u s t r y is u s u a l l y a harmful p a t t e r n of c o n d u c t . It is not so m u c h a
failure to sterilise a s o l u t i o n p r o p e r l y on o n e p a r t i c u l a r d a y ; it is t h e
o n g o i n g failure to h a v e a tight quality c o n t r o l function. C r i m i n a l
l a w fixed at t h e level of specific h a r m s c a n c e r t a i n l y s u p p r e s s , o n e at
a t i m e , s y m p t o m s o f t h e u n d e r l y i n g m a l a i s e . But w i t h o u t reforms o f
t h e faulty c o m p l i a n c e s y s t e m s , n e w s y m p t o m s will be forever sur-
facing. P e r h a p s t h e s o l u t i o n , t h e n , is to m a k e it an offence for a
c o m p a n y to h a v e a s l i p s h o d system for e n s u r i n g c o m p l i a n c e with t h e
law?
S u c h a s o l u t i o n r a i s e s s o m e f u n d a m e n t a l q u e s t i o n s . Most
c r i m i n o l o g i s t s find t h e m o s t o b j e c t i o n a b l e laws d e a l i n g w i t h indi-
v i d u a l s to be t h o s e w h i c h p u n i s h p e o p l e for w h a t they a r e r a t h e r
t h a n for w h a t t h e y d o . It is illiberal to p u n i s h i n d i v i d u a l s for b e i n g a
' v a g r a n t ' , j u v e n i l e s for b e i n g 'likely to l a p s e i n t o a life of vice or
c r i m e ' , o r e v e n e x - o f f e n d e r s for ' c o n s o r t i n g w i t h k n o w n c r i m i n a l s ' .
T h e r e a r e s t r o n g c u r r e n t s of liberal o p i n i o n to w i p e such laws off the
b o o k s a n d p u n i s h o n l y specific h a r m s . Y e t h e r e I am a r g u i n g for the
p u n i s h m e n t of c o r p o r a t i o n s for w h a t t h e y are (a c o m p a n y with a
d i s o r g a n i s e d c o m p l i a n c e s y s t e m ) r a t h e r t h a n for w h a t they did
(produced a non-sterile solution).
T h i s is c e r t a i n l y a c o n c e r n for l a w y e r s w h o a n t h r o p o m o r p h i s e
' c o r p o r a t i o n s ' as ' p e r s o n s ' . H o w e v e r , I fail to see any r e a s o n for a
p r e s u m p t i o n t h a t p u b l i c c o m p a n i e s s h o u l d enjoy t h e s a m e r i g h t s
and privileges as private individuals. A t t e m p t s to control corporate
c r i m e will n e v e r s u c c e e d if t h e y r e m a i n c o n s t r a i n e d by p r i n c i p l e s
d e v e l o p e d t o d e a l with i n d i v i d u a l c r i m e . T h e r e will n e v e r b e
effective c o n t r o l until t h e t w o b e c o m e r e g a r d e d a s q u a l i t a t i v e l y
d i f f e r e n t . L e g a l l y e n f o r c e d r e h a b i l i t a t i o n of a publicly t r a d e d
c o m p a n y i s not t h e s a m e i n v a s i o n o f p r i v a c y a s t h e enforced r e h a b i -
litation of an individual. A t t e m p t i n g to rearrange an organisation
c h a r t is not so o p p r e s s i v e as r e a r r a n g i n g a p s y c h e , especially w h e n
t h e l a t t e r i n v o l v e s e n f o r c e d i n c a r c e r a t i o n . In any c a s e , if we m o v e a
s h o r t s t e p a w a y from c r i m i n a l law, we find t h a t t h e law is p r e p a r e d
t o e n f o r c e r e a r r a n g i n g t h e p s y c h e s o f p e o p l e w h o have d o n e n o
specific h a r m , b u t w h o a r e certified a s ' i n s a n e ' . I f t h e law can c o p e
w i t h d e t e r m i n i n g w h a t e v e r i t m e a n s t o b e ' i n s a n e ' , i t can c e r t a i n l y
c o p e w i t h d e c i d i n g w h e n a c o m p a n y has a n i n a d e q u a t e quality
control system.

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U n d o u b t e d l y , h o w e v e r , t h e v a g u e n e s s o f n o t i o n s such a s
" i n s a n i t y ' a n d ' i n a d e q u a t e quality c o n t r o l s y s t e m ' c a r r i e s d a n g e r s o f
s t a t e a b u s e o f t h i s lack o f definition. Such a b u s e has b e e n a m p l y
d e m o n s t r a t e d with t h e civil c o m m i t m e n t o f t h e ' i n s a n e ' . O n e
w o n d e r s , h o w e v e r , h o w m a n y o f t h e p e o p l e w h o are i n v o l u n t a r i l y
c o m m i t t e d to m e n t a l i n s t i t u t i o n s w o u l d suffer that fate if t h e y could
call on t h e legal r e s o u r c e s a large c o r p o r a t i o n w o u l d use to defend
its i n v o l u n t a r y r e o r g a n i s a t i o n .
In s u m m a r y , t h e n , we are willing to use far g r e a t e r o p p r e s s i o n to
r e g u l a t e i n d i v i d u a l s for w h a t t h e y a r e t h a n w e w o u l d d a r e apply t o
c o r p o r a t i o n s for w h a t t h e y a r e . Y e t t h e justification for e m p h a s i s on
w h a t c o r p o r a t i o n s a r e r a t h e r t h a n w h a t they d o i s g r e a t e r t h a n with
i n d i v i d u a l s . It h a s b e e n seen that o n e specific c o r p o r a t e act might
n o t be so e g r e g i o u s on its o w n , but m i g h t a s s u m e g r e a t i m p o r t a n c e
as p a r t o f a p a t t e r n of c o n d u c t . M o r e o v e r , w h i l e it is often difficult
to s a n c t i o n c o m p a n i e s for w h a t they do ( e . g . c o n s p i r e to fix p r i c e s ) it
is often m o r e s t r a i g h t f o r w a r d to r e g u l a t e t h e m for w h a t t h e y are
( p a r t of an o l i g o p o l y ) .
It is i m p o s s i b l e to o v e r e s t i m a t e t h e e x t e n t to which existing law
h a s failed to deal with c o r p o r a t e c r i m e . Surely n o t h i n g could be
m o r e s t a g g e r i n g t h a n t h e fact t h a t (to my k n o w l e d g e at least) t h e
t h a l i d o m i d e d i s a s t e r led t o n o t o n e successful p r o s e c u t i o n nor one
successful p r i v a t e suit in a c o u r t of law a n y w h e r e in t h e w o r l d .
A l l o w i n g t h a t kind of s i t u a t i o n to c o n t i n u e is t h e price we will pay
for c o n t i n u i n g to a p p l y legal p r e c e p t s fixed in t h e i d e o l o g y of
i n d i v i d u a l i s m to c o l l e c t i v i t i e s . In t h e U n i t e d S t a t e s , w i t h the in-
c r e a s i n g a p p l i c a t i o n o f t h e R I C O ( R a c k e t e e r Influenced and
C o r r u p t O r g a n i s a t i o n s ) s t a t u t e ( S c h m i d t , 1980) t o o r g a n i s e d c r i m e
a n d s o m e t y p e s of w h i t e - c o l l a r c r i m e t h e r e is a g r o w i n g r e a l i s a t i o n
that creative statutes a p p r o p r i a t e to the patterns of conduct of
collectivities are n e e d e d . Putting aside the wider debate about the
s o u n d n e s s of R I C O as a statute, what is heartening about R I C O is
t h a t it m a n i f e s t s a r e c o g n i t i o n of t h e n e e d for radically different
legal t o o l s for n e w e c o n o m i c r e a l i t i e s .

The demerits of legal codification

T h e q u e s t i o n m u s t b e r a i s e d w h e t h e r for m a n y o f t h e legal p r o b l e m s
in t h e p h a r m a c e u t i c a l i n d u s t r y an i n q u i s i t o r i a l system in w h i c h
s c i e n t i s t s d o m i n a t e o v e r l a w y e r s w o u l d b e p r e f e r a b l e t o a n adver-
s a r i a l s y s t e m . T h i s s e e m s t o b e t h e view o f F D A G e n e r a l C o u n s e l ,

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Strategies for controlling corporate crime

Richard Cooper, i n s o m e o f his t e s t i m o n y before t h e K e n n e d y


subcommittee.

T h a t gets into my next q u e s t i o n - w h e t h e r c r o s s - e x a m i n a t i o n


really is an a p p r o p r i a t e and efficient way to d e c i d e these issues.
C r o s s - e x a m i n a t i o n in my u n d e r s t a n d i n g as a l a w y e r and my
e x p e r i e n c e as a l i t i g a t o r , is very useful w h e n we have issues of
c r e d i b i l i t y , w h e n m e m o r y and o b s e r v a t i o n are i m p o r t a n t and you
w a n t t o p r o b e t o see j u s t exactly w h a t t h e p e r s o n o b s e r v e d , w h a t
he r e a l l y r e c a l l s . B u t for the k i n d s of issues t h a t are involved in a
m o n o g r a p h p r o c e e d i n g on the interpretation of data, it seems to
me t h a t c r o s s - e x a m i n a t i o n is simply an o p p o r t u n i t y to w a s t e a lot
o f t i m e , and t h a t t h e m a r g i n a l c o n t r i b u t i o n t o k n o w l e d g e from
c r o s s - e x a m i n a t i o n i n t h o s e c i r c u m s t a n c e s i s very low c o m p a r e d t o
its c o s t s in t e r m s of t i m e and r e s o u r c e s t h a t are d e v o t e d to it. I
think the q u e s t i o n s even if there are disputes about what the data
m e a n , w h a t t h e c o n s e q u e n c e s w o u l d b e o f a p p r o v i n g a d r u g , are
n o t a m e n a b l e very well t o c r o s s - e x a m i n a t i o n ( S u b c o m m i t t e e o n
H e a l t h , 1978: 1583).

O n t h e o t h e r h a n d o n e w o u l d not w a n t t o see scientific inquisi-


tions which are totally devoid o f a d v e r s a r i n e s s . O n e o f t h e reasons
that ' e x p e r t s ' are not to be trusted is their t e n d e n c y to eliminate
conflicting v i e w p o i n t s in t h e n a m e of logical c o n s i s t e n c y . ' A s the
a n c i e n t d i a l e c t i c i a n s k n e w , in o r d e r to k e e p a d i s c u s s i o n going it is
often n e c e s s a r y t o " m a k e t h e w e a k e r case t h e s t r o n g e r " ' ( M a j o n e ,
1979: 5 7 9 ) . I n q u i s i t o r i a l a p p r o a c h e s m u s t e n s u r e t h a t t h e i d e o l o g y
o f e x p e r t i s e d o e s n o t s u p p r e s s conflict. P o t e n t i a l l y , i n q u i s i t i o n s can
b e t t e r k e e p o p e n radical r e i n t e r p r e t a t i o n s o f t h e p r o b l e m t h a n can
t h e t r a d i t i o n a l a d v e r s a r y a p p r o a c h . T h i s i s b e c a u s e w h i l e t h e latter
t e n d s to fix d e b a t e at a b i n a r y conflict, i n q u i s i t i o n s can a c c o m -
m o d a t e multiple dialectics.
T h e r e a r e also g r e a t d a n g e r s i n a t t e m p t s a t t h e legal codification
o f scientific c r i t e r i a . S o m e l a w y e r s a r g u e t h a t t h e r e s h o u l d b e m o r e
r u l e s specifying t h e c o n d i t i o n s u n d e r w h i c h F D A scientists can use
their discretion to d e t e r m i n e a drug as unsafe. The problem with
s u c h r u l e s i s t h a t t h e y w o u l d have t o b e c o n s t a n t l y u p d a t e d t o k e e p
p a c e w i t h scientific a d v a n c e s . S c i e n c e a l w a y s c h a n g e s faster t h a n
a n y form of law b e c a u s e , by d e s i g n , law a i m s for stability w h e r e a s
s c i e n c e a i m s a t g r o w t h and t r a n s f o r m a t i o n b y r e v o l u t i o n a r y
p a r a d i g m shifts.
S c i e n t i s t s u n d e r s t a n d a b l y r e s e n t s e e i n g d i s p u t e s settled o v e r t h e

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Strategies for controlling corporate crime

legal m e a n i n g o f t h e rule r a t h e r t h a n o v e r w h e t h e r i t i s a p p r o p r i a t e
(scientifically) t o a p p l y t h e rule t o t h e p a r t i c u l a r c a s e . D e b a t e
s h o u l d not b e o v e r t h e m e a n i n g o f w o r d s but o v e r the s u b s t a n c e o f
s c i e n c e . P e r h a p s t h e r e a r e g o o d scientific r e a s o n s for a p p l y i n g a rule
t o m o s t c a s e s s u b s u m e d u n d e r it. B u t the rule h a v i n g b e e n w r i t t e n ,
i n d i v i d u a l c a s e s are t h e n d e c i d e d a c c o r d i n g t o the rule r a t h e r than
a c c o r d i n g t o t h e s c i e n c e w h i c h g e n e r a t e d t h e r u l e . T h e legal codifi-
c a t i o n of s c i e n c e has p e r h a p s a l r e a d y g o n e t o o far in t h e r e g u l a t i o n
o f t h e p h a r m a c e u t i c a l i n d u s t r y . It is a d e v e l o p m e n t to be r e g r e t t e d
t h a t m o s t r e g u l a t o r y affairs d i r e c t o r s of large US c o m p a n i e s are
t o d a y l a w y e r s , w h e n o n c e t h e y w e r e scientists. Surely m o r e r a t i o n a l
d e c i s i o n s on r i s k - b e n e f i t q u e s t i o n s are likely to c o m e out of n e g o t i -
a t i o n b e t w e e n s c i e n t i s t s t h a n from litigation b e t w e e n l a w y e r s .
L o n F u l l e r ( 1 9 6 4 : 3 3 ) s u g g e s t s t h a t only t w o t y p e s o f p r o b l e m s are
s u i t e d to a full j u d i c i a l - l e g a l p r o c e s s : ' y e s - n o q u e s t i o n s ' (Did he do
it? W a s t h e r e a b r e a c h o f c o n t r a c t ? ) , and ' m o r e o r less q u e s t i o n s '
( H o w m u c h s h o u l d b e paid i n d a m a g e s ? ) , o r s o m e m i x t u r e o f t h e s e
t w o q u e s t i o n s . P o l a n y i ( 1 9 5 1 : 174-84) d i s t i n g u i s h e s ' p o l y c e n t r i c '
p r o b l e m s from t h e s e . P o l y c e n t r i c p r o b l e m s are not well suited t o
t h e j u d i c i a l m o d e l . T h e y r e q u i r e r e c o n c i l i a t i o n o f c o m p l e x inter-
a c t i n g c o n s e q u e n c e s of a m u l t i f a c e t e d policy. W h e t h e r , and if so
h o w , I B M s h o u l d be b r o k e n up is a p o l y c e n t r i c p r o b l e m . It has
interdependent consequences for inflation, unemployment,
e c o n o m i c g r o w t h and A m e r i c a ' s e c o n o m i c p o w e r i n t h e w o r l d
s y s t e m . T h e i m p l i c a t i o n s of a ' y e s ' or ' n o ' d e c i s i o n d e p e n d on ' h o w '
a n d ' w h e n ' . D e c i d i n g w h e t h e r , and if so h o w , to recall a drug is a
p o l y c e n t r i c p r o b l e m i n v o l v i n g t h e c o s t s o f t h e r e c a l l , the d a n g e r t o
p a t i e n t s w h o use t h e d r u g , t h e d a n g e r t o p a t i e n t s from w h o m the
d r u g m i g h t b e w i t h h e l d , c o m m u n i t y p a n i c , possible u n e m p l o y m e n t
i n t h e c o m p a n y affected, and d e t e r r e n c e o f c o m p a n i e s with i n a d e -
q u a t e q u a l i t y c o n t r o l s . D e g r e e of p o l y c e n t r i s m is clearly a con-
t i n u u m . H o w e v e r , it is a useful c o n s t r u c t for a n a l y s i n g t h e c i r c u m -
stances in which the judicial-legal model is viable.
W i t h polycentric p r o b l e m s it might be more a p p r o p r i a t e to sub-
s t i t u t e w h a t J o w e l l ( 1 9 7 3 : 216) calls ' s u b s t a n t i v e d u e p r o c e s s '
(affecting t h e q u a l i t y o f t h e d e c i s i o n r e a c h e d ) for ' p r o c e d u r a l due
p r o c e s s ' (affecting t h e p r o p r i e t y o f t h e p r o c e d u r e involved i n r e a c h -
ing a d e c i s i o n ) . W h i l e t h e j u d i c i a l i n t e r p r e t a t i o n of laws m i g h t not
be a c o n s t r u c t i v e w a y of d e c i d i n g h o w to deal with a d a n g e r o u s
p r o d u c t , it m i g h t n e v e r t h e l e s s be r e g a r d e d as i m p o r t a n t to insist on
a p u b l i c d e c i s i o n - m a k i n g p r o c e s s in w h i c h all affected p a r t i e s are

312
Strategies for controlling corporate crime

a b l e t o p a r t i c i p a t e and i n which t h e g o v e r n m e n t must p r o v i d e


r e a s o n s for its d e c i s i o n . J o w e l l s e e s a ' d a n g e r in s u b m i t t i n g
decisions to " p r o c e d u r a l due p r o c e s s " , where "substantive due
p r o c e s s " is not p o s s i b l e ; a d a n g e r of w h a t has b e e n referred to as
" s y m b o l i c r e a s s u r a n c e " - a t e c h n i q u e w h e r e b y the m y t h s and
s y m b o l s s u r r o u n d i n g t h e state are i n v o k e d i n o r d e r t o a c h i e v e the
" q u i e s c e n c e " of a p o t e n t i a l l y critical p u b l i c ' ( J o w e l l , 1973: 2 1 7 ) .
C h a y e s ( 1 9 7 6 ) , in a p r o v o c a t i v e a n a l y s i s , p u t s an o p p o s i t e p o i n t
of view - t h a t c o u r t s have definite a d v a n t a g e s o v e r a d m i n i s t r a t i v e
d e c i s i o n - m a k i n g for p o l y c e n t r i c p r o b l e m s . T h e a d v a n t a g e s which
C h a y e s s e e s for j u d i c i a l r e s o l u t i o n o f c o m p l e x public policy q u e s -
t i o n s c a n b e s u m m a r i s e d i n p o i n t form:

1 J u d g e s c o m e from a professional t r a d i t i o n which insulates


t h e m from n a r r o w political p r e s s u r e s . M o r e specifically,
b e c a u s e o f j u d i c i a l i n v o l v e m e n t w i t h a w i d e array of p r o b l e m s
w h i c h cut a c r o s s i n d u s t r y l i n e s , j u d g e s are less s u s c e p t i b l e to
being 'captives of industry' than specialised regulatory
agencies.
2 J u d i c i a l l y i m p o s e d r e s o l u t i o n s can be m o r e flexible and b e t t e r
tailored to the needs o f t h e particular situation. Bureaucratic
d e c i s i o n s , i n c o n t r a s t , m u s t c o n f o r m w i t h b r o a d e r policy
guidelines.
3 A d v e r s a r i a l h e a r i n g s p r o v i d e s t r o n g i n c e n t i v e s for affected
p a r t i e s to c o m e f o r w a r d with i n f o r m a t i o n and for that
i n f o r m a t i o n t o b e critically r e v i e w e d b y o p p o s i n g p a r t i e s .
4 U n l i k e an a d m i n i s t r a t i v e b u r e a u c r a c y or a l e g i s l a t u r e , t h e
j u d i c i a r y must r e s p o n d t o t h e c o m p l a i n t s o f t h e a g g r i e v e d .
T h e r e might be delay, but resolution o f t h e problem cannot be
indefinitely p o s t p o n e d o r i g n o r e d .
5 B e i n g n o n - b u r e a u c r a t i c , t h e j u d i c i a r y can t a p r e s o u r c e s and
e x p e r t i s e o u t s i d e itself and o u t s i d e t h e g o v e r n m e n t . 'It d o e s
n o t w o r k t h r o u g h a rigid, m u l t i l a y e r e d h i e r a r c h y o f n u m e r o u s
officials, b u t t h r o u g h a smallish r e p r e s e n t a t i v e task force,
a s s e m b l e d a d h o c , and easily d i s m a n t l e d w h e n t h e p r o b l e m i s
finally r e s o l v e d . ' ( C h a y e s , 1976: 1309).

C h a y e s ' s a r g u m e n t s are well t a k e n . H o w e v e r , with t h e e x c e p t i o n


of p o i n t 4 a b o v e , t h e y refer to a d v a n t a g e s w h i c h are not u n i q u e to
j u d i c i a l m o d e s of p r o b l e m - s o l v i n g . Ad hoc c o m m i t t e e s of e n q u i r y
c o n s t i t u t e d o f s c i e n t i s t s o r o t h e r e x p e r t s can share the s t r e n g t h s o f
flexibility, professional objectivity, political detachment, and

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a d v e r s a r i n e s s (to t h e e x t e n t that the l a t t e r is w a r r a n t e d for t h e


specific p r o b l e m ) . I n d e e d , an ad hoc c o m m i t t e e of e n q u i r y ,
t r i b u n a l , o r c o m m i s s i o n surely has g r e a t e r flexibility a d v a n t a g e s b y
v i r t u e of b e i n g less b o u n d to legal p r e c e d e n t s and p r o c e d u r a l con-
s t r a i n t s . I n d e p e n d e n t c o m m i t t e e s can not only tap e x p e r t i s e
a v a i l a b l e o u t s i d e t h e g o v e r n m e n t , they can also be constituted of
p e o p l e with the most relevant expertise.
T h e r e a r e c i r c u m s t a n c e s w h e r e t h e very real p r o b l e m s t o w h i c h
C h a y e s refers i n b u r e a u c r a t i c solving o f p o l y c e n t r i c q u e s t i o n s
a s s u m e g r e a t p r o p o r t i o n s . I a m s u g g e s t i n g t h a t w h e n this h a p p e n s ,
it m a y be m o r e a p p r o p r i a t e to shift to an i n d e p e n d e n t c o m m i t t e e
m o d e for r e c o m m e n d i n g p u b l i c policy. C h a y e s neglects t h e p o i n t s
r a i s e d h e r e a b o u t t h e w a y t h a t legal codification i m p o s e s a debili-
t a t i n g s t r a i t j a c k e t on t h e c a p a c i t y of c o u r t s to solve p o l y c e n t r i c
p r o b l e m s . S e c o n d , a s C h a y e s d o e s c o n c e d e : "the c o u r t has little
b a s i s for e v a l u a t i n g c o m p e t i n g claims on t h e public p u r s e ' (p. 1309).
W e i g h i n g alternative solutions to polycentric problems almost
invariably involves allocative decisions. While the disadvantage of
i n d e p e n d e n t c o m m i t t e e s i s that t h e i r r e c o m m e n d a t i o n s can b e
o v e r r u l e d p o l i t i c a l l y , t h i s i s a t the s a m e t i m e a n a d v a n t a g e , b e c a u s e
o n l y t h e p o l i t y is e q u i p p e d to a s s u m e r e s p o n s i b i l i t y for c o m p e t i n g
claims on the public purse.
L e t u s t h e n r e t u r n t o o u r t h e m e b y c o n s i d e r i n g s o m e further
d a n g e r s i n h e r e n t i n e x c e s s i v e codification. T h e s e i n c l u d e rigidity
a n d i n c r e a s e d cost b e c a u s e of e i t h e r t h e necessity of e r r i n g on the
c a u t i o u s side o r t h e n e c e s s i t y o f litigation o v e r t h e m e a n i n g o f t h e
r u l e . E l s e w h e r e ( S u t t o n and W i l d , 1978; B r a i t h w a i t e , 1980) i t has
b e e n a r g u e d t h a t t h e e n a c t m e n t o f m o r e and m o r e laws t o c o n t r o l
c o r p o r a t e c o n d u c t can r e b o u n d t o the a d v a n t a g e o f t h e r e g u l a t e d
corporations.

T h e m o r e formal a n d c o m p l e x t h e b o d y o f law b e c o m e s , the m o r e


it will o p e r a t e in favour of f o r m a l , r a t i o n a l b u r e a u c r a t i c g r o u p s
s u c h a s c o r p o r a t i o n s . I n o n e s e n s e , t h e r e f o r e , 'law' and ' j u s t i c e '
m a y b e f u n d a m e n t a l l y i r r e c o n c i l a b l e ( S u t t o n and W i l d , 1978:
195).

A p r o l i f e r a t i o n of laws m e a n s a p r o l i f e r a t i o n of l o o p h o l e s o v e r
w h i c h legal a r g u m e n t is p o s s i b l e . I n d e e d , "The m o r e precise a rule
i s , t h e m o r e likely it is to o p e n up l o o p h o l e s - to p e r m i t by implica-
t i o n c o n d u c t t h a t t h e rule w a s i n t e n d e d t o forbid' ( P o s n e r , 1977:
4 2 5 ) . T h e a p p l i c a b i l i t y o f t h e s e a r g u m e n t s t o a r e a s such a s tax law i s

314
Strategies for controlling corporate crime

t r a n s p a r e n t . H o w e v e r , t h e i r force w i t h r e s p e c t t o t h e r e g u l a t i o n o f
a r e a s like G M P s i s l i m i t e d . I n p r a c t i c e , c o m p a n y l a w y e r s find i t
difficult to use t h e d o c t r i n e s implicit in o n e p a r t o f t h e food and drug
law in t h e U n i t e d S t a t e s as justification for a c t i o n s t h a t e v a d e o t h e r
p a r t s o f t h e s a m e b o d y o f law.
T h e r e are a n u m b e r o f r e a s o n s for t h i s . F i r s t , m a n y o f t h e F D A
r e g u l a t i o n s a r e i n h e r e n t l y s i m p l e , a l m o s t o f the w e i g h t s and
m e a s u r e s v a r i e t y . S e c o n d , t h e l e n g t h y p r o c e s s o f c o n s i d e r i n g all
i n d u s t r y o b j e c t i o n s t o n e w r e g u l a t i o n s w h e n they are first
a n n o u n c e d b y t h e F D A i n t h e F e d e r a l R e g i s t e r forces industry t o
s h o w its h a n d o v e r any o b j e c t i o n s i t h a s . T a x p a y e r s d o not write t h e
tax laws, but in c o n s i d e r a b l e m e a s u r e drug c o m p a n i e s write the
drug r e g u l a t i o n s . H e n c e , if a c o m p a n y a t t e m p t s to challenge the
a u t h o r i t y of a r e g u l a t i o n in c o u r t on t h e g r o u n d s of its i n c o n s i s t e n c y
w i t h o t h e r F o o d , D r u g a n d C o s m e t i c A c t r e g u l a t i o n s , the q u e s t i o n
c a n b e a s k e d : ' W h y did y o u not raise this s u p p o s e d i n c o n s i s t e n c y
w i t h t h e o t h e r r e g u l a t i o n s d u r i n g t h e i n d u s t r y c o n s u l t a t i o n s o n the
r e g u l a t i o n ? ' T h i r d , t h e p r o l i f e r a t i o n of laws on the b o o k s is limited
by t h e fact t h a t w h e n a n e w set of r e g u l a t i o n s is e n a c t e d , t h e slate is
w i p e d c l e a n o f t h e old r e g u l a t i o n s and m o s t o f t h e case law associ-
a t e d w i t h it. F o o d a n d d r u g law d o e s not p r o c e e d by an i n c r e m e n t a l
p l u g g i n g o f g a p s t o t h e e x t e n t w h i c h s e e m s typical o f m a n y o t h e r
a r e a s o f c o r p o r a t e r e g u l a t i o n . F i n a l l y , a c c o r d i n g t o c e r t a i n dis-
g r u n t l e d l a w y e r s from large c o m p a n i e s , t h e F D A c o n t r o l s the case
law effectively by t a k i n g on small c o m p a n i e s in the early cases u n d e r
a n e w r e g u l a t i o n . A c a s e law f a v o u r a b l e to t h e a g e n c y is e s t a b l i s h e d
a g a i n s t u n f o r m i d a b l e a d v e r s a r i e s . T h a t case law can t h e n b e used
later against the larger companies.
N e v e r t h e l e s s , at a c o m p l e t e l y different l e v e l , it can be a r g u e d t h a t
t h e r e is an overspecification of drug regulations. Even though the
p r o l i f e r a t i o n of r e g u l a t i o n s d o e s not u l t i m a t e l y m a k e it easier for
p h a r m a c e u t i c a l c o m p a n i e s t o e v a d e t h e law, t h e c o m p a n i e s m a k e
efforts t o find l o o p h o l e s i n t h e r e g u l a t i o n s . W h e n the c o m p a n i e s are
s e e n b y t h e r e g u l a t o r s a s a l w a y s t r y i n g t o find l o o p h o l e s , t h e
r e s p o n s i b i l i t y o f t h e r e g u l a t o r i s seen t o b e t o plug t h o s e l o o p h o l e s
a h e a d o f t i m e . S p e c i f i c a t i o n s can p r o l i f e r a t e w h e n c o m p a n i e s are
s e e n as likely to be i n n o v a t i v e in finding l o o p h o l e s . B u t w h e n the
specifications have reached myriad p r o p o r t i o n s , the c o m p a n i e s
attack the regulatory agency over the tedious regulatory burden. In
1
t u r n , t h e r e g u l a t o r s p l e a d t h a t they h a v e n o a l t e r n a t i v e .
T h e r e is an a l t e r n a t i v e : to step b a c k from the w h o l e g a m e of cat

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Strategies for controlling corporate crime

a n d m o u s e - to t r a n s f o r m it from a legal g a m e into a n e g o t i a t i n g


g a m e . I n s t e a d of d e a l i n g with an i n a d e q u a t e system by p u t t i n g a
n e w l a y e r of r e g u l a t i o n s on t o p o f t h e existing p r o c e s s to c h e c k all its
d e c i s i o n s , t h e o r g a n i s a t i o n a l defects c a u s i n g the p r o b l e m s w h i c h
n e c e s s i t a t e t h e r e g u l a t i o n s can be d i a g n o s e d . A c r e a t i v e solution to
t h e s e r o o t p r o b l e m s can t h e n b e n e g o t i a t e d b e t w e e n i n s p e c t o r and
c o m p a n y . E v e r y day i n s p e c t o r s get m a n u f a c t u r e r s t o m a k e c h a n g e s
w i t h o u t r e g u l a t i o n s t o b a c k u p t h e i r r e q u e s t . T h e y a c h i e v e this
e i t h e r t h r o u g h t h e g o o d w i l l they h a v e built u p with the m a n u f a c -
t u r e r o r t h r o u g h using t h e i r b a r g a i n i n g p o w e r . F o r e x a m p l e , t h e
i n s p e c t o r can d e m a n d t h a t t h e safety i m p r o v e m e n t b e m a d e 'or I'll
be b a c k o n c e a m o n t h l o o k i n g for t h i n g s to n a b you o n ' . Such t h r e a t s
do not sit c o m f o r t a b l y w i t h o u r views of h o w j u s t i c e s h o u l d be
a d m i n i s t e r e d . H o w e v e r , I suspect that most companies would
p r e f e r to live w i t h a little of such s t a n d o v e r every n o w and t h e n t h a n
w i t h m y r i a d s of d e t a i l e d r e g u l a t i o n s . I am not a r g u i n g that
n e g o t i a t i o n g a m e s a r e a l w a y s b e t t e r for all c o n c e r n e d t h a n legal
g a m e s . I t d e p e n d s o n t h e c o n f i g u r a t i o n o f t h e activities o n e i s
a t t e m p t i n g to r e g u l a t e . The point is that there is an alternative to
t h e e x h a u s t i n g cat and m o u s e a p p r o a c h t o l o o p h o l e s .

T h e r e are certain areas w h e r e , if the c o m p a n y is determined to


play legal cat and m o u s e , t h e r e is little a l t e r n a t i v e b u t for the
r e g u l a t o r y a g e n c y t o j o i n in. F o r m e r F D A G e n e r a l C o u n s e l ,
R i c h a r d M e r r i l l , tells o f o n e m a n u f a c t u r e r with w h o m F D A had
e n g a g e d in ' e l e v e n different l a w s u i t s , and e a c h t i m e we h a v e w o n a
l a w s u i t he has c h a n g e d t h e d r u g a little bit, c h a n g e d t h e labelling a
little bit, a n d s a i d , " A h a , i t i s not t h e s a m e o n e you c o n d e m n e d
b e f o r e " ' ( H u g h e s a n d B r e w i n , 1 9 7 9 : 2 7 6 - 7 ) . T h e C o r d i s case study
a l s o i l l u s t r a t e d this t a c t i c .
J u s t i c e d e l a y e d c a n b e profits r e t a i n e d . G r e e n ( 1 9 7 8 : 129-35)
p r o v i d e s as o n e of m a n y i l l u s t r a t i o n s of this p r i n c i p l e t h e efforts of
U p j o h n l a w y e r s t o d e l a y t h e w i t h d r a w a l from t h e m a r k e t o f P a n a l b a
o n c e i t h a d b e e n found b y t h e F D A t o b e unsafe. U p j o h n w a s
g r o s s i n g S I . 5 m i l l i o n a m o n t h from US P a n a l b a sales w h i l e its
l a w y e r s e x p e d i t e d t h e d e l a y i n g t a c t i c s . G r e e n even m a n a g e d t o
b r i n g t o g e t h e r e v i d e n c e from t h e m o u t h s o f t o p c o m p a n y l a w y e r s t o
confirm the w i d e s p r e a d tactic.

N o w I w a s b o r n , I t h i n k , to be a p r o t r a c t o r . . . . I quickly r e a l i z e d
in my e a r l y d a y s at t h e bar t h a t I c o u l d t a k e t h e simplest a n t i t r u s t
c a s e t h a t J u d g e H a n s e n [ A n t i t r u s t D i v i s i o n chief] could t h i n k o f

316
Strategies for controlling corporate crime

a n d p r o t r a c t it for t h e d e f e n s e a l m o s t to infinity. . . . I f y o u will


l o o k at t h a t r e c o r d [United States v. Bethlehem Steel] you will see
i m m e d i a t e l y t h e B r o m l e y p r o t r a c t o r t o u c h i n t h e third line.
P r o m p t l y after t h e a n s w e r w a s filed I s e r v e d q u i t e a c o m p r e -
h e n s i v e set of i n t e r r o g a t o r i e s on t h e G o v e r n m e n t . I said to
myself, ' T h a t ' l l tie b r o t h e r H a n s e n up for a w h i l e , ' and I w e n t
a b o u t o t h e r b u s i n e s s ( E x - j u d g e B r u c e B r o m l e y , i n G r e e n , 1978:
128).

D e l a y w a s a l s o t h e o r d e r o f t h e d a y , a s s h o w n i n C h a p t e r 5 , with
t h e t e t r a c y c l i n e class a c t i o n s . Y e t this case study is a lesson in h o w ,
w i t h a j u d g e w h o will r e s o r t to p r o c e d u r a l i n n o v a t i o n , it is possible
t o o v e r c o m e t h e d e l a y i n g t a c t i c s , t h e c o m p l e x i t y o f t h e facts and the
law to r e a c h a s o l u t i o n . W i t h c a s e s of such m a g n i t u d e ( w h e r e the
cost o f t h e l i t i g a t i o n itself b e g i n s t o h a v e significant e c o n o m i c con-
s e q u e n c e s ) J u l i u s S t o n e ' s m a x i m , t h a t it may be b e t t e r t h a t a
q u e s t i o n be settled t h a n it be settled r i g h t , g a i n s force. It w o u l d be
u n r e a l i s t i c , h o w e v e r , t o e x p e c t m o s t j u d g e s t o s h o w t h e virtuosity o f
a J u d g e L o r d . In a d d i t i o n to his u n u s u a l skill and e n e r g y , he
e n j o y e d a special m a n d a t e from t h e C h i e f J u s t i c e o f t h e U n i t e d
States to clean up the tetracycline mess. W h e n one considers that
m o s t c o m p l e x c o r p o r a t e cases m u s t b e d e a l t w i t h b y a v e r a g e j u d g e s
o f a v e r a g e c o n s e r v a t i s m o n e c a n n o t but b e pessimistic a b o u t the
limits o f legal s o l u t i o n s .

A c e n t r a l c o n c l u s i o n of this b o o k is t h a t t h e r e g u l a t i o n of t h e
p h a r m a c e u t i c a l i n d u s t r y has b e c o m e m o r e a n e g o t i a t i o n g a m e t h a n
a legal g a m e a n d t h a t t h i s will b e c o m e e v e n m o r e t r u e in the future.
F i g u r e 9.1 s u m m a r i z e s h o w in spite of an e n o r m o u s i n c r e a s e in
e n f o r c e m e n t e x p e n d i t u r e o v e r t h e last forty y e a r s , the n u m b e r o f
c a s e s t a k e n t o c o u r t b y t h e F D A has steadily d e c l i n e d . T h e d r o p i n
criminal p r o s e c u t i o n s b y F D A has b e e n e v e n m o r e d r a m a t i c , falling
from a p e a k of 550 in 1947 to fewer t h a n 50 a y e a r in t h e late 1970s
( H e a v i s i d e , 1980: 7 8 ) . A t o p official in t h e A u s t r a l i a n H e a l t h
D e p a r t m e n t e x p l a i n e d w h a t h a p p e n e d w h e n t h e d e p a r t m e n t first
a s k e d c o m p a n i e s t o p r o v i d e t h e m with i n f o r m a t i o n o n transfer
p r i c e s t o assist P B S p r i c i n g d e c i s i o n s . M a n y o f t h e c o m p a n i e s said:
' W e ' l l g i v e y o u t h i s i n f o r m a t i o n w h e n y o u r laws d e m a n d it.' B u t
t h e s e c o m p a n i e s s o o n found t h a t i t w a s i n t h e i r i n t e r e s t s t o p r o v i d e
the transfer pricing information when they confronted interminable
d e l a y s i n g e t t i n g t h e i r P B S listing. I n A u s t r a l i a , m u c h m o r e t h a n t h e
U n i t e d S t a t e s , b o t h sides find i t c h e a p e r i n t i m e and m o n e y t o play

317
Strategies for controlling corporate crime

40001

3500

in 3000
c
2500

1 2000
o
1500
S
2 1000

500

fiscal year

Figure 9.1 Total seizures, injunctions and prosecutions taken to court by


the F D A . Figure with permission from Heaviside (1980:82)

n e g o t i a t i n g r a t h e r t h a n legal g a m e s . W h e n o n e c o m p a n y t o o k t h e
A u s t r a l i a n H e a l t h D e p a r t m e n t t o c o u r t t o c h a l l e n g e one o f its
r e g u l a t o r y d e c i s i o n s , a s e n i o r H e a l t h D e p a r t m e n t official p o i n t e d
o u t to t h e c o m p a n y in a t e l e p h o n e c o n v e r s a t i o n c e r t a i n activities
w h i c h w o u l d justify a p r o s e c u t i o n of t h e c o m p a n y by the g o v e r n -
m e n t . T h e lesson w a s l e a r n e d . T w o could play the legal g a m e . I t w a s
b e t t e r t h a t b o t h sides limit t h e m s e l v e s t o t h e n e g o t i a t i o n g a m e .
T h e r e is a f u n d a m e n t a l historical reality u n d e r l y i n g t h e a b o v e .
N e g o t i a t i o n is n o t t h e n o r m a l w a y for a s o v e r e i g n state to c o n t r o l
p r i v a t e u n i t s . O r g a n i s a t i o n s w h i c h are m u c h m o r e powerful t h a n
t h e i r a d v e r s a r i e s d o n o t g e n e r a l l y h a v e t o resort t o n e g o t i a t i o n . B u t
a s t h e a d v e r s a r y b e c o m e s m o r e e q u a l i n p o w e r t o the c o n t r o l l e r ,
control t h r o u g h negotiation increasingly b e c o m e s the preferred
o p t i o n . W e h a v e s e e n t h i s sociological reality with r e l a t i o n s
b e t w e e n e m p l o y e r s and u n i o n s . E a r l i e r this c e n t u r y u n i o n s w e r e
c o n t r o l l e d b y e m p l o y e r s t h r o u g h t h e m e c h a n i s m s o f law. A s late a s
1936, the S u p r e m e C o u r t of the United States d e t e r m i n e d a
m i n i m u m w a g e act a s a n u n c o n s t i t u t i o n a l i n t e r f e r e n c e with the
f r e e d o m o f p r o p e r t y . T r a d e u n i o n activities w e r e a t t a c k e d using t h e
l a w o f c o n s p i r a c y . B u t a s t r a d e u n i o n s b e c a m e m o r e o r g a n i s e d and
powerful, n e g o t i a t i o n rather than prosecution became the more
viable way of resolving disputes. E m p l o y e r - e m p l o y e e relations

318
Strategies for controlling corporate crime

h a v e in a s e n s e seen a shift from status to c o n t r a c t to collective


bargaining.
T h e a r g u m e n t is, t h e n , t h a t p h a r m a c e u t i c a l c o m p a n i e s n o w
a p p r o a c h i n p o w e r t h e states which r e g u l a t e t h e m . I n s o m e c a s e s ,
t h e c o m p a n i e s c o n f r o n t g o v e r n m e n t s w h i c h have smaller G N P s
t h a n t h e i r a n n u a l c o r p o r a t e sales. H a r d political realities d i c t a t e
t h a t in this s i t u a t i o n it is difficult for t h e state to be s o v e r e i g n in the
e n f o r c e m e n t o f its l a w s . N e g o t i a t i o n b e t w e e n e q u a l s increasingly
r e p l a c e s law e n f o r c e m e n t . B u t i n spite o f t h e t r e m e n d o u s cost and
difficulty of p r o s e c u t i n g c o m p l e x c r i m e s by large e n t i t i e s , p r o s e c u -
t i o n r e m a i n s a tool w h i c h states can c o n t i n u e to use selectively.
T h e y do not use it e n o u g h . W h i l e t h e cost of e q u a l j u s t i c e u n d e r law
is b e y o n d the r e a c h of e v e n t h e U n i t e d S t a t e s , no c o u n t r y can afford
not to have periodic showcase prosecutions of serious corporate
a b u s e s t o foster d e t e r r e n c e .

Individual versus corporate liability


O n e c a n n o t d o r e s e a r c h o n c o r p o r a t e c r i m e w i t h o u t b e i n g im-
p r e s s e d by t h e i r r a t i o n a l fear e x e c u t i v e s h a v e of p r o s e c u t i o n - fear
o u t of all p r o p o r t i o n to t h e o b j e c t i v e risks. C o r p o r a t i o n s and cor-
p o r a t e e x e c u t i v e s a r e d e f e r r a b l e in a w a y t h a t m u r d e r e r s are not.
T h e i r offences a r e not c r i m e s o f p a s s i o n . T h e t h r e a t t o c o m m u n i t y
p r e s t i g e from a c r i m i n a l p r o s e c u t i o n , or e v e n from having o n e ' s
c o r p o r a t e c o n d u c t t h e subject o f g r u e l l i n g c r o s s - e x a m i n a t i o n
( w i t n e s s t h e A b b o t t c a s e study o f C h a p t e r 4 ) , are viewed with great
a p p r e h e n s i o n ( M a n n e t a l . , 1980).
W i t h a c t o r s w h o view t h e m s e l v e s a s pillars o f r e s p e c t a b i l i t y , the
h a b i t - f o r m i n g function o f p u n i s h m e n t i s p e r h a p s m o r e i m p o r t a n t
t h a n d e t e r r e n c e . H e n c e , s o m e e x e c u t i v e s a b s t a i n from b r i b e r y
b e c a u s e t h e y a r e afraid o f b e i n g p u n i s h e d . M o s t a b s t a i n from
b r i b e r y b e c a u s e t h e y view i t a s i m m o r a l . O n e r e a s o n t h a t t h e y view
it as i m m o r a l is that executives who bribe are sometimes punished
a n d h e l d u p t o p u b l i c s c o r n . D o a w a y with c r i m i n a l p u n i s h m e n t and
y o u d o a w a y w i t h m u c h o f t h e sense o f m o r a l i t y which m a k e s
s e l f - r e g u l a t i o n p o s s i b l e . S e l f - r e g u l a t i o n and p u n i t i v e r e g u l a t i o n are
t h e r e f o r e c o m p l e m e n t a r y r a t h e r t h a n a l t e r n a t i v e s . A n o t h e r sense
in w h i c h this is t r u e is t h a t r e g u l a t o r s c a n often p e r s u a d e c o m p a n i e s
t o i n s t i t u t e s e l f - r e g u l a t o r y m e a s u r e s only b e c a u s e t h e c o m p a n i e s
k n o w t h a t r e g u l a t o r s can always r e s o r t t o c r i m i n a l e n f o r c e m e n t
should they choose.

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Strategies for controlling corporate crime

F o r t h e r e a s o n s set d o w n in the p r e v i o u s s e c t i o n , the following


F D A policy o f s e l e c t i v e p r o s e c u t i o n i s s e n s i b l e :

In deciding w h e t h e r to r e c o m m e n d prosecution in particular


c a s e s , w e c o n s i d e r several i n t e r r e l a t i n g f a c t o r s , including: (1) the
s e r i o u s n e s s o f t h e v i o l a t i o n : (2) e v i d e n c e o f k n o w l e d g e o r i n t e n t ;
(3) t h e p r o b a b i l i t y of effecting future c o m p l i a n c e by t h e firm in
q u e s t i o n as well as o t h e r s similarly s i t u a t e d as a result o f t h e
p r e s e n t a c t i o n ; (4) t h e r e s o u r c e s a v a i l a b l e t o c o n d u c t
i n v e s t i g a t i o n s n e c e s s a r y t o c o n s u m m a t e the case successfully;
a n d ( u n d e r l y i n g all of t h e s e ) (5) t h e e x t e n t to which the action will
benefit c o n s u m e r s i n t e r m s o f p r e v e n t i n g r e c u r r e n c e s o f t h e
v i o l a t i o n t h r o u g h o u t t h e i n d u s t r y ( F i n e , 1976: 328).

U n f o r t u n a t e l y , h o w e v e r , this policy is i n t e r p r e t e d in p r a c t i c e to
s u b s u m e very few c a s e s a s a p p r o p r i a t e for p r o s e c u t i o n . C o n s e -
q u e n t l y , t h e d e t e r r e n t and h a b i t - f o r m i n g functions o f U S food and
d r u g law a r e b e i n g e r o d e d . T h e case for m o r e p r o s e c u t i o n s hardly
n e e d s t o b e l a b o u r e d . W h o o r w h a t s h o u l d b e t h e subject o f the
s h o w c a s e p r o s e c u t i o n s t h e n b e c o m e s t h e key q u e s t i o n . S h o u l d i t b e
c u l p a b l e i n d i v i d u a l s w i t h i n the c o r p o r a t i o n o r the c o r p o r a t i o n
itself, o r b o t h ?
T h e a r g u m e n t a g a i n s t i n d i v i d u a l liability has m o s t frequently
b e e n , as d i s c u s s e d e a r l i e r , t h a t t h e i n d i v i d u a l s found c u l p a b l e will
b e j u n i o r s c a p e g o a t s w h i l e t h e m a n i p u l a t o r s a t t h e t o p o f the
o r g a n i s a t i o n g o free. W i t h c o r p o r a t e p r o s e c u t i o n s n o individual
m i g h t be t e r r i b l y a d v e r s e l y affected, y e t it is g e n e r a l l y the m o r e
s e n i o r p e o p l e i n t h e c o r p o r a t i o n w h o feel m o s t t h e stigma associ-
a t e d w i t h t h e p r o s e c u t i o n . S o m e w o u l d say t h a t in t h e food and drug
a r e a this w h o l e a r g u m e n t has b e e n t u r n e d a r o u n d b y the Park
decision.
J o h n P a r k w a s t h e C h i e f E x e c u t i v e Officer o f A c m e M a r k e t s , a
n a t i o n a l food r e t a i l e r w i t h 3 6 , 0 0 0 e m p l o y e e s . H e w a s c h a r g e d with
v i o l a t i n g t h e F o o d , D r u g and C o s m e t i c A c t b y a l l o w i n g food t o b e
s t o r e d in a B a l t i m o r e w a r e h o u s e w h i c h w a s r o d e n t infested. T h e
c r u c i a l q u e s t i o n w a s h o w r e s p o n s i b l e c o u l d P a r k be for a r o d e n t
p r o b l e m in B a l t i m o r e w h e n his office was in P h i l a d e l p h i a . In 1972
P a r k had r e c e i v e d a l e t t e r from t h e F D A c o m p l a i n i n g of c o n d i t i o n s
in t h e B a l t i m o r e w a r e h o u s e . P a r k c a l l e d in his v i c e - p r e s i d e n t for
legal affairs w h o i n f o r m e d him that t h e B a l t i m o r e division vice-
p r e s i d e n t "was i n v e s t i g a t i n g t h e s i t u a t i o n i m m e d i a t e l y and w o u l d be
t a k i n g c o r r e c t i v e a c t i o n and w o u l d b e p r e p a r i n g a s u m m a r y o f t h e

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Strategies for controlling corporate crime

c o r r e c t i v e a c t i o n t o reply t o t h e l e t t e r . ' H e n c e , the d e f e n d a n t


c l a i m e d he had d o n e all t h a t c o u l d r e a s o n a b l y be e x p e c t e d of a chief
e x e c u t i v e officer to rectify t h e p r o b l e m . N e v e r t h e l e s s , w h e n the
F D A r e - i n s p e c t e d t h e w a r e h o u s e and found t h a t t h e p r o b l e m had
n o t b e e n rectified. P a r k w a s c h a r g e d .
F D A ' s c o n t e n t i o n w a s t h a t P a r k had failed t o e n s u r e that his
c o m p a n y had a d e q u a t e S O P s for e n s u r i n g h y g i e n i c w a r e h o u s e con-
d i t i o n s . T h e S u p r e m e C o u r t u p h e l d P a r k ' s c o n v i c t i o n and t h e fine
of $50 on e a c h of five c o u n t s . ' In d o i n g so t h e C o u r t reaffirmed the
v i e w in Dotterweich" t h a t w h e r e d a n g e r s to public h e a l t h are
i n v o l v e d , ' T h e a c c u s e d , i f h e d o e s not will t h e v i o l a t i o n , usually is in
a p o s i t i o n to p r e v e n t it with no m o r e c a r e t h a n society might
r e a s o n a b l y expect and no more exertion than it might reasonably
e x a c t from o n e w h o a s s u m e d his r e s p o n s i b i l i t i e s . ' So the Park
d e c i s i o n i n t e r p r e t e d t h e F o o d , D r u g and C o s m e t i c A c t a s i m p o s i n g
on t h e c h i e f e x e c u t i v e of a large c o r p o r a t i o n a d u t y of foresight and
v i g i l a n c e a n d a r e s p o n s i b i l i t y to e n s u r e t h a t m e a s u r e s to p r e v e n t
v i o l a t i o n s a r e i m p l e m e n t e d . T h e Park d e c i s i o n falls j u s t short of
i m p o s i n g a s t a n d a r d of strict liability on t h e chief e x e c u t i v e officer.
It i m p o s e s a duty of e x t r a o r d i n a r y c a r e . Park r e c o g n i s e s a defence
of i m p o s s i b i l i t y ; t h a t if t h e d e f e n d a n t can s h o w t h a t he or she
e x e r c i s e d e x t r a o r d i n a r y c a r e , liability i s a v o i d e d . But a b s o l u t e
r e l i a n c e on any single i n d i v i d u a l , no m a t t e r h o w t r u s t w o r t h y , is
t a k e n as insufficient to satisfy t h e s t a n d a r d of c a r e r e q u i r e d .

T h e Park d e c i s i o n w a s c o n t r o v e r s i a l b e c a u s e it e s t a b l i s h e d the
p r i n c i p l e t h a t i n d i v i d u a l s c a n be held c r i m i n a l l y liable for acts they
did not c o m m i t , a n d of w h i c h they had no k n o w l e d g e . F o r an
offence w h i c h is t h e s u b j e c t of only a relatively small fine, p e r h a p s
this c a n be justified for t h e s a k e of a s t a n d a r d of e x t r a o r d i n a r y care
t o p r o t e c t h u m a n h e a l t h . B u t t h e r e i s p r o v i s i o n for i m p r i s o n m e n t
u n d e r t h e F o o d , D r u g a n d C o s m e t i c A c t . S o t h e Park d e c i s i o n
c o u l d be used to i m p r i s o n an e x e c u t i v e in similar c i r c u m s t a n c e s ,
t h o u g h , as y e t , it has not b e e n so u s e d . T h e i m p r i s o n m e n t of p e o p l e
w h o lack c r i m i n a l i n t e n t s e e m s a s o u n d way of u n d e r m i n i n g public
c o m m i t m e n t t o t h e m o r a l force o f t h e c r i m i n a l law. A t t h e o t h e r
e x t r e m e , w h e n o r d i n a r y c i t i z e n s see u n e m p l o y e d p e o p l e going t o
p r i s o n for m i n o r theft and large c o r p o r a t i o n s e n d a n g e r i n g t h e
p u b l i c h e a l t h with r o d e n t - i n f e s t e d w a r e h o u s e s going u n p u n i s h e d ,
this also u n d e r m i n e s r e s p e c t for t h e law.

T h e Park d e c i s i o n is o b j e c t i o n a b l e b e c a u s e it p e r m i t s the im-


p r i s o n m e n t of i n d i v i d u a l s for acts of which t h e y had no k n o w l e d g e .

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Strategies for controlling corporate crime

H o w e v e r , a s t a n d a r d of e x t r a o r d i n a r y c a r e is not i n h e r e n t l y o b j e c -
t i o n a b l e if it is a p p l i e d to the c o r p o r a t i o n as a w h o l e , or if the
s a n c t i o n s w h i c h can be i m p o s e d on i n d i v i d u a l s do not run to
d e p r i v a t i o n of liberty.
T h e s t r e n g t h o f t h e Park d e c i s i o n is t h a t it sheets h o m e r e s p o n -
sibility to t h e p e o p l e w h o can m a k e a difference. P e r h a p s t h e most
r e c u r r e n t t h e m e from m y i n t e r v i e w s with p h a r m a c e u t i c a l e x e c u -
t i v e s w a s t h a t t h e a t t i t u d e of a c o r p o r a t i o n to the law filters d o w n
from t h e c h i e f e x e c u t i v e officer. If he or she d e m a n d s high stan-
d a r d s , t h e c o r p o r a t i o n will o b s e r v e high s t a n d a r d s . I n t h e w o r d s o f
one interviewee:

If a l o w e r level e x e c u t i v e c o m e s into t h e p r e s i d e n t and s a y s , ' W e


h a v e this p r o b l e m : We could get a r o u n d it by. . . . ' A n d t h e
p r e s i d e n t s a y s , ' Y o u ' r e not s u g g e s t i n g w e bend the rules. N o t
u n d e r any c i r c u m s t a n c e s . ' T h e n h e w o n ' t c o m e back t o him a g a i n
w i t h this kind of s o l u t i o n . If, on t h e o t h e r h a n d , he says: "Look,
it's y o u r c o n c e r n t o get a r o u n d this p r o b l e m t h e best way you can.
I d o n ' t w a n t to k n o w h o w you do it, but j u s t get t h e j o b d o n e ' ,
t h e n t h e l o w e r level e x e c u t i v e will go and b e n d t h e rules.

M r B r u c e B r e n n a n , v i c e - p r e s i d e n t and g e n e r a l c o u n s e l o f the
P h a r m a c e u t i c a l M a n u f a c t u r e r s Association, was even prepared to
c o n c e d e t h a t since Park F D A i n s p e c t o r s have b e g u n d r o p p i n g
n o t i c e s o f s u s p e c t e d o r p o t e n t i a l v i o l a t i o n s with t h e c h a i r m a n o r
p r e s i d e n t : 'So t h e s e n i o r officials s t a r t e d b e c o m i n g m o r e a w a r e i n
t h a t r e g a r d , b u t t h e y k n e w o f t h e i r r e s p o n s i b i l i t y right a l o n g ' ( S u b -
c o m m i t t e e on H e a l t h , 1978: 1 6 3 0 ) . ' Of c o u r s e if a virtual strict
liability s t a n d a r d can fairly be a p p l i e d to a n y o n e it is. as in Park, the
c h i e f e x e c u t i v e . T h e chief e x e c u t i v e has b o t h a special duty of care
by v i r t u e o f t h e e x t r e m e l y r e s p o n s i b l e p o s i t i o n he or she v o l u n t a r i l y
t a k e s o n a n d has t h e p o w e r t o p r e v e n t o r c o r r e c t d a n g e r o u s con-
d i t i o n s . D e f e n d e r s o f t h e Park s t a n d a r d a g a i n s t t h o s e w h o w o u l d
p r e f e r to see a r e t u r n to a n e g l i g e n c e s t a n d a r d also point out that no
o n e has e v e r a l l e g e d t h a t t h e r e is a history of a b u s e flowing from t h e
Park d e c i s i o n . T h e F D A has not s h o w n a w i l l i n g n e s s to i m p o s e
c r i m i n a l s a n c t i o n s on c o m p a n y p r e s i d e n t s and has n e v e r a r g u e d for
t h e i m p r i s o n m e n t o f a n y o n e u n d e r t h e Park s t a n d a r d .
I r r e s p e c t i v e o f w h e t h e r o n e a p p r o v e s o r d i s a p p r o v e s o f t h e Park
d e c i s i o n , it m u s t be seen as h e a l t h y at least in r e s p e c t of b e i n g part of
a l a r g e r t h r u s t to r e n d e r t h e chief e x e c u t i v e officer m o r e legally
v u l n e r a b l e . T h e ability o f t h e chief e x e c u t i v e officer to k e e p his or

322
Strategies for controlling corporate crime

h e r o w n h a n d s c l e a n w h i l e h a v i n g u n d e r l i n g s d o the dirty w o r k i s
p r o v e r b i a l . H e n c e , w i t h all t y p e s o f c o r p o r a t e c r i m e i t i s i m p o r t a n t
t h a t wilful b l i n d n e s s be a c c e p t e d as e q u i v a l e n t to k n o w l e d g e ( F i s s e ,
1973: 2 5 5 - 7 ) .
W h i l e t h e law is g e n e r a l l y r e l u c t a n t to i m p o s e criminal liability
for k n o w i n g o f a c r i m e and failing to p r e v e n t it. this p r i n c i p l e should
not b e c a r r i e d o v e r t o t h e c o n t e x t o f t h e c o r p o r a t i o n . W h e n the
c h i e f e x e c u t i v e officer k n o w s of (or is wilfully blind t o ) a c r i m e and
fails to s t o p it, s/he l e n d s his or h e r a u t h o r i t y tacitly to a p p r o v e t h e
c r i m e . C o m m a n d differs from a u t h o r i s a t i o n only i n t e r m s o f w h i c h
1 0
p a r t y - t h e s u p e r i o r or t h e s u b o r d i n a t e - i n i t i a t e s t h e c r i m e . T h u s ,
it w o u l d often not be u n r e a s o n a b l e to a s c r i b e criminal intent to the
c h i e f e x e c u t i v e officer w h o says: T w a n t t h e j o b d o n e , but I d o n ' t
w a n t t o k n o w h o w y o u d o it.'
In o t h e r a r e a s , t h e law quite h a p p i l y i m p o s e s a duty to k n o w .
O l i v e r W e n d e l l H o l m e s has justified t h e p r i n c i p l e that i g n o r a n c e o f
law s h o u l d be no e x c u s e by a r g u i n g t h a t ' t o a d m i t t h e e x c u s e at all
w o u l d be to e n c o u r a g e i g n o r a n c e . . . and j u s t i c e to the individual is
r i g h t l y o u t w e i g h e d by t h e larger i n t e r e s t s on t h e o t h e r side of t h e
s c a l e s ' ( F l e t c h e r , 1978: 7 3 2 ) . F o r c o r p o r a t i o n p r e s i d e n t s , m u c h
m o r e so t h a n for o r d i n a r y c i t i z e n s , t h e law c a n n o t afford to en-
c o u r a g e i g n o r a n c e . T h e real s t r e n g t h o f t h e Park d o c t r i n e , with all
its a s s o c i a t e d w e a k n e s s e s , is t h a t it i m p o s e s a duty to k n o w .
W h i l e it m i g h t not be a l t o g e t h e r u n r e a s o n a b l e to i m p o s e a virtual
strict liability s t a n d a r d on t h e chief e x e c u t i v e officer, it clearly
w o u l d be u n r e a s o n a b l e to i m p o s e such a s t a n d a r d on those lower-
level officers w h o d o n o t h a v e c o m p a r a b l e d u t i e s o r p o w e r s .
H o w e v e r , t h e sad history o f c o r p o r a t e law e n f o r c e m e n t s h o w s that
p r o v i n g b e y o n d r e a s o n a b l e d o u b t t h e n e g l i g e n c e o f a n individual i n
t h e c o n t e x t of a c o m p l e x o r g a n i s a t i o n is e x t r e m e l y difficult. It is
a l w a y s p o s s i b l e t o b l a m e s o m e o n e e l s e . T h e d e f e n d a n t , X , says h e
w a s a c t i n g u n d e r o r d e r s from Y; Y says he w a s acting on o r d e r s from
Z, b u t Z says t h a t Y m i s c o n s t r u e d his o r d e r s . In any c a s e , Z
c o n t e n d s , p o o r little Y w a s simply following S O P s w h i c h w e r e
w r i t t e n by a c o m m i t t e e c h a i r e d by t h e f o r m e r p r e s i d e n t , w h o died
five y e a r s a g o . ' S t r u c t u r a l c r i m e s ' , i n w h i c h the c o r p o r a t i o n
c o m m i t s a c r i m i n a l offence but no c r i m i n a l l y c u l p a b l e individual
c a n be identified a r e c o m m o n e n o u g h (Yale Law Journal, 1979:
3 5 8 ) . E v e n w h e n t h e r e are c u l p a b l e i n d i v i d u a l s , d e f e n d a n t s enjoy
infinite r e s o u r c e f u l n e s s a t b a m b o o z l i n g c o u r t s with d e m o n s t r a t i o n s
of w h y it really w a s o t h e r s w h o w e r e to b l a m e . In C h a p t e r 4 we saw

323
Strategies for controlling corporate crime

t h a t t h e p r e s u m e d diffusion of a c c o u n t a b i l i t y in a c o m p l e x o r g a n i s -
a t i o n s o m e t i m e s can be a h o a x that t h e c o r p o r a t i o n plays on the rest
o f t h e w o r l d , e s p e c i a l l y c o u r t s and s o c i o l o g i s t s !
I t w a s a r g u e d i n t h a t c h a p t e r that c o m p a n i e s have t w o k i n d s o f
r e c o r d s : t h o s e d e s i g n e d t o a l l o c a t e guilt (for i n t e r n a l p u r p o s e s ) , and
t h o s e for o b s c u r i n g guilt (for p r e s e n t a t i o n to the o u t s i d e w o r l d ) .
W h e n c o m p a n i e s w a n t clearly defined a c c o u n t a b i l i t y t h e y can
g e n e r a l l y get it. Diffused a c c o u n t a b i l i t y is not a l w a y s i n h e r e n t in
o r g a n i s a t i o n a l c o m p l e x i t y ; it is in c o n s i d e r a b l e m e a s u r e the resultof
a d e s i r e to p r o t e c t i n d i v i d u a l s w i t h i n t h e o r g a n i s a t i o n by p r e s e n t i n g
a c o n f u s e d p i c t u r e t o t h e o u t s i d e w o r l d . O n e m i g h t say t h a t c o u r t s
s h o u l d be able to p i e r c e this c o n s p i r a c y of confusion. W i t h o u t
s y m p a t h e t i c w i t n e s s e s from w i t h i n the c o r p o r a t i o n w h o are willing
to h e l p , this is difficult. In the p h a r m a c e u t i c a l i n d u s t r y , at least, the
i n d i c t m e n t o f s e n i o r e x e c u t i v e s for c o r p o r a t e c r i m e s has almost
i n v a r i a b l y b e e n followed b y their a c q u i t t a l , e v e n w h e n the c o r p o r -
a t i o n is c o n v i c t e d .

T h i s t h e r e f o r e c o n s t i t u t e s a good case for c o u r t s c o n c e n t r a t i n g on


finding c o r p o r a t i o n s i n n o c e n t or guilty and t h e n leaving it to the
c o r p o r a t i o n t o sort o u t t h e guilt o r i n n o c e n c e o f i n d i v i d u a l s . "
R e m e m b e r t h a t c o r p o r a t i o n s are e x p e r t a t c u t t i n g t h r o u g h the
a p p a r e n t confusion within their own c o m p l e x organisation systems
1 2
to identify t h e b l a m e w o r t h y . O n c e t h e c o u r t has found a c o r p o r -
a t i o n g u i l t y , it c a n be r e q u i r e d to r e t u r n p r i o r to s e n t e n c e w i t h a
r e p o r t on w h a t it has d o n e to d i s c i p l i n e or dismiss c u l p a b l e indi-
v i d u a l s ( M i t c h e l l C o m m i t t e e , 1977: 3 6 1 - 2 ) . I f t h e c o u r t i s not
p e r s u a d e d t h a t sufficiently s t r i n g e n t i n t e r n a l discipline m e a s u r e s
h a v e b e e n e n f o r c e d t h e n a h e a v i e r s e n t e n c e can b e i m p o s e d o n the
corporation.

T h i s p r o c e d u r e will victimise s c a p e g o a t s j u s t a s d o c o u r t a c t i o n s
a g a i n s t i n d i v i d u a l s . T h e h o p e is, h o w e v e r , t h a t b e c a u s e t h e cor-
p o r a t e goal will be to p e r s u a d e t h e c o u r t t h a t a g o o d j o b has been
d o n e o f identifying t h e m o s t guilty i n d i v i d u a l s ( r a t h e r t h a n t o a r g u e
t h a t t h e s i t u a t i o n is so c l o u d e d that no o n e is to b l a m e for the
' a c c i d e n t ' ) , t h e r e m i g h t b e m o r e j u s t i c e i n w h o i s singled out. T h i s
h o p e m i g h t b e c o m e m o r e realistic i f o n e o r t w o a s t u t e o u t s i d e r s
w e r e included on the c o m m i t t e e of insiders w h o investigate the
a l l o c a t i o n of i n d i v i d u a l guilt.
T h e o t h e r j u s t i f i c a t i o n i s cost. W h e n t h e i n s i d e r s a r e n o t inten-
t i o n a l l y i n j e c t i n g c o n f u s i o n into t h e s t r u c t u r e s o f a c c o u n t a b i l i t y , the
i n v e s t i g a t i o n a n d a d j u d i c a t i o n of i n d i v i d u a l r e s p o n s i b i l i t y will be
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Strategies for controlling corporate crime

m o r e s t r a i g h t f o r w a r d a n d t h e r e f o r e less costly. A n d o f c o u r s e that


cost i s b o m e b y t h e guilty c o r p o r a t i o n r a t h e r t h a n t h e s t a t e . M o r e o f
t h e limited g o v e r n m e n t i n v e s t i g a t o r y and p r o s e c u t o r i a l r e s o u r c e s
a r e left t o p r o s e c u t e o t h e r c r i m e s . T h e r e can b e m o r e d e t e r r e n c e for
the dollar.
There are other r e a s o n s for concentrating prosecutorial
r e s o u r c e s on c o r p o r a t i o n s rather than i n d i v i d u a l s . " While the
n a m e s of c o n v i c t e d officers of a c o m p a n y will m e a n n o t h i n g to the
c o n s u m e r , t h e c o n v i c t i o n o f the c o r p o r a t i o n itself puts t h e con-
s u m e r ( t h e d o c t o r ) o n g u a r d against safety o r o t h e r r e l e v a n t defects
i n t h e p r o d u c t s o f t h a t identifiable c o m p a n y . S m i t h and H o g a n
( 1 9 7 3 : 1 2 4 - 5 ) p o i n t out t h a t w h i l e for guilty c o r p o r a t i o n s a fine can
be in p r o p o r t i o n to t h e g r a v i t y o f t h e offence, such a p e n a l t y will
t y p i c a l l y be b e y o n d t h e m e a n s of a guilty i n d i v i d u a l . " F o r t h e same
r e a s o n t h e c o r p o r a t i o n is in a b e t t e r p o s i t i o n t h a n any i n d i v i d u a l to
r e s t i t u t e v i c t i m s . B e c a u s e fines on i n d i v i d u a l s rarely could be in
p r o p o r t i o n to t h e g r a v i t y o f t h e offence in t h e w a y t h a t fines on the
c o r p o r a t i o n m i g h t b e , c o r p o r a t i o n s m i g h t find i t c h e a p e r t o m a k e
s i d e p a y m e n t s t o ' b r i b e ' e x e c u t i v e s t o a c c e p t individual liability
( E l z i n g a a n d B r e i t , 1976: 133). C r a n s t o n ( 1 9 7 8 : 2 6 7 - S ) has also
s u g g e s t e d a j u s t i c e a r g u m e n t a g a i n s t i n d i v i d u a l liability for cor-
porate crime:

F i r s t l y it is t h e b u s i n e s s t h a t m a k e s any profit w h e n an e m p l o y e e
c o m m i t s an offence. In g e n e r a l t e r m s , t h e result of a p r o s e c u t i o n
is s i m p l y to d e p r i v e t h e b u s i n e s s of t h i s w r o n g l y a c q u i r e d profit,
a l t h o u g h i n p a r t i c u l a r c a s e s t h e b u s i n e s s may b e fined a n a m o u n t
g r e a t e r t h a n t h e profit m a d e o r t h e p u b l i c i t y s u r r o u n d i n g t h e
p r o s e c u t i o n may c a u s e financial loss in e x c e s s o f t h e profit.
S e c o n d l y , it is socially u n d e s i r a b l e for e m p l o y e e s to be p u n i s h e d
for such offences w h i c h they c o m m i t not for t h e i r benefit but in
the course of their e m p l o y m e n t . W h y should they be b l a m e d ?
T h e y a r e l o c k e d i n t o a s y s t e m w h e r e t h e y h a v e to carry out a
c o m p a n y ' s m a r k e t i n g s c h e m e ; in the case of j u n i o r e m p l o y e e s ,
for low w a g e s in an u n c r e a t i v e e n v i r o n m e n t .
T w o general types of c o r p o r a t e crime in the pharmaceutical
i n d u s t r y c a n b e a b s t r a c t e d from t h e c a s e s t u d i e s w h i c h h a v e
b e e n d i s c u s s e d . O n e is t h e offence a r i s i n g from defective or non-
existent S O P s (e.g. t h e C o r d i s case study in C h a p t e r 4 ) ; the other an
offence a r i s i n g from a d e c i s i o n to c o m p r o m i s e S O P s ( e . g . t h e
d e c i s i o n t o r e p l a c e t h e blind m o n k e y i n t h e M E R / 2 9 c a s e s t u d y ) .

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Strategies for controlling corporate crime

Unquestionably, corporate rather than individual liability would


seem to be the more appropriate tool against offences of the first
type. SOPs are typically a manifestation of the collective intelli-
gence ofthe company. Normally they would be written orginally by
a committee, and subsequently modified by a succession of execu-
tives in relevant positions of responsibility. Defective SOPs are a
reflection of poor communication within the organisation and the
absence of ongoing self-critical re-evaluation of how things have
been done in the past. Whether they are a manifestation of sheer
managerial incompetence or a generalised willingness to tolerate
corner-cutting (arguably an incompetent management stance
itself), corporate or chief executive officer liability are clearly more
relevant than liability imposed on middle managers. Certainly there
are practical difficulties in holding contemporary individuals
accountable for the historical sediment of the collective intelligence
of the corporation.

A decision to compromise an adequate SOP is a more difficult


matter. Where a production manager over-rules a quality control
decision to fail a batch of drugs, surely individual criminal liability
for the production manager is appropriate. Undoubtedly so, when
the problem is so cut and dried. But it rarely is. The more common
scenario according to my informants is for shared understandings to
crystallise between the relevant actors. The production manager
ensures that he gets a quality control manager whom 'he can work
with'. Perhaps if there is a production run underway that is vital for
meeting quotas or satisfying impatient customers the importance of
getting the product through quickly will be communicated to the
quality control manager before the testing is done. There is then a
shared understanding among all involved that anyone who high-
lights a problem will not be popular. If it appears to be on the
borderline, it is good enough. If the test results don't look good then
run it again, and if it is an acceptable result the second time, report
that result. Often pieces of a jigsaw puzzle from different members
of the laboratory team will have to be put together to identify a
problem. If everyone is hesitant to come forward with their piece
then the problem will remain unidentified.

Again, each individual is part of a whole that no one of them fully


admits. No individual has done anything heinous, but the collective
fault is unquestionable. The strength of severe sanctions imposed
on the corporation is that most individuals within it are affected in
some small way. Individual liability puts corporate actors on guard
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Strategies for controlling corporate crime

against doing an individually culpable act, but it gives no incentives


for the prevention of collective wrongs.
Let us not overstate the extent to which a sanction imposed on the
corporation provides incentives for one and all to be watchdogs
over collective fault. Certainly it can happen that the upper
echelons o f a company are so stung by the adverse publicity from a
conviction that corporate morale sags all the way down the line.'"
But more likely, lower level employees will be indifferent to the
effect ofthe conviction on the corporation or even pleased that the
boss got what he had coming. Of course it is desirable that the more
senior the employee the more keenly the deterrence is felt. One
wonders, however, if the impact ofthe sanction goes very far down
the organisation at all.
It is possible to conjure up eccentric solutions to ensure in a more
rigorous way that corporate liability will reverberate down the
corporate tree. One would be a sanction which installs a new
president in the company, demotes the incumbent president to
senior vice-president, the senior vice-president to second vice-
president, and so on down the line. Another considered by
Pepinsky (1976: 139) is the imposition of a fine consisting of a
proportion of the salary of each employee and of the dividend of
each shareholder. Such solutions do not recommend themselves to
those who are interested in realpolitik. In practical terms, we must
settle for sanctions imposed on the corporation as a whole with their
uncertain prospects of pervasive impacts throughout the decision-
making levels of the organisation. Nevertheless, it is true that
interventionist sanctions against corporations, such as community
service orders, can be implemented with stronger guarantees that
senior management will be personally inconvenienced than are
possible with fines (see Fisse, 1981).
To the extent that corporate crime ofthe second type is a product
of shared understandings, there is clearly more justice in collective
than in individual attributions of guilt. However, a paradox is that
individual liability might jolt what were comfortable shared under-
standings out into the open. A quality control manager who fears
that there is a realistic possibility that s/he might be held personally
liable for an impure batch of drugs is more likely to adopt a 'protect
your own ass' strategy. That is, s/he is more likely to break out ofthe
shared understanding by writing a memo or taking some other
action to indicate personal opposition to the sale ofthe batch. Once
the quality control manager does this, other actors are likely to
327
Strategies for controlling corporate crime

'protect their asses' by also formally signifying their opposition. T h e


only solution then b e c o m e s not to send the batch out. Individual
liability of t h e s c a p e g o a t i n g k i n d c a n be as effective as j u s t attri-
b u t i o n s o f i n d i v i d u a l liability i n p r o d d i n g a c t o r s t o ' p r o t e c t t h e i r
own asses'.
H e n c e , w h i l e t h e r e m i g h t b e m o r e j u s t i c e i n c o r p o r a t e liability for
m o s t o f t h e t y p e s o f c r i m e w h i c h h a v e b e e n d i s c u s s e d i n this b o o k ,
t h e c o m p l e m e n t a r y a p p l i c a t i o n o f i n d i v i d u a l liability m i g h t t r a n s -
form t h e very reality w h i c h m a k e s c o r p o r a t e liability m o r e j u s t .
W h i l e t h e j u s t i f i c a t i o n for i n d i v i d u a l l i a b i l i t y w i t h t r a d i t i o n a l c r i m e s
is that the p u n i s h m e n t o f w r o n g d o e r s d e t e r s o t h e r s , the stronger
justification in the context of c o r p o r a t e c r i m e is that it e n c o u r a g e s
actors to m a k e self-protective p r o n o u n c e m e n t s to e n s u r e that they
a r e n o t s c a p e g o a t e d . S u c h p r o n o u n c e m e n t s c l o s e off t h e c r i m i n a l
o p t i o n to o t h e r actors who are also i n t e r e s t e d in self-preservation.

I a m not a r g u i n g t h a t c o u r t s s h o u l d not i m p o s e i n d i v i d u a l
c r i m i n a l liability w h e n t h i s s e e m s c l e a r - c u t a n d j u s t . H o w e v e r , talk
o f ' v i c e - p r e s i d e n t s r e s p o n s i b l e for g o i n g t o j a i l ' d o e s give c a u s e for
p e s s i m i s m t h a t c o u r t s c a n n o t a v o i d s c a p e g o a t i n g i n a large p r o p o r -
tion o f c a s e s . This is one o f t h e r e a s o n s I f a v o u r c o u r t s specialising in
the ( m o r e j u s t ) c o r p o r a t e allocations of guilt, while c o r p o r a t i o n s
s p e c i a l i s e i n t h e (less j u s t ) i n d i v i d u a l a l l o c a t i o n s o f guilt. W i t h t h e
l a t t e r , I am not p r o p o s i n g a n e w r o l e for t h e c o r p o r a t i o n . E v e r y day
l a r g e c o m p a n i e s d i s m i s s a n d d e m o t e p e o p l e for r e a s o n s t h a t m i g h t
o r m i g h t not b e j u s t . T h e s t i g m a o f t h e c r i m i n a l l a b e l , h o w e v e r ,
s h o u l d b e used with g r e a t e r g u a r a n t e e s o f j u s t i c e . L e t u s n o w m o v e
o n from t h e s e f u n d a m e n t a l i s s u e s t o t h e specific t y p e s o f s a n c t i o n s
which are available.

Imprisonment and capital punishment

W h i l e a m i n o r i t y o f c r i m i n o l o g i s t s a d v o c a t e c a p i t a l p u n i s h m e n t for
c e r t a i n blue-collar c r i m e s , no o n e s e r i o u s l y suggests it as a sanction
for w h i t e - c o l l a r c r i m e s . C a p i t a l p u n i s h m e n t of a s o r t c a n be a p p l i e d
t o c o r p o r a t i o n s a s well a s i n d i v i d u a l s . W e saw i n t h e I B T c a s e s t u d y
of C h a p t e r 3 t h a t a de facto c o r p o r a t e d e a t h s e n t e n c e w a s i m p o s e d
via b a n k r u p t c y . S o m e c o m m e n t a t o r s s u g g e s t t h a t n a t i o n a l i s a t i o n i s
an a p p r o p r i a t e s a n c t i o n for c o r p o r a t i o n s w i t h a h i s t o r y of flagrant
l a w v i o l a t i o n . T h i s s o l u t i o n will b e d i s c u s s e d l a t e r .
W e h a v e s e e n t h a t the U n i t e d S t a t e s h a s t h e t o u g h e s t laws for
r e g u l a t i n g c o r p o r a t e crime in the p h a r m a c e u t i c a l industry. Yet an

328
Strategies for controlling corporate crime

e x e c u t i v e o f a m a j o r p h a r m a c e u t i c a l c o m p a n y has n e v e r b e e n im-
p r i s o n e d for a v i o l a t i o n of t h e F o o d , D r u g and C o s m e t i c A c t . A
h a n d f u l o f o f f e n d e r s h a v e b e e n i m p r i s o n e d i n the history o f t h e A c t ,
b u t t h e s e h a v e all b e e n i n d i v i d u a l ' q u a c k s ' , p h a r m a c i s t s , o r
m e r c h a n t s . I t i s well d o c u m e n t e d i n t h e s t u d y o f c o r p o r a t e c r i m e
a c r o s s all i n d u s t r i e s t h a t i m p r i s o n m e n t of e x e c u t i v e s is most
u n u s u a l , a n d , e v e n w h e r e i t d o e s o c c u r , s e n t e n c e s are s h o r t . T h e 1 6
officers w h o had b e e n i m p r i s o n e d from t h e 582 c o r p o r a t i o n s i n
C l i n a r d e t a l . ' s ( 1 9 7 9 : xxii) s t u d y served a v e r a g e s e n t e n c e s o f 3 7 . 1
days. C o r p o r a t i o n s themselves, of course, cannot be imprisoned.
T h e r e a r e r e a s o n s w h y i t m i g h t b e a r g u e d that i m p r i s o n m e n t
should be used m o r e with c o r p o r a t e offenders than traditional
c r i m i n a l s . T h e P o l i s h c r i m i n a l c o d e p r o v i d e s for h e a v i e r s e n t e n c e s
for s e n i o r m a n a g e r s c o n v i c t e d o f e c o n o m i c c r i m e s t h a n for j u n i o r
officers c o n v i c t e d o f t h e s a m e c r i m e s . T h e r a t i o n a l e i s that t o p
m a n a g e m e n t e n j o y g r e a t e r p r i v i l e g e s , s o t h e y should also bear
m o r e p r o f o u n d d u t i e s o f i n t e g r i t y . S o m e n o n - l i t e r a t e s o c i e t i e s also
p r o v i d e for h e a v i e r p e n a l t i e s o n powerful t h a n o n p o w e r l e s s
o f f e n d e r s ( N a d e r and T o d d , 1978: 2 0 ) . T h e r e i s also a d e t e r r e n c e
r a t i o n a l e for s u c h s e e m i n g l y i n e q u i t a b l e s e n t e n c i n g . Since it is an
i n e s c a p a b l e r e a l i t y t h a t p o w e r f u l o f f e n d e r s will be able to m a n i p u -
l a t e t h e legal s y s t e m t o a g r e a t e r e x t e n t t h a n p o w e r l e s s o f f e n d e r s ,
c e r t a i n t y of p u n i s h m e n t will a l w a y s be less for t h e powerful. D e t e r -
r e n c e is a f u n c t i o n of b o t h c e r t a i n t y a n d s e v e r i t y of p u n i s h m e n t .
T h e r e f o r e o n e w a y t o e q u a l i s e t h e d e t e r r e n c e o f t h e powerful and
p o w e r l e s s is to i n c r e a s e t h e severity of t h e p u n i s h m e n t of t h e
powerful.
M o r e o v e r , i t h a s b e e n a r g u e d t h a t i m p r i s o n m e n t i s a m o r e effect-
ive d e t e r r e n t w i t h w h i t e - c o l l a r t h a n w i t h t r a d i t i o n a l offenders
b e c a u s e t h e s t i g m a of p r i s o n is m o r e i n t e n s e l y felt by r e s p e c t a b l e
middle- and upper-class people (Geis, 1972; C o f f e e , 1980).
B u s i n e s s e x e c u t i v e s a l s o h a v e m o r e t o l o s e , b o t h financially a n d i n
d i m i n u t i o n o f t h e q u a l i t y o f t h e i r e n v i r o n m e n t , b y m o v i n g from
their n o r m a l situation into prison.
T h e s e a r g u m e n t s a r e all s o u n d as far as t h e y g o . T h e y beg t h e
q u e s t i o n , h o w e v e r , w h e t h e r i m p r i s o n m e n t i s a p a r t i c u l a r l y desir-
a b l e w a y o f d e a l i n g w i t h e i t h e r t r a d i t i o n a l o r w h i t e - c o l l a r offenders.
P r i s o n s a r e c o s t l y , d e h u m a n i s i n g i n s t i t u t i o n s which g e n e r a l l y turn
o u t p e o p l e w h o a r e w o r s e liabilities t o society t h a n w h e n they w e n t
in. I m p r i s o n m e n t , for any t y p e of o f f e n d e r , s h o u l d be used as a last
r e s o r t w h e n i t w o u l d s e e m t o p r o v i d e t h e only way o f p r o t e c t i n g

329
Strategies for controlling corporate crime

society from a dangerous person. There is little choice but to incar-


cerate a psychopathic killer who vows to kill again. But the cor-
porate killer is much more easily incapacitated. A court should be
able to order that a repeatedly reckless quality control manager
never be allowed to hold a key quality control position again.
It is undoubtedly true that white-collar offenders are more
readily deterred by the threat of imprisonment, but that is because
the white-collar offender is more deferrable per se. Upper-class
offenders have a greater stock of community respectability to lose
through the stigma of criminal conviction whether that conviction
results in prison or something else (Mann et al.. 1980). Since white-
collar criminals are generally more solvent than traditional crim-
inals, they can be more readily deterred by large fines." While
white-collar offenders can be deprived of the right to act as
company directors, to practise as physicians or lawyers, blue-collar
offenders have no professional privileges to lose." In sum, white-
collar offenders are inherently more deferrable because they have
more of everything that can be lost."
Class inequality in the resort to imprisonment is of course a
matter of great concern. My solution is greater equity (and probably
less crime) by not incarcerating most of the types of blue-collar
offenders who are currently going to jail."* In any case, deeper
thinking about how to redress the class imbalance in our criminal
justice system leads to the conclusion that lesser use of imprison-
ment means more equity. The problem with corporate crime, as has
been demonstrated time and again in this book, is the difficulty of
clarifying beyond reasonable doubt the facts of a complex corporate
activity. All of the procedural safeguards built up to protect the
powerless from the might ofthe state place an impossible burden on
prosecutors who seek to bring powerful corporations and their
senior executives to justice. Courts have shown an historical un-
willingness to relax these procedural safeguards when loss of liberty
through imprisonment is at stake. When only penalties such as fines
are involved, however, American courts have been prepared to
relax the guarantees ofthe sixth amendment, the protection against
double jeopardy, and the requirement of proof beyond reasonable
doubt (Harvard Law Review. 1979: 1306-7). This makes a strong
case for removing imprisonment provisions from most corporate
crime statutes. The apparent trade-off of less severity for more
certainty is in fact hardly a trade-off at all given the demonstrated
unwillingness of courts to send senior executives to jail.
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Strategies for controlling corporate crime

The fine

The fine is the predominant sanction used against corporate crime.


It is a cheap and efficient form of sanction compared with im-
prisonment. Indeed it raises rather than drains revenue. Because a
fine can be readily repaid with interest, it is the most remissible of all
penalties when injustice is discovered. Fines have a seducing mathe-
matical attraction to those who are concerned with equity in sen-
tencing because of their quantitative adjustability to the offender's
means and the gravity ofthe offence.
Fines are widely assumed to be more appropriate to corporate
than to traditional crime because of the conception of the tradi-
tional offender as irrational or driven by anger, while the corpor-
ation which breaks the law does so as a rational decision to
maximise profit. Simply tune the fine to the size of the profits
illegally obtained and corporate crime will no longer be rational. It
would be difficult, however, to calculate how much extra profit a
company makes as a result of sloppy SOPs. These SOPs might be
causing it to lose money. Even when crime results from a cynical
decision to compromise SOPs, this need not necessarily be done to
increase the company's profit. It might be perpetrated to foster the
growth of a corporate subunit, or to protect the scientific standing of
a new discovery, when such goals are not in the long-run profit-
ability interests of the whole corporation.
Proponents of fines often succumb too readily to a rational
economic conception of corporate crime. While a great deal of
crime is committed for the sake ofcorporate profit, a great deal is
not. It does seem reasonable, nevertheless, that in those cases
where corporate crime can be shown to have increased profits, any
fine should exceed the value of that illegally obtained profit. The
maximum fines available for most corporate offences in most coun-
tries are nowhere near high enough to render this possible. Fines as
they currently operate are justifiably criticised as licence fees to
break the law.
Another criticism ofthe fine is that it harms people who have no
responsible relationship to the offence. The most frequently men-
tioned group in this regard is shareholders. However, shareholders
might suffer no economic burden from fines imposed on a company
because the price they paid for the shares reflected expectations
about the effects of the fine. They will be in front if the illegally
obtained profits are greater than the size of the fine. Shareholders
331
Strategies for controlling corporate crime

benefit w h e n t h e c o r p o r a t i o n m a k e s profits from offences which are


n o t d i s c o v e r e d . T h e y c a n n o t have i t b o t h w a y s . T h a t m a n a g e m e n t
will run foul o f t h e law is no less a n o r m a l i n v e s t m e n t risk t h a n that
m a n a g e m e n t will m a k e a foolish d e c i s i o n on the l o c a t i o n of a n e w
p l a n t . S h a r e h o l d e r s m u s t b e a r t h e r e s p o n s i b i l i t y for t h e s e risks i n
r e t u r n for t h e right t o eject m a n a g e m e n t w h o m t h e y find u n s a t i s -
factory.
T h e n t h e r e i s t h e criticism t h a t t h e c o r p o r a t i o n passes t h e fine
b a c k t o t h e c o n s u m e r i n h i g h e r p r i c e s . T h i s w i d e l y held belief really
h a s l i m i t e d f o r c e . In a highly c o m p e t i t i v e i n d u s t r y a c o m p a n y
c a n n o t afford to p u t up p r i c e s in such an a r b i t r a r y fashion lest it lose
s a l e s to its c o m p e t i t o r s . W i t h i n o l i g o p o l i e s a c o r p o r a t i o n w h i c h is
fined c a n n o t u n i l a t e r a l l y i n c r e a s e its p r i c e s w h e n o t h e r c o r p o r a t i o n s
in t h e o l i g o p o l y ( w h o h a v e not b e e n fined) have no r e a s o n to go
along with i t . " Oligopolies generally attempt to minimise the
f r e q u e n c y of p r i c e c h a n g e s so as to c u t t h e risk of b r e a k d o w n s in
p r i c i n g u n i f o r m i t y a n d a c o m p e t i t i v e price war. P r i c e i n c r e a s e s in
oligopolies therefore normally occur in response to across-the-
b o a r d cost i n c r e a s e s such a s w a g e r i s e s .

H o w e v e r , t h e ability to p a s s on costs is only a p r o t e c t i o n for t h e


t e c h n o s t r u c t u r e o f t h e p a r t i c u l a r c o r p o r a t i o n i f t h e cost i n c r e a s e ,
in t h e m a n n e r of an i n d u s t r y - w i d e w a g e n e g o t i a t i o n , affects all
t h e firms of an i n d u s t r y at a p p r o x i m a t e l y t h e s a m e t i m e and by
m o r e or less t h e s a m e a m o u n t . If t h e i n c r e a s e affects only o n e
firm - if an oil c o m p a n y p a y s m o r e for its c r u d e or a steel c o m p a n y
m o r e for its o r e w h i l e c o s t s for t h e i n d u s t r y as a w h o l e r e m a i n
u n a f f e c t e d - it c a n n o t c o u n t on b e i n g able to i n c r e a s e its p r i c e s .
O t h e r firms m a y not b e c o - o p e r a t i v e ( G a l b r a i t h , 1973: 118).

I n o l i g o p o l i e s , c o r p o r a t i o n s t h e r e f o r e typically h a v e t o a b s o r b
t h e cost o f f i n e s . A d m i t t e d l y , o u t and o u t m o n o p o l i s t s o r p r i c e
l e a d e r s m a y be able to p a s s on fines to c o n s u m e r s in the way
indicated by the critics. E v e n with t h e m , courts can impose on the
c o r p o r a t i o n i n j u n c t i o n s f o r b i d d i n g this ( M c A d a m s , 1978: 9 % ) .
A real c o n c e r n in t h e US with t h e t r a n s m i s s i b i l i t y of fines on
i n d i v i d u a l s i s t h a t t h e y will b e b o r n e b y i n s u r a n c e c o m p a n i e s . N a d e r
et al. ( 1 9 7 6 : 107) found t h a t 80 p e r cent of F o r t u n e 500 c o m p a n i e s
i n d e m n i f i e d t h e i r e x e c u t i v e s a g a i n s t fines arising from t h e p e r f o r m -
a n c e o f t h e i r d u t i e s (see also M c A d a m s and T o w e r , 1978: 8 0 ) .
C o m p a n i e s r e g i s t e r e d i n D e l a w a r e enjoy t h e r i g h t t o insure
e m p l o y e e s a g a i n s t any civil o r c r i m i n a l liability i n c u r r e d i n t h e i r
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Strategies for controlling corporate crime

c a p a c i t i e s a s officers o f t h e c o r p o r a t i o n . D e l a w a r e has b e e n t h e
w i n n e r in a ' r a c e to the b o t t o m ' to see w h i c h state can a t t r a c t the
g r e a t e s t n u m b e r o f i n c o r p o r a t i o n s with t h e m o s t p e r m i s s i v e cor-
p o r a t i o n s t a t u t e s . C l e a r l y , it is d e s i r a b l e , as in E n g l a n d and
A u s t r a l i a , t h a t t h e law forbid i n s u r i n g a g a i n s t p u n i s h m e n t s i m p o s e d
by c o u r t s .
N a g e l ( 1 9 7 9 : 104), in his ' p r o g r a m m e d a p p r o a c h to the fine as a
sanction against c o r p o r a t i o n s ' has suggested two sentencing guide-
l i n e s t o d e a l w i t h the t r a n s m i s s i b i l i t y p r o b l e m :

(i) T h e o f f e n d i n g c o r p o r a t i o n m u s t s t i p u l a t e the m a n n e r i n
w h i c h it p r o p o s e s the loss o c c a s i o n e d by a fine to be b o r n e .
(ii) T h e c o u r t m a y , b y o r d e r , r e q u e s t t h a t the offending
c o r p o r a t i o n furnish such i n f o r m a t i o n as n e c e s s a r y to
d e m o n s t r a t e t h a t the loss o c c a s i o n e d by the fine w a s b o r n e in
t h e m a n n e r by w h i c h it s t i p u l a t e d .

N a g e l ' s g u i d e l i n e s s e e m t o p r o v i d e the best solution a v a i l a b l e t o


t h e p r o b l e m . It is a c o n v e n t i o n a l w i s d o m to d i s p a r a g e the fine as a
s a n c t i o n a g a i n s t c o r p o r a t i o n s . Yet I h a v e a t t e m p t e d to a r g u e that
t h e c o n v e n t i o n a l c r i t i c i s m s a r e not so p e r s u a s i v e as to b a l a n c e the
efficiency and cost a d v a n t a g e s o f t h e fine as the m o s t widely used
c o r p o r a t e s a n c t i o n . In any c a s e , it m a y be t h a t t h e g r e a t e r h o p e for
effective d e t e r r e n c e i s the a d v e r s e publicity t h a t a c c o m p a n i e s t h e
p u n i s h i n g o f a c o r p o r a t i o n r a t h e r t h a n t h e punishment/>er.se. R a l p h
N a d e r , in a p e r s o n a l c o m m u n i c a t i o n , r e c e n t l y suggested that if a
p h a r m a c e u t i c a l c o m p a n y is fined t h e n t h a t fine should go to a p u b l i c
i n t e r e s t g r o u p specifically c o n c e r n e d w i t h the p h a r m a c e u t i c a l
i n d u s t r y ( s u c h a s the H e a l t h R e s e a r c h G r o u p i n the U n i t e d S t a t e s ) .
T h i s s u g g e s t i o n has g r e a t m e r i t . It w o u l d m a k e the fine a d o u b l e -
e d g e d s w o r d for the c o r p o r a t i o n . T h e a d v e r s e publicity e d g e could
b e m o r e hurtful t h a n t h e cost o f t h e f i n e .
An i n t e r e s t i n g c o n c l u s i o n from C r a n s t o n ' s (1979) British study of
c o n s u m e r affairs offences w a s t h a t the larger the offending
c o m p a n y , t h e m o r e n e c e s s a r y t h e fine a s a n a l t e r n a t i v e t o a w a r n i n g
l e t t e r . W i t h a small c o m p a n y , a w a r n i n g letter from a r e g u l a t o r y
a g e n c y will a l m o s t i n v a r i a b l y b e b r o u g h t t o t h e a t t e n t i o n o f t h e chief
e x e c u t i v e officer. B u t t h e larger the c o m p a n y , the m o r e likely that
t h e w a r n i n g will be lost in the i n t e r s t i c e s b e t w e e n o r g a n i s a t i o n a l
s u b u n i t s . H e n c e , one regulator argued:

A f t e r 40 y e a r s of e x p e r i e n c e I am s u r e t h a t , w h e n it c o m e s to a

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Strategies for controlling corporate crime

n a t i o n a l c o m p a n y , o n e little p r o s e c u t i o n saves a lot of hard w o r k .


I n a lot of firms t h e r e is a lack of c o m m u n i c a t i o n b e t w e e n t h e sales
side a n d t h e p r o d u c t i o n side. Y o u can w r i t e l e t t e r s to big
c o m p a n i e s from m o r n i n g to night and it w o n ' t h a v e any effect.
B u t o n e p r o s e c u t i o n will m a k e all the difference ( C r a n s t o n , 1979:
170).

The equity fine

C o f f e e ( 1 9 8 1 ) has p u t f o r w a r d a g e n u i n e i n n o v a t i o n for the


s a n c t i o n i n g of c o r p o r a t e c r i m e - t h e equity fine. U n d e r this form of
' c a p i t a l p u n i s h m e n t ' , t h e guilty c o r p o r a t i o n w o u l d b e forced t o
i s s u e n e w e q u i t y s e c u r i t i e s t o t h e v a l u e o f t h e fine. U n d e r Coffee's
s c h e m e , the securities would be transferred to the state's crime
v i c t i m c o m p e n s a t i o n fund. F o r e x a m p l e , if t h e c o r p o r a t i o n had 5
m i l l i o n s h a r e s o u t s t a n d i n g , a 10 per cent e q u i t y fine w o u l d see
5 0 0 , 0 0 0 s h a r e s h a n d e d o v e r t o t h e victim c o m p e n s a t i o n fund. Exist-
ing s h a r e h o l d e r s w o u l d see t h e value o f their h o l d i n g d r o p i m m e -
d i a t e l y by 10 p e r c e n t .
C o f f e e b e l i e v e s , p r o b a b l y c o r r e c t l y , t h a t hitting s h a r e h o l d e r s i n
t h i s w a y w o u l d force t h e m o s t h a r d b o i l e d a m o n g t h e m t o d e m a n d o f
t h e i r m a n a g e m e n t t h a t effective g u a r a n t e e s o f law c o m p l i a n c e w e r e
i n p l a c e . T h e stock v a l u e s o f c o m p a n i e s which i n v e s t o r s s u s p e c t e d
of i n c o m p e t e n c e at p r e v e n t i n g law v i o l a t i o n s could be e x p e c t e d to
d e c l i n e . B u t is it fair to victimize s h a r e h o l d e r s in this w a y ? Coffee
a n s w e r s b y p o i n t i n g o u t t h a t ' o n c e such fines b e c o m e p r e v a l e n t , i t
c a n also b e a r g u e d t h a t s t o c k h o l d e r s " a s s u m e d t h e r i s k " b y invest-
ing in such a c o m p a n y [one w i t h i n a d e q u a t e c o m p l i a n c e s y s t e m s ] . '
M o r e o v e r , i n c a s e s w h e r e s h a r e h o l d e r s are i n n o c e n t victims o f
m a n a g e m e n t c r i m i n a l i t y , a m e a n s of r e d r e s s is a v a i l a b l e to t h e m :
t h e p e n a l t y c a n be p a s s e d o n t o r e s p o n s i b l e officials t h r o u g h a
d e r i v a t i v e suit.

T h e e q u i t y fine has s o m e i m p o r t a n t a d v a n t a g e s o v e r a cash fine.


To be effective ' r a t i o n a l ' d e t e r r e n t s , c a s h f i n e s w o u l d often have to
be u n c o n s c i o n a b l y h i g h b e c a u s e of t h e low risk of d e t e c t i o n for
c o r p o r a t e c r i m e . F o r i n s t a n c e , if a c r i m e p r o d u c e s a 1 million d o l l a r
b e n e f i t for t h e c o r p o r a t i o n and i f t h e c h a n c e s o f a p p r e h e n s i o n a r e
o n l y 1 in 5 0 , t h e n a c o r p o r a t i o n w o u l d be ' r a t i o n a l ' to c o m m i t the
c r i m e u n l e s s t h e fine e x c e e d e d 50 million d o l l a r s . A 50 million d o l l a r
fine w o u l d b a n k r u p t m a n y c o m p a n i e s o r c a u s e r e t r e n c h m e n t o f
e m p l o y e e s e v e n i n large c o r p o r a t i o n s . T h e b e a u t y o f t h e e q u i t y fine

334
Strategies for controlling corporate crime

is t h a t very large p e n a l t i e s can be i m p o s e d w i t h o u t d e p l e t i n g t h e


c a p i t a l o f t h e c o r p o r a t i o n . I n s t e a d o f r e d u c i n g t h e size o f t h e c a k e , i t
is s i m p l y cut i n t o s m a l l e r p i e c e s . T h e r e is no spillover of s a n c t i o n s
o n t o i n n o c e n t e m p l o y e e s , c r e d i t o r s and s u p p l i e r s .
A n o t h e r a d v a n t a g e o f t h e e q u i t y fine i s t h a t i t h u r t s t o p m a n a g e -
m e n t , w h o g e n e r a l l y h a v e c o n s i d e r a b l e s h a r e h o l d i n g s i n their
c o m p a n y . M o r e i m p o r t a n t l y . Coffee a r g u e s , t h e e q u i t y fine plays o n
t h e fear o f t o p m a n a g e m e n t o f hostile t a k e o v e r b i d s . T h e c r e a t i o n o f
a l a r g e m a r k e t a b l e block of s e c u r i t i e s in t h e h a n d s of t h e c r i m e
victim c o m p e n s a t i o n fund m a k e s t h e c o r p o r a t i o n a n inviting t a r g e t
for t a k e o v e r . W h i l e h a r n e s s i n g m a n a g e m e n t ' s fear o f t a k e o v e r s
w o u l d u n d o u b t e d l y m a k e for effective d e t e r r e n c e . Coffee neglects
t h e q u e s t i o n of w h e t h e r it is d e s i r a b l e to further e x a c e r b a t e indus-
trial c o n c e n t r a t i o n by m a k i n g t a k e o v e r s e a s i e r . It might be sound
a n t i t r u s t policy t o c o n s t r a i n t h e c r i m e victim c o m p e n s a t i o n fund
from d i s p o s i n g of t h e i r s h a r e s in a w a y t h a t w o u l d aid t a k e o v e r s .
L a r g e e q u i t y fines could d e t e r effectively e n o u g h t h r o u g h
f r i g h t e n i n g i n v e s t o r s a w a y from legally risky c o m p a n i e s w i t h o u t t h e
o v e r k i l l of fear of t a k e o v e r . T h e e q u i t y fine is a p r o m i s i n g n e w i d e a
w h i c h is y e t to be fully e v a l u a t e d .

Publicity sanctions
T h e F D A is p r o b a b l y the leading regulatory agency in the world in
its use o f p u b l i c i t y s a n c t i o n s against c o r p o r a t e w r o n g d o e r s ( M o r e y ,
1 9 7 5 ; P i n e s , 1976). All successful c o u r t a c t i o n s are publicised in its
g l o s s y m a g a z i n e , FDA Consumer. T h e F o o d , D r u g and C o s m e t i c
A c t explicitly p r o v i d e s for a d v e r s e p u b l i c i t y : ' T h e S e c r e t a r y shall
c a u s e to be p u b l i s h e d from t i m e to t i m e r e p o r t s s u m m a r i z i n g all
j u d g m e n t s , d e c r e e s , a n d c o u r t o r d e r s w h i c h have b e e n r e n d e r e d
u n d e r t h i s A c t , i n c l u d i n g t h e n a t u r e o f t h e c h a r g e a n d t h e dis-
position t h e r e o f (Section 705a).
In C h a p t e r 6 it w a s a r g u e d t h a t the use of r e m e d i a l a d v e r t i s e -
m e n t s by t h e F D A is a powerful a n d efficient s a n c t i o n . It i m p o s e s a
cost o n t h e c o r p o r a t i o n from a d v e r s e publicity w h i c h should b e
s o m e w h a t c o m m e n s u r a t e with t h e illegal gain from t h e o v e r s t a t e d
a d v e r t i s e m e n t s which are c o r r e c t e d . The sanction is constructive in
t h a t i t sets o u t t o u n d o t h e h a r m i n v o l v e d i n t h e c r i m e . G e n e r a l
d e t e r r e n c e is f o s t e r e d m u c h m o r e explicitly t h a n with a fine b e c a u s e
o t h e r c o r p o r a t i o n s i n t h e i n d u s t r y i n v a r i a b l y see t h e r e m e d i a l
advertisement.
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Strategies for controlling corporate crime

O n e o f t h e criticisms of adverse publicity sanctions is that with


t h e i r m o r e w i d e s p r e a d use t h e p u b l i c w o u l d g r o w w e a r y o f r e a d i n g
a b o u t t h e m . H o w e v e r , t h e g e n e r a l p u b l i c i s not the most a p p r o -
p r i a t e t a r g e t g r o u p for a d v e r s e p u b l i c i t y . E v e n w h e r e it is, it might
be sufficient for t h e a d v e r s e publicity to be d i r e c t e d at o p i n i o n
l e a d e r s or specific g r o u p s w i t h an i n t e r e s t in c a r r y i n g on the a d v e r s e
p u b l i c i t y , such as sales r e p r e s e n t a t i v e s of c o m p e t i n g b u s i n e s s e s or
p u b l i c i n t e r e s t g r o u p s . T h e r e are m a n y target g r o u p s w h i c h are
m u c h s m a l l e r t h a n t h e g e n e r a l p u b l i c . P h y s i c i a n s are t h e t a r g e t
g r o u p i n m e d i c a l j o u r n a l r e m e d i a l a d v e r t i s e m e n t s , and this sub-
g r o u p can b e f u r t h e r n a r r o w e d b y t h e use o f specialists m e d i c a l
j o u r n a l s . T h e financial p r e s s can be t h e o u t l e t with a s e c u r i t i e s
o f f e n c e . H o s p i t a l a d m i n i s t r a t o r s or p h a r m a c i s t s can be t a r g e t s for
a d v e r s e p u b l i c i t y a b o u t a n a n t i t r u s t offence i n w h i c h t h e y a r e
v i c t i m s . F e m i n i s t g r o u p s can b e t a r g e t s for a d v e r s e publicity
c o n c e r n i n g a c o n t r a c e p t i v e m a n u f a c t u r e r , u n i o n s for o c c u p a t i o n a l
h e a l t h a n d safety m a t t e r s , t h e d i p l o m a t i c c o m m u n i t y for foreign
c o r r u p t p r a c t i c e s , and s o o n . R e g u l a t o r y a g e n c i e s should have o n
staff a c r e a t i v e j o u r n a l i s t w h o e n s u r e s t h a t a d v e r s e publicity on a
p r o s e c u t i o n gets h o m e t o w h e r e i t c o u n t s , and t h a t different target
g r o u p s a r e a l w a y s b e i n g c h o s e n t o e n s u r e against d i m i n i s h e d impact
through habituation.

T h e p r i n c i p a l c r i t i c i s m of a d v e r s e publicity s a n c t i o n s is t h a t t h e y
a r e n o t c e r t a i n i n t h e i r i m p a c t s , t h o u g h o t h e r s w o u l d suggest that
t h i s v e r y u n c e r t a i n t y is precisely why t h e y are feared ( F i s s e , 1 9 7 1 ;
Y o d e r , 1978: 5 2 ) . S o m e t i m e s t h e p u b l i c i t y will i m p o s e a c o n s i d e r -
a b l e cost o n t h e c o r p o r a t i o n . T h e r e will e v e n b e s o m e o c c a s i o n s
21
w h e n 'any p u b l i c i t y is g o o d p u b l i c i t y ' and the offender will b e n e f i t .
T h i s d r a w b a c k m u s t b e placed i n t h e c o n t e x t o f t h e total a r g u m e n t
of t h i s b o o k t h a t it is not in t h e p u b l i c i n t e r e s t to h a v e e q u i t a b l e and
c e r t a i n p u n i s h m e n t of c o r p o r a t e crimes in the pharmaceutical
i n d u s t r y . T h a t i s , it is p r e f e r a b l e in most cases to n e g o t i a t e
r e m e d i e s , w h i l e s i n g l i n g o u t c e r t a i n c a s e s for e x e m p l a r y p r o s e c u -
tions.

Seizure

U n l i k e fines a n d p u b l i c i t y s a n c t i o n s , s e i z u r e and injunction are


e x t r a o r d i n a r i l y e x p e n s i v e i n t i m e and m o n e y . S e i z u r e historically
w a s u s e d b y t h e F D A e v e n t o s a n c t i o n offences which had n o t h i n g
to do with t h e q u a l i t y of t h e p r o d u c t seized (such as false

336
Strategies for controlling corporate crime

advertising). F o r m e r F D A G e n e r a l - C o u n s e l , Hutt (1973: 177), has


identified w h a t an inefficient s a n c t i o n seizure is:

. . . [ A ] s e i z u r e r e p r e s e n t s a s u b s t a n t i a l e x p e n d i t u r e of
g o v e r n m e n t a l r e s o u r c e s . It b e g i n s with t h e i n s p e c t o r finding a
p r o b l e m , i s c l e a r e d t h r o u g h t h e D i s t r i c t a n d R e g i o n a l Offices, i s
t h e n c o n s i d e r e d b y t h e A g e n c y B u r e a u i n v o l v e d , from t h e r e i s
p r o c e s s e d b y [the G e n e r a l C o u n s e l ' s ] office, r e q u i r e s t h e
c o n c u r r e n c e o f t h e U . S . A t t o r n e y a n d a c t i o n b y the U . S .
M a r s h a l , a n d u l t i m a t e l y i n v o l v e s a U . S . district j u d g e e v e n i n the
s i m p l e s t c a s e . M a n y s e i z u r e s , involving relatively m i n o r
v i o l a t i o n s , i n c l u d e only a small a m o u n t o f t h e total g o o d s
i n v o l v e d . D u r i n g t h e past ten y e a r s 1 3 % o f our s e i z u r e
r e c o m m e n d a t i o n s w e r e n e v e r e x e c u t e d b e c a u s e the p r o d u c t had
been moved or consumed during the time taken to complete
t h e s e p r o c e d u r e s . . . . O n e p a r t i c u l a r l y d i s t u r b i n g aspect is t h a t ,
as a n y food a n d d r u g l a w y e r k n o w s , t h e i m p a c t of a single s e i z u r e
of a small a m o u n t of a p r o d u c t can be effectively b l u n t e d simply
by filing a c l a i m a n d e n g a g i n g in t h e usual pre-trial d i s c o v e r y . T h e
i n v e n t o r y o f t h e offending p r o d u c t can t h e n b e r e l a b e l e d , o r
e x h a u s t e d w i t h o u t c h a n g e , and a t t h a t p o i n t a c o n s e n t d e c r e e c a n
be a c c e p t e d or t h e claim w i t h d r a w n and t h e c a s e forfeited. In t h e
m e a n w h i l e , t h e p u b l i c i s s u b j e c t e d t o t h e illegal p r o d u c t and the
e n t i r e p u r p o s e o f t h e s e i z u r e i s s u b s t a n t i a l l y d e l a y e d and
subverted.

W h e r e t h e r e i s a p r o d u c t quality p r o b l e m , v o l u n t a r y recall (with


its a t t e n d a n t c o s t s ) c o m b i n e d w i t h a d e g r e e of informal a d v e r s e
p u b l i c i t y is n o r m a l l y t h e m o s t efficient s o l u t i o n .

Interventionist sanctions
A r a n g e of w a y s t h a t p h a r m a c e u t i c a l c o r p o r a t i o n s can effectively
s e l f - r e g u l a t e will b e d i s c u s s e d later. C o m p a n i e s which have s h o w n
by t h e i r c r i m e s an u n w i l l i n g n e s s to s e l f - r e g u l a t e can be r e q u i r e d by
c o u r t s to put c e r t a i n internal compliance systems in place. Com-
p a n i e s w h i c h h a v e i n a d e q u a t e s y s t e m s for e n s u r i n g the quality and
a c c u r a c y of d a t a p r o v i d e d by clinical i n v e s t i g a t o r s could be o r d e r e d
to p r o d u c e a r e p o r t on h o w such c o n t r o l s could be i m p l e m e n t e d ,
h a v e t h e r e c o m m e n d a t i o n s o f t h e r e p o r t a p p r o v e d b y t h e c o u r t , and
t h e n have the i m p l e m e n t a t i o n of the proposals monitored.
T h e r e is a v a r i e t y of m e c h a n i s m s w h e r e b y such i n t e r v e n t i o n in

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Strategies for controlling corporate crime

t h e i n t e r n a l affairs o f t h e c o r p o r a t i o n c o u l d b e a c h i e v e d . I n C h a p t e r
2 it w a s s e e n h o w in m a n y c a s e s t h e S E C has a c h i e v e d reforms to
S O P s ( a n d t h e i n s t i t u t i o n of g u a r a n t e e s that S O P s will not be
2 2
c o m p r o m i s e d ) by consent decree. On occasions the US Federal
T r a d e C o m m i s s i o n h a s also s u c c e e d e d a t i n t e r n a l r e s t r u c t u r i n g b y
c o n s e n t o r d e r ( S o l o m o n and N o w a k , 1980). A n o t h e r m e c h a n i s m i s
to place the c o r p o r a t i o n on p r o b a t i o n under the supervision of an
a u d i t o r , quality control expert or other relevant authority who
would ensure that an order to restructure certain compliance
s y s t e m s w a s c a r r i e d o u t ( s e e Yale Law Journal. 1979; C o f f e e , 1980:
5 6 3 - 4 ; cf. M i t c h e l l C o m m i t t e e , 1977: 3 5 9 - 6 1 ) . P e r h a p s t h e simplest
m e c h a n i s m is for t h e c o n v i c t e d c o r p o r a t i o n to have its s e n t e n c e
w i t h h e l d until such t i m e as it p r o d u c e s a r e p o r t on t h e w e a k n e s s e s of
2 1
its old c o m p l i a n c e s y s t e m and i m p l e m e n t s a new o n e .

T h e last o p t i o n i s m o r e a t t r a c t i v e t h a n t h e o n e before b e c a u s e t h e
c o s t o f b r i n g i n g i n o u t s i d e e x p e r t s t o study a n d m o n i t o r t h e n e e d e d
o r g a n i s a t i o n a l r e f o r m s i s b o r n e b y t h e offender r a t h e r than t h e
state. No matter how implemented, court mandated intervention in
t h e i n t e r n a l affairs of a guilty c o m p a n y will cost m o r e o f t h e c o u r t ' s
t i m e t h a n a fine. C l e a r l y t h e n , i n t e r v e n t i o n i s t s a n c t i o n s w o u l d have
t o b e u s e d m o r e s e l e c t i v e l y t h a n fines ( F i s s e , 1980).
O n e can q u e s t i o n w h e t h e r a n o r d e r t o r e s t r u c t u r e S O P s i s a
s a n c t i o n . P e r h a p s i t i s m o r e a p p r o p r i a t e l y viewed a s c o m p u l s o r y
corporate rehabilitation. Nevertheless, 'because corporate
m a n a g e r s perceive compliance with outside supervision as an
u n p l e a s a n t t a s k , such m e a s u r e s i m p o s e p e r s o n a l b u r d e n s that
d i r e c t l y d e t e r c o r p o r a t e m a n a g e r s w h o m i g h t play a part in future
c o r p o r a t e o f f e n s e s ' (Yale Law Journal. 1979: 3 6 6 ) .
F i n a l l y , a s w a s a m p l y i l l u s t r a t e d i n t h e A m e r i c a n H o s p i t a l Supply
c a s e s t u d y o f C h a p t e r 2 , such c o u r t o r d e r s can have a n i n c a p a c i -
t a t i v e effect. W h i l e it is so often difficult to p e n e t r a t e t h e m a z e of
c o m p l e x c o r p o r a t e e v e n t s t o p r o v e c r i m i n a l i t y , court o r d e r s can b e
c o n s t r u c t e d to r e n d e r proving breach of provisions of the order
r e l a t i v e l y s t r a i g h t f o r w a r d . N o t w i t h s t a n d i n g t h e c o m p l e x i t y of a
s u b s e q u e n t c r i m e , i f i n c o m m i t t i n g i t t h e c o r p o r a t i o n neglects t o
follow c o u r t - m a n d a t e d S O P s , such a failure could be p u n i s h e d for
its o w n s a k e .
Interventionist court o r d e r s c o u l d c o m b i n e r e s t i t u t i v e with
rehabilitative functions. A r e q u i r e m e n t t h a t victims be r e s t i t u t e d
could be included in the o r d e r , a s could c e r t a i n c o m m u n i t y service
activities. An example of the latter was when Allied Chemical

338
Strategies for controlling corporate crime

funded e n v i r o n m e n t a l p r o t e c t i o n p r o g r a m m e s i n the c o m m u n i t i e s
affected b y t h e K e p o n e p o l l u t i o n d i s a s t e r i n lieu o f a c o u r t - i m p o s e d
f i n e . " P a r t i c u l a r l y a p p r o p r i a t e c o m m u n i t y s e r v i c e o r d e r s for con-
v i c t e d p h a r m a c e u t i c a l c o r p o r a t i o n s w o u l d involve t h e d e v e l o p m e n t
o f ' s e r v i c e d r u g s ' for victims of rare d i s e a s e s ( i . e . d r u g s which are
n o t p r o f i t a b l e b e c a u s e o f low d e m a n d ) . C o m m u n i t y s e r v i c e o r d e r s
a l s o h a v e c o n s i d e r a b l e p o t e n t i a l as a s a n c t i o n a g a i n s t individual
c o r p o r a t e e x e c u t i v e s ( F i s s e , 1981).

The corporation and traditional protections against government


abuse
C r i m i n a l d e f e n d a n t s enjoy m a n y d u e p r o c e s s p r o t e c t i o n s w h i c h
emerged historically from r e v u l s i o n at o v e r z e a l o u s use of
p r o s e c u t o r i a l m u s c l e by states w i s h i n g to s e c u r e c o n v i c t i o n at any
c o s t . M o s t l y , t h e y w e r e e s t a b l i s h e d t o p r o t e c t the b o u r g e o i s i e from
a r b i t r a r y e x e r c i s e o f p o w e r b y the m o n a r c h . T h e p r o t e c t i o n s w e r e
b u i l t i n t o e n s u r e t h a t f i n a n c i a l l y w e a k and politically p o w e r l e s s
i n d i v i d u a l s w e r e not c r u s h e d b y t h e p r o s e c u t o r i a l might o f t h e s t a t e .
T h e q u e s t i o n w h i c h m u s t b e a s k e d i s w h e t h e r t h e s e historically
j u s t i f i a b l e r e f o r m s s h o u l d be r e l e v a n t t o d a y to legal b a t t l e s b e t w e e n
t h e s t a t e a n d c o r p o r a t i o n s w h i c h are often m o r e w e a l t h y t h a n the
s t a t e . E v e n i n t h e m o s t affluent c o u n t r y i n t h e w o r l d , t h e state o f
D e l a w a r e can h a r d l y m a t c h t h e legal r e s o u r c e s of a G e n e r a l
Motors.
T h e t e n d e n c y a u t o m a t i c a l l y t o a t t r i b u t e t r a d i t i o n a l r i g h t s and d u e
p r o c e s s p r o t e c t i o n s t o c o r p o r a t i o n s simply b e c a u s e t h e y are avail-
a b l e to i n d i v i d u a l s is legal a n t h r o p o m o r p h i s m at its w o r s t .
C o r p o r a t i o n s c a n n o t h a v e a c o n f e s s i o n physically c o e r c e d o u t o f
t h e m u n d e r b r i g h t lights at a p o l i c e s t a t i o n . C o r p o r a t i o n s do not
s t a n d in t h e d o c k w i t h o u t t h e benefit of legal c o u n s e l . W h e n cor-
p o r a t i o n s do suffer at t h e h a n d s o f t h e s t a t e , t h e suffering is diffused
a m o n g many corporate actors - shareholders, managers, workers.
T h e e x t r e m e p r i v a t i o n s suffered b y i n d i v i d u a l victims o f state
o p p r e s s i o n w h i c h justify e x t r e m e p r o t e c t i o n s o f individual r i g h t s
a r e not felt w i t h i n t h e c o r p o r a t i o n .
P u b l i c c o m p a n i e s c a n n o t r e a s o n a b l y b e given t h e r i g h t t o privacy
25
a f f o r d e d to p r i v a t e i n d i v i d u a l s . In r e t u r n for t h e privilege of
t r a d i n g a s a p u b l i c c o m p a n y , c o r p o r a t i o n s m u s t m a k e m a n y o f their
r e c o r d s and m i n u t e s a v a i l a b l e for p u b l i c s c r u t i n y in a w a y we would
n e v e r d e m a n d of an individual's personal diary. The US Supreme
339
Strategies for controlling corporate crime

C o u r t a g r e e s t h a t " c o r p o r a t i o n s can claim n o equality with indi-


v i d u a l s in t h e e n j o y m e n t of a right to privacy. . . . T h e y are
e n d o w e d w i t h p u b l i c a t t r i b u t e s . T h e y h a v e a collective impact on
s o c i e t y , from w h i c h t h e y d e r i v e t h e privilege of acting as artificial
2
e n t i t i e s . ' " Y e t m a n y of t h e g u a r a n t e e s of the Bill of R i g h t s are
g r o u n d e d i n t h e right t o p r i v a c y . J u s t i c e D o u g l a s e x p l a i n s :

V a r i o u s g u a r a n t e e s c r e a t e z o n e s of p r i v a c y . . . . T h e F o u r t h
A m e n d m e n t explicitly affirms t h e 'right o f t h e p e o p l e t o b e secure
i n t h e i r p e r s o n s , h o u s e s , p a p e r s , and effects against u n r e a s o n a b l e
s e a r c h e s and s e i z u r e s ' . T h e Fifth A m e n d m e n t in its Self-
i n c r i m i n a t i o n C l a u s e e n a b l e s the citizen to c r e a t e a z o n e of
2
p r i v a c y w h i c h g o v e r n m e n t m a y n o t force him t o s u r r e n d e r . '

W h i l e t h e U n i t e d S t a t e s d e n i e s c o r p o r a t i o n s t h e privilege against
2
s e l f - i n c r i m i n a t i o n , " t h e t r a d i t i o n a l view in E n g l i s h law has b e e n
t h a t t h e p r i v i l e g e a p p l i e s t o b o t h i n d i v i d u a l s and c o r p o r a t i o n s . "
Trial by jury is a n o t h e r relevant procedural protection. In
c o m p l e x c o r p o r a t e c a s e s j u r i e s often c a n n o t b e e x p e c t e d t o u n d e r -
s t a n d t h e m a z e o f s e c u r i t i e s m a n i p u l a t i o n s , scientific d a t a o r
o r g a n i s a t i o n a l c h a r t s which s p r e a d a c r o s s n a t i o n a l b o r d e r s . A m o r e
r a t i o n a l , r a p i d and j u s t d e c i s i o n i n t h e s e cases w o u l d c o m e from
a j u d g e w i t h e x p e r i e n c e in t h e a r e a sitting a l o n e , or from a p a n e l
o f e x p e r t j u r o r s . Y e t c o r p o r a t i o n s t e n d t o insist o n their right t o
a j u r y t r i a l . T h e US S u p r e m e C o u r t has e x p l a i n e d t h e r e a s o n s for
t r i a l b y j u r y i n t e r m s o f p r o t e c t i o n from t h e a r b i t r a r y p o w e r o f t h e
state:

A right to j u r y trial is g r a n t e d to c r i m i n a l d e f e n d a n t s in o r d e r to
prevent o p p r e s s i o n by the G o v e r n m e n t . Those w h o wrote our
c o n s t i t u t i o n s k n e w from history a n d e x p e r i e n c e that i t w a s
n e c e s s a r y t o p r o t e c t a g a i n s t u n f o u n d e d criminal c h a r g e s b r o u g h t
t o e l i m i n a t e e n e m i e s and a g a i n s t j u d g e s t o o r e s p o n s i v e t o t h e
v o i c e of h i g h e r a u t h o r i t y . . . . P r o v i d i n g an a c c u s e d with t h e right
to be t r i e d by his p e e r s gave him an i n e s t i m a b l e safeguard a g a i n s t
t h e c o r r u p t o r o v e r z e a l o u s p r o s e c u t o r and against t h e c o m p l i a n t ,
biased, or eccentric judge.™

W h e r e t h e p o w e r d i s p a r i t y b e t w e e n s t a t e and d e f e n d a n t i s r e d u c e d
or r e v e r s e d o n e w o n d e r s w h e r e this l e a v e s t h e r a t i o n a l e for trial by
j u r y . The d o u b l e j e o p a r d y protection is a n o t h e r which is grounded
in the a s s u m p t i o n of a state with more resources and p o w e r than the
d e f e n d a n t . Justice Black in the US S u p r e m e Court:

340
Strategies for controlling corporate crime

T h e u n d e r l y i n g i d e a . . . i s that t h e S t a t e with all its r e s o u r c e s


and p o w e r s s h o u l d not b e a l l o w e d t o m a k e r e p e a t e d a t t e m p t s t o
c o n v i c t an i n d i v i d u a l for an alleged o f f e n s e , t h e r e b y s u b j e c t i n g
h i m t o e m b a r r a s s m e n t , e x p e n s e and o r d e a l and c o m p e l l i n g him
to live in a c o n t i n u i n g state of a n x i e t y a n d insecurity as well as
e n h a n c i n g t h e possibility that e v e n t h o u g h i n n o c e n t h e may b e
found g u i l t y . "

A n d so t h e r e is a n e e d to q u e s t i o n w h e t h e r all t h e t r a d i t i o n a l
p r o t e c t i o n s afforded to i n d i v i d u a l s should also be a v a i l a b l e to
c o r p o r a t i o n s ( F r i e d m a n , 1979). C o n s i d e r e n t r a p m e n t . I n C h a p t e r 3
i t w a s s e e n h o w t h e N a t i o n a l C a n c e r I n s t i t u t e o c c a s i o n a l l y slips its
o u t s i d e t e s t i n g l a b o r a t o r i e s a c o m p o u n d w i t h certain clearly e s t a b -
lished effects t o test t h e i r c o n t r o l s t a n d a r d s , and h o w o n e quality
c o n t r o l m a n a g e r o c c a s i o n a l l y ' s p i k e s ' p r o d u c t s for t e s t i n g t o c h e c k
t h a t his staff a r e f i n d i n g i m p u r i t i e s . S h o u l d g o v e r n m e n t s also be
a b l e to do t h i s a n d use t h e f i n d i n g s as e v i d e n c e against c o r p o r -
a t i o n s ? A t p r e s e n t , such e n t r a p m e n t i s not p e r m i s s i b l e u n d e r
A m e r i c a n law, but would be possible under English or Australian
law.
A p a r t from t h e p o w e r d i s p a r i t y r a t i o n a l e , t h e m a i n r e a s o n for
e x t r e m e p r o t e c t i o n s , h i s t o r i c a l l y , w a s t h e severe n a t u r e o f t h e
s a n c t i o n s . E x t r a o r d i n a r y c i r c u m s p e c t i o n i s essential w h e n t h e issue
is w h e t h e r an i n d i v i d u a l will lose his or her right to life or liberty.
P a c k e r s e e s i m p r i s o n m e n t a s t h e o p p r e s s i v e m e a s u r e which sets
a p a r t t h e n e e d for d u e p r o c e s s p r o t e c t i o n s .

L a b e l s a s i d e , t h e c o m b i n a t i o n o f stigma and loss o f liberty


i n v o l v e d in a c o n d i t i o n a l or a b s o l u t e s e n t e n c e of i m p r i s o n m e n t
sets t h a t s a n c t i o n a p a r t from a n y t h i n g else t h e law i m p o s e s . W h e n
t h e law p e r m i t s t h a t d e g r e e o f s e v e r i t y , t h e d e f e n d a n t should b e
e n t i t l e d to litigate t h e issue of c u l p a b i l i t y by raising the k i n d s of
d e f e n s e s w e h a v e b e e n c o n s i d e r i n g . I f the b u r d e n o n t h e c o u r t s i s
t h o u g h t to be t o o g r e a t , a less s e v e r e s a n c t i o n t h a n i m p r i s o n m e n t
s h o u l d b e t h e m a x i m u m p r o v i d e d for. T h e l e g i s l a t u r e o u g h t not
to be a l l o w e d to h a v e it b o t h w a y s ( P a c k e r , 1968: 131).

T h e full p a r a p h e r n a l i a o f t r a d i t i o n a l p r o c e d u r a l p r o t e c t i o n s
s h o u l d be a v a i l a b l e w h e n t h e r e is any possibility of i m p r i s o n m e n t .
C o r p o r a t i o n s can n e i t h e r b e i m p r i s o n e d nor e x e c u t e d (in t h e literal
s e n s e ) . So this s e c o n d m a j o r r a t i o n a l e for t h e h i s t o r i c s a f e g u a r d s is
also not relevant to t h e m .

341
Strategies for controlling corporate crime

T h e m o s t v e x e d q u e s t i o n of all is w h e t h e r , given the difficulties of


proving complex corporate crimes 'beyond reasonable doubt',
p r o o f 'on t h e b a l a n c e o f p r o b a b i l i t i e s ' s h o u l d b e r e g a r d e d a s
sufficient. J u d g e C a n e l l a ' s j u d g m e n t i n t h e t e t r a c y c l i n e c r i m i n a l
price-fixing case i n d i c a t e s t h a t w h i l e p r o o f o n t h e b a l a n c e o f p r o b -
a b i l i t i e s m i g h t h a v e b e e n t h e r e , t h e e v i d e n c e did not put t h e issues
'beyond reasonable doubt'.'"
I n c a s e s w h i c h i n v o l v e scientific d i s p u t e , p r o o f ' b e y o n d r e a s o n -
able d o u b t ' is rarely, ifever, possible. Science deals in probabilities,
n o t c e r t a i n t i e s . T h e s u p e r s t r u c t u r e of s c i e n c e is e r e c t e d on a foun-
d a t i o n of m a t h e m a t i c a l statistics w h i c h e s t i m a t e a p r o b a b i l i t y that
i n f e r e n c e s a r e t r u e or false. L o g i c a l l y , p r o o f b e y o n d a r e a s o n a b l e
d o u b t t h a t A ' c a u s e s ' B is i m p o s s i b l e . It is a l w a y s possible t h a t a
c o r r e l a t i o n b e t w e e n A and B is e x p l a i n e d by an u n k n o w n third
v a r i a b l e , C, which simultaneously causes both A and B. The
s c i e n t i s t can n e v e r e l i m i n a t e all t h e p o s s i b l e third v a r i a b l e s w h i c h
m i g h t e x p l a i n a w a y a p r e s u m e d causal c o n n e c t i o n . T h u s , t o r e q u i r e
p r o o f b e y o n d r e a s o n a b l e d o u b t that G M P violation caused an
o b s e r v e d level o f d r u g i m p u r i t y , a s i n t h e A b b o t t case ( C h a p t e r 4 ) ,
is to r e q u i r e t h e i m p o s s i b l e .

W h e n a r e m i s s i b l e s a n c t i o n such as a fine is t h e most s e v e r e


p e n a l t y w h i c h can be i m p o s e d on a c o r p o r a t i o n , t h e case for proof
b e y o n d r e a s o n a b l e d o u b t i s w e a k . H i s t o r y i s l i t t e r e d w i t h shameful
i n s t a n c e s o f i n n o c e n t p e o p l e w h o w e n t t o t h e g a l l o w s o r suffered
y e a r s o f d e s p a i r i n p r i s o n only t o h a v e t h e i r i n n o c e n c e s u b s e q u e n t l y
v i n d i c a t e d . S u c h i n s t a n c e s justify insistence o n p r o o f b e y o n d
r e a s o n a b l e d o u b t . T h e s t a t e c a n n o t c o m p e n s a t e t h e s e p e o p l e for
t h e i r d e a t h o r suffering. I t c a n i n s t a n t l y c o m p e n s a t e t h e w r o n g l y
fined c o r p o r a t i o n w i t h a c h e q u e for t h e value of t h e fine plus
interest.
O f c o u r s e , w h e n o n e i s c o n s i d e r i n g t h e p r o s e c u t i o n o f individual
c o r p o r a t e executives under statutes permitting the sanction of
i m p r i s o n m e n t , t h e s e d e f e n d a n t s s h o u l d b e a c c o r d e d all t h e p r o -
t e c t i o n s a v a i l a b l e u n d e r c r i m i n a l law. A d m i t t e d l y , w e a l t h y p e o p l e
u s e t h e s e p r o t e c t i o n s m o r e t o t h e i r a d v a n t a g e t h a n the indigent
p e o p l e a t w h o m t h e liberal p r o t e c t i o n s a r e s u p p o s e d l y a i m e d .
A s E h r l i c h ( 1 9 3 6 : 2 3 8 ) long ago r e m i n d e d us: 'the m o r e the rich and
t h e p o o r a r e d e a l t w i t h a c c o r d i n g t o t h e s a m e legal p r o p o s i t i o n s ,
t h e m o r e t h e a d v a n t a g e o f t h e rich i s i n c r e a s e d . " I f w e find t h a t the
o n l y w a y to get c o n v i c t i o n s is to try w e a l t h y c o r p o r a t e e x e c u t i v e s
u n d e r less s t r i n g e n t p r o c e d u r a l s a f e g u a r d s , t h e n t h e m i n i m u m

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Strategies for controlling corporate crime

r e q u i r e m e n t will be to a b o l i s h for t h o s e c r i m e s t h e s a n c t i o n of
imprisonment.

Laws to foster whistle blowing


L a w s in all W e s t e r n s o c i e t i e s p r o v i d e a m p l y for the rights of
e m p l o y e r s t o d i s m i s s e m p l o y e e s for w h a t e v e r r e a s o n they wish
r e g a r d l e s s o f h o w unjust this m i g h t b e . I n r e c e n t y e a r s t h e historical
s u b s e r v i e n c e of this a r e a of law to e m p l o y e r i n t e r e s t s has b e e n
u n d e r t h r e a t . M a n y c o u n t r i e s n o w h a v e a n t i - d i s c r i m i n a t i o n legis-
l a t i o n w h i c h f e t t e r s t h e r i g h t o f e m p l o y e r s t o hire and fire a s t h e y see
fit. In a d d i t i o n to legal p r o t e c t i o n s a g a i n s t d i s c r i m i n a t i o n on t h e
b a s i s of r a c e , sex or c r e e d , t h e r e w o u l d be j u s t i c e in p r o v i s i o n s to
forbid d i s c r i m i n a t i o n a g a i n s t e m p l o y e e s w h o r e p o r t t h e i r e m p l o y e r
to a r e g u l a t o r y a g e n c y .
It is clearly in t h e p u b l i c i n t e r e s t to e n c o u r a g e e m p l o y e e s to
r e p o r t law v i o l a t i o n s , which they o b s e r v e , to relevant authorities.
N a d e r e t a l . ( 1 9 7 6 : 195-7) h a v e r e c o m m e n d e d a n ' E m p l o y e e Bill o f
R i g h t s ' t o p r e v e n t e m p l o y e r i n t i m i d a t i o n o f i n d i v i d u a l s for exer-
cising their constitutional rights to freedom of expression, equal
r i g h t s or p r i v a c y . M i c h i g a n recently t o o k t h e lead with a ' W h i s t l e
B l o w e r s ' P r o t e c t i o n A c t ' w h i c h p e r m i t s suits a g a i n s t e m p l o y e r s for
u n j u s t r e p r i s a l b y e m p l o y e e s w h o h a v e b e e n d i s m i s s e d for r e p o r t i n g
a law violation.
A n o t h e r e m p l o y e e right w h i c h s h o u l d be legally g u a r a n t e e d is a
r i g h t o f r e s e a r c h s c i e n t i s t s t o p u b l i s h t h e i r f i n d i n g s e v e n t h o u g h the
e m p l o y e r m i g h t o b j e c t to such p u b l i c a t i o n . T h i s is a difficult a r e a
since it o b v i o u s l y w o u l d be u n d e s i r a b l e to give scientists c a r t e
b l a n c h e t o r e v e a l t r a d e s e c r e t s . N e v e r t h e l e s s , the very fact that
s o m e c o m p a n i e s give t h e i r scientists a c o n t r a c t u a l r i g h t to p u b l i s h so
l o n g as s e c r e t s a r e not r e v e a l e d d e m o n s t r a t e s t h a t such difficulties
are s u r m o u n t a b l e .
I n a d d i t i o n t o laws g u a r a n t e e i n g r i g h t s t o b l o w t h e w h i s t l e , a n
a r g u m e n t can be m a d e for a duty to b l o w t h e w h i s t l e in c e r t a i n
e x t r e m e c i r c u m s t a n c e s . This was the reasoning behind a m e n d m e n t s
to the federal criminal code introduced into the US C o n g r e s s in
1979. T h e y a t t e m p t e d to m a k e it an offence for 'an a p p r o p r i a t e
m a n a g e r ' w h o ' d i s c o v e r s in t h e c o u r s e of b u s i n e s s as such m a n a g e r a
s e r i o u s d a n g e r a s s o c i a t e d w i t h ' a p r o d u c t and fails to inform e a c h
a p p r o p r i a t e F e d e r a l r e g u l a t o r y a g e n c y o f t h e d a n g e r w i t h i n thirty
d a y s . T h e v a l u e of such a law w o u l d not be t h a t it w o u l d p u n i s h
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Strategies for controlling corporate crime

g u i l t y p e o p l e , b u t t h a t it w o u l d h e l p lift t h e lid on d a n g e r o u s
p r o d u c t s before t h e y did any h a r m . It is c o n c e i v a b l e t h a t the
e x i s t e n c e of s u c h a law in G e r m a n y could have p r e v e n t e d the
t h a l i d o m i d e d i s a s t e r , r e m e m b e r i n g t h a t i t t a k e s only o n e t o blow
the w h i s t l e . "

Product liability

P r o d u c t liability refers t o t h e right o f t h e c o n s u m e r t o o b t a i n c o m -


p e n s a t i o n from t h e p r o d u c e r of faulty g o o d s . As in so m a n y t h i n g s ,
the t h a l i d o m i d e disaster was the w a t e r s h e d which changed the
e m p h a s i s i n p r o d u c t liability a r o u n d the w o r l d . Since t h a l i d o m i d e ,
m a n y c o u n t r i e s h a v e b e g u n to shift a w a y from t h e necessity for
v i c t i m s of p r o d u c t defects to p r o v e n e g l i g e n c e on t h e part of the
m a n u f a c t u r e r i n o r d e r t o r e c e i v e c o m p e n s a t i o n for injuries. M a n y
c o u n t r i e s a r e shifting t o w a r d s t h e US p o s i t i o n of effective strict
liability o f t h e m a n u f a c t u r e r for p r o d u c t d e f e c t s . T h a t is, t h e m a n u -
f a c t u r e r c o m p e n s a t e s t h e victim i r r e s p e c t i v e of w h e t h e r it w a s in
a n y way n e g l i g e n t . O t h e r c o u n t r i e s ( n o t a b l y G e r m a n y , S w e d e n ,
J a p a n a n d N e w Z e a l a n d ) have o p t e d for no-fault c o m p e n s a t i o n for
v i c t i m s of d e f e c t i v e p h a r m a c e u t i c a l p r o d u c t s from a g o v e r n m e n t -
s p o n s o r e d i n s u r a n c e fund. G e n e r a l l y t h e s e are funded b y m a n d a -
t o r y c o n t r i b u t i o n s from c o m p a n i e s i n t h e i n d u s t r y . "
T h e s h e e r b u r d e n o n t h e e c o n o m y o f w i d e s p r e a d litigation o v e r
t h e n e g l i g e n c e o r o t h e r w i s e o f m a n u f a c t u r e r s m a k e s the r e f o r m s
d e s i r a b l e . S u c h q u e s t i o n s o f n e g l i g e n c e are a l m o s t invariably
c o m p l e x with respect to drugs. P e r h a p s the patient contributed to
t h e n e g l i g e n c e by failing to t a k e t h e d r u g r e g u l a r l y or a c c o r d i n g to
i n s t r u c t i o n s , or by failing to tell t h e d o c t o r of an allergic r e a c t i o n
from w h i c h he or she suffered. D r u g s are a l w a y s p o t e n t i a l l y toxic -
"tamed p o i s o n s ' , as o n e i n f o r m a n t e x p l a i n e d . J u d g i n g fault w h e n a
p o i s o n p r o v e s not t o b e s o t a m e i s p r o f o u n d l y c o m p l e x . T h e d r u g s
a r e u s u a l l y t a k e n b y p e o p l e w h o are a l r e a d y ill and t h e r e f o r e
unusually susceptible to adverse reactions.
A m e r i c a n law e x c u s e s m a n u f a c t u r e r s from strict liability for
p r o d u c t s w h i c h a r e v a l u a b l e yet u n a v o i d a b l y d a n g e r o u s . T o qualify
for strict liability t h e p r o d u c t m u s t h a v e a defect which is ' u n r e a s o n -
a b l y d a n g e r o u s ' (Teff a n d M u n r o , 1976: 135-7). P r o d u c t s which
c a u s e injury by failing to m e e t p u r i t y or sterility specifications are
clearly r e g a r d e d as 'unreasonably d a n g e r o u s ' . It is therefore
e x t r e m e l y difficult for t h e m a n u f a c t u r e r to avoid liability by a r g u i n g
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Strategies for controlling corporate crime

t h a t e v e r y t h i n g p o s s i b l e w a s d o n e t o p r e v e n t t h e sale o f i m p u r e
product."
O b v i o u s l y t h e r e is an e l e m e n t of injustice in r e q u i r i n g m a n u -
f a c t u r e r s w h o h a v e t h e best quality c o n t r o l system possible with
c u r r e n t t e c h n o l o g y t o pay c o m p e n s a t i o n w h e n that system fails.
T h e r e is an e c o n o m i c justification for strict liability, h o w e v e r .
C o m p a n i e s benefit financially from the social gains from the use of
t h e i r p r o d u c t s , and so t h e y s h o u l d lose f i n a n c i a l l y from the social
h a r m s o f t h e p r o d u c t s . I f c o m p a n i e s can r a k e i n t h e benefits w h i l e
h a v i n g o t h e r s pay t h e c o s t s , m a r k e t forces can n e v e r put t h e m out o f
b u s i n e s s i f t h e i r p r o d u c t i o n has social c o s t s w h i c h e x c e e d t h e social
b e n e f i t s . It is n o r m a l l y in t h e p u b l i c i n t e r e s t for a c o m p a n y with t h e
b e s t q u a l i t y c o n t r o l s y s t e m p o s s i b l e to c o n t i n u e p r o d u c i n g a p r o d u c t
w h i c h , i n spite o f t h a t s y s t e m , i m p o s e s costs o n injured c o n s u m e r s
w h i c h e x c e e d t h e a g g r e g a t e price t h a t c o n s u m e r s are willing t o pay
to o b t a i n t h e b e n e f i t s o f t h e p r o d u c t . W i t h strict liability it is not
p r o f i t a b l e for c o m p a n i e s t o c o n t i n u e p r o d u c i n g such p r o d u c t s .

T h e o t h e r e c o n o m i c r a t i o n a l e w h i c h cuts a c r o s s t h e injustice
o b j e c t i o n c o n c e r n s p r o d u c t safety i n n o v a t i o n s . U n d e r a n e g l i g e n c e
s t a n d a r d , a c o m p a n y w h i c h has t h e best quality c o n t r o l system
c u r r e n t l y a v a i l a b l e has n o i n c e n t i v e t o d i s c o v e r a n e v e n b e t t e r
s y s t e m . So long as t h e c o m p a n y is not n e g l i g e n t , victims will pay the
c o s t s from t h e unsafe p r o d u c t s p r o d u c e d . U n d e r a strict liability
s t a n d a r d , a m a n u f a c t u r e r with the best s y s t e m possible is still losing
m o n e y from t i m e to t i m e in c o m p e n s a t i o n for victims of unsafe
p r o d u c t s . T h e m a n u f a c t u r e r t h e r e f o r e has a n i n c e n t i v e t o d e v e l o p
an e v e n b e t t e r q u a l i t y c o n t r o l s y s t e m . Strict liability t h u s fosters
i n n o v a t i o n i n p r o d u c t safety m e a s u r e s . "

T o t h e e x t e n t t h a t m a n u f a c t u r e r s i n s u r e against p r o d u c t liability
s u i t s , t h i s a r g u m e n t loses force; but not e n t i r e l y , since p r o d u c t
safety i n n o v a t i o n s m a y r e d u c e t h e p r e m i u m s paid t o i n s u r e r s .
M o r e o v e r , p o l i c i e s w h i c h p l a c e a n u p p e r limit o n the a m o u n t
i n s u r e d , o r w h i c h r e q u i r e t h e c o m p a n y t o m e e t the first s o m a n y
t h o u s a n d s o f t h e c o m p e n s a t i o n c l a i m , r e t a i n limited safety incen-
tives.
C e r t a i n c o u n t r i e s w h o s e p r o d u c t liability laws fall short of strict
liability h a v e n e v e r t h e l e s s r e v e r s e d t h e b u r d e n o f p r o o f from t h e
plaintiff t o t h e d e f e n d a n t . W e s t G e r m a n y and the N e t h e r l a n d s are
e x a m p l e s ( P e a r s o n C o m m i s s i o n , 1978: v o l u m e 3 ) . T h e r a t i o n a l e i s
t h a t t h e scientifically and o r g a n i s a t i o n a l l y u n i n f o r m e d c o n s u m e r i s
n o t in as g o o d a p o s i t i o n to p r e s e n t a c a s e a b o u t the a d e q u a c y o f t h e

345
Strategies for controlling corporate crime

m a n u f a c t u r e r ' s s y s t e m for a s s u r i n g safety as is t h e m a n u f a c t u r e r


itself. T y p i c a l l y t h e victim will have no k n o w l e d g e of t h e c h a i n of
e v e n t s l e a d i n g t o t h e d a n g e r o u s o u t c o m e . I t i s r e a s o n a b l e t h a t the
b u r d e n o f p r o o f lies w i t h t h e p a r t y with g r e a t e r r e s o u r c e s and m o r e
d i r e c t a c c e s s to t h e r e l e v a n t facts. T h i s is yet a n o t h e r i l l u s t r a t i o n of
t h e n e e d t o r e t h i n k t r a d i t i o n a l legal p r i n c i p l e s w h e n t h e typical
c o n f r o n t a t i o n has a l a r g e c o r p o r a t i o n a s one o f t h e a d v e r s a r i e s .
A f a s c i n a t i n g d e v e l o p m e n t in J a p a n has b e e n a d e c i s i o n by the
K a n a z a w a District C o u r t under J a p a n ' s National Redress Law that
t h e J a p a n e s e G o v e r n m e n t b e a r o n e t h i r d o f t h e m a s s i v e liability for
n e u r o t o x i c effects o f t h e d r u g c l i o q u i n o l . T h e r e m a i n i n g t w o - t h i r d s
o f t h e p r o d u c t liability c l a i m s w a s t o b e b o r n e b y the m a n u f a c t u r e r s .
G o v e r n m e n t liability w a s a s s e s s e d b e c a u s e o f t h e failure o f the
g o v e r n m e n t ' s P h a r m a c y Affairs B u r e a u t o subject the d r u g t o
r i g o r o u s r e g i s t r a t i o n p r o c e d u r e s . G o l d r i n g and M a h e r ( 1 9 7 9 : 31)
h a v e d i s c u s s e d t w o N e w Z e a l a n d p r o d u c t liability c a s e s w h e r e the
failure o f g o v e r n m e n t b u i l d i n g and t r a n s p o r t i n s p e c t o r s t o d o their
j o b p r o p e r l y w a s found to be a basis for g o v e r n m e n t liability.
To d a t e t h e e x t e n t to w h i c h law s h o u l d p r o v i d e i n c e n t i v e s for
g o v e r n m e n t as well as b u s i n e s s e s to i m p r o v e their safety s y s t e m s
has been a neglected topic.

Class actions

I n m o s t c o u n t r i e s , b u t e s p e c i a l l y t h e U n i t e d S t a t e s , p r o d u c t liability
l a w r a t h e r t h a n c r i m i n a l law h a s p r o v i d e d most o f the d e t e r r e n c e
a g a i n s t c o r p o r a t e c r i m e i n the p h a r m a c e u t i c a l i n d u s t r y . C o m p e n -
s a t i o n , n o t d e t e r r e n c e , i s t h e r e c o g n i s e d function o f p r o d u c t liability
law. Yet t h e c o n c l u s i o n from m y i n t e r v i e w s w a s that p h a r m a -
c e u t i c a l e x e c u t i v e s r e p o r t fear of p r o d u c t - l i a b i l i t y suits as a r e a s o n
for o b e y i n g t h e F o o d , D r u g a n d C o s m e t i c A c t o f i m m e n s e l y g r e a t e r
i m p o r t a n c e t h a n fear of c r i m i n a l p r o s e c u t i o n or any o t h e r regu-
l a t o r y a c t i o n . T h e y w o u l d b e i r r a t i o n a l t o think o t h e r w i s e . M E R / 2 9
c o s t R i c h a r d s o n - M e r r e l l an $ 8 0 , 0 0 0 c r i m i n a l fine; b u t it is e s t i m a t e d
t h a t t h e p r o d u c t liability s e t t l e m e n t s t o t a l l e d a b o u t $200 million.
T h e r e a l i t y t h a t it is civil d a m a g e s which p r o v i d e t h e g r e a t e s t
d e t e r r e n c e m u s t c a u s e a q u e s t i o n i n g of t h e h e a v y use of nolo
contendere p l e a s for c o r p o r a t e c r i m e in t h e U n i t e d States ( S a x o n ,
1980: 5 3 - 4 ) . A nolo contendere or ' n o c o n t e s t ' p l e a , a l t h o u g h
t h e o r e t i c a l l y t h e s a m e as a guilty p l e a , d o e s not force t h e offender to
a d m i t guilt. C o n s e q u e n t l y , victims o f t h e crime c a n n o t use t h e plea

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Strategies for controlling corporate crime

as p r o o f of guilt in any s u b s e q u e n t civil d a m a g e s litigation. T h e


d e t e r r e n t v a l u e of civil a c t i o n s is also a j u s t i f i c a t i o n for t h e p r o p o s e d
US r e f o r m , u n d e r t h e C r i m i n a l C o d e R e f o r m A c t of 1979, to a l l o w a
j u d g e t o o r d e r c o n v i c t e d offenders t o notify t h e i r victims o f t h e
c o n v i c t i o n so t h a t t h e victims may r e c o v e r d a m a g e s t h r o u g h civil
p r o c e e d i n g s ( S a x o n , 1980: 6 4 ) .
I n p a r t , d e t e r r e n c e o f c o r p o r a t e c r i m e t h r o u g h civil suits i s m o r e
profound in the United States than in other countries because ofthe
a v a i l a b i l i t y o f class a c t i o n s . O t h e r c o u n t r i e s a r e b e g i n n i n g t o a d o p t
a n d frame q u i t e w i d e - r a n g i n g class a c t i o n l a w s , while in some
m e a s u r e i n r e c e n t y e a r s , t h e U n i t e d S t a t e s has s o u g h t t o n a r r o w the
s c o p e of class a c t i o n s ( e . g . see C a p p e l l e t t i , 1976).
C l a s s a c t i o n s p e r m i t victims of a p a r t i c u l a r loss or injury to b a n d
t o g e t h e r and sue t h e d e f e n d a n t j o i n t l y . O r r a t h e r , o n e m e m b e r o f
t h e class of plaintiffs notifies the o t h e r s and sues on their behalf.
Class actions therefore o v e r c o m e the reluctance of c o n s u m e r s to
s u e a p o w e r f u l c o r p o r a t i o n w h e n t h e e x t e n t o f t h e i r loss or injury is
n o t so g r e a t as to justify t h e risk of large legal e x p e n s e s . Diffused
i n t e r e s t s a r e g a l v a n i s e d by t h e p o o l i n g of risks and benefits. In fact,
u n d e r t h e A m e r i c a n c o n t i n g e n c y fee s y s t e m t h e plaintiff class's
l a w y e r b e a r s t h e risk. T h e lawyer a g r e e s to t a k e on t h e c a s e for a
percentage o f t h e settlement.
W i t h o u t p r o v i s i o n for t h e c h a r g i n g of c o n t i n g e n c y fees, class
a c t i o n s c a n h a v e little b i t e . E v e n g r o u p s o f c o n s u m e r s are r e l u c t a n t
to r u n t h e risk o f t h e tally of legal e x p e n s e s t h a t m i g h t follow from
c h a l l e n g i n g a c o r p o r a t e giant in c o u r t . C l a s s a c t i o n s c o m b i n e d with
c o n t i n g e n c y fees a s s a u l t t h e f u n d a m e n t a l i n e q u i t y i n legal s y s t e m s -
the crushing of individual powerlessness by corporate might. As
c o r p o r a t i o n s g r o w m o r e m a s s i v e , t h e n e e d for structural s o l u t i o n s
t o r e d r e s s t h e b a l a n c e , such a s class a c t i o n s , b e c o m e s m o r e c o m -
pelling.
Class a c t i o n s , as the A u s t r a l i a n Law Reform Commission Dis-
c u s s i o n P a p e r ( 1 9 7 9 ) o n t h e subject c o n c l u d e s , are 'the private
e n t e r p r i s e a n s w e r t o legal aid'. I n s t e a d o f g o v e r n m e n t s t a k i n g
r e s p o n s i b i l i t y for p r o t e c t i n g their i n t e r e s t s , c o n s u m e r s collectively
t a k e t h e i r i n t e r e s t s i n t h e i r own h a n d s .

A federal class a c t i o n l a w . . . will put t h e p o w e r to seek j u s t i c e in


c o u r t w h e r e it b e l o n g s - b e y o n d t h e r e a c h of c a m p a i g n
c o n t r i b u t o r s , i n d u s t r y l o b b y i s t s , or W a s h i n g t o n l a w y e r s - a n d it
will p u t p o w e r i n t h e h a n d s o f t h e c o n s u m e r s t h e m s e l v e s and i n

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Strategies for controlling corporate crime

the hands of their own lawyers, retained by them to represent


their interests alone (Ms Bess Myerson. Commissioner of
C o n s u m e r Affairs o f t h e City o f N e w Y o r k , q u o t e d i n A u s t r a l i a n
L a w R e f o r m C o m m i s s i o n , 1979: 3 3 ) .

C l a s s a c t i o n s s u p p l e m e n t e d by c o n t i n g e n c y fees are one of the


few w a y s i n w h i c h i n d i v i d u a l w e a k n e s s can c o m e t o m a t c h collec-
tivist m i g h t . F o r this r e a s o n , the b u s i n e s s l o b b i e s a r e ferociously
r e s i s t i n g r e f o r m s for t h e i n t r o d u c t i o n of class a c t i o n s in m a n y
c o u n t r i e s a r o u n d the world.

Making self-regulation work

L a w s c a n n o t b e w r i t t e n t o c o v e r all t h e t y p e s o f social r e s p o n s i b i l i t y
we w o u l d like to see a p h a r m a c e u t i c a l c o m p a n y m a n i f e s t . No rule
can m a k e a scientist l o o k h a r d i n s t e a d of c u r s o r i l y w h e n c h e c k i n g
for t u m o u r s in a l a b o r a t o r y a n i m a l . An a t t e m p t w a s m a d e at t h e end
o f t h e M E R / 2 9 c a s e s t u d y o f C h a p t e r 3 t o illustrate that the a c c u m u -
l a t i o n o f m a n y m i n o r acts o f social i r r e s p o n s i b i l i t y c a u s e s g r e a t e r
h a r m t h a n explicitly illegal a c t s . W h i l e law c a n n o t r e g u l a t e s u b t l e -
t i e s , t h e e t h o s of social r e s p o n s i b i l i t y in a c o m p a n y can.
E v e n w h e r e law i s a n effective tool o f c o n t r o l , t h e r e h a v e b e e n
m a n y e x a m p l e s i n this b o o k w h e r e s e l f - r e g u l a t o r y s y s t e m s p r o v i d e d
t o u g h e r protections than g o v e r n m e n t control systems. R e m e m b e r ,
for e x a m p l e , t h e B r i t i s h c o n t r a c e p t i v e p l a n t which w a s d e f e n d e d a s
a c c e p t a b l e b y B r i t i s h g o v e r n m e n t i n s p e c t o r s , but criticised a s
u n s a f e by c o m p l i a n c e staff from h e a d q u a r t e r s in t h e U n i t e d S t a t e s
( C h a p t e r 4 ) . T h e fact t h a t s e l f - r e g u l a t o r y c o n t r o l s afford the p u b l i c
g r e a t e r p r o t e c t i o n s t h a n e x t e r n a l l y i m p o s e d c o n t r o l s d o e s not m e a n
t h a t t h e s o l u t i o n lies w i t h g e t t i n g c o r p o r a t i o n s t o w r i t e i n t e r n a l
c o d e s of ethics. O n e businessman suggested that relying on a code
o f e t h i c s w a s 'like society issuing t h e T e n C o m m a n d m e n t s but not
b o t h e r i n g to h a v e a p o l i c e force'. F o r m e r Shell I n t e r n a t i o n a l
D i r e c t o r , G e o f f r e y C h a n d l e r , has a n a p p r o p r i a t e l y cynical v i e w o f
such pieces of paper: ' C o d e s of conduct tend to be placebos which
a r e likely to be less t h a n a r e s p o n s i b l e c o m p a n y will do of its own
v o l i t i o n a n d m o r e t h a n a n i r r e s p o n s i b l e c o m p a n y will d o w i t h o u t
c o e r c i o n ' ( q u o t e d i n M e d a w a r , 1979: 70)

A start is to e x a m i n e S O P s . But e v e n l o o k i n g at w r i t t e n S O P s can


be misleading. P h a r m a c e u t i c a l c o m p a n i e s generally have com-
m i t t e e s w h i c h a d j u d i c a t e r e q u e s t s t o w a i v e t h e c o r p o r a t e rules i n

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Strategies for controlling corporate crime

o r d e r t o deal with u n i q u e s i t u a t i o n s . B e y o n d t h a t , t h e r e are t h e


informal decisions to ignore the rules:

I d o n ' t follow t h e c o r p o r a t e rules w h e n it d o e s n ' t suit m e . No o n e


d o e s . T h a t is if y o u ' r e c r e d i b l e you can get a w a y w i t h it. W e ' r e
c r e d i b l e b e c a u s e we p e r f o r m w e l l . I f w e w e r e r u n n i n g at a l o s s , I'd
be fired for b r e a k i n g the r u l e s . B u t b e c a u s e w e ' r e d o i n g w e l l , it's a
good m a n a g e m e n t decision ( M a n a g i n g director ofthe Australian
subsidiary of an A m e r i c a n transnational).

W h i l e t h e a b o v e view is m o r e e x t r e m e t h a n I had from any o t h e r


i n f o r m a n t , it is c l e a r t h a t S O P s are far from i m m u t a b l e . We n e e d to
l o o k b e y o n d t h e m t o t h e spirit i n w h i c h they a r e a p p l i e d .
In s o m e c o m p a n i e s , t h e c l i m a t e is t h a t so long as you are not
g e t t i n g i n t o h o t w a t e r a n d t h e b o t t o m line is g o o d , all is well. A
s e n i o r A u s t r a l i a n e x e c u t i v e o f o n e i n t e r n a t i o n a l c o m p a n y w h i c h has
a b a d r e c o r d of b r i b e r y a n d o t h e r l a w - b r e a k i n g said: ' W e w o u l d say
t h a t i t i s t h e r e s p o n s i b i l i t y o f t h e H e a l t h D e p a r t m e n t t o w o r k out
w h e t h e r r e s e a r c h r e s u l t s h a v e b e e n c h e a t e d on. M a y b e i f w e d o
fudge s o m e r e s u l t it's t h e j o b o f t h e H e a l t h D e p a r t m e n t t o find that
o u t . I t ' s not o u r r e s p o n s i b i l i t y . T h a t ' s t h e i r j o b . T h a t ' s w h a t t h e y ' r e
p a i d to d o . ' H e r e is t h e a n t i t h e s i s of a s e l f - r e g u l a t i n g c o m p a n y with
an e t h o s of social r e s p o n s i b i l i t y .
I r o n i c a l l y , a w i l l i n g n e s s to h a n d o v e r r e s p o n s i b i l i t y to r e g u l a t o r y
a g e n c i e s is a hallmark o f t h e irresponsible c o m p a n y :

O f t e n o u r p e o p l e use t h e F D A to get out of m a k i n g a decision


t h e m s e l v e s on a d r u g . We find it very h a r d to r e a c h c o n s e n s u s
a m o n g o u r s e l v e s on t h e safety of a p r o d u c t and often t h e r e are
s t r o n g d i s a g r e e m e n t s a m o n g us. S o s o m e t i m e s w e get out o f
m a k i n g o u r o w n d e c i s i o n b y p u t t i n g i t t o t h e F D A and letting
t h e m d e c i d e for u s .

T h e r e s p o n s i b l e c o m p a n y t a k e s t h e view t h a t t h e y , a s the dis-


c o v e r e r s o f t h e p r o d u c t , h a v e a d e e p e r u n d e r s t a n d i n g o f its r i s k s and
b e n e f i t s t h a n F D A officials, t h a t t h e y h a v e c o r p o r a t e s t a n d a r d s o f
i n t e g r i t y a n d e x c e l l e n c e and t h e r e f o r e wish t o m a k e their own
d e c i s i o n . W h e n F D A d i s a g r e e s with t h e m , t h e y r e s e n t it. T h e last
t h i n g t h e y w i s h to do is w a s h t h e i r h a n d s of a difficult d e c i s i o n . In
c o n t r a s t , the irresponsible c o m p a n y is pleased to do so, pleased to
h a n d o v e r i n c o m p l e t e facts t o facilitate t h e r e g u l a t o r y d e c i s i o n ,
a n d . i f t h e a g e n c y g i v e s a g r e e n light, d e l i g h t e d t o b e a b l e t o c l a i m :
i t ' s w i t h i n t h e r u l e s , s o let's g o a h e a d . '
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Strategies for controlling corporate crime

S O P s w h i c h a r e s o u n d with r e s p e c t t o c r i m e p r e v e n t i o n are
i m p e r a t i v e . H o w e v e r , not only a r e S O P s m o r e fluid t h a n w o u l d
a p p e a r from t h e c o r p o r a t e o p e r a t i n g m a n u a l s , but e x e c u t i v e s are
f o r e v e r e n c o u n t e r i n g n e w e n v i r o n m e n t a l c i r c u m s t a n c e s for which
t h e c o r p o r a t e rule b o o k offers little g u i d a n c e . A senior e x e c u t i v e of
o n e o f A u s t r a l i a ' s t o p c o m p a n i e s (not a p h a r m a c e u t i c a l c o m p a n y )
r e c e n t l y t o o k me to task w h e n I c o m m e n t e d favourably on E x x o n ' s
fairly d e t a i l e d c o r p o r a t e rules t o p r e v e n t l a w - b r e a k i n g . H i s view
w a s t h a t t h e i m p o r t a n t t h i n g w a s not s o m u c h t h e ' c o r p o r a t e
s t a t u t e s ' as t h e ' c o r p o r a t e case law'. R u l e s could not be codified to
c o v e r t h e e v e r - c h a n g i n g s i t u a t i o n s w h i c h confront e x e c u t i v e s with
e t h i c a l d i l e m m a s . S o his c o m p a n y w a s b e g i n n i n g t o a t t e m p t t o put
t h e ' c o r p o r a t e case law' on a m o r e formal basis. T h e f u n d a m e n t a l
r e q u i r e m e n t i s t h a t w h e n e x e c u t i v e s e n c o u n t e r a n ethical d i l e m m a ,
the p r o b l e m should be written down. It should then be passed up
t h e line until it r e a c h e s a p e r s o n w h o k n o w s the existing case law
w i t h r e s p e c t to t h i s class of p r o b l e m . If t h e p r o b l e m readily fits
w i t h i n t h e p a r a m e t e r s e s t a b l i s h e d by existing case law, it goes no
f u r t h e r . B u t if it h o l d s out t h e possibility of e s t a b l i s h i n g an
i m p o r t a n t p r e c e d e n t , i t could g o t o t h e s u p r e m e court o f t h e chief
e x e c u t i v e officer.

T h e second fundamental r e q u i r e m e n t is that the decision in the


c a s e be p u t in w r i t i n g and sent d o w n t h e line. A senior e x e c u t i v e
m u s t t h e n t a k e r e s p o n s i b i l i t y for c o l l a t i n g , c o n c e p t u a l i s i n g , cross-
r e f e r e n c i n g a n d d r a w i n g o u t g e n e r a l p r i n c i p l e s from the c a s e law. If
t h e c o m p a n y is t h e n e x p o s e d to criticism for t h e ethical stance it has
t a k e n on a p a r t i c u l a r i s s u e , the b o a r d can be p r o v i d e d with a
d e f i n i t i v e s u m m a r y o f t h e r e l e v a n t case law. T h e cases are t h e r e i n
t h e files for t h e m to i n s p e c t . C r i t i c i s m c a n be d i r e c t e d not only at the
w o r d i n g o f r u l e s b u t a t t h e m a n a g e r i a l j u d g m e n t s u n d e r l y i n g the
r e s o l u t i o n o f specific d i l e m m a s w h i c h set i m p o r t a n t p r e c e d e n t s .
W h e n t h e c o r p o r a t e case law b e c o m e s widely c o m m u n i c a t e d and
u n d e r s t o o d w i t h i n t h e o r g a n i s a t i o n , t h e n e e d t o pass ethical
d i l e m m a s u p t h e fine d e c r e a s e s b e c a u s e they a r e simply n o l o n g e r
d i l e m m a s . T h e c a s e law can build a c o r p o r a t e c u l t u r e w h e r e i n w h a t
w e r e s h a d e s o f grey b e c o m e black a n d w h i t e . M i n i m i s i n g t h e
incidence of ethical d i l e m m a s is important because ofthe timeliness
p r o b l e m with m a n a g e m e n t d e c i s i o n s . C o r p o r a t i o n s often m a k e t h e
right decisions at the w r o n g time because they prevaricate while
d i l e m m a s a r e p a s s e d u p t h e line. A u t h o r i t y must b e d e v o l v e d i f
c o r p o r a t i o n s a r e t o m a x i m i s e their c a p a c i t y t o seize u p o n

350
Strategies for controlling corporate crime

o p p o r t u n i t i e s as s o o n as t h e y p r e s e n t t h e m s e l v e s . H e n c e it is essen-
tial t h a t c o r p o r a t e c a s e law b e p r o a c t i v e r a t h e r t h a n simply r e a c t i v e .
F o r m a l i s e d c o r p o r a t e c a s e law i s o b v i o u s l y m o r e a m e n a b l e t o
critical scrutiny and evaluation than s p o k e n (and u n s p o k e n ) under-
standings. It renders corporate decision-making processes more
v u l n e r a b l e to c r i t i c i s m . T h i s is its very s t r e n g t h . If c o r p o r a t i o n s
c o m e to h a v e p u b l i c i n t e r e s t d i r e c t o r s , a p r o p o s i t i o n to be discussed
l a t e r , t h e s e p e o p l e w o u l d b e able t o d o t h e i r j o b infinitely b e t t e r i f
t h e y c o u l d criticise t h e way l e a d i n g c a s e s o f ethical d i l e m m a s have
b e e n s e t t l e d . C r i t i c i s i n g r u l e s , t h e i n t e r p r e t a t i o n of which is un-
e x p l i c a t e d , o b v i o u s l y i s o f m o r e limited v a l u e . Similarly, g o v e r n -
m e n t i n s p e c t o r s w o u l d b e m o r e effective g u a r d i a n s o f t h e public
i n t e r e s t if t h e y had a c c e s s to a c o m p r e h e n s i v e b o d y of c o r p o r a t e
c a s e law.
T o p m a n a g e m e n t h a s a n i n t e r e s t i n t h e formalising o f c o r p o r a t e
c a s e law in t h a t it t i g h t e n s m a n a g e m e n t c o n t r o l and r e d u c e s the risk
of wild i d i o s y n c r a t i c d e c i s i o n s . T h e i m p o r t a n t benefit of enforcing
the r e c o r d i n g and systematising of ethical d i l e m m a s , however, is
t h a t it fosters s e l f - r e g u l a t i o n , a n d , to t h e e x t e n t that the c a s e s are
m a d e available to outsiders, government regulation. Costs would
n o t b e g r e a t . E x e c u t i v e s d o not e n c o u n t e r e t h i c a l d i l e m m a s every
d a y o f t h e w e e k , a n d o n m o s t o c c a s i o n s w h e n t h e y d o , t h e y will b e
d i l e m m a s w h i c h g e n e r a t e a n i m m e d i a t e r e s o l u t i o n from a m o r e
s e n i o r p e r s o n w h o has e n c o u n t e r e d p r o b l e m s o f this t y p e b e f o r e .
T h e p o i n t of view w h i c h I h e a r d a g a i n a n d a g a i n in the i n t e r v i e w s
w a s t h a t t h e ethical c l i m a t e of a c o r p o r a t i o n b e g i n s w i t h , and is
f u n d a m e n t a l l y d e t e r m i n e d by, the chief e x e c u t i v e officer:"

He sets t h e t o n e a n d t h e rest of m a n a g e m e n t fall in line. T h e


ethical s t a n d a r d s of a n y o n e other than him d o n ' t matter so much.
W e l l , u n l e s s you h a v e o n e o f t h o s e c o m p a n i e s w h e r e a n old guy a t
t h e h e l m has a r i g h t h a n d m a n m a k i n g all t h e real d e c i s i o n s
(American executive).

T h i s c o n c l u s i o n i s c o n s i s t e n t with o t h e r e v i d e n c e . B a u m a r t (1968)
f o u n d t h a t e x e c u t i v e s r a n k e d t h e b e h a v i o u r o f their s u p e r i o r s i n the
c o m p a n y as t h e p r i n c i p a l d e t e r m i n a n t of u n e t h i c a l d e c i s i o n s . In a
f i f t e e n - y e a r f o l l o w - u p o f B a u m a r t ' s w o r k , B r e n n e r and M o l a n d e r
( 1 9 7 7 ) found s u p e r i o r s still r a n k e d as t h e p r i m a r y influence on
u n e t h i c a l d e c i s i o n - m a k i n g . H a l f o f t h e 1977 s a m p l e o f e x e c u t i v e s
b e l i e v e d t h a t s u p e r i o r s often d o n o t w a n t t o k n o w h o w r e s u l t s a r e
o b t a i n e d , so long as t h e d e s i r e d o u t c o m e is a c h i e v e d .

351
Strategies for controlling corporate crime

S u c h e v i d e n c e p r o v i d e s a c r i m e - p r e v e n t i o n r a t i o n a l e for t h e Park
d e c i s i o n . T h e law s h o u l d a t t e m p t t o m a k e the chief e x e c u t i v e officer
u n i q u e l y susceptible to individual criminal responsibility because
s/he is u n i q u e l y a b l e to p r e v e n t c o r p o r a t e c r i m e t h o u g h o u t his or
h e r o r g a n i s a t i o n . T h e e v i d e n c e also s u s t a i n s a c a s e for r e n d e r i n g
c h i e f e x e c u t i v e officers e s p e c i a l l y v u l n e r a b l e t o s o m e o f t h e quite
effective informal a d v e r s e publicity s a n c t i o n s which can ginger up
t h e c o m p l i a n c e efforts o f c o m p a n i e s . H e n c e , c o n g r e s s i o n a l and
p a r l i a m e n t a r y c o m m i t t e e s s h o u l d m a k e special efforts t o get chief
e x e c u t i v e officers i n front o f t h e c a m e r a s w h e n q u e s t i o n s a r e being
a s k e d a b o u t t h e e t h i c o - l e g a l s t a n d a r d s o f their c o r p o r a t i o n .

W h i l e we k n o w t h a t t h e chief e x e c u t i v e officer holds t h e key to


m a k i n g s e l f - r e g u l a t i o n w o r k , it is difficult to specify w h a t implica-
t i o n s this has for p u b l i c policy. P e r h a p s t h e only s u g g e s t i o n is for
public interest groups to transform their criticisms of corporations
i n t o p e r s o n a l a t t a c k s on t h e faceless chief e x e c u t i v e officer as well.
W h e n t h e t i m e c o m e s for a p p o i n t i n g n e w chief e x e c u t i v e officers,
public interest m o v e m e n t s might convey the message to the board
t h a t t h e a p p o i n t m e n t of a c e r t a i n p e r s o n w o u l d lead to the
c o r p o r a t i o n b e i n g singled out for special i n v e s t i g a t i v e a t t e n t i o n . If
t h e b o a r d g o e s a h e a d and a p p o i n t s t h a t p e r s o n , i t w o u l d b e likely
t h a t s/he w o u l d be k e e n to h e a d off t r o u b l e by d e m o n s t r a t i n g to
c o n s u m e r i s t s t h a t s/he is not t h e o g r e t h e y a s s u m e d . A m o r e self-
r e g u l a t i n g c o r p o r a t i o n might be the result.

W h e n D o n a l d R u m s f e l d w a s a p p o i n t e d chief e x e c u t i v e officer o f
S e a r l e i n 1977 f o l l o w i n g t h e c o m p a n y ' s s a f e t y - t e s t i n g c r i s e s , t h e
a p p o i n t m e n t w a s criticised b e c a u s e R u m s f e l d had held s e n i o r
c a b i n e t p o s i t i o n s i n t h e N i x o n a d m i n i s t r a t i o n . H o w e v e r , one o f
R u m s f e l d ' s first a c t s w a s t o c o u n t e r S e a r l e ' s p o o r c o m p l i a n c e r e c o r d
w i t h an edict t h a t staff w e r e to be e v a l u a t e d for p r o m o t i o n and
i n c e n t i v e p a y m e n t s o n t h e basis o f t h e i r c o m p l i a n c e r e c o r d i n
a d d i t i o n to the usual c r i t e r i a . "
M o v i n g d o w n t h e o r g a n i s a t i o n a l h i e r a r c h y , i t i s i m p o r t a n t that
p r o - p u b l i c i n t e r e s t c o n s t i t u e n c i e s w i t h i n t h e c o r p o r a t i o n a r e given
o r g a n i s a t i o n a l c l o u t . T h e g r e a t m i s t a k e w h i c h m a n y critics o f big
b u s i n e s s m a k e i s t h a t c o r p o r a t i o n s are u n i t a r y e n t i t i e s w h e r e every
a c t i v i t y is g u i d e d by t h e goal of profit m a x i m i s a t i o n .

I've s e e n this firm g r o w from a small c o m p a n y to a very large o n e .


W h e n w e w e r e s m a l l , p e o p l e w o u l d a r g u e for t h i n g s i n t e r m s o f
t h e o v e r a l l i n t e r e s t s o f t h e c o r p o r a t i o n . T o d a y p e o p l e a r g u e for

352
Strategies for controlling corporate crime

w h a t is best for t h e i r g r o u p e v e n i f t h a t is against t h e c o r p o r a t i o n ' s


interest. The bigger we b e c o m e , the bigger that problem becomes
(senior American executive).

O n c e a c o m p l i a n c e g r o u p is e s t a b l i s h e d in a t r a n s n a t i o n a l c o r p o r -
a t i o n , it will t e n d to p u s h for w h a t is best for c o m p l i a n c e , e v e n in
m a n y s i t u a t i o n s w h e n t h i s i s not i n t h e profitability i n t e r e s t s o f t h e
3
c o m p a n y . " T h e performance and p r o m o t i o n prospects of people in
t h e g r o u p will b e a s s e s s e d i n t e r m s o f t h e goals o f c o m p l i a n c e r a t h e r
t h a n c o n t r i b u t i o n to profits. To t h e e x t e n t t h a t c o m p l i a n c e staff
p e r c e i v e t h e m s e l v e s a s h a v i n g a c a r e e r line a s c o m p l i a n c e e x p e r t s ,
t h e y h a v e a s e l f - i m a g e a n d a s e c u r e b a s e from which to r e s t r a i n the
e x c e s s e s o f t h e c o n s t i t u e n c i e s w h o a r e c o m m i t t e d t o 'profits a t any
c o s t ' , ' p r o d u c t i o n t a r g e t s at any c o s t ' , 'sales q u o t a s at any c o s t ' ,
' g r o w t h a t any c o s t ' , ' n e w p r o d u c t r e g i s t r a t i o n a t any c o s t ' .
O n e o f t h e w a y s t o foster this kind o f self-image i s t h r o u g h
granting professional status to certain types of compliance experts.
C h a p t e r 4 d e v e l o p e d a r g u m e n t s for q u a l i t y c o n t r o l b e i n g a pro-
f e s s i o n , w i t h u n i v e r s i t y d e g r e e s b e i n g offered i n q u a l i t y c o n t r o l .
P r o f e s s i o n a l s o c i a l i s a t i o n w o u l d hopefully c o m e t o i n c o r p o r a t e
c e r t a i n e t h i c a l t r a d i t i o n s with at least a m o d i c u m of force. P r o -
f e s s i o n a l a s s o c i a t i o n s w o u l d h a v e t h e p o w e r t o strike off m e m b e r s
w h o v i o l a t e p r o f e s s i o n a l e t h i c s , and t h e t h r e a t of being struck off
c a n be u s e d by e m p l o y e e s to resist u n e t h i c a l d e m a n d s from
e m p l o y e r s . N a d e r e t al. ( 1 9 7 2 ) h a v e f o r m u l a t e d a n i m p o r t a n t role
for p r o f e s s i o n a l a s s o c i a t i o n s in d e f e n d i n g t h e e m p l o y e e rights of
whistle b l o w e r s . As argued in C h a p t e r 4, professionalism is no
p a n a c e a , but i t m i g h t h e l p .
I t h a s b e e n s h o w n t h a t large p h a r m a c e u t i c a l c o m p a n i e s set
u p g r o u p s w h o s e j o b i t i s t o e n s u r e i n t e g r i t y , q u a l i t y , and
safety in t h e c o m p a n y ' s o u t p u t . T h e y do this b e c a u s e it is in the
i n t e r e s t s o f profit t o h a v e g r o u p s totally c o m m i t t e d t o t h e s e g o a l s .
Y e t it is also in t h e i n t e r e s t s of profit to have o t h e r g r o u p s like
r e g u l a t o r y affairs, p u b l i c r e l a t i o n s and t o p m a n a g e m e n t itself w h o
can take matters out o f t h e hands o f t h e pro-public-interest groups
w h e n i n t e g r i t y will cost t o o m u c h m o n e y . P h a r m a c e u t i c a l c o m -
p a n i e s d o not w a n t t h e i r scientists t o d o d i s h o n e s t r e s e a r c h .
T h e y w a n t s c i e n t i s t s u n c o m p r o m i s i n g l y c o m m i t t e d t o scientific
i n t e g r i t y . H o w e v e r , t h e y also w a n t to be a b l e to use t h a t scientific
integrity selectively: to ignore it w h e n they want, to have studies
r e p e a t e d w h e n r e s u l t s a r e not f a v o u r a b l e , t o have t h e public
353
Strategies for controlling corporate crime

relations department exaggerate the findings when results are


promising.
T h e m o r e o r g a n i s a t i o n a l clout p r o - p u b l i c - i n t e r e s t c o n s t i t u e n c i e s
a r e g i v e n , t h e m o r e t h e o v e r - r u l i n g o f t h o s e c o n s t i t u e n c i e s will b e
c o n f i n e d to m a t t e r s of only m a j o r c o n s e q u e n c e for profit. A l r e a d y ,
p h a r m a c e u t i c a l c o m p a n i e s f r e q u e n t l y let c o m p l i a n c e g r o u p s have
t h e i r h e a d i n w a y s t h a t will r e d u c e profits. T h e y d o this t o m a i n t a i n
m o r a l e i n t h e g r o u p and t o avoid u n d e r m i n i n g their a u t h o r i t y i n t h e
o r g a n i s a t i o n . W i t h m o r e o r g a n i s a t i o n a l clout for the c o m p l i a n c e
g r o u p , t h e i n c r e a s e d d i s r u p t i v e n e s s and conflict from o v e r - r u l i n g
t h e m m a k e s i t p r u d e n t t o limit e v e n further the s i t u t a t i o n s w h e r e
c o r p o r a t e goals are asserted over them.
E x a m p l e s o f s t r e n g t h e n i n g o r g a n i s a t i o n a l clout for p r o - p u b l i c -
i n t e r e s t c o n s t i t u e n c i e s i n c l u d e giving t h e i n t e r n a t i o n a l m e d i c a l
d i r e c t o r an u n q u a l i f i e d right to v e t o any p r o m o t i o n a l m a t e r i a l s from
a s u b s i d i a r y w h i c h do not m e e t c o r p o r a t e s t a n d a r d s of full dis-
c l o s u r e o f p r o d u c t h a z a r d s , h a v i n g t h e p l a n t safety officer a n s w e r -
a b l e to a h e a d office safety d i r e c t o r r a t h e r t h a n subject to the
a u t h o r i t y o f t h e p l a n t m a n a g e r w h o m s/he m i g h t n e e d t o pull u p for
a safety v i o l a t i o n , h a v i n g quality c o n t r o l i n d e p e n d e n t from
m a r k e t i n g or p r o d u c t i o n p r e s s u r e s , having an international com-
p l i a n c e g r o u p a n s w e r a b l e only t o t h e chief e x e c u t i v e officer.
M o r e s i m p l y , i t i s i m p o r t a n t t h a t c o m p l i a n c e e x e c u t i v e s b e senior
in t h e o r g a n i s a t i o n a l h i e r a r c h y . A p r e l i m i n a r y study by t h e N a t i o n a l
I n s t i t u t e for O c c u p a t i o n a l Safety a n d H e a l t h found t h a t c o m p a n i e s
w i t h low e m p l o y e e a c c i d e n t r a t e s w e r e m o r e likely t o have ' t h e i r
h i g h e s t safety officials at t o p m a n a g e m e n t levels of their firms'
( c i t e d i n M o n a h a n and N o v a c o , 1979). M o n a h a n . N o v a c o and G e i s
( 1 9 7 9 ) f o u n d t h a t t w o o f t h e 'Big F o u r ' D e t r o i t a u t o m o b i l e m a n u -
f a c t u r e r s m a k e recall d e c i s i o n s a t t h e m i d d l e - m a n a g e m e n t level and
t w o a t t h e level o f t o p m a n a g e m e n t ( v i c e - p r e s i d e n t s and m e m b e r s
o f t h e b o a r d ) . N a t i o n a l H i g h w a y Traffic Safety A d m i n i s t r a t i o n d a t a
s h o w t h a t t h e t w o c o m p a n i e s w h o s e recall d e c i s i o n s w e r e m a d e b y
m i d d l e m a n a g e m e n t w e r e a u d i t e d b y t h e g o v e r n m e n t for p r o d u c t -
safety v i o l a t i o n s a total o f t e n t i m e s w h i l e t h e t w o in w h i c h d e c i s i o n s
w e r e m a d e a t t o p m a n a g e m e n t level w e r e a u d i t e d only o n c e . W h i l e
this k i n d of e v i d e n c e is highly t e n t a t i v e , it is c o n s i s t e n t with the
v i e w s e x p r e s s e d b y p h a r m a c e u t i c a l e x e c u t i v e s i n t h e p r e s e n t study.
In a d d i t i o n to s t r e n g t h e n i n g the b a r g a i n i n g p o s i t i o n of explicitly
p r o - p u b l i c - i n t e r e s t s u b u n i t s , it is i m p o r t a n t to r e n d e r all s u b u n i t s
m o r e responsive to the public interest. A d a n g e r o u s situation is one
354
Strategies for controlling corporate crime

w h e r e line s u p e r v i s o r s r e g a r d safety o r q u a l i t y a s t h e r e s p o n s i b i l i t y
of safety or q u a l i t y staff. B o t h line and staff m u s t be held a c c o u n t -
a b l e for p r o b l e m s w i t h i n t h e i r s p h e r e o f r e s p o n s i b i l i t y . T h e costs o f
r e c a l l s or i n d u s t r i a l a c c i d e n t s can be e x t e r n a l i t i e s to t h e e c o n o m i c
c a l c u l a t i o n s o f p r o d u c t i o n s u b u n i t s . P e t e r s e n ( 1 9 7 8 : 4 9 - 5 1 ) has
suggested that t h e s e costs be sheeted back to the subunit by
c h a r g i n g a c c i d e n t c o s t s to t h e profit and loss s t a t e m e n t s of s u b u n i t s .
p r o r a t i n g i n s u r a n c e p r e m i u m s a c c o r d i n g t o s u b u n i t safety p e r f o r m -
a n c e and p u t t i n g safety i n t o t h e s u p e r v i s o r ' s a p p r a i s a l .
T h e n e x t r e q u i r e m e n t for effective s e l f - r e g u l a t i o n is that t h e r e be
p r o v i s i o n t o e n s u r e t h a t ' b a d n e w s ' g e t s t o the t o p o f t h e cor-
p o r a t i o n . T h e r e a r e t w o r e a s o n s for t h i s . F i r s t , w h e n t o p m a n a g e -
m e n t g e t s t o k n o w a b o u t a c r i m e w h i c h a c h i e v e s c e r t a i n subunit
g o a l s , but which is not in the overall interests ofthe c o r p o r a t i o n , top
m a n a g e m e n t will s t o p t h e c r i m e . S e c o n d , w h e n t o p m a n a g e m e n t i s
forced t o k n o w a b o u t a c t i v i t i e s w h i c h i t w o u l d r a t h e r not k n o w
a b o u t , it will often be forced to ' p r o t e c t its ass' by p u t t i n g a s t o p to it.
G r o s s has e x p l a i n e d h o w c r i m i n o g e n i c o r g a n i s a t i o n s frequently
b u i l d i n a s s u r a n c e s t h a t t h e taint o f k n o w l e d g e d o e s not t o u c h t h o s e
at t h e t o p .

A j o b o f t h e l a w y e r s is often to p r e v e n t such i n f o r m a t i o n from


r e a c h i n g t h e t o p officers so as to p r o t e c t t h e m from t h e taint
o f k n o w l e d g e s h o u l d t h e c o m p a n y later end u p i n c o u r t . O n e o f
t h e r e a s o n s f o r m e r P r e s i d e n t N i x o n got i n t o such t r o u b l e w a s
t h a t t h o s e n e a r him did not feel such s o l i c i t u d e b u t , from self-
p r o t e c t i v e m o t i v e s p r e s u m a b l y , m a d e sure h e did k n o w every
d e t a i l o f t h e illegal a c t i v i t i e s that w e r e g o i n g o n ( G r o s s , 1978:
203).

Pharmaceutical companies sometimes evidence an extraordinary


c a p a c i t y t o k e e p bad n e w s from the t o p . W i t h i n t h r e e m o n t h s o f
M E R / 2 9 ' s release to the m a r k e t , the chief of cardiology at the Los
A n g e l e s C e d a r s o f L e b a n o n H o s p i t a l had a n n o u n c e d that h e had
s t o p p e d u s i n g t h e d r u g b e c a u s e o f its a d v e r s e effects. W h i l e t h e
Richardson-Merrell board remained uninformed o f t h e dangers of
M E R / 2 9 , E. F. H u t t o n , the s t o c k b r o k e r a g e house, picked up the
s t o r y a n d a l m o s t i m m e d i a t e l y p o r t e n d e d a fall in R i c h a r d s o n -
M e r r e l l stock to its b r o k e r s a r o u n d t h e c o u n t r y , in o t h e r w o r d s , the
information processes of our society are such that across America
doctors were prescribing MER/29, oblivious to dangers that their
stockbrokers had long been alerted to' ( S t o n e , 1975: 2 0 2 ) .
355
Strategies for controlling corporate crime
4 0
T h e r e a r e m a n y r e a s o n s why b a d n e w s d o e s not get t o t h e t o p .
S t o n e ( 1 9 7 5 : 190) p o i n t s out t h a t it w o u l d be no s u r p r i s e if e n v i r o n -
m e n t a l p r o b l e m s w e r e n o t d e a l t with by t h e b o a r d of a major public
utility c o m p a n y w h i c h p r o u d l y told h i m t h a t i t had hired a n e n v i r o n -
m e n t a l e n g i n e e r . T h e t o u t e d e n v i r o n m e n t a l i s t r e p o r t e d t o the vice-
p r e s i d e n t for p u b l i c r e l a t i o n s ! M o r e f r e q u e n t l y , t h e p r o b l e m i s that
p e o p l e l o w e r d o w n h a v e an i n t e r e s t in k e e p i n g t h e lid on t h e i r
failures.
A t first, p e r h a p s , t h e l a b o r a t o r y scientists b e l i e v e that their
failure c a n be t u r n e d i n t o success. T i m e is lost. F u r t h e r investi-
gation reveals that their miscalculation was even more massive than
t h e y had i m a g i n e d . T h e h i e r a r c h y will not be p l e a s e d . M o r e t i m e is
w a s t e d d r a f t i n g m e m o r a n d a w h i c h c o m m u n i c a t e that t h e r e i s a
p r o b l e m , b u t in a g e n t l e fashion so t h a t t h e s h o c k to m i d d l e m a n a g e -
m e n t i s not t o o s e v e r e . M i d d l e m a n a g e r s w h o had w a x e d e l o q u e n t
to their s u p e r i o r s a b o u t t h e great b r e a k t h r o u g h a r e r e l u c t a n t to
a c c e p t t h e s u g a r - c o a t e d b a d n e w s . T h e y tell t h e s c i e n t i s t s t o 'really
c h e c k ' t h e i r g l o o m y p r e d i c t i o n s . O n c e t h a t i s d o n e , they must
a t t e m p t t o d e s i g n c o r r e c t i v e s t r a t e g i e s . P e r h a p s the p r o b l e m can b e
c o v e r e d by m o d i f y i n g the c o n t r a - i n d i c a t i o n s or the d o s a g e level?
F u r t h e r d e l a y . I f t h e bad n e w s m u s t g o u p , i t should b e a c c o m p a n i e d
by optimistic action alternatives.

Finally p e r s u a d e d that the situation is irretrievable, middle


m a n a g e r s s e n d u p s o m e o f t h e a d v e r s e f i n d i n g s . B u t t h e y w a n t t o dip
t h e i r t o e s i n t h e w a t e r o n t h i s : first send u p s o m e u n f a v o u r a b l e
results which the middle m a n a g e r s e a r l i e r p r e d i c t e d could
m a t e r i a l i s e and t h e n g r a d u a l l y r e v e a l m o r e bad n e w s for w h i c h they
a r e not so well c o v e r e d . If t h e Shockwaves are t o o big, t o o s u d d e n ,
t h e y ' l l j u s t h a v e t o g o b a c k a n d h a v e a n o t h e r try a t p a t c h i n g t h i n g s
u p . T h e result is that busy t o p m a n a g e m e n t get a fragmented picture
w h i c h t h e y n e v e r find t i m e t o put t o g e t h e r . This p i c t u r e plays d o w n
t h e p r o b l e m and o v e r s t a t e s t h e c o r r e c t i v e m e a s u r e s b e i n g t a k e n
b e l o w . C o n s e q u e n t l y , t h e y have little r e a s o n but t o c o n t i n u e
e x t o l l i n g t h e v i r t u e s o f t h e p r o d u c t . O t h e r w i s e , t h e b o a r d might
pull t h e plug on t h e i r f i n a n c i a l b a c k i n g , " and the sales force might
lose t h a t faith in t h e p r o d u c t which is i m p e r a t i v e for p e r s u a d i n g
others.

In a d d i t i o n , there is the more conspiratorial type of c o m m u n i -


c a t i o n b l o c k a g e o r c h e s t r a t e d from a b o v e . H e r e , m o r e senior
m a n a g e r s i n t e n t i o n a l l y r u p t u r e line r e p o r t i n g t o actively p r e v e n t
l o w - l e v e l e m p l o y e e s from p a s s i n g u p t h e i r c o n c e r n o v e r illegalities

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Strategies for controlling corporate crime

T h e classic i l l u s t r a t i o n w a s t h e U S h e a v y electrical e q u i p m e n t price-


fixing c o n s p i r a c y of t h e late 1950s:

E v e n w h e n s u b o r d i n a t e s had sought to protest o r d e r s they


c o n s i d e r e d q u e s t i o n a b l e , they found t h e m s e l v e s c h e c k e d b y t h e
l i n e a r s t r u c t u r e o f a u t h o r i t y , w h i c h effectively d e n i e d t h e m any
m e a n s by which to appeal. For e x a m p l e , one almost Kafkaesque
ploy u t i l i z e d to p r e v e n t an a p p e a l by a s u b o r d i n a t e w a s to h a v e a
p e r s o n s u b s t a n t i a l l y a b o v e t h e level o f his i m m e d i a t e s u p e r i o r ask
him to e n g a g e in the q u e s t i o n a b l e practice. The i m m e d i a t e
s u p e r i o r w o u l d t h e n b e told not t o s u p e r v i s e t h e activities o f t h e
s u b o r d i n a t e i n t h e given a r e a . T h u s , b o t h the s u b o r d i n a t e and the
s u p e r v i s o r w o u l d be left in t h e d a r k r e g a r d i n g t h e level of
a u t h o r i t y from w h i c h t h e o r d e r had c o m e , t o w h o m a n a p p e a l
m i g h t l i e , and w h e t h e r they w o u l d violate c o m p a n y policy b y
e v e n d i s c u s s i n g t h e m a t t e r b e t w e e n t h e m s e l v e s . B y i n effect
r e m o v i n g t h e s u b j e c t e m p l o y e e from his n o r m a l o r g a n i z a t i o n a l
t e r r a i n , t h i s s t r a t a g e m effectively s t r u c t u r e d a n i n f o r m a t i o n
b l o c k a g e into the corporate c o m m u n i c a t i o n system.
I n t e r e s t i n g l y , t h e r e a r e striking s i m i l a r i t i e s b e t w e e n such a n
o r g a n i z a t i o n a l p a t t e r n and t h e m a n n e r i n which c o n t r o l o v e r
c o r p o r a t e slush funds [in t h e 1970s foreign b r i b e r y s c a n d a l s ]
d e l i b e r a t e l y w a s g i v e n t o low-level e m p l o y e e s , w h o s e activities
t h e n w e r e carefully e x e m p t e d from t h e s u p e r v i s i o n o f t h e i r
i m m e d i a t e s u p e r i o r s ( C o f f e e , 1977: 1133)

A s i m i l a r p r o c e s s w a s at w o r k in t h e M E R / 2 9 case study w h e n
M r s J o r d a n w a s told t h a t t h e i n s t r u c t i o n t o t h r o w out her pet
m o n k e y h a d c o m e from a n o n y m o u s ' h i g h e r - u p s ' .
T h e s o l u t i o n to this p r o b l e m is a free r o u t e to t h e t o p . T h e lowly
d i s i l l u s i o n e d scientist w h o can see t h a t p e o p l e could b e d y i n g while
m i d d l e m a n a g e r s e q u i v o c a t e a b o u t w h a t sort o f m e m o will g o u p
s h o u l d be a b l e to b y p a s s line m a n a g e m e n t and send his i n f o r m a t i o n
t o a n o m b u d s m a n , a n s w e r a b l e only t o t h e b o a r d o r chief e x e c u t i v e ,
w h o s e j o b i t i s t o r e c e i v e bad n e w s . G e n e r a l E l e c t r i c , D o w
C h e m i c a l , I B M , a n d A m e r i c a n A i r l i n e s all h a v e such s h o r t - c i r c u i t -
ing m e c h a n i s m s t o a l l o w e m p l o y e e s a n o n y m o u s l y t o get their
m e s s a g e a b o u t a m i d d l e m a n a g e m e n t c o v e r - u p to the top.
T h e o m b u d s m a n s o l u t i o n is simply a specific e x a m p l e of the
g e n e r a l p r o p o s i t i o n t h a t i f t h e r e are t w o lines t o t h e t o p , a d v e r s e
i n f o r m a t i o n will get up m u c h m o r e q u i c k l y t h a n if t h e r e is only o n e .
For e x a m p l e , if an i n d e p e n d e n t compliance group answering to a
357
Strategies for controlling corporate crime

s e n i o r v i c e - p r e s i d e n t p e r i o d i c a l l y a u d i t s a l a b o r a t o r y , scientists in
the l a b o r a t o r y have a n o t h e r channel up the organisation through
t h e a u d i t g r o u p . N a t u r a l l y , t h e m i d d l e m a n a g e r s r e s p o n s i b l e for t h e
l a b o r a t o r y w o u l d prefer t h a t t h e y , r a t h e r t h a n t h e c o m p l i a n c e
g r o u p , give s e n i o r m a n a g e m e n t t h e bad n e w s .
T h e r e a r e a l s o w a y s of c r e a t i n g de facto a l t e r n a t i v e c h a n n e l s up
the organisation. E x x o n have a r e q u i r e m e n t that employees who
s p o t a c t i v i t i e s which c a u s e t h e m t o s u s p e c t illegality must r e p o r t
t h e s e s u s p i c i o n s to t h e g e n e r a l c o u n s e l . Say a financial a u d i t o r
n o t i c e s in t h e c o u r s e of his or her w o r k a m e m o which suggests an
a n t i t r u s t offence. I n m o s t c o m p a n i e s , a u d i t o r s w o u l d i g n o r e such
e v i d e n c e b e c a u s e it is not t h e i r r e s p o n s i b i l i t y and b e c a u s e of the
r e a s o n a b l e p r e s u m p t i o n t h a t they a r e not e x p e c t e d t o b e e x p e r t s i n
a n t i t r u s t law. E x x o n i n t e r n a l a u d i t o r s , h o w e v e r , w o u l d b e i n hot
w a t e r if t h e y did n o t r e p o r t t h e i r g r o u n d s for suspicion to s o m e o n e
w h o i s a n e x p e r t o n a n t i t r u s t (the g e n e r a l c o u n s e l ) . T h e m o r e
c h a n n e l s , e i t h e r defacto or formal, w h i c h can s h o r t - c i r c u i t n o r m a l
line r e p o r t i n g , t h e b e t t e r .

I n d e e d , this i s p a r t o f a n e v e n m o r e g e n e r a l p r i n c i p l e t h a t t h e
m o r e p e o p l e w h o a r e i n v o l v e d in a d e c i s i o n , t h e h a r d e r it is to k e e p
t h e lid on an illegality. W i t n e s s t h e a r g u m e n t of C h a p t e r 3 that in a
research team organised under matrix-management principles, it is
m u c h m o r e difficult to fudge d a t a t h a n in a t e a m o r g a n i s e d on
traditional hierarchical line-reporting principles. U n d o u b t e d l y ,
m i d d l e - m a n a g e m e n t c o v e r - u p s in c o m p a n i e s like Lilly, which has a
c o m m i t t e e d e c i s i o n - m a k i n g p r o c e s s , a r e m o r e difficult t h a n i n o t h e r
c o m p a n i e s . T h i s p r i n c i p l e i s r e l e v a n t t o g o v e r n m e n t a s well. S o m e
T h i r d W o r l d c o u n t r i e s h a v e t a k e n c e r t a i n sensitive d e c i s i o n s which
a r e s u s c e p t i b l e t o b r i b e r y o u t o f t h e h a n d s o f i n d i v i d u a l s and into
t h e k e e p i n g of c o m m i t t e e s . It is h a r d e r to b r i b e a c o m m i t t e e t h a n an
i n d i v i d u a l . Of c o u r s e , t h e r e can be a trade-off b e t w e e n c r i m e p r e -
v e n t i o n a n d efficiency h e r e .

Ted K l i n e , formerly general auditor o f t h e Exxon Corporation,


a n d n o w a D i r e c t o r of E s s o ( A u s t r a l i a ) , has an a d a g e t h a t 'if you
c a n ' t b o o k i t r i g h t , y o u p r o b a b l y s h o u l d not b e d o i n g it.' A c c u r a t e
r e c o r d s a r e t h e e s s e n c e o f b o t h i n t e r n a l and e x t e r n a l a c c o u n t a b i l i t y .
H e r l i h y and L e v i n e ' s ( 1 9 7 6 : 623) s u g g e s t e d s a f e g u a r d s against
b r i b e r y i n c l u d e c o n s i d e r a b l e r e c o r d i n g o f crucial i n f o r m a t i o n and
g u a r a n t e e s t h a t t r a n s a c t i o n s are ' b o o k e d r i g h t ' :

M o r e o v e r , all c o n s u l t a n t s s h o u l d be r e q u i r e d to file affidavits

358
Strategies for controlling corporate crime

w i t h t h e c o m p a n y i n d i c a t i n g t h a t t h e c o n s u l t a n t will not remit any


p o r t i o n o f t h e fee r e c e i v e d directly o r indirectly t o t h e c o m p a n y
or its e m p l o y e e s or m a k e illegal or i m p r o p e r p a y m e n t s to third
p a r t i e s . C h e c k s m a d e p a y a b l e t o ' b e a r e r ' o r t o ' c a s h ' should not
be delivered to agents, consultants, or their representatives.
T h e r e s h o u l d be a s y s t e m of m u l t i p l e a p p r o v a l s of all c o m p a n y
d i s b u r s e m e n t s a b o v e a c e r t a i n m i n i m u m level. R e c o r d s o f
c o n t r a c t s b e t w e e n c o r p o r a t e and g o v e r n m e n t a l officials should
be m a i n t a i n e d a n d m a d e a v a i l a b l e for i n s p e c t i o n . In t h e e v e n t of
a d e l i b e r a t e or flagrant b r e a c h of t h e s e policies by an e m p l o y e e ,
the e m p l o y e e should be dismissed promptly by the m a n a g e m e n t .

W h i l e t h e n e e d for careful r e c o r d i n g of m u l t i p l e a p p r o v a l s has


b e e n often e x p r e s s e d as a p r o t e c t i o n a g a i n s t f i n a n c i a l c r i m e s , the
p r i n c i p l e s a r e e q u a l l y a p p l i c a b l e t o e n s u r i n g t h a t p e o p l e d o not t a k e
shortcuts which violate G L P s or G M P s .
T h e f u n d a m e n t a l d i l e m m a with all t h e s e l f - r e g u l a t o r y m e a s u r e s
w h i c h h a v e b e e n d i s c u s s e d h e r e is t h a t t h e y m i g h t lead to an
o p p r e s s i v e c l i m a t e w i t h i n t h e c o r p o r a t i o n w h e r e e m p l o y e e s are
f o r e v e r o b s e s s e d with fear t h a t 'big b r o t h e r i s w a t c h i n g ' . D r u c k e r
( 1 9 6 4 : 51) in his classic w o r k a t t r i b u t e s t h e success of G e n e r a l
M o t o r s a s a n o r g a n i s a t i o n i n part t o t h e fact t h a t , ' N o b o d y t h r o w s
his w e i g h t a r o u n d , yet t h e r e i s n e v e r any d o u b t w h e r e t h e real
a u t h o r i t y l i e s . ' It is p o s s i b l e for i n t e r n a l c o m p l i a n c e g r o u p s to have
r e a l a u t h o r i t y w i t h o u t t h r o w i n g their w e i g h t a r o u n d . This i s o n e o f
t h e r e a s o n s w h y i t i s i m p o r t a n t t h a t c o m p l i a n c e g r o u p s have o r g a n -
i s a t i o n a l c l o u t . T h e n w h e n t h e c o m p l i a n c e g r o u p r e q u e s t s that
s o m e t h i n g be d o n e , the n o r m a l reaction is that t h e r e is no question,
n o a r g u m e n t t h a t i t m u s t a n d should b e d o n e .

W h e n c o m p a n i e s h a v e effective s e l f - r e g u l a t o r y s y s t e m s , cog-
n i s a n c e s h o u l d be t a k e n of this by r e g u l a t o r y a g e n c i e s . Unfor-
tunately, situations occur where regulatory agencies provide
d i s i n c e n t i v e s for effective s e l f - r e g u l a t i o n . S m i t h K l i n e e x e c u t i v e s
c o m p l a i n e d of a s i t u a t i o n in 1979 w h e n t h e c o m p a n y c o n d u c t e d a
d e t a i l e d i n - h o u s e e x a m i n a t i o n w h i c h d i s c o v e r e d c o n t a m i n a n t s i n its
n a s a l s p r a y s (Sine-off a n d C o n t a c M i s t ) . I n c o n t r a s t t o m a n y o f t h e
' b a d n e w s ' s t o r i e s in this b o o k , S m i t h K l i n e b e h a v e d as a self-
r e g u l a t i n g c o m p a n y and t r e a t e d t h e e m p l o y e e w h o d i s c o v e r e d the
c o n t a m i n a n t as s o m e t h i n g of a h e r o . H e r efforts w e r e held up as an
e x a m p l e of t h e kind of vigilance r e q u i r e d for t h e s a k e of p r o d u c t
p u r i t y . S m i t h K l i n e notified t h e F D A t h a t 1.2 million b o t t l e s of nasal

359
Strategies for controlling corporate crime

s p r a y w e r e b e i n g r e c a l l e d from d r u g s t o r e s a n d s u p e r m a r k e t s
a r o u n d the c o u n t r y . A c c o r d i n g to the executives, the F D A then
i s s u e d a p r e s s r e l e a s e w h i c h c r e a t e d t h e i m p r e s s i o n that it had
d i s c o v e r e d t h e p r o b l e m and forced S m i t h K l i n e into t h e recall. T o
b a l a n c e t h e a c c o u n t , o t h e r i n t e r v i e w e e s p r a i s e d t h e F D A for not
p r o v i d i n g d i s i n c e n t i v e s for s e l f - r e g u l a t o r y initiatives and o p e n n e s s :

W e h a v e a g o o d r e l a t i o n s h i p with o u r s e c t i o n o f F D A . W e can b e
o p e n w i t h t h e m i n telling t h e m o f o u r p r o b l e m s . T h e y are going t o
listen t o o u r p r o p o s a l s for s t r a i g h t e n i n g t h e p r o b l e m o u t . I f t h e y
w e r e g o i n g to j u m p on us like a ton o f b r i c k s every t i m e , we w o u l d
c o v e r up a lot of t h i n g s .

The lesson is that the regulatory agency should j u m p on com-


p a n i e s like a t o n o f b r i c k s w h e n they do not tell t h e facts, r a t h e r t h a n
w h e n t h e y d o . I n c i d e n t a l l y , this p i e c e o f c o m m o n sense i s yet
a n o t h e r r e a s o n w h y a u n i f o r m and c e r t a i n p r o s e c u t o r i a l policy is not
in the public interest.
T h e q u e s t i o n w h i c h a r i s e s a t this p o i n t i s w h a t i n c e n t i v e s a r e t h e r e
for c o r p o r a t i o n s t o h a v e s t r o n g s e l f - r e g u l a t o r y s y s t e m s . M a n y c o m -
p a n i e s u n d o u b t e d l y d e v o t e less a t t e n t i o n t o self-regulation t h a n i s
i n t h e i r i n t e r e s t s . T h e crises w h i c h c o m e from sloppy self-regulatory
systems - seizures, recalls, remedial advertisements, prosecutions,
c o n g r e s s i o n a l h a m m e r i n g s , b r i b e r y s c a n d a l s , p r o d u c t liability s u i t s ,
dissatisfied c u s t o m e r s , d i s i l l u s i o n e d d o c t o r s - can cost p h a r m a -
c e u t i c a l c o m p a n i e s a lot of m o n e y . As a g e n e r a l p r i n c i p l e , it is
c h e a p e r to b u i l d in a s s u r a n c e s t h a t t h i n g s will be d o n e right t h e first
t i m e . O n t h e o t h e r h a n d , t h e r e m u s t b e s o m e o p t i m u m level o f
a t t e n t i o n to s e l f - r e g u l a t i o n for m a x i m i s i n g profits, and p e r h a p s
s o m e c o m p a n i e s s p e n d m o r e t h a n this o p t i m u m . This i s u n d e r -
standable because an economically irrational o v e r c o m m i t m e n t to
e x c e l l e n c e and integrity fulfils o t h e r v a l u e s . 'It m a k e s it m o r e
pleasant to c o m e to work in the morning', as one executive
e x p l a i n e d . M a n y t o p e x e c u t i v e s a r e p r e p a r e d t o sacrifice s o m e o f
t h e icing on t h e profitability c a k e for t h e s a k e of e n j o y i n g a feeling
o f p r i d e i n c o r p o r a t e integrity. I n any c a s e , t h e r e are m a n y h i d d e n
b e n e f i t s in h a v i n g a r e p u t a t i o n as a c o m p a n y t h a t g o e s the e x t r a mile
to ensure excellence.

C o m p a n i e s like Lilly d e s e r v e the high r e g a r d i n w h i c h t h e y are


h e l d b y t h e F D A . B u t t h e n o n the o t h e r h a n d , w h e n Lilly d o have
a p r o b l e m t h e y can t a k e the F D A p e o p l e a l o n g t o 1 5 P h D s w h o

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Strategies for controlling corporate crime

k n o w m u c h m o r e t h a n t h e F D A a b o u t t h e p r o b l e m and they can


s n o w t h e m . T h e F D A b e l i e v e s t h e m b e c a u s e t h e y respect their
reputation.

T h e r e is s o m e t h i n g in it for t h e c o m p a n i e s . F o r c o m p a n i e s w h o do
n o t see it this w a y , g o v e r n m e n t can m a n d a t e t h a t c e r t a i n self-
r e g u l a t o r y m e c h a n i s m s be p u t in p l a c e . T h i s is exactly w h a t t h e
F D A did with t h e Q u a l i t y A s s u r a n c e U n i t r e q u i r e m e n t s o f t h e
G L P s ( C h a p t e r 3 ) . I n o r d e r t o e n s u r e t h a t the Q A U r e p o r t s and
r e c o m m e n d a t i o n s a r e frank and b i t i n g , F D A d o e s n o t inspect t h e
r e p o r t s . G o v e r n m e n t c a n n o t h a v e its c a k e and eat i t w h e n passing
on t h e c o s t s of c e r t a i n t y p e s of r e g u l a t i o n to i n d u s t r y .
If a f u n d a m e n t a l reality is, as I h a v e a r g u e d , t h a t c o r p o r a t i o n s
h a v e c l e a r l y defined a c c o u n t a b i l i t y for i n t e r n a l p u r p o s e s and
diffused a c c o u n t a b i l i t y for e x t e r n a l e x p o s u r e , t h e n it is a m i n o r
i m p o s i t i o n for g o v e r n m e n t t o r e q u i r e c e r t a i n t y p e s o f n o m i n a t e d
a c c o u n t a b i l i t y . A f t e r d i s c u s s i n g t h e a p p a r e n t l y diffused r e s p o n s i -
bility o v e r t h e safety p r o b l e m s o f G e n e r a l M o t o r s ' C o r v a i r , S t o n e
concludes:

N o w , t h e p o i n t i s , w e r e t h e office of, say, chief test e n g i n e e r o n e


e s t a b l i s h e d a n d defined not only by t h e c o m p a n i e s but by t h e
s o c i e t y at l a r g e , in such a way t h a t it w a s his legal duty to k e e p
a r e c o r d o f t e s t s , and to r e p o r t a d v e r s e e x p e r i e n c e s at o n c e to
t h e D e p a r t m e n t of T r a n s p o r t a t i o n , we w o u l d be far b e t t e r off.
A s u p e r i o r w h o a s k e d t h e chief test e n g i n e e r to 'forget t h a t
little m i s h a p ' w o u l d n o t only b e a s k i n g him t o risk s o m e
u n k n o w a b l e p e r s o n ' s life a n d limb at s o m e u n d e f i n e d t i m e in the
f u t u r e ; he w o u l d be a s k i n g him to v i o l a t e the law, w h i c h is a far
m o r e s e r i o u s and i m m e d i a t e liability for b o t h o f t h e m ( S t o n e ,
1975: 191).

G o v e r n m e n t i m p o s e d n o m i n a t e d a c c o u n t a b i l i t y for specific
i m p o r t a n t r e s p o n s i b i l i t i e s is a s i m p l e , i n e x p e n s i v e reform. T h e
p r o f o u n d p s y c h o l o g i c a l c o n n e c t i o n b e t w e e n p e o p l e and their
n a m e s g i v e s s o m e v a l u e to t h e m e r e fact of r e q u i r i n g a p e r s o n to sign
a s t a t e m e n t t h a t no unsafe effects of a p r o d u c t h a v e b e e n found.
T h e r e c a n b e n o m i n a t e d a c c o u n t a b i l i t y for p r e p a r i n g e n v i r o n -
m e n t a l i m p a c t s t a t e m e n t s , for s u p e r v i s i n g t h e i m p l e m e n t a t i o n o f
r e s e a r c h p r o t o c o l s , for e n s u r i n g t h a t any r e g u l a t o r y w a r n i n g s o f a
p a r t i c u l a r t y p e are b r o u g h t t o the a t t e n t i o n o f t h e b o a r d . W h e n
specific p e o p l e k n o w t h a t t h e y will b e p r o s e c u t e d , fired, o r t h e focus

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Strategies for controlling corporate crime

of c r i t i c i s m if a law is b r o k e n , t h e n t h o s e p e o p l e will not only refrain


from c o m m i t t i n g c r i m e , t h e y will b e a c t i v e i n c r i m e p r e v e n t i o n .
T o c o n c l u d e , h o w w o u l d o n e g o a b o u t assessing w h e t h e r a
c o m p a n y is effectively r e g u l a t i n g itself? T h e first step w o u l d be to
t h r o w t h e c o r p o r a t e c o d e o f e t h i c s i n t h e w a s t e p a p e r b a s k e t and
p r o b a b l y t h e 'social a u d i t ' from t h e a n n u a l r e p o r t after it. I g n o r e
h o w m a n y d o l l a r s o r h o w m a n y p e o p l e are classified a s d e v o t e d t o
c o m p l i a n c e o r 'social r e s p o n s i b i l i t y ' f u n c t i o n s . F o r g e t how 'socially
c o n c e r n e d ' t h e ' a t t i t u d e s ' o f t o p m a n a g e m e n t a p p e a r t o be. T h e n
a s k t h e following q u e s t i o n s :

1 Is t h e c h i e f e x e c u t i v e officer actively involved in s e t t i n g


c o m p l i a n c e and social r e s p o n s i b i l i t y goals for t h e c o r p o r a t i o n ?
2 D o S O P s e s t a b l i s h c o n t r o l s w h i c h m a k e v i o l a t i o n o f t h e law
difficult? ( m u l t i p l e a p p r o v a l s , a s s u r a n c e s that bad n e w s will
rise t o t h e t o p , e t c . )
3 A r e t h e r e c o m p l i a n c e g r o u p s with o r g a n i s a t i o n a l m u s c l e ?
4 C a n t h e c o r p o r a t i o n d e m o n s t r a t e a history of effectively
sanctioning e m p l o y e e s who violate SOPs designed to prevent
crime?
5 D o e s t h e c o r p o r a t i o n w r i t e d o w n only t h e good n e w s ? A r e
u n s p o k e n u n d e r s t a n d i n g s t h e basis o n w h i c h sensitive
d e c i s i o n s a r e m a d e ? O r are t h e r e a s s u r a n c e s that i t r e c o r d s
m e t i c u l o u s l y a n d w r i t e s d o w n e t h i c a l d i l e m m a s and how t h e y
are resolved?
6 D o e s t h e ' c o r p o r a t e case law' w h i c h can be a b s t r a c t e d from t h e
latter recorded decisions embody scrupulous commitment to
t h e l e t t e r and t h e spirit o f t h e law?

The role ofthe board of directors

R e a d e r s will h a v e n o t i c e d t h a t i n all o f t h e d i s c u s s i o n t o d a t e , t h e
r o l e o f t h e b o a r d o f d i r e c t o r s has b e e n c u r i o u s l y a b s e n t . L a r g e l y this
is b e c a u s e in all o f t h e c a s e s t u d i e s of c o r p o r a t e c r i m e a n a l y s e d in
the b o o k , the board of directors played an inconsequential role.
M u c h p r i n t e r ' s ink i n t h e U n i t e d S t a t e s has b e e n d e v o t e d t o t h e
i m p o r t a n c e o f h a v i n g o u t s i d e r s o n t h e b o a r d s o f major c o r p o r -
2
a t i o n s , " e v e n t h o u g h t h e U n i t e d S t a t e s has h i g h e r p r o p o r t i o n s o f
n o n - e x e c u t i v e d i r e c t o r s o n its b o a r d s t h a n i n any o t h e r c o u n t r y
( V a n D u s e n W i s h a r d , 1 9 7 7 : 2 2 8 ) . Y e t , w i t h all t h e c o m p a n i e s from
m a n y i n d u s t r i e s w h i c h d i s c l o s e d foreign b r i b e r y t o the S E C , i n not

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Strategies for controlling corporate crime

o n e c a s e w a s i t d i s c o v e r e d t h a t a n o u t s i d e d i r e c t o r had b e e n
a p p r i s e d o f t h e p r o b l e m . " I n c o n t r a s t , i n o v e r 4 0 per cent o f t h e
S E C foreign p a y m e n t s d i s c l o s u r e s , i t w a s r e v e a l e d t h a t s e n i o r
m a n a g e m e n t w a s a w a r e o f t h e p a y m e n t s and t h e s u r r o u n d i n g
c i r c u m s t a n c e s ( C o f f e e , 1977: 1105). W h i l e m o s t law s c h o o l s
e d u c a t e t h e i r s t u d e n t s a b o u t t h e b o a r d a s t h e f u n d a m e n t a l decision-
m a k i n g unit o f t h e c o r p o r a t i o n and o f t h e d u t i e s o f d i r e c t o r s ,
e m p i r i c a l o b s e r v e r s o f c o r p o r a t e reality c o n t i n u e t o c o n c l u d e t h a t
t h e b o a r d ' s influence i s feeble ( M a c e , 1 9 7 1 ; E i s e n b e r g , 1976).
Coffee ( 1 9 7 7 : 1148) has p o s i t e d a m e t a p h o r w h i c h c a p t u r e s the
i r r e l e v a n c e of the board to most c o r p o r a t e crime in the pharma-
c e u t i c a l i n d u s t r y . C o n v e n t i o n a l l y , t h e b o a r d i s viewed a s t h e cor-
p o r a t i o n ' s ' c r o w ' s n e s t ' . A s s u c h , i t can spot i m p e n d i n g p r o b l e m s o n
t h e h o r i z o n , b u t can hardly d i s c o v e r or c o r r e c t t r o u b l e in t h e ship's
b o i l e r r o o m b e l o w . C o r p o r a t e c r i m e o c c u r s i n t h e boiler r o o m and
w o u l d r a r e l y be n o t i c e d by d i r e c t o r s w h o s e j o b it is to scout the
h o r i z o n l o o k i n g for n e w i n v e s t m e n t o p p o r t u n i t i e s , s o u r c e s o f
f i n a n c e , p o s s i b l e m e r g e r s , j o i n t v e n t u r e s , and t h e like.
O r , in the w o r d s of one informant:

T h e b o a r d all s u p p o r t quality in p r i n c i p l e . It's like m o t h e r h o o d .


B u t t h e y m a k e d e c i s i o n s at a different level. T h e y d e c i d e w h i c h
d i r e c t i o n t h e c o m p a n y will t a k e , w h e t h e r or not a n e w plant
s h o u l d b e built. T h e y d e c i d e w h e r e t h e m o n e y will b e s p e n t , not
h o w to s p e n d it. T h e y pay p e o p l e to do t h a t for t h e m . Q u a l i t y of
course c o m e s in at the i m p l e m e n t a t i o n stage.

T h e p o i n t a b o u t C o f f e e ' s use o f t h e c r o w ' s nest a n a l o g y i s that


c o m m u n i c a t i o n s from b o t h t h e c r o w ' s nest and t h e boiler r o o m run
to the b r i d g e , w h e r e top m a n a g e m e n t holds the helm. Strategic
r e f o r m s will t h e r e f o r e s h e e t r e s p o n s i b i l i t y h o m e t o t h e b r i d g e , and
e n s u r e t h a t c o m m u n i c a t i o n c h a n n e l s t o t h e b r i d g e from t h e boiler
r o o m a r e free ( r a t h e r t h a n a t t e m p t t o e s t a b l i s h radically n e w
c o m m u n i c a t i o n c h a n n e l s from t h e boiler r o o m t o t h e c r o w ' s n e s t ) .
E v e n i f t h e s e n e w c h a n n e l s can b e m a d e t o w o r k , all t h e c r o w ' s nest
c a n d o i s s h o u t , w h i l e t h e b r i d g e can t a k e c o r r e c t i v e a c t i o n . B e c a u s e
o f t h i s f u n d a m e n t a l r e a l i t y , laws w h i c h i m p o s e individual liability
on t h e c h i e f e x e c u t i v e officer s e e m of infinitely g r e a t e r p r e v e n t a t i v e
v a l u e t h a n t h o s e w h i c h i m p o s e liability o n d i r e c t o r s .
C o n c o m i t a n t l y , i t i s m o r e i m p o r t a n t t h a t r e p o r t s from c o r p o r a t e
c o m p l i a n c e g r o u p s a r e read and acted u p o n b y t h e chief e x e c u t i v e
officer t h a n b y s o m e social r e s p o n s i b i l i t y c o m m i t t e e o f t h e b o a r d .

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Strategies for controlling corporate crime

U n d o u b t e d l y , b o t h w o u l d b e d e s i r a b l e . B u t since b o t h b o a r d and
c h i e f e x e c u t i v e officer typically suffer from an i n f o r m a t i o n over-
l o a d , c h o i c e s m u s t b e m a d e . Since t h e chief e x e c u t i v e c u r r e n t l y
a l r e a d y h a s t h e g r e a t e r ability t o k n o w a b o u t and c o r r e c t law-
b r e a k i n g , m e a s u r e s t o i m p o s e a s s u r a n c e s that t h e t o p will k n o w ,
a n d m e a s u r e s to define r e s p o n s i b i l i t i e s to act, should also be
d i r e c t e d a t t h e chief e x e c u t i v e .
O b v i o u s l y , t h e r e are e x c e p t i o n s to t h e d e s i r a b i l i t y of such a
p r i n c i p l e . It is surely p r e f e r a b l e for t h e b o a r d , or an a u d i t c o m -
mittee c o m p o s e d of outside directors, to review matters which
t o u c h o n t h e p e r s o n a l financial i n t e r e s t s o f t h e chief e x e c u t i v e
officer, such as l o a n s to c o m p a n i e s in w h i c h t h e latter has an interest
or t h e c h o i c e of a c c o u n t i n g s y s t e m s w h i c h influence b o n u s e s to be
paid to the chief e x e c u t i v e . "
A f u n d a m e n t a l p r o b l e m in W e s t e r n s o c i e t i e s g e n e r a l l y is a split
b e t w e e n p o w e r and accountability. Under Westminster-style
g o v e r n m e n t s civil s e r v a n t s often wield t h e real p o w e r w h i l e
m i n i s t e r s a r e held a c c o u n t a b l e for d e c i s i o n s they m i g h t not e v e n
k n o w a b o u t . S i m i l a r l y , t h e o u t d a t e d legal t r a d i t i o n s o f c o m p a n y law
p r i m a r i l y hold d i r e c t o r s r a t h e r t h a n m a n a g e r s a c c o u n t a b l e . Prin-
c i p l e s of p u b l i c a c c o u n t a b i l i t y need to be b r o u g h t b e t t e r in line with
t h e r e a l i t i e s o f secret p o w e r . S o m e e x e c u t i v e s i n this study a r g u e d
t h a t a t t e m p t s t o place r e s p o n s i b i l i t y for c o m p l i a n c e m o r e s q u a r e l y
i n t h e h a n d s o f t h e b o a r d w o u l d only serve t o e x a c e r b a t e t h e split
b e t w e e n p o w e r and accountability.

A practical constraint upon corporate compliance groups report-


ing to a s u b c o m m i t t e e o f t h e b o a r d r a t h e r t h a n to t h e chief e x e c u t i v e
i s t h a t for m o s t b o a r d m e m b e r s t h e m o n t h l y m e e t i n g i s a s m u c h t i m e
a s t h e y a r e p r e p a r e d t o invest i n t h e i r r e s p o n s i b i l i t i e s . O n e also
s u s p e c t s t h a t such a r e p o r t i n g r e l a t i o n s h i p w o u l d e n c o u r a g e t h e
c h i e f e x e c u t i v e t o i n t e r v e n e t o filter w h a t w e n t u p t o t h e b o a r d .
I n s t e a d of a frank and efficient r e p o r t i n g system which g u a r a n t e e s
t h a t someone at t h e t o p is formally put on n o t i c e of a c r i m e , we
i n c r e a s e t h e risks of a filtered s y s t e m w h i c h e n s u r e s t h a t no o n e is
f o r m a l l y notified. T h e chief e x e c u t i v e officer is informally notified
(in h i s / h e r s e c r e t role as c e n s o r ) , but will rarely be held legally
a c c o u n t a b l e b e c a u s e t h e c o m p a n y rules a l l o c a t e r e s p o n s i b i l i t y t o
t h e b o a r d . As well as b e i n g inefficient in a d d i n g a n o t h e r layer of
b u r e a u c r a c y , t h e s y s t e m c o u l d o p e r a t e t o t a k e t h e heat off t h e chief
executive.

O u t s i d e directors have little i n t e r e s t i n c h a l l e n g i n g t h e chief

364
Strategies for controlling corporate crime

e x e c u t i v e officer to s t o p i n t e r f e r i n g with t h e flow of i n f o r m a t i o n to


t h e m . M o s t o f t h e m a r e o n t h e b o a r d b e c a u s e t h e chief e x e c u t i v e
p u t t h e m t h e r e . S o m e m i g h t h a v e t h e chief e x e c u t i v e o n t h e i r o w n
b o a r d . T a c i t u n d e r s t a n d i n g s a b o u t "you k e e p i n g y o u r n o s e out o f
m y i n t e r n a l affairs a n d m e k e e p i n g m y nose o u t o f y o u r s ' d e v e l o p .
T h e b o l d i n i t i a t i v e w h i c h has b e e n r e c o m m e n d e d b y N a d e r and
o t h e r s t o cut t h r o u g h t h i s c r o n y i s m i s t h e g o v e r n m e n t - a p p o i n t e d
p u b l i c - i n t e r e s t d i r e c t o r . If t h e p u b l i c - i n t e r e s t d i r e c t o r is to get a
m e a n i n g f u l p i c t u r e of w h a t is g o i n g on in t h e c o r p o r a t i o n s/he will
n e e d a n i n v e s t i g a t i v e staff t o dig o u t t h e facts. M a n a g e m e n t e x p e r t s
a r e g e n e r a l l y r e l u c t a n t a b o u t t h e a d v e r s e c o n s e q u e n c e s for o r g a n -
i s a t i o n a l e f f e c t i v e n e s s of t h e t e n s i o n s a r i s i n g from "shadow staffs'
a t t a c h e d to board m e m b e r s without being answerable to the chief
e x e c u t i v e . E i s e n b e r g ( 1 9 7 6 : 390) b e l i e v e s t h a t such staffs w o u l d
have an 'institutionalised obligation to second-guess the m a n a g e -
m e n t , b u t very l i m i t e d r e s p o n s i b i l i t y for r e s u l t s ' , while D r u c k e r
( 1 9 7 3 : 538) s u g g e s t s t h a t s h a d o w staffs for b o a r d m e m b e r s t e n d t o
e l i t i s m and ' c o n t e m p t ' for o p e r a t i n g staff. T h e i r a d v i c e is f r e q u e n t l y
o r i e n t e d t o w a r d s p l a c a t i n g t h e powerful b a r o n s t h e y s e r v e , and
h e n c e f u n c t i o n s s i m p l y t o inject m o r e confusion into m a n a g e r i a l
e n v i r o n m e n t s which d e m a n d decisiveness.

T h e s e efficiency d e b i t s o f t h e p u b l i c - i n t e r e s t d i r e c t o r c o n c e p t a r e
n o t fully a n s w e r e d b y s u p p o r t e r s such a s S t o n e ( 1 9 7 5 ) . S t o n e
s u g g e s t s t h a t p u b l i c i n t e r e s t d i r e c t o r s and t h e i r staffs should be part
o f t h e c o r p o r a t e t e a m in most normal respects. The public-interest
d i r e c t o r s h o u l d a l s o be a d i r e c t o r / o r t h e c o r p o r a t i o n in t h e sense of
a s s i s t i n g w i t h g e n e r a l c o r p o r a t e g o a l s such a s profit and g r o w t h .
A l t h o u g h the public-interest director is appointed by g o v e r n m e n t ,
n o o n e s h o u l d b e a p p o i n t e d w h o i s not a c c e p t a b l e t o t h e b o a r d .
S t o n e s u g g e s t s t h a t p u b l i c - i n t e r e s t d i r e c t o r s should not t u r n o v e r
information u n c o v e r e d in the course of their investigations to public
a u t h o r i t i e s . Only if the company indicates an unwillingness to
i m p l e m e n t the reforms suggested by the public-interest director to
rectify a s i t u a t i o n s h o u l d s/he go p u b l i c or r e p o r t t h e situation to t h e
government.

C e r t a i n l y t h e r e is a difficult c h o i c e to be m a d e . C o n s u m e r s can
h a v e a d i r e c t o r r e p r e s e n t i n g their interests w h o is no longer
a c c o u n t a b l e t o t h e p u b l i c , sufficiently t a m e t o b e a c c e p t a b l e t o
m a n a g e m e n t , and therefore in considerable danger of co-optation.
O r t h e y can h a v e a n a g g r e s s i v e p u b l i c - i n t e r e s t d i r e c t o r w h o i s
c o n s e q u e n t l y frozen o u t o f i n t e r n a l d e c i s i o n - m a k i n g and w h o

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Strategies for controlling corporate crime

d i s r u p t s m a n a g e m e n t efficiency. T h e l a t t e r t w o deficiencies are


r e l a t e d . If staff of t h e m i s t r u s t e d p u b l i c - i n t e r e s t d i r e c t o r insist on
a t t e n d i n g a scheduled meeting, than a second (discreet) gathering
will h a v e t o b e c o n v e n e d t o c o v e r t h e s a m e g r o u n d .
O n e w o n d e r s w h e t h e r t h e p u b l i c i n t e r e s t w o u l d b e b e t t e r served
i f c o n s u m e r i s t s , u n i o n i s t s , and e n v i r o n m e n t a l i s t s resisted c o -
o p t a t i o n and fought c o r p o r a t e a b u s e s u n m u z z l e d from o u t s i d e the
c o r p o r a t e w a l l s . N a t u r a l l y , c o r p o r a t e c o m p l i a n c e g r o u p s which are
u n d e r c h i e f - e x e c u t i v e c o n t r o l are m o r e likely t o have their r e c o m -
m e n d a t i o n s i g n o r e d t h a n i f a r e p r e s e n t a t i v e o f t h e p u b l i c interest
w e r e t o k n o w o f t h e r e c o m m e n d a t i o n s . H o w e v e r , t h e former kind
of c o m p l i a n c e g r o u p is m o r e likely to get t h e c o - o p e r a t i o n to e n a b l e
4 5
it to have something worthwhile to r e p o r t .
It m i g h t be b e t t e r to h a v e a c o m p l i a n c e g r o u p w h i c h is 'in the
k n o w ' , a n d w h i c h t a i n t s t h e chief e x e c u t i v e with k n o w l e d g e o f
i l l e g a l i t i e s by p l a c i n g w r i t t e n r e p o r t s on his or her desk. P u b l i c -
interest m o v e m e n t s could then c o n c e n t r a t e on enticing insiders to
l e a k s t o r i e s o f chief e x e c u t i v e officers i g n o r i n g c o m p l i a n c e g r o u p
r e p o r t s . T h e y c a n m a k e a l l e g a t i o n s and call o n the c o m p a n y t o deny
t h e m . They can e n c o u r a g e whistle blowing. Constructing an arti-
ficial c o n s e n s u s b e t w e e n b u s i n e s s a n d c o n s u m e r g r o u p s b y h a v i n g
public-interest directors as dedicated m e m b e r s of the company
t e a m may b e less p r o d u c t i v e o f c o r p o r a t e r e s p o n s i b i l i t y t h a n
o u t r i g h t conflict.

P u t t i n g p e o p l e i n s i d e may h a v e less p u n c h t h a n m a n d a t i n g o r g a n -
i s a t i o n a l r e f o r m s w h i c h m a k e i t m u c h m o r e difficult t o hide a b u s e s
from t h e o u t s i d e . G o v e r n m e n t r e g u l a t i o n m i g h t b e b e t t e r served b y
r e q u i r i n g c o m p a n i e s t o h a v e effective c o m p l i a n c e g r o u p s r e p o r t i n g
t o t h e c h i e f e x e c u t i v e , n o m i n a t e d a c c o u n t a b i l i t y , free c h a n n e l s o f
c o m m u n i c a t i o n and c o r p o r a t e o m b u d s m e n to ensure the spread of
t h e t a i n t o f k n o w l e d g e . I n o t h e r w o r d s , g o v e r n m e n t might audit the
c o m p l i a n c e s y s t e m s b u t not t h e s u b s t a n c e o f c o r p o r a t e d e c i s i o n -
m a k i n g . I t w o u l d t h e n k e e p its ear t o t h e g r o u n d and w h e n e v i d e n c e
g a t h e r e d t h a t a p a r t i c u l a r c o r p o r a t i o n w a s i g n o r i n g its own c o m -
p l i a n c e w a r n i n g s , g o v e r n m e n t i n s p e c t o r s w o u l d s w o o p o n that cor-
p o r a t i o n i n g r e a t n u m b e r s . T h e n they w o u l d a u d i t t h e s u b s t a n c e o r
c o r p o r a t e d e c i s i o n s - t h e c o r p o r a t e case law.

C r i t i c s of p u b l i c - i n t e r e s t d i r e c t o r s h i p s h a v e l i k e n e d t h e idea to
p u t t i n g virgins into b r o t h e l s . " Since t h e b o a r d i s n e v e r i n c h a r g e o f
t h e m o d e r n c o r p o r a t i o n , a m o r e a p p r o p r i a t e a n a l o g y might b e
a p p o i n t i n g a pacifist as an a d v i s o r to t h e g e n e r a l on h o w t h e t r o o p s

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Strategies for controlling corporate crime

a r e p e r f o r m i n g . W h i l e it d o e s a p p e a r in s o m e w a y s to be a struc-
t u r a l l y n a i v e s o l u t i o n , it is o n e w h i c h s h o u l d be piloted on a few
c o m p a n i e s a n d e v a l u a t e d . " T h e a r m c h a i r e v a l u a t i o n indulged i n
a b o v e is no s u b s t i t u t e for e m p i r i c a l o b s e r v a t i o n of w h a t h a p p e n s in
a c o m p a n y w h e n t h e p u b l i c - i n t e r e s t d i r e c t o r i n t e r v e n e s . T h e reform
has n o t b e e n tried and found w a n t i n g , but found w a n t i n g for lack of
having been tried.

Socialism
A p a r t from t h e U S S R a n d o t h e r socialist e n c l a v e s , m a n y c o u n t r i e s
have established state-owned pharmaceutical companies. A m o n g
t h e m are Australia,"* C a n a d a , F r a n c e , Italy, N o r w a y , Sweden,
B u r m a , E g y p t , I n d i a , I n d o n e s i a , I r a n , M e x i c o , B r a z i l , and Sri
L a n k a . C o u n t r i e s such a s E g y p t and M e x i c o h a v e seen a b o r t i v e
a t t e m p t s to nationalise the industry completely. The latter option
h a s b e e n f o u n d a t t r a c t i v e b y few c o u n t r i e s b e c a u s e t h e hard reality
r e m a i n s t h a t m o s t o f t h e r e s e a r c h t a l e n t w h i c h p r o d u c e s major
t h e r a p e u t i c b r e a k t h r o u g h s is employed in the transnational com-
p a n i e s . F e w c o u n t r i e s can afford to c o m p l e t e l y cut off t h e i r ties with
the t r a n s n a t i o n a l s .
T r a n s n a t i o n a l s d e f e n d t h e c a p i t a l i s t way as best by p o i n t i n g out
t h a t few t h e r a p e u t i c b r e a k t h r o u g h s o f any i m p o r t a n c e have
e m e r g e d from t h e socialist c o u n t r i e s . T h e y prefer to live off the
t h e r a p e u t i c a d v a n c e s made in the capitalist world, while devoting
t h e i r scientific i n v e s t m e n t t o o t h e r p r i o r i t i e s (like d e v e l o p i n g m o r e
sophisticated nuclear s u b m a r i n e s and better ways of training
O l y m p i c a t h l e t e s ! ) . T h a t t h e Soviet U n i o n c h o o s e s not t o invest
h e a v i l y i n d r u g r e s e a r c h says n o t h i n g a b o u t t h e i n h e r e n t scientific
inefficiency o f s o c i a l i s m . T h e r e a r e a r e a s o f science w h e r e t h e
U S S R l e a d s t h e w o r l d . W i t n e s s t h e following p r o x y s t a t e m e n t from
the C o n t r o l D a t a C o r p o r a t i o n defending trade with Russia: 'The
S o v i e t U n i o n i s c r e a t i n g m o r e basic t e c h n o l o g y [ k n o w l e d g e ] t h a n
t h e U n i t e d S t a t e s b e c a u s e they h a v e m o r e scientists e n g a g e d i n
r e s e a r c h ' ( q u o t e d i n P u r c e l l . 1979: 4 4 ) .
A s t r o n g c a s e c a n be m a d e t h a t socialist e n t e r p r i s e s investing
p r o p o r t i o n s o f t h e i r sales r e c e i p t s i n r e s e a r c h e q u i v a l e n t t o t h e
i n v e s t m e n t s o f p r i v a t e c o m p a n i e s could b e m u c h m o r e efficient
s e r v a n t s o f t h e c o m m u n i t y ' s h e a l t h t h a n t h e latter. T o t h e e x t e n t
t h a t socialist e n t e r p r i s e s w e r e d r i v e n b y t h e goal o f i m p r o v i n g
h e a l t h r a t h e r t h a n m a k i n g profits, fewer r e s o u r c e s w o u l d g o t o
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Strategies for controlling corporate crime

c r e a t i n g artificial n e e d s a n d fostering o v e r m e d i c a t i o n ( p a r t i c u l a r l y
w i t h p s y c h o t r o p i c d r u g s ) , fewer r e s o u r c e s w o u l d g o t o d e v e l o p i n g
m e - t o o drugs and m o r e to genuine i m p r o v e m e n t s in therapy. Many
o f t h e e c o n o m i c w i n n e r s a r e t h o s e t h a t offer little o r n o t h e r a p e u t i c
g a i n , w h i l e t h e r e i s n o p r o f i t t o b e m a d e from d r u g s t o cure s o m e o f
t h e h o r r e n d o u s d i s e a s e s w h i c h t a k e such a heavy toll o n t h e p o v e r t y -
s t r i c k e n s e g m e n t s of T h i r d W o r l d p o p u l a t i o n s . "
The justification f o r e s t a b l i s h i n g most of the national p h a r m a -
c e u t i c a l c o m p a n i e s h a s b e e n m o r e b a s i c . P h a r m a c e u t i c a l s are highly
p r o f i t a b l e , a n d d o n o t r e q u i r e g r e a t a m o u n t s o f c a p i t a l . M u c h o f the
p h a r m a c e u t i c a l s ' p r o f i t s a r e paid b y g o v e r n m e n t s w h i c h subsidise
h e a l t h c a r e . T h u s t h e r e i s a d o u b l e e c o n o m i c justification for
g o v e r n m e n t s t o get a p i e c e o f t h e a c t i o n . T h e r e are s u b s i d i a r y
r a t i o n a l e s — i m p r o v i n g b a l a n c e - o f - p a y m e n t s difficulties, and gain-
ing i n s i d e k n o w l e d g e o f r a w m a t e r i a l t r a n s f e r p r i c e s s o t h a t b a r g a i n -
ing w i t h t r a n s n a t i o n a l s o v e r t r a n s f e r p r i c e s can be g r o u n d e d in a
firmer knowledge b a s e .
S o c i a l i s t c r i m i n o l o g i s t s t e n d t o a r g u e t h a t since profit i s t h e
m o t i v e for c o r p o r a t e c r i m e , socialism w o u l d r e d u c e t h e p r o b l e m .
T o t h e e x t e n t t h a t p r o f i t i s t h e m o t i v e for offences, i t p r o b a b l y
w o u l d . B u t w h a t h a s b e e n s h o w n i n this b o o k i s t h a t m a x i m i s i n g
c o r p o r a t e profit i s n o t t h e m o t i v e for m a n y c o r p o r a t e c r i m e s . I t i s
i m p o s s i b l e t o say w h a t p r o p o r t i o n i s m o t i v a t e d b y profit, w h a t
proportion by corporate growth, subunit growth, personal
a m b i t i o n , and other f a c t o r s .
I n b o t h c a p i t a l i s t a n d s o c i a l i s t s o c i e t i e s , c o r p o r a t i o n s (or t h e i r
s u b u n i t s ) b r e a k r u l e s b e c a u s e t h e y a r e set c e r t a i n i m p o r t a n t goals
w h i c h t h e y m u s t a c h i e v e ( G r o s s , 1978). I n a c a p i t a l i s t s o c i e t y , a n
o r g a n i s a t i o n m i g h t be s e t t h e goal of a c h i e v i n g a c e r t a i n level of
profit; in a s o c i a l i s t s o c i e t y , t h e goal m i g h t be m e e t i n g a p r o d u c t i o n
t a r g e t set b y t h e s t a t e . U n d e r b o t h s y s t e m s t h e r e will b e o c c a s i o n s
w h e n o r g a n i s a t i o n a l a c t o r s are unable t h r o u g h legitimate means t o
a c h i e v e t h e g o a l . T h e y will t h e n b e u n d e r p r e s s u r e , a s M e r t o n
( 1 9 5 7 ) first p o i n t e d o u t , t o r e s o r t t o i l l e g i t i m a t e m e a n s o f goal
a t t a i n m e n t . T h e s o c i a l i s t m a n a g e r m u s t m e e t p e r f o r m a n c e stan-
d a r d s , j u s t as m u s t t h e c a p i t a l i s t . If a socialist m a n a g e r is told to cut
c o s t s , s/he m a y b e u n d e r a s m u c h t e m p t a t i o n a s the capitalist, for
5 0
i n s t a n c e , t o r e d u c e c o s t s b y c u t t i n g c o r n e r s o n quality c o n t r o l .
O n e would expect a s o c i a l i s t researcher who must meet a deadline
for t h e c o m p l e t i o n of c e r t a i n t e s t s to be no less likely t h a n a
c a p i t a l i s t s c i e n t i s t t o d o s o b y ' g r a p h i t i n g ' s o m e trials. O n the o t h e r

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Strategies for controlling corporate crime

h a n d , t h e g r e a t h o p e of socialism is t h a t it w o u l d see a t r a n s i t i o n to a
less e g o i s t i c society ( B o n g e r , 1916) - o n e w h e r e i n d i v i d u a l s evalu-
ate t h e i r a c t i o n s a c c o r d i n g t o t h e i r c o n t r i b u t i o n t o t h e w h o l e
c o m m u n i t y rather than in terms of narrow personal or peer-group
ambitions.
S u c h a t r a n s i t i o n , h o w e v e r , can n e v e r be c o m p l e t e . I n d e e d , in
e x i s t i n g socialist s o c i e t i e s , t h e r e is little e v i d e n c e of it e v e n begin-
n i n g . I t i s h o p e d , t h e r e f o r e , t h a t m a n y o f t h e lessons o f t h i s b o o k
h a v e a s m u c h r e l e v a n c e t o socialist a s t o c a p i t a l i s t c o r p o r a t i o n s .

The increasingly transnational nature ofcorporate crime


A s m o r e o f w o r l d t r a d e b e c o m e s c o n c e n t r a t e d i n the h a n d s o f fewer
t r a n s n a t i o n a l c o r p o r a t i o n s , the c o r p o r a t e crime problem increas-
ingly a s s u m e s a t r a n s n a t i o n a l c h a r a c t e r . T h i s b o o k has s h o w n that
t h e c o n s t r a i n t s o f law are d e a l t w i t h b y t h e t r a n s n a t i o n a l c o r p o r -
a t i o n less by o u t r i g h t law v i o l a t i o n t h a n by i n t e r n a t i o n a l law-
e v a s i o n s t r a t e g i e s . I f d e v e l o p e d c o u n t r i e s h a v e t o u g h laws t o
c o n t r o l the testing of e x p e r i m e n t a l drugs on h u m a n beings, then the
testing can be d o n e in the Third W o r l d . If one country bans a
p r o d u c t , t h e n s t o c k s can b e d u m p e d i n a m o r e p e r m i s s i v e c o u n t r y .
A c o u n t r y t h a t has t o u g h G M P r e g u l a t i o n s , o c c u p a t i o n a l safety and
h e a l t h a n d e n v i r o n m e n t a l c o n t r o l s c a n b e f o r s a k e n for o n e that d o e s
n o t . T h e use o f c o m p u t e r s i m u l a t i o n s and P E R T d i a g r a m s t o find
t h e line o f least r e s i s t a n c e t h r o u g h different n a t i o n a l d r u g - a p p r o v a l
s y s t e m s i n d i c a t e s t h e level o f s o p h i s t i c a t i o n w h i c h has b e e n a t t a i n e d
in the international law-evasion game.

In t h e face o f t h e s e e m i n g l y e n d l e s s p o s s i b i l i t i e s for i n t e r n a t i o n a l
l a w e v a s i o n , it is a m i s t a k e to be o v e r l y pessimistic a b o u t t h e
r e g u l a t i o n o f t r a n s n a t i o n a l c o r p o r a t i o n s . C o n s i d e r the e v a s i o n o f
t a x l a w s b y t r a n s f e r p r i c i n g . I n t e r n a l c o m p a n y politics frequently d o
n o t p e r m i t a c o r p o r a t i o n to set t h e o p t i m a l t r a n s f e r p r i c e s s u g g e s t e d
by its c o m p u t e r s i m u l a t i o n s . T h e g e n e r a l m a n a g e r of a powerful
s u b s i d i a r y m i g h t b e u n w i l l i n g t o see h i s / h e r p a p e r profits d i m i n i s h e d
t o b o l s t e r t h e profits o f a n a d v e r s a r y w h o r u n s a n o t h e r s u b s i d i a r y .
S o m e c o m p a n i e s e n t i r e l y i g n o r e t h e i m p a c t o f t a x e s o n transfer
p r i c e s , a r g u i n g t h a t s i m p l e and c o n s i s t e n t pricing p r a c t i c e s t e n d t o
m i n i m i s e t a x - i n v e s t i g a t i o n p r o b l e m s ( S h u l m a n , 1969; H e l l m a n n ,
1977: 5 0 ) .

T h e r e h a v e b e e n s e v e r a l i l l u s t r a t i o n s i n this b o o k o f t h e less t h a n
p e r f e c t c a p a c i t y w h i c h t r a n s n a t i o n a l s h a v e to shift their activities

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Strategies for controlling corporate crime

a r o u n d t h e w o r l d t o e v a d e legal c o n s t r a i n t s . T h e C o s t a R i c a n
e x a m p l e s in C h a p t e r 7 show h o w s t r a t e g i c g o v e r n m e n t action can
t r a n s f o r m l o w e s t - c o m m o n - d e n o m i n a t o r r e g u l a t i o n into highest-
c o m m o n - f a c t o r r e g u l a t i o n . T h e cost o f s u s t a i n i n g m u l t i p l e stan-
d a r d s can often be g r e a t e r t h a n that of m a i n t a i n i n g a uniform h i g h e r
s t a n d a r d . W h e r e a s t r a t e g i c lifting of s t a n d a r d s by a single c o u n t r y is
n o t e n o u g h , r e g i o n a l c o - o p e r a t i o n is often sufficient to t h w a r t
t r a n s n a t i o n a l law e v a s i o n . If all o f t h e c o u n t r i e s in a region lift their
o c c u p a t i o n a l h e a l t h and safety s t a n d a r d s , m a n u f a c t u r e r s may b e
u n l i k e l y t o m o v e e n t i r e l y out o f t h e r e g i o n t o a n o t h e r part o f t h e
w o r l d . T h u s t h e r e a r e m a n y m e c h a n i s m s for t h w a r t i n g i n t e r n a t i o n a l
law e v a s i o n w h i c h do not involve t h e difficulties of perfect inter-
n a t i o n a l h a r m o n i s a t i o n of s t a n d a r d s . If t h e out and out h a v e n s for
p o l l u t i o n a n d o t h e r d a n g e r o u s p r a c t i c e s can b e u p g r a d e d , less
d r a m a t i c differences b e t w e e n the standards of other countries
m i g h t not be so g r e a t as to justify the d i s l o c a t i v e costs of t h e
international evasion game.
C o n s e q u e n t l y , i n t e r n a t i o n a l h a r m o n i s a t i o n o f r e g u l a t o r y stan-
d a r d s only has to be partially successful to be totally effective.
W H O a n d t h e F D A a r e t a k i n g t h e l e a d e r s h i p roles i n m o v i n g
t o w a r d s i n t e r n a t i o n a l harmonisation. W h e n the F D A sends inspec-
t o r s to a s s e s s foreign p l a n t s w h i c h are s e e k i n g p e r m i s s i o n for e x p o r t
to t h e U n i t e d S t a t e s or foreign l a b o r a t o r i e s which wish to use their
d a t a in A m e r i c a n n e w d r u g a p p l i c a t i o n s , this o b v i o u s l y has a signi-
ficant h i g h e s t - c o m m o n - f a c t o r impact on international standards.
N e v e r t h e l e s s , w h e n t h e s e foreign i n s p e c t i o n s t a k e p l a c e , the p a r e n t
c o m p a n y t y p i c a l l y s e n d s out e x p e r t s t o c o a c h t h e subsidiary o n h o w
t o h a n d l e F D A i n s p e c t o r s and g e n e r a l l y t o c h e c k t h a t things are a t
least t e m p o r a r i l y p a t c h e d u p t o A m e r i c a n s t a n d a r d s . T h e crucial
d i f f e r e n c e b e t w e e n t h e foreign i n s p e c t i o n s and local U S i n s p e c t i o n s
i s t h a t w h i l e t h e f o r m e r a r e subject t o i n v i t a t i o n and f o r e w a r n i n g ,
the latter occur without warning.
T h e r e are certain respects in which international harmonisation
of r e g u l a t i o n is also in t h e i n t e r e s t s of m a n u f a c t u r e r s . This is par-
ticularly evident in the area of product registration where meeting
t h e d i s p a r a t e r e q u i r e m e n t s o f different n a t i o n a l s y s t e m s i m p o s e s
g r e a t d u p l i c a t i v e c o s t s o n i n d u s t r y ( I F P M A , 1979). E s s e n t i a l l y t h e
s a m e set of a n i m a l or h u m a n trials m a y have to be r e p e a t e d in a
slightly different f o r m a t to satisfy t h e i d i o s y n c r a t i c r e q u i r e m e n t s of
o n e c o u n t r y . S u c h d u p l i c a t i v e t e s t i n g t a k e s a t e r r i b l e toll in un-
n e c e s s a r y suffering of l a b o r a t o r y a n i m a l s . T h i s might seem a trivial

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Strategies for controlling corporate crime

c o n s i d e r a t i o n t o s o m e . H o w e v e r , not m a n y p e o p l e w h o have
w a l k e d t h r o u g h t h e r o w s u p o n rows of dying a n i m a l s in a large
t o x i c o l o g y l a b o r a t o r y w o u l d feel t h a t w a y . " T h e m o n k e y s w h o
s p e n d a c o n f i n e d e x i s t e n c e h o o k e d up to all m a n n e r of t u b e s and
w i r e s , t h e r a b b i t s i n s t o c k s w i t h c h e m i c a l s being d r o p p e d into their
r o t t e d , e m a c i a t e d e y e s . M o r e m o r a l l y d i s t u r b i n g are t h e d i s e a s e d
h u m a n b e i n g s w h o a r e given p l a c e b o s for t h e s a k e o f a n u n n e c e s -
sarily d u p l i c a t i v e scientific e x p e r i m e n t , w h e n t h e y might have b e e n
g i v e n a n a c t i v e d r u g w h i c h w o u l d h a v e i m p r o v e d their c o n d i t i o n .
S u r e l y t h e w o r l d c o m m u n i t y can a g r e e o n i n t e r n a t i o n a l r e c o g n i t i o n
o f d a t a w h i c h m e e t a p p r o p r i a t e s t a n d a r d s and c e r t a i n uniform t y p e s
of s t u d i e s w h i c h will be r e q u i r e d for r e g i s t r a t i o n in all c o u n t r i e s .
I n d i v i d u a l c o u n t r i e s m u s t , o f c o u r s e , b e able t o i m p o s e a d d i t i o n a l
r e q u i r e m e n t s a b o v e this i n t e r n a t i o n a l l y a g r e e d m i n i m u m .
T h a l i d o m i d e d e m o n s t r a t e d t h e n e e d for efficient i n t e r n a t i o n a l
communication of adverse reactions. International communication
b r e a k d o w n s a r e still c o m m o n e n o u g h t o d a y . O n e m e d i c a l d i r e c t o r
told o f his e m b a r r a s s m e n t w h e n a n F D A officer asked him h o w t h e
c o m p a n y w a s c o p i n g with t h e p r o b l e m s o f t h e baby d e a t h s c a u s e d
by one of their drugs in Australia. The parent company knew
n o t h i n g a b o u t t h e p r o b l e m . W h i l e t h e F D A had b e e n i n f o r m e d o f
t h e b a b y d e a t h s t h r o u g h W H O ' s C e n t e r for M o n i t o r i n g A d v e r s e
R e a c t i o n s t o D r u g s , t h e c o m p a n y ' s newly a p p o i n t e d m e d i c a l
d i r e c t o r i n A u s t r a l i a had n e g l e c t e d t o inform t h e p a r e n t . I n a n o t h e r
c a s e , a p r o d u c t w a s i n a d v e r t e n t l y k e p t on t h e m a r k e t for y e a r s in
A u s t r a l i a after t h e A u s t r a l i a n m a n a g i n g d i r e c t o r n e g l e c t e d t o
a t t e n d to an i n s t r u c t i o n from t h e B r i t i s h p a r e n t to w i t h d r a w
t h e p r o d u c t . A p a r t from n e g l e c t , i f a c o m p a n y i n t e n t i o n a l l y w i s h e s
t o o b s c u r e a d v e r s e r e a c t i o n s from o t h e r p a r t s o f t h e world this i s
e a s i l y d o n e . T h e y can e v e n b e r e p o r t e d t o o t h e r g o v e r n m e n t s , but
in t h e m i d s t of such m a s s e s of o t h e r i r r e l e v a n t d a t a from a r o u n d the
g l o b e t h a t t h e i r significance i s o v e r l o o k e d . T h e s e p r o b l e m s can b e
d e a l t w i t h , i n p a r t , b y e x t e n d i n g t h e a p p l i c a t i o n o f the p r o p o s e d
A m e r i c a n law t o p u n i s h failure t o r e p o r t t o t h e g o v e r n m e n t h a z a r d s
f o u n d to be a s s o c i a t e d w i t h a p r o d u c t . H a z a r d s d i s c o v e r e d by
s u b s i d i a r i e s in o t h e r p a r t s of t h e w o r l d should be i n c l u d e d .
O b v i o u s l y , t h e p o s s i b i l i t i e s for o r c h e s t r a t e d b r e a k d o w n s of inter-
n a t i o n a l i n t r a - c o r p o r a t e c o m m u n i c a t i o n s a r e s o e x t r a o r d i n a r y that
for legal c o m p u l s i o n t o w o r k c o u r t s m u s t c o u n t e n a n c e t h e c o n c e p t
of 'wilful b l i n d n e s s ' as e q u i v a l e n t to k n o w l e d g e ( W i l l i a m s , 1961:
1 5 7 - 9 ) ; W i l s o n , 1979.

371
Strategies for controlling corporate crime

T o p r e v e n t d o u b l e s t a n d a r d s i n p r o m o t i o n a l claims for d r u g s i n
different p a r t s o f t h e w o r l d o f t h e kind d e m o n s t r a t e d b y S i l v e r m a n
( 1 9 7 6 ) a n i n t e r n a t i o n a l r e g u l a t o r y s t a t u s d o c u m e n t could b e
r e q u i r e d by individual countries. This d o c u m e n t , prepared by the
c o r p o r a t i o n in a c c o r d a n c e with an internationally agreed format,
w o u l d p r o v i d e an u p - t o - d a t e list o f t h e c o u n t r i e s in w h i c h the drug is
a p p r o v e d , a n d t h e i n d i c a t i o n s , c o n t r a - i n d i c a t i o n s . side-effects and
w a r n i n g s w h i c h a r e r e q u i r e d i n e a c h o f t h o s e c o u n t r i e s . This w o u l d
be a useful r e s o u r c e to t h e i n t e r n a t i o n a l c o n s u m e r m o v e m e n t as
w e l l a s t o c o u n t r i e s w h i c h c a n n o t afford s o p h i s t i c a t e d i n f o r m a t i o n -
gathering systems.

O n e o f t h e c e n t r a l q u e s t i o n s for c r i m i n o l o g y must b e the impli-


c a t i o n s for t h e a l l o c a t i o n of r e s p o n s i b i l i t y in large o r g a n i s a t i o n s of
t h e i n c r e a s i n g l y t r a n s n a t i o n a l c h a r a c t e r o f b u s i n e s s . I t has a l r e a d y
b e e n seen that the international nature of c o m m e r c e creates
dramatically enlarged opportunities for c o m m u n i c a t i o n filters
w h i c h e n s u r e t h a t t h e taint o f k n o w l e d g e a b o u t u n s a v o u r y m e t h o d s
o f a c h i e v i n g o r g a n i s a t i o n g o a l s d o e s not r e a c h t h e t o p . A n d i t has
a l s o b e e n s h o w n h o w t r a n s n a t i o n a l o r g a n i s a t i o n o p e n s u p extra-
o r d i n a r y n e w p o s s i b i l i t i e s for l a w - e v a s i o n s t r a t e g i e s . But h o w is t h e
a l l o c a t i o n of r e s p o n s i b i l i t y in a t r a n s n a t i o n a l p h a r m a c e u t i c a l c o m -
p a n y really o r g a n i s e d ?
P e r l m u t t e r (1969) has identified t h r e e t y p e s o f p a r e n t o r i e n t a -
tions towards subsidiaries in t r a n s n a t i o n a l : ethnocentric (home-
country oriented), polycentric (host-country oriented) and
g e o c e n t r i c (world o r i e n t e d ) . The e t h n o c e n t r i c attitude is that
h o m e - c o u n t r y e x e c u t i v e s are m o r e s o p h i s t i c a t e d and d e p e n d a b l e
t h a n local m a n a g e r s i n s u b s i d i a r i e s . G o a l s a n d S O P s are set accord-
ing t o h o m e - c o u n t r y s t a n d a r d s . I n t h e p h a r m a c e u t i c a l i n d u s t r y ,
n e i t h e r t h e A m e r i c a n n o r t h e E u r o p e a n f i r m s fit this m o d e l . E u r o -
p e a n firms a p p r o a c h c l o s e r t o i t i n t h e sense t h a t they arc m u c h m o r e
52
likely t o h a v e E u r o p e a n g e n e r a l m a n a g e r s i n t h e i r s u b s i d i a r i e s .
O n t h e o t h e r h a n d , w h i l e A m e r i c a n c o m p a n i e s p r e d o m i n a n t l y use
l o c a l s , t h e y g o t o g r e a t e r l e n g t h s t o b r i n g t h e s e p e o l e into h e a d -
q u a r t e r s to i n d o c t r i n a t e t h e m with a h e a d office v i e w p o i n t ; t h e y
s e n d o u t m o r e p e o p l e from h e a d q u a r t e r s t o r e p o r t o n what i s going
o n i n t h e s u b s i d i a r y ; a n d they i m p o s e m o r e rules and r e g u l a t i o n s
from h e a d q u a r t e r s t h a n d o the E u r o p e a n s . F r o m a c o r p o r a t e c r i m e
p o i n t of v i e w , t h e d a n g e r of firms b e i n g t o o e t h n o c e n t r i c is that
s u b s i d i a r i e s c a n e s c a p e a c c o u n t a b i l i t y for their own a c t i o n s . T h i s
d a n g e r is e p i t o m i s e d in t h e following s t a t e m e n t by S t o n e ( 1 9 7 5 : 4 4 ) :

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Strategies for controlling corporate crime

T h e p o t e n t i a l for future lawsuits - t h a t is, t h e possibility that the


c o n t r o l l e r o f t h e c o r p o r a t i o n will s o m e day h a v e t o w r i t e s o m e
plaintiff a c h e q u e from c o r p o r a t e h e a d q u a r t e r s ( p e r h a p s five or
six y e a r s t h e r e a f t e r , given t h e d e l a y s of litigation) - is not m e r e l y
a d i s t a n t e v e n t to t h e life o f t h e p r o d u c i n g p l a n t : it is not e v e n a
part o f i t s r e a l i t y .

A t t h e o t h e r e x t r e m e , the p o l y c e n t r i c firm a s s u m e s that local


p e o p l e a l w a y s k n o w w h a t i s best i n t h e i r c u l t u r a l c o n d i t i o n s , and
t h a t it is t h e r e f o r e d e s i r a b l e to g r a n t s u b s i d i a r i e s total a u t o n o m y . A
p o l y c e n t r i c firm is a k i n to a c o n f e d e r a t i o n of q u a s i - i n d e p e n d e n t
s u b s i d i a r i e s . I d e n t i f y i n g p o l y c e n t r i c firms i n t h e i n t e r n a t i o n a l p h a r -
m a c e u t i c a l i n d u s t r y i s also difficult. T h e r e l a t i o n s h i p b e t w e e n t h e
U S s u b s i d i a r i e s a n d h e a d q u a r t e r s o f E u r o p e a n f i r m s p e r h a p s fits t h e
m o d e l q u i t e well ( e . g . b e t w e e n C u t t e r a n d B a y e r ) . H o w e v e r ,
generally, as one informant c o m m e n t e d , 'The entrepreneurial
s u b s i d i a r y of a m u l t i n a t i o n a l c o m p a n y t h e s e days is a very rare
thing.' F r o m a crime-control perspective, the danger of polycentric
o r g a n i s a t i o n i s t h a t a b s o l u t e s t a n d a r d s o f e t h i c s , quality and legality
a r e sacrificed to a glib m o r a l r e l a t i v i s m :

H e a d q u a r t e r s m a y insist t h a t t h e i r s u b s i d i a r i e s m e e t c e r t a i n profit
( o r o t h e r ) g o a l s , w h i l e a t t h e s a m e t i m e m a k i n g i t clear that
h e a d q u a r t e r s can hardly be intimately a c q u a i n t e d with the laws of
f o r e i g n c o u n t r i e s . H e n c e , u n d e r t h e guise o f local a u t o n o m y
( w h i c h m a y be h a i l e d as t h r o w i n g off t h e s h a c k l e s of c o l o n i a l i s m
by local e n t h u s i a s t s ) , t h e s u b s i d i a r y m a y be forced to e n g a g e in
c r i m e for w h i c h t h e y will be held r e s p o n s i b l e by t h e i r
g o v e r n m e n t s ( G r o s s , 1978: 2 0 9 ) .

P e r l m u t t e r s ' s t h i r d m o d e l , g e o c e n t r i s m , c h a r a c t e r i s e s most o f t h e
firms in the transnational p h a r m a c e u t i c a l industry. The geocentric
firm h a s a g l o b a l s t r a t e g y w h e r e b y s u b s i d i a r i e s and h e a d q u a r t e r s
follow a w o r l d w i d e a p p r o a c h w h i c h c o n s i d e r s s u b s i d i a r i e s as
n e i t h e r s a t e l l i t e s n o r i n d e p e n d e n t c i t y - s t a t e s , but a s p a r t s o f a w h o l e
w o r l d p l a n . E a c h part o f t h e system m a k e s its u n i q u e c o n t r i b u t i o n
w i t h its p e c u l i a r c o m p e t e n c e . G e o c e n t r i s m m a k e s possible t h e
synergistic benefits of transnational organisation. The P E R T
d i a g r a m to dictate the sequence in which new product registration
will be s o u g h t in different c o u n t r i e s is a m a n i f e s t a t i o n par excellence
o f t h e g e o c e n t r i c c o r p o r a t i o n . I t i s g e o c e n t r i s m which m a k e s
p o s s i b l e t h e i n t e r n a t i o n a l l a w - e v a s i o n s t r a t e g i e s t o which s o m u c h
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Strategies for controlling corporate crime

a t t e n t i o n has b e e n d i r e c t e d . F i r m s w h i c h a r e closer t o polycentrism


than g e o c e n t r i s m allow subsidiaries to market a new product
w h e n e v e r t h e y c h o o s e , a n d t h e r e b y m i s s t h e synergy which flows
from a w o r l d p l a n . On t h e o t h e r h a n d , they save t h e costs of
g e o c e n t r i s m i n t r a v e l , c o m m u n i c a t i o n , and head-office bureaucracy.
My i m p r e s s i o n is t h a t life in t h e s u b s i d i a r i e s of g e o c e n t r i c phar-
m a c e u t i c a l firms is a c o n s t a n t struggle to assert subsidiary i n t e r e s t s
over those of the world g a m e plan. W h e n the world g a m e plan
d e m a n d s t r a n s f e r p r i c e s t h a t will l o w e r s u b s i d i a r y profits, this will
be resisted; w h e n the world plan requires reduced manufacturing
g r o w t h in o n e part o f t h e world so that expansion can take place
e l s e w h e r e , t h e r e m i g h t b e b i t t e r s t r u g g l e . Subsidiary h e a d s e v e n
p a i n t e x a g g e r a t e d p i c t u r e s o f t h e s t r i n g e n c y o f local laws i n o r d e r t o
c o m p r o m i s e the edicts of h e a d q u a r t e r s :

H e a d office, t h e y t h i n k I can be p r o s e c u t e d and lose my license [in


fact t h e r e is no p r o v i s i o n for this in A u s t r a l i a for G M P
v i o l a t i o n s ] . I d o n ' t tell t h e m o t h e r w i s e b e c a u s e i t d o e s n ' t suit m e .
W h e n I w a n t s o m e t h i n g , if I say t h e H e a l t h D e p a r t m e n t
i n s p e c t o r s h a v e a s k e d for it, t h e y c a n ' t say n o ! ( A u s t r a l i a n
general manager).

U l t i m a t e l y , i n t e r n a t i o n a l s a n c t i o n i n g m e t h o d s are n e c e s s a r y t o
c o n t r o l a c t i v i t i e s w h i c h e i t h e r fall b e t w e e n t h e c r a c k s o f n a t i o n a l
l a w s or s p r e a d o n e offence a c r o s s a p a t c h w o r k of n a t i o n a l j u r i s -
d i c t i o n s . P l a t i t u d i n o u s c o d e s o f c o n d u c t for t r a n s n a t i o n a l c o r p o r -
a t i o n s have been a d o p t e d by the International C h a m b e r of
C o m m e r c e , " the O E C D " and the Organisation o f A m e r i c a n
S t a t e s . " A m o r e significant h o p e i s t h e U N C o d e o f C o n d u c t for
T r a n s n a t i o n a l C o r p o r a t i o n s d i s c u s s e d a t t h e end o f C h a p t e r 2 . I t
w a s a r g u e d t h e r e t h a t t h e r e are w o r t h w h i l e possibilities for a panel
o f e x p e r t s h e a r i n g c a s e s o n v i o l a t i o n s o f t h e C o d e c r e a t i v e l y t o use
i n t e r n a t i o n a l p u b l i c i t y s a n c t i o n s and s a n c t i o n s t o b e i m p o s e d b y
n a t i o n s (or p e r h a p s t r a d e u n i o n s ) w h i c h are victims o f t h e v i o l a t i o n .
While the history of nations imposing sanctions is discouraging,
p e r h a p s w h e n r e l i a n c e i s p l a c e d specifically o n n a t i o n s w h o a r e
v i c t i m s of a p a r t i c u l a r offence t h e r e a r e g r e a t e r g r o u n d s for
o p t i m i s m . T h i s i s e s p e c i a l l y t r u e w h e r e t h e n a t i o n benefits e c o n o m i -
cally from t h e i m p o s i t i o n o f t h e r e c o m m e n d e d s a n c t i o n ( e . g .
t h r o u g h i n c r e a s e d tax r e c e i p t s ) .

A n i n t e r n a t i o n a l i s a t i o n o f t r a d e u n i o n i s m and a n i n t e r n a t i o n -
a l i s a t i o n o f c o n s u m e r i s m a r e n e e d e d a s c o u n t e r v a i l i n g forces
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Strategies for controlling corporate crime
5
against the internationalisation ofcapital. * Knowledge is power in
n e g o t i a t i o n s w i t h t r a n s n a t i o n a l c o r p o r a t i o n s . A t the m o m e n t ,
k n o w l e d g e i s o n e - s i d e d . T h e t r a n s n a t i o n a l k n o w s exactly w h a t
o c c u p a t i o n a l h e a l t h s a f e g u a r d s it p r o v i d e s for its w o r k e r s in
different p a r t s of t h e w o r l d . If w o r k e r s w h o enjoy few of such
s a f e g u a r d s k n e w o f t h e s u p e r i o r c o n d i t i o n s p r o v i d e d for their p e e r s
i n o t h e r p a r t s o f t h e w o r l d , this k n o w l e d g e could b e used t o d e m a n d
e q u a l p r o t e c t i o n s . H o p e f u l l y , w e m i g h t b e g i n t o see s i t u a t i o n s
w h e r e t r a d e u n i o n s and c o n s u m e r g r o u p s r e g u l a r l y b r i n g g r i e v a n c e s
of this k i n d b e f o r e t h e p a n e l of j u d g e s for t h e C o d e of C o n d u c t for
Transnational Corporations.
T h e facile c o n c l u s i o n w h i c h m u s t be m o s t positively resisted is
t h a t b e c a u s e c a p i t a l i s n o l o n g e r n a t i o n a l but i n t e r n a t i o n a l w e must
t r a n s f e r t h e p o w e r s t o r e g u l a t e t r a n s n a t i o n a l c o r p o r a t i o n s from
national g o v e r n m e n t s to some international regulatory authority. It
m a y be t h a t at s o m e future point in w o r l d history this will be a
w o r k a b l e p o l i c y . B u t t h e fact is t h a t if an agency is to be at all
effective in r e g u l a t i n g an e n t i t y so p o w e r f u l as a t r a n s n a t i o n a l
c o r p o r a t i o n , t h e n it m u s t have b a r g a i n i n g tools at its disposal w h i c h
it c a n use as p o i n t s of l e v e r a g e in n e g o t i a t i o n s o v e r r e g u l a t i o n .
N a t i o n a l s t a t e s h a v e such b a r g a i n i n g t o o l s - they set c o m p a n y t a x e s
a n d tariffs, g i v e i n v e s t m e n t a l l o w a n c e s , influence t h e w a g e - d e t e r -
m i n a t i o n p r o c e s s , a p p r o v e p r o d u c t s for h e a v y g o v e r n m e n t sub-
s i d i e s and h a v e c o n t r o l o v e r m a n y o t h e r a l l o c a t i v e d e c i s i o n s w h i c h
vitally affect t h e i n t e r e s t s of t r a n s n a t i o n a l c o m p a n i e s . It may be that
n a t i o n a l g o v e r n m e n t s d o n o t a l w a y s use t h e s e b a r g a i n i n g t o o l s very
s t r a t e g i c a l l y to limit c o r p o r a t e a b u s e s of p o w e r , but a s u p r a -
national regulatory authority would not even have the potential to
u s e s u c h b a r g a i n i n g i m p l e m e n t s . I t i s h o p e d t h a t i n s o m e future
e p o c h o f w o r l d h i s t o r y t h e r e will exist i n t e r n a t i o n a l b a r g a i n i n g t o o l s
w h i c h can b e u s e d t o further t h e p u b l i c i n t e r e s t s o f t h e w h o l e world
c o m m u n i t y a g a i n s t e x p l o i t a t i v e acts c o m m i t t e d for p r i v a t e g a i n . I n
the context o f t h e c o n t e m p o r a r y world system, h o w e v e r , we must
b e p o l i t i c a l r e a l i s t s a n d s u p p o r t t h e c o n c l u s i o n o f B a r n e t and M u l l e r
(1975:372-3):

R e g u l a t i o n o f g l o b a l c o r p o r a t i o n s b y a n i n t e r n a t i o n a l agency
s o u n d s p l a u s i b l e and p r o g r e s s i v e . W h y not a n i n t e r n a t i o n a l body
t o act a s c o u n t e r p a r t and c o u n t e r w e i g h t t o t h e global
c o r p o r a t i o n ? T h e p r o b l e m , of course, is that present
i n t e r n a t i o n a l a g e n c i e s or any n e w a g e n c y in t h e f o r e s e e a b l e

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Strategies for controlling corporate crime

future a r e t o o w e a k t o r e g u l a t e t h e c o r p o r a t e g i a n t s . T o p r e t e n d
o t h e r w i s e is to settle for the p a t i n a of r e g u l a t i o n instead o f t h e
s u b s t a n c e . I n d e e d , from a c o r p o r a t e s t a n d p o i n t , t h e best way to
e s c a p e r e g u l a t i o n from such o u t m o d e d n a t i o n a l a g e n c i e s a s t h e
I n t e r n a l R e v e n u e S e r v i c e and t h e A n t i - T r u s t D i v i s i o n is to shift
t h e b u r d e n t o a n i n t e r n a t i o n a l a g e n c y with b r o a d u n e n f o r c e a b l e
p o w e r s and a modest budget.

Conclusion: clout is what counts

L a w e n f o r c e m e n t c o n s t i t u t e s only a part of t h e solution to t h e


p r o b l e m s addressed in this book. The antitrust chapter d e m o n -
strated that structural reforms (abolition or limitation of patents or
brand names, repeal of anti-substitution laws, compulsory
l i c e n s i n g , e t c . ) a r e m o r e c o s t - e f f e c t i v e , less b u r e a u c r a t i c w a y s o f
f o s t e r i n g c o m p e t i t i o n i n t h e p h a r m a c e u t i c a l industry t h a n a n t i t r u s t
litigation.
Physicians have an important crime prevention role, particularly
w i t h r e s p e c t t o r e p o r t i n g f r a u d u l e n t sales r e p r e s e n t a t i v e s t o e i t h e r
the g o v e r n m e n t or world h e a d q u a r t e r s of the representative's
c o m p a n y . W h e n i n d i v i d u a l c o n s u m e r s a r e given t h e t o o l s o f class
a c t i o n s s u p p o r t e d by p r o v i s i o n for c o n t i n g e n t fees for their l a w y e r s ,
t h e y t o o c a n influence t h e e v e n t s w h i c h victimise t h e m .
I m p o r t a n t a s i s p o w e r t o p h y s i c i a n s and c o n s u m e r s , t h e g r e a t e s t
n e e d i s for g u a r a n t e e s t h a t r e g u l a t o r y a g e n c i e s have b a r g a i n i n g
p o w e r i n t h e i r n e g o t i a t i o n s with m a n u f a c t u r e r s . T o d a y i t i s incon-
c e i v a b l e t h a t t h e following kind o f c o m m e n t from a n A m e r i c a n
production manager would be made.

I tell y o u , we d o n ' t h a v e a n y t h i n g to w o r r y a b o u t . To this d a y ,


t h a t s e c t i o n o f t h e law [ G M P s ] is not well defined. Y o u can stand
a n d piss i n t h e b a t c h and t u r n a r o u n d and s h a k e t h e F D A
i n s p e c t o r ' s h a n d . H e ' s going t o tell you t h a t ' s not r i g h t , but w h e n
y o u go to c o u r t , t h e y w o n ' t find you guilty. . . . T h e y have not
b e e n a b l e t o m a k e this law stick! ( K r e i g , 1967: 9 1 ) .

G i v e n t h a t t h e last d e c a d e has not s e e n a successful criminal


p r o s e c u t i o n a g a i n s t a t r a n s n a t i o n a l p h a r m a c e u t i c a l c o m p a n y for a
G M P v i o l a t i o n , a n d c o n s i d e r i n g t h e d i s m a l failure o f the A b b o t t
p r o s e c u t i o n ( C h a p t e r 4 ) , o n e can q u e s t i o n w h e t h e r t h e F D A h a s
t h e legal m u s c l e t o d a y t o m a k e t h e law stick. B u t t h e a b o v e kind o f
s t a t e m e n t w o u l d b e i n c o n c e i v a b l e n o w not b e c a u s e t h e F D A h a s

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Strategies for controlling corporate crime

m a d e legal m u s c l e w o r k for it but b e c a u s e it has used b a r g a i n i n g


m u s c l e m o r e effectively. T h i s b o o k has s h o w n t h a t most o f t h e
c o r p o r a t e c r i m e s i n t h e p h a r m a c e u t i c a l i n d u s t r y are c o n t r o l l e d b y
n e g o t i a t e d s a n c t i o n s r a t h e r t h a n litigated s a n c t i o n s . F u r t h e r , i t has
b e e n a r g u e d t h a t this i s b o t h i n e v i t a b l e and d e s i r a b l e . " T h e cost o f
consistent p r o s e c u t i o n of corporate crime in the pharmaceutical
i n d u s t r y w o u l d b e m e a s u r e d i n b o t h t h e ill-health o f victims w h o
w o u l d c o n t i n u e to suffer w h i l e legal w h e e l s slowly t u r n e d and
b u r d e n s o n c o u r t s w h i c h w o u l d b e b e y o n d t h e fiscal c a p a c i t y o f even
the wealthiest nation in the world.

H o w t h e n d o r e g u l a t o r s n e g o t i a t e c o n t r o l s and s a n c t i o n s ? T h e
b e s t i l l u s t r a t i o n i n this b o o k i s t h e story o f t h e a n o n y m o u s t r a n s -
n a t i o n a l w i t h a sterility p r o b l e m ( C h a p t e r 4 ) . De facto s a n c t i o n s
w e r e n e g o t i a t e d w h i c h cost t h e c o m p a n y m a n y m i l l i o n s o f d o l l a r s
a n d a c o u p l e o f m a n a g e r s t h e i r j o b s . P h a r m a c e u t i c a l e x e c u t i v e s are
full o f ( s o m e t i m e s b i t t e r ) a n e c d o t e s o f h o w F D A p e r s o n n e l use
t h e i r b a r g a i n i n g p o w e r t o lever c o m p l i a n c e . S o m e c o m p a n i e s c o m -
p l a i n e d o f s i t u a t i o n s w h e r e t h e y had r e s i s t e d a n F D A r e q u e s t t o
c o m p l y w i t h a p a r t i c u l a r r e g u l a t i o n and had c o n s e q u e n t l y b e e n
d e l u g e d w i t h w e e k l y F D A i n s p e c t i o n s for a t i m e after, it w a s n ' t
w o r t h it. We w o n t h e b a t t l e but lost t h e war. E v e r y plant in this
c o u n t r y has v i o l a t i o n s t h a t can be d u g up if t h e i n s p e c t o r l o o k s h a r d
e n o u g h . If t h e y a r e after you t h e y can m a k e it very difficult.'

Regulatory-affairs executives of other c o m p a n i e s indicated that


t h e y w o u l d often p r e v e n t p l a n t s from b u c k i n g F D A r e q u e s t s o n
r e l a t i v e l y i n e x p e n s i v e m a t t e r s b e c a u s e o f their d e s i r e t o m a i n t a i n
h a r m o n y w i t h t h e a g e n c y w h i c h w o u l d assist with i m p o r t a n t con-
flicts ( s u c h as o v e r a n e w d r u g a p p r o v a l ) . R e g u l a t o r y a g e n c i e s
t h e r e f o r e h a v e m o r e b a r g a i n i n g p o w e r i f they have r e s p o n s i b i l i t y
o v e r a w i d e r a n g e of a c t i v i t i e s in t h e o n e i n d u s t r y . H e a l t h r e g u l a t o r y
a g e n c i e s h a v e m o r e b a r g a i n i n g p o w e r t h a n say e n v i r o n m e n t a l
a g e n c i e s b e c a u s e t h e i r i m p a c t i s not limited t o o n e a r e a ( e n v i r o n -
m e n t a l c o n t r o l s ) . T h e y a p p r o v e n e w d r u g s , w i t h d r a w old o n e s ,
force p r o d u c t r e c a l l s , c o n t r o l G M P s , G L P s , a d v e r t i s i n g , and often,
prices.

B o t h p a r t i e s t o t h e b a r g a i n i n g g a m e s prefer n e g o t i a t i o n t o litiga-
t i o n . W h e n I a s k e d a B r i t i s h official, with r e s p o n s i b i l i t y for setting
N H S drug prices, what h a p p e n e d w h e n c o m p a n i e s m a d e fraudulent
s t a t e m e n t s o n p r o d u c t i o n and o t h e r c o s t s , h e said: i t m i g h t b e
f r a u d , b u t w e w o u l d n e v e r p r o s e c u t e . I t m i g h t b e found out w h e n
f o r e c a s t s d o not c o m e t r u e . T h e n they had b e t t e r w a t c h o u t next

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Strategies for controlling corporate crime

t i m e we c o n s i d e r t h e i r p r i c e s . ' At all levels, o n e finds a p r e f e r e n c e


for t h e efficiency of b a r g a i n i n g p r e s s u r e o v e r legal c o m p u l s i o n . A
s e n i o r F D A official c o m p l a i n e d o f t h e fact t h a t F D A had n o legal
stick to force h o s p i t a l s and u n i v e r s i t i e s to h a v e diligent r a t h e r t h a n
n o m i n a l I n s t i t u t i o n a l R e v i e w B o a r d s t o s u p e r v i s e clinical investi-
g a t i o n s . B u t t h e n , h e w e n t on: ' W e h a v e c o n s i d e r e d e x e r t i n g
p r e s s u r e t o w a r d s h a v i n g c e r t a i n funding b o d i e s which w e might
i n f l u e n c e t u r n off t h e t a p a bit to i n s t i t u t i o n s with w e a k review
systems.'
T h e i n t e n t i o n o f t h e a b o v e e x a m p l e s i s not t o s h o w that h e a l t h
regulatory agencies have phenomenal bargaining power. They do
n o t . H o w e v e r , to t h e e x t e n t t h a t t h e y do win significant c o n c e s s i o n s
from t h e i n d u s t r y a n d i m p o s e s a n c t i o n s on t h e m , it is n o r m a l l y
t h r o u g h n e g o t i a t i o n r a t h e r t h a n litigation. T h e e x t e n t t o w h i c h
r e g u l a t o r y a g e n c i e s h a v e b a r g a i n i n g clout v a r i e s e n o r m o u s l y with
c i r c u m s t a n c e s . W i t h r e s p e c t t o G L P r e g u l a t i o n , F D A has a m u c h
g r e a t e r c a p a c i t y t o m a k e its d e m a n d s stick w h e n t h e p r o d u c t being
t e s t e d has not yet b e e n a p p r o v e d b y t h e a g e n c y . O n tests being
c o n d u c t e d to c h e c k for h a z a r d s o n c e a p r o d u c t is a l r e a d y on the
m a r k e t , ' F D A has m u c h less b a r g a i n i n g p o w e r and i n d u s t r y t e n d s t o
d r a g its feet.'

If we want better control of corporate crime in the p h a r m a -


c e u t i c a l i n d u s t r y , a n d if t h e h a r d reality is that c o n t r o l is m o r e likely
to e m a n a t e from n e g o t i a t i o n t h a n from legal e n f o r c e m e n t , t h e n it is
i m p o r t a n t t o give h e a l t h r e g u l a t o r y a g e n c i e s m o r e n e g o t i a t i n g
c l o u t . P u t t i n g b a r g a i n i n g chips i n t h e c o r n e r o f r e g u l a t o r y a g e n c i e s
and w e a k e n i n g the bargaining position of industry is much more
i m p o r t a n t for p r o t e c t i n g c o n s u m e r s t h a n law reform. Since the
b a r g a i n i n g s t r e n g t h o f g l o b a l c o r p o r a t i o n s i n e x o r a b l y g r o w s with
t h e i r i n c r e a s i n g e c o n o m i c m i g h t , t h e only h o p e i s t o a t t e m p t t o
r e d r e s s t h e b a r g a i n i n g b a l a n c e o n t h e g o v e r n m e n t side.

T h a t big b u s i n e s s m u s t b e m a t c h e d w i t h big g o v e r n m e n t might b e


a r e a l i s t i c a p p r a i s a l , but it h a r d l y e x u d e s t h e ring o f p o l i t i c a l a p p e a l .
D o w e really w a n t h u g e b u r e a u c r a c i e s w i e l d i n g vast d i s c r e t i o n a r y
p o w e r s w i t h c a v a l i e r d i s r e g a r d for p r i n c i p l e s of due p r o c e s s ? Is it
r e a l l y t o l e r a b l e to h a v e a r e g u l a t o r y a g e n c y t h a t can send a c o m p a n y
like I B T to t h e wall s i m p l y by a l e t t e r i n d i c a t i n g that d a t a from this
c o m p a n y will b e s u b j e c t e d t o special s c r u t i n y ? O n e a n s w e r might b e
t h a t large c o m p a n i e s t h e m s e l v e s t r e a t o t h e r c o m p a n i e s n o differ-
e n t l y . A s J o h n Z . D e L o r e a n said o f his former e m p l o y e r . G e n e r a l
Motors:

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Strategies for controlling corporate crime

S u p p l i e r s often feel t h e b r u n t of c o r p o r a t e p o w e r , p r e s s u r e and


i n f l u e n c e . A GM d e c i s i o n to s t o p b u y i n g o n e part from a
p a r t i c u l a r c o m p a n y can send t h a t firm into b a n k r u p t c y . G M and
its a u t o c o m p a n y c o h o r t s hold t h e p o w e r o f life and d e a t h over
many o f t h e i r suppliers. In most cases that power is exercised
r e s p o n s i b l y . In s o m e cases it is not ( W r i g h t . 1979: 6 6 ) .

T h i s b e g s t h e q u e s t i o n of w h e t h e r it is a c c e p t a b l e for big g o v e r n -
m e n t to play big b u s i n e s s at its own g a m e . Do we not w a n t to set
h i g h e r s t a n d a r d s of integrity and p u b l i c a c c o u n t a b i l i t y for g o v e r n -
m e n t t h a n for b u s i n e s s ? I t h i n k we s h o u l d .
It is p o s s i b l e to be a political p r a g m a t i s t , to r e c o g n i s e that
effective p r o t e c t i o n of c o n s u m e r h e a l t h c a n only c o m e from giving
m o r e b a r g a i n i n g c l o u t t o g o v e r n m e n t , w h i l e insisting that such
b a r g a i n i n g p o w e r b e e x e r c i s e d m o r e o p e n l y . T h a t is, bigger g o v e r n -
m e n t w h i c h is m o r e s u s c e p t i b l e to critical scrutiny from elected
r e p r e s e n t a t i v e s and affected c o n s u m e r s can b e a d v o c a t e d .
Bureaucrats want a lot of bargaining tools and few checks on how
they are used. T h i s n a t u r a l b u r e a u c r a t i c proclivity for vast secret
p o w e r s i s o b v i o u s l y i n t o l e r a b l e . B u r e a u c r a t s should b e forced t o
m a k e m o r e o f t h e i r d e a l s o u t s i d e smoke-filled r o o m s . M i n u t e s o f
c r u c i a l n e g o t i a t i n g m e e t i n g s b e t w e e n r e g u l a t o r y a g e n c i e s and
c o r p o r a t i o n s s h o u l d be publicly a v a i l a b l e u n d e r freedom of infor-
m a t i o n s t a t u t e s . C o n s u m e r and t r a d e - u n i o n r e p r e s e n t a t i v e s should
h a v e r i g h t s t o a t t e n d formal n e g o t i a t i n g m e e t i n g s b e t w e e n g o v e r n -
m e n t and b u s i n e s s . E l e c t e d r e p r e s e n t a t i v e s s h o u l d step u p their
oversight of the discretionary p o w e r of the bureaucracy through
congressional or parliamentary committees. In other words, we
h a v e i n t h e d e m o c r a t i c political p r o c e s s a n a l t e r n a t i v e t o legal due
p r o c e s s w h i c h , for c e r t a i n p u r p o s e s , is a m o r e efficient and effective
c o n s t r a i n t on the unbridled abuse of discretionary power. The more
m a s s i v e t h e p o w e r o f t h e a d v e r s a r i e s , t h e m o r e viable i s political
( p a r t i c i p a t o r y ) c o n t r o l o f d i s c r e t i o n o v e r legal c o n t r o l o f d i s c r e t i o n .

Business wants bureaucrats to have few bargaining tools and few


checks on how they are used. B u s i n e s s o b v i o u s l y favours i m p o t e n t
r e g u l a t o r y b u r e a u c r a c i e s . H o w e v e r , it is not k e e n to see such dis-
c r e t i o n a s b u r e a u c r a t s m i g h t have subject t o t h e disinfectant p o w e r
of sunlight. Some o f t h e mutually comfortable resolutions negoti-
a t e d b e t w e e n b u s i n e s s and g o v e r n m e n t m i g h t p r o v e e m b a r r a s s i n g i f
e x p o s e d t o t h e light.
Liberal bleeding hearts want bureaucrats to have few bargaining

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Strategies for controlling corporate crime

tools and many checks on how they are used. Since I s u s p e c t t h a t


l i b e r a l b l e e d i n g h e a r t s c o n s t i t u t e t h e g r e a t e s t m a r k e t for this b o o k ,
I a p o l o g i s e to r e a d e r s w h o are offended by t h e d e s c r i p t i o n . M a n y
l a w y e r s for w h o m t h e political p r o c e s s is o d i o u s w h i l e legal due
p r o c e s s is s a c r o s a n c t fall into this c a t e g o r y . S o m e have an
i d e o l o g i c a l a v e r s i o n t o big g o v e r n m e n t w h i c h they are p r e p a r e d t o
a l l o w to s t a n d in t h e way of saving h u m a n lives. T h e y w o u l d prefer
t a x p a y e r s t o s p e n d vast s u m s o n r e g u l a t o r y a g e n c i e s w h i c h have n o
t e e t h , b u t w h i c h dutifully b r u s h their g u m s twice a d a y .
W o v e n t h r o u g h o u t this b o o k has b e e n a c o n s i s t e n t a r g u m e n t
a b o u t t h e use and c o n t r o l o f a d m i n i s t r a t i v e d i s c r e t i o n b y b u s i n e s s
r e g u l a t o r s . P e r h a p s s o m e r e a d e r s have b e e n p e r s u a d e d t o favour
regulatory agencies which have a lot of bargaining tools and a lot of
checks on how they are used. T h e best g u a r a n t e e s a g a i n s t the a b u s e
o f a d m i n i s t r a t i v e d i s c r e t i o n a r e p r o v i d e d b y diligent i n v e s t i g a t i v e
j o u r n a l i s t s , active oversight committees of elected representatives,
vocal c o n s u m e r and t r a d e - u n i o n m o v e m e n t s , aggressive industry
a s s o c i a t i o n s w h i c h are willing to use t h e political p r o c e s s to defend
t h e i r m e m b e r s a g a i n s t such a b u s e s , f r e e d o m o f i n f o r m a t i o n s t a t u t e s
w i t h t e e t h , free a c c e s s o f t h e scientific c o m m u n i t y t o t h e r a w d a t a
o n w h i c h r e g u l a t o r y d e c i s i o n s are b a s e d , and r e q u i r e m e n t s that
r e g u l a t o r y a g e n c i e s publicly justify their d e c i s i o n s and publicly h e a r
appeals against them.

It has b e e n seen t h a t t h e best w a y to give a r e g u l a t o r y agency


b a r g a i n i n g c l o u t is to p r o v i d e it w i t h a w i d e r a n g e of r e g u l a t o r y
p o w e r s over one i n d u s t r y . " In A m e r i c a , the F D A is s o m e w h a t
u n u s u a l i n t h i s c o n t e x t . T h e n o r m has b e e n t o fragment r e g u l a t i o n
by f u n c t i o n i n s t e a d of by i n d u s t r y - so t h e E P A is r e s p o n s i b l e for
e n v i r o n m e n t , O S H A for o c c u p a t i o n a l safety and h e a l t h , the F T C
for a n t i t r u s t , t h e C P S C for p r o d u c t safety, and so on. As so m a n y
i n f o r m a n t s p o i n t e d o u t , i n s p e c t o r s from t h e s e functionally special-
ised a g e n c i e s c o n s e q u e n t l y h a v e less b a r g a i n i n g m u s c l e . A n inter-
e s t i n g c o u n t e r v a i l i n g p o i n t has b e e n p o s i t e d in t h e c o n t e x t of a
c o n s e r v a t i v e a n a l y s i s o f r e g u l a t i o n b y W e a v e r (1978: 2 0 1 ) .

T h e l i t e r a t u r e o n r e g u l a t i o n also says t h a t r e g u l a t o r y a g e n c i e s are


p r o n e t o c o o p t a t i o n b y t h e r e g u l a t e d i n t e r e s t s , b e c a u s e they are
o r g a n i z e d b y i n d u s t r y . T h a t m a y b e t r u e o f t h e Old R e g u l a t i o n ,
b u t i t isn't t h e case w i t h t h e N e w . T h e n e w r e g u l a t o r y a g e n c i e s
w e r e d e l i b e r a t e l y o r g a n i z e d along functional lines, and t h e i r
j u r i s d i c t i o n s t h e r e f o r e cut a c r o s s i n d u s t r y b o u n d a r i e s . T h e E P A ,

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Strategies for controlling corporate crime

for e x a m p l e , d e a l s w i t h p o l l u t i o n p r o b l e m s c r e a t e d b y all
i n d u s t r i e s , and O S H A r e g u l a t e s safety a n d h e a l t h c o n d i t i o n s for
w o r k e r s i n all i n d u s t r i e s . T h e C o n s u m e r P r o d u c t Safety
C o m m i s s i o n c o n t r o l s t h e safety o f virtually every c o n s u m e r
p r o d u c t on t h e m a r k e t , and so i n v o l v e s itself in the design and
m a r k e t i n g o f e v e r y t h i n g from rag dolls t o lawn m o w e r s . T h e n e w
r e g u l a t o r y a g e n c i e s a r e a c c o r d i n g l y r e s i s t a n t t o c o o p t a t i o n b y any
s i n g l e i n d u s t r y . If t h e y a r e v u l n e r a b l e to c o o p t a t i o n at all (and
t h e y a r e ) , it is to c o o p t a t i o n by safety- or e n v i r o n m e n t - o r i e n t e d
g r o u p s , not b y b u s i n e s s o r g a n i z a t i o n s .

W e a v e r ' s p o i n t a b o u t c o - o p t a t i o n i s o v e r s t a t e d but not w i t h o u t


v a l i d i t y . W h a t i t i m p l i e s for t h e r e f o r m e r w h o i s i n t e r e s t e d i n m o r e
r e g u l a t o r y clout is t h a t t h e r e a r e a d v a n t a g e s for a r e g u l a t o r y a g e n c y
in h a v i n g both d e p t h of r e s p o n s i b i l i t i e s w i t h i n an industry and
b r e a d t h of responsibilities across industries. In other w o r d s , advan-
t a g e s a t t a c h t o t h e i d e a o f a s u p e r r e g u l a t o r y a g e n c y . W h a t this
m i g h t m e a n i n t h e A m e r i c a n c o n t e x t i s shifting t h e F D A from the
H e a l t h a n d H u m a n S e r v i c e s u m b r e l l a and p u t t i n g i t with O S H A ,
E P A and others under a D e p a r t m e n t of Business Regulation.
It is difficult to see any efficiency d i s a d v a n t a g e s in such a r e o r g a n -
i s a t i o n . On t h e c o n t r a r y , S a x o n (1980: 46) has s u g g e s t e d t h a t a
' f a c t o r h a m p e r i n g i n v e s t i g a t i v e efforts at t h e federal level is t h e
n u m b e r o f law e n f o r c e m e n t a n d r e g u l a t o r y u n i t s trying t o c o n t r o l
w h i t e c o l l a r c r i m e . I t i s a r g u e d t h a t b e c a u s e t h e r e are s o m a n y
e n f o r c e m e n t a g e n c i e s , t h e r e i s a g r e a t deal o f o v e r l a p and n e e d l e s s
d u p l i c a t i o n o f effort.' B r i n g i n g federal r e g u l a t i o n u n d e r t h e o n e
r o o f m i g h t h e l p r e s o l v e s o m e o f t h e c o m p l a i n t s o f industry a b o u t
c o n f l i c t i n g d e m a n d s from different r e g u l a t o r y a g e n c i e s . I t would
c u t d o w n d u p l i c a t i v e p a p e r w o r k r e q u i r e m e n t s i m p o s e d b y different
a g e n c i e s . O n e o f t h e m a i n r e a s o n s for d u p l i c a t i v e d a t a g a t h e r i n g i s
c o n f i d e n t i a l i t y p l e d g e s w h i c h p r e v e n t g o v e r n m e n t a g e n c i e s from
s h a r i n g information with each other. A frequent complaint in the
U n i t e d S t a t e s h a s b e e n t h a t 'six a g e n c i e s r e g u l a t e c a r c i n o g e n s u n d e r
2 1 d i f f e r e n t s t a t u e s ' ( N e u s t a d t , 1980: 138). M e c h a n i s m s for a d m i n -
istratively adjudicating c o m p e t i n g regulatory d e m a n d s have been
l a c k i n g : 'A m e a t - p a c k i n g p l a n t w a s told by o n e federal a g e n c y to
w a s h its floors s e v e r a l t i m e s a day for c l e a n l i n e s s and w a s told by
a n o t h e r federal a g e n c y to k e e p its floors dry at all t i m e s , so its
e m p l o y e e s w o u l d n o t slip a n d fall' ( N e u s t a d t , 1980: 131). F r o m
i n d u s t r y ' s p o i n t o f v i e w , a s u p e r r e g u l a t o r y a g e n c y w o u l d also m a k e

381
Strategies for controlling corporate crime

c o n t r o l o f t h e cost o f r e g u l a t i o n e a s i e r t o m o n i t o r . N e e d l e s s t o say,
h o w e v e r , t h e s e v i r t u e s w o u l d not b e sufficient t o e n r a p t u r e industry
w i t h a p r o p o s a l w h i c h w o u l d e n h a n c e r e g u l a t o r y clout.
F o r t h o s e for w h o m a D e p a r t m e n t o f B u s i n e s s R e g u l a t i o n w o u l d
be a socialist A r m a g e d d o n , ' " t h e p r e s e n t analysis might still have
s o m e l e s s o n s . T h e q u i t e m o d e s t r e c e n t initiatives i n the U n i t e d
S t a t e s t o facilitate t h e r e p o r t i n g o f E P A and O S H A offences b y
F D A i n s p e c t o r s , and vice v e r s a , clearly m i g h t increase s o m e w h a t
t h e b a r g a i n i n g c l o u t of i n s p e c t o r s from all t h r e e a g e n c i e s . T h e
p r o p o s a l s of N a d e r et al. (1976) for federal c h a r t e r i n g of g i a n t US
c o r p o r a t i o n s w o u l d also p r o v i d e a useful b e g i n n i n g .
A m o r e r e l e v a n t policy q u e s t i o n t h a n e s t a b l i s h i n g a D e p a r t m e n t
o f B u s i n e s s R e g u l a t i o n c o n c e r n s efforts b y t h e p h a r m a c e u t i c a l
industry to push the bureaucratic organisation of regulation in
exactly the o p p o s i t e direction. This has already happened in Mexico
in a p r e s i d e n t i a l d e c r e e of N o v e m b e r 1978. R e s p o n s i b i l i t y for regu-
l a t i o n o f t h e p h a r m a c e u t i c a l i n d u s t r y has essentially b e e n r e m o v e d
from t h e M i n i s t r i e s of H e a l t h and C o m m e r c e and given to the
M i n i s t r y of P a t r i m o n y . As t h e i n d u s t r y n e w s l e t t e r . Scrip (4 A p r i l
1979) p o i n t e d o u t : ' T h i s is v i e w e d as a positive m o v e , since this
M i n i s t r y i s c o n c e r n e d w i t h t h e industrial d e v e l o p m e n t o f M e x i c o , a s
o p p o s e d to the Ministry of C o m m e r c e whose main concern is to
k e e p p r i c e s d o w n , a n d t o t h e H e a l t h M i n i s t r y , which views t h e d r u g
industry simply as a c o m p o n e n t o f t h e Health System.' In Australia,
c o n c e r t e d l o b b y i n g a t t e m p t s h a v e b e e n m a d e i n the past d e c a d e t o
s t r i p t h e H e a l t h D e p a r t m e n t of s o m e of its n e g o t i a t i n g chips - for
i n s t a n c e , by having them hand control over Pharmaceutical
B e n e f i t s S c h e m e p r i c e s t o t h e i n d e p e n d e n t P r i c e s Justification
Tribunal.

R e a l p o l i t i k therefore dictates that the immediate concern in most


c o u n t r i e s is to d e f e n d h e a l t h r e g u l a t o r y a g e n c i e s from industry
efforts t o r e d u c e t h e i r b a r g a i n i n g p o w e r . N e v e r t h e l e s s , c o n s u m e r -
ists will h a v e t h e i r o p p o r t u n i t y t o t u r n d e f e n c e into a t t a c k . T h e
g r e a t l e s s o n from t h e history of r e g u l a t i o n in the i n t e r n a t i o n a l
p h a r m a c e u t i c a l i n d u s t r y i s t h a t m a s s i v e reforms can o c c u r following
a c r i s i s . In s o m e m e a s u r e , t h e w o r l d ' s r e g u l a t o r y s y s t e m s are a
m u d d l e b e c a u s e t h e y w e r e b o r n o f hasty r e a c t i o n s t o c r i s e s . H o p e -
fully, r e f o r m e r s will h a v e a c o h e r e n t r e g u l a t o r y b l u e p r i n t to
c h a l l e n g e i n d u s t r y d o m i n a n c e r e a d y for i m p l e m e n t a t i o n i n the
w a k e o f t h e n e x t m a j o r crisis.

T h i s b o o k has not p r o v i d e d e v e n a b e g i n n i n g to such a b l u e p r i n t .

382
Strategies for controlling corporate crime

E x p e r t s with a d e t a i l e d u n d e r s t a n d i n g of food and d r u g law,


p h a r m a c o l o g y , a n d o t h e r d i s c i p l i n e s will be r e q u i r e d for t h a t . All I
h a v e a t t e m p t e d is a t e n t a t i v e a s s e s s m e n t o f t h e c h o i c e s that m u s t be
m a d e a b o u t t h e b r o a d form o f any s c h e m e t o c o n t r o l c o r p o r a t e
crime.

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Appendix Getting interviews
with corporate executives

Getting a foot in the door

M a n y e x e c u t i v e s w i t h w h o m I s o u g h t i n t e r v i e w s refused t o see m e .
N e v e r t h e l e s s , at t h e end o f t h e d a y , I had r e a s o n to be b o t h pleased
a n d s u r p r i s e d with t h e success r a t e . A m o n g t h o s e w h o w e r e
a p p r o a c h e d , m o r e a g r e e d t o talk t h a n refused.
A l m o s t all o f t h e i n t e r v i e w s w e r e a r r a n g e d b y t e l e p h o n e w i t h o u t
a p r e l i m i n a r y l e t t e r . An e x c e p t i o n to this w a s with t h e i n t e r v i e w s in
M e x i c o and G u a t e m a l a for w h i c h l e t t e r s w e r e sent p r i o r t o m y visit.
Of forty l e t t e r s w r i t t e n to e x e c u t i v e s in M e x i c o and G u a t e m a l a ,
o n l y o n e a t t r a c t e d a r e p l y . Effectively t h e n , t h e s e i n t e r v i e w s w e r e
also arranged by t e l e p h o n e .
T h e f i r s t i n t e r v i e w s i n A u s t r a l i a w e r e t h e m o s t difficult. A u d a c i t y
w a s r e q u i r e d ; yet in t h e early days I w a s lacking in c o n f i d e n c e .
F o r t u n a t e l y , h o w e v e r , I quickly struck u p o n the strategy of m e n -
t i o n i n g s o m e o n e e l s e ' s n a m e . E v e n i f t h a t s o m e o n e w a s not a
f r i e n d , t h e n a m e could still be t u r n e d to a d v a n t a g e . W i t h the early
i n t e r v i e w s , I m e n t i o n e d the n a m e of a powerful H e a l t h D e p a r t m e n t
official (with his a p p r o v a l ) : ' H e gave me t h e g o v e r n m e n t ' s side of
t h e p i c t u r e , a n d he s u g g e s t e d t h a t you w o u l d be a well informed
p e r s o n t o g i v e t h e i n d u s t r y ' s side o f t h e s t o r y . ' M a n y o f t h e m w e r e
k e e n t o set m e straight o n w h a t t h e y t h o u g h t t h e H e a l t h D e p a r t -
m e n t w o u l d h a v e told m e . S i m i l a r l y , c o m p a n i e s w h i c h had b e e n the
s u b j e c t of s o m e p u b l i c vilification in r e c e n t t i m e s w e r e also often
a n x i o u s t o tell t h e i r side o f t h e story.

O n c e t h e ball w a s r o l l i n g , m a i n t a i n i n g t h e m o m e n t u m w a s not s o
difficult. A f t e r an o u t s t a n d i n g l y g o o d i n t e r v i e w , I w o u l d ask t h e

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Appendix Getting interviews with corporate executives

r e s p o n d e n t to suggest names of other people in other companies


w h o c o u l d t a l k to me a b o u t t h e s a m e subject. T h e n it w a s simply a
m a t t e r of s a y i n g : ' M r X s u g g e s t e d I talk to y o u . ' In every c o u n t r y I
e n c o u n t e r e d early k n o c k b a c k s w h o s u g g e s t e d that I should talk to
t h e P h a r m a c e u t i c a l M a n u f a c t u r e r s A s s o c i a t i o n first. W i t h m u c h
t r e p i d a t i o n I did go and talk to t h e P M A (or its e q u i v a l e n t ) in e a c h
c o u n t r y , k n o w i n g that if an unfavourable impression was created
w i t h t h e m , w o r d w o u l d quickly s p r e a d that i t w o u l d b e unwise t o
t a l k w i t h m e . S u b s e q u e n t to t h e s e d i s c u s s i o n s , I w a s able to say: i
s p e n t q u i t e a bit of t i m e t a l k i n g to p e o p l e at F D A , but t h e n I s p o k e
to Mr X a n d Mr Y at t h e P M A a n d t h e y s u g g e s t e d that I really
s h o u l d talk t o s o m e p e o p l e w i t h p r a c t i c a l e x p e r i e n c e i n t h e
i n d u s t r y . ' B e t t e r still, s o m e P M A officers s u g g e s t e d n a m e s o f
e x e c u t i v e s i n m a n y different c o m p a n i e s w h o w o u l d b e w o r t h t a l k i n g
t o , a n d w h e n t h e s e n a m e s c o i n c i d e d with t h o s e o f p e o p l e I w a n t e d
to t a l k t o , I could say: ' M r X from P M A s u g g e s t e d I talk to y o u . ' I
s u s p e c t t h a t o n c e or t w i c e , t h e y r a n g Mr X a n d Mr X could only
v a g u e l y r e m e m b e r w h o I w a s . O n e has t o play t h e o d d s .

W h a t did I tell t h e m w h e n I s p o k e to t h e m on t h e t e l e p h o n e ? My
i n t e r e s t , I said, w a s in h a v i n g a chat a b o u t t h e effectiveness of
r e g u l a t i o n i n t h e p h a r m a c e u t i c a l i n d u s t r y and t h e costs o f regula-
t i o n , b e c a u s e m y c o n c e r n was t o use t h e p h a r m a c e u t i c a l i n d u s t r y a s
a c a s e study to d r a w o u t s o m e g e n e r a l p r i n c i p l e s of cost-effective-
n e s s in g o v e r n m e n t r e g u l a t i o n . All t h i s , as is clear from r e a d i n g t h e
b o o k , w a s t r u e . I d e s c r i b e d myself as a sociologist r a t h e r t h a n a
c r i m i n o l o g i s t . F o r t h e A u s t r a l i a n i n t e r v i e w s , I initially d e s c r i b e d
m y s e l f as a F u l b r i g h t s c h o l a r a b o u t to go to t h e U n i t e d S t a t e s to look
at r e g u l a t i o n and w h o w a s i n t e r e s t e d in g e t t i n g a good g r a s p on t h e
A u s t r a l i a n s y s t e m first. O n c e e x e c u t i v e s had a g r e e d t o t h e inter-
v i e w , h o w e v e r , I a l w a y s i n f o r m e d t h e m that I w o r k e d for the
Australian Institute of Criminology.

O v e r s e a s , I did not m e n t i o n to c o m p a n i e s t h a t I w o r k e d for the


A u s t r a l i a n I n s t i t u t e of C r i m i n o l o g y . I w a s on leave w i t h o u t pay
from t h e I n s t i t u t e , so I could q u i t e l e g i t i m a t e l y d e s c r i b e myself as a
F u l b r i g h t F e l l o w affiliated w i t h t h e U n i v e r s i t y o f C a l i f o r n i a . T h e
novelty of being an A u s t r a l i a n was an a d v a n t a g e in interesting some
foreign executives in talking to me. A n d my nationality perhaps
m a d e it m o r e t r o u b l e t h a n it w a s w o r t h to c h e c k up on my back-
g r o u n d . W h e n A m e r i c a n e x e c u t i v e s a s k e d w h a t part o f A u s t r a l i a I
c a m e from or w h a t I did t h e r e , I simply t a l k e d at great length a b o u t
h o w I w a s b r o u g h t up in Q u e e n s l a n d and did my P h D in sociology at

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Appendix Getting interviews with corporate executives

t h e U n i v e r s i t y of Q u e e n s l a n d . I t h o u g h t it n e i t h e r a d v a n t a g e o u s
n o r a p p r o p r i a t e t o directly a s s o c i a t e t h e A u s t r a l i a n I n s t i t u t e o f
C r i m i n o l o g y w i t h s o m e t h i n g I was d o i n g w h i l e on leave.

O n c e inside

I n t e r v i e w s of fewer t h a n 30 m i n u t e s d u r a t i o n w e r e a w a s t e of t i m e .
In t h e e n d , if p e o p l e w o u l d only offer 15 m i n u t e s of their t i m e , I w a s
t u r n i n g t h e m d o w n . On t h e o t h e r h a n d , I found t h a t a 3 0 - m i n u t e
i n t e r v i e w c o u l d n o r m a l l y run for o v e r an h o u r if o n e m a d e special
efforts t o m a k e t h e d i s c u s s i o n i n t e r e s t i n g t o t h e r e s p o n d e n t . This
w a s e a s i e r late i n t h e r e s e a r c h p r o g r a m m e t h a n i n t h e b e g i n n i n g .
U l t i m a t e l y , i n t e r v i e w s b e c a m e a l m o s t a s v a l u a b l e t o the r e s p o n -
d e n t s as t h e y w e r e to m e , as I w a s able to tell t h e m s o m e t h i n g s they
did n o t k n o w a b o u t w h a t o t h e r c o m p a n i e s w e r e d o i n g t o deal with
t h e p r o b l e m s u n d e r d i s c u s s i o n . O f c o u r s e this w a s d o n e w i t h o u t
b r e a c h i n g confidences or m e n t i o n i n g the n a m e s o f t h e c o m p a n i e s I
w a s t a l k i n g a b o u t . E x e c u t i v e s w e r e also i n t e r e s t e d t o talk t o s o m e -
o n e w h o k n e w a little o f h o w the r e g u l a t o r y a p p a r a t u s w o r k e d i n
other parts o f t h e world.

A c o u p l e of i n t e r v i e w s w e r e t a p e d , b u t I found t h a t the i n h i b i t i o n
of r a p p o r t from a r e q u e s t to t a p e t h e i n t e r v i e w w a s not in t h e
i n t e r e s t s of q u a l i t y d a t a . F o r m o s t o f t h e early i n t e r v i e w s I t o o k a
t a p e r e c o r d e r i n m y b r i e f c a s e , and a s s o o n a s t h e i n t e r v i e w w a s o v e r
I w o u l d go to a p a r k or a toilet and tell t h e t a p e r e c o r d e r e v e r y t h i n g I
could r e m e m b e r . As the research p r o c e e d e d , interviews produced
d i m i n i s h i n g r e t u r n s . I w a s h e a r i n g t h e s a m e t h i n g s a b o u t t h e costs o f
regulation over and over again. F r o m most interviews of an hour's
d u r a t i o n I w o u l d c o m e o u t w i t h only o n e o r t w o s t a t e m e n t s w o r t h
remembering.
I also b e c a m e m o r e e x p e r t at using my n o t e p a d . A s k i n g if I could
t a k e n o t e s often i n h i b i t e d r a p p o r t a t t h e b e g i n n i n g o f a n i n t e r v i e w .
So w h a t I b e g a n to do w a s w a i t until t h e r e s p o n d e n t said s o m e t h i n g
t h a t h e o r s h e w o u l d really like m e t o r e m e m b e r . ' D o you realise
t h a t we did a study which found t h a t this n e w r e g u l a t i o n cost us
$ 5 , 3 0 0 , 0 0 0 to c o m p l y w i t h ? ' ' R e a l l y ' , I w o u l d say, i m u s t write t h a t
figure d o w n b e c a u s e I h a v e a t e r r i b l e m e m o r y for figures.' T h e
n o t e b o o k w o u l d t h e n be out sitting on my k n e e . I w o u l d m a k e an
effort t o w r i t e d o w n t h i n g s t h a t t h e y t h o u g h t w e r e i m p o r t a n t . W h e n
t h e r e s p o n d e n t said s o m e t h i n g i n d i s c r e e t t h a t I t h o u g h t to be
i m p o r t a n t , I w o u l d not w r i t e t h i s d o w n . I n s t e a d I w o u l d r e p e a t the

386
Appendix Getting interviews with corporate executives

s t a t e m e n t o v e r a n d o v e r in my mind as t h e 90 per cent of the


i n t e r v i e w w h i c h w a s o f n o i n t e r e s t t o m e p r o c e e d e d . W h e n the
r e s p o n d e n t said s o m e t h i n g else t h a t he or she w o u l d like me to w r i t e
d o w n , m y p e n w e n t t o p a p e r a g a i n , but i n s t e a d o f writing w h a t the
r e s p o n d e n t w a s s a y i n g , I w a s p u t t i n g d o w n t h e i n d i s c r e t i o n of a few
m i n u t e s earlier.
I n t e r v i e w s w i t h m o r e t h a n o n e p e r s o n at a t i m e w e r e g e n e r a l l y a
w a s t e of t i m e . It w a s difficult to use t h e n o t e b o o k discreetly with a
g r o u p o f p e o p l e . B u t m o r e i m p o r t a n t l y , i n front o f their p e e r s ,
e x e c u t i v e s w e r e m o d e l s o f d i s c r e t i o n . A n e x c e p t i o n t o this w a s
w h e n o n e g o t t o g e t h e r w i t h s e v e r a l e x e c u t i v e s o v e r lunch with a
c o u p l e o f b o t t l e s o f w i n e . E v e n t h o u g h o n e could not t a k e n o t e s , t h e
m o r e i n f o r m a l social s i t u a t i o n w a s i n v a r i a b l y p r o d u c t i v e .
In t h e early i n t e r v i e w s I w a s a l w a y s sure to g u a r a n t e e a n o n y m i t y
and confidentiality at the c o m m e n c e m e n t of the interview. How-
e v e r , I felt t h a t t h i s p u t r e s p o n d e n t s on t h e i r g u a r d t h a t they might
b e grilled a b o u t s e n s i t i v e m a t t e r s . I t w a s b e t t e r t o e a s e into t h e m o r e
s e n s i t i v e m a t t e r s , raise t h e m in a r e l a x e d and w o r l d l y - w i s e fashion
w h e n t h e y s m o o t h l y s l i p p e d into t h e flow o f t h e d i s c u s s i o n . W h y
s h o u l d y o u give g u a r a n t e e s o f a n o n y m i t y w h e n all you w e r e asking
for w a s a c h a t ? Of c o u r s e t h e r e w o u l d be o c c a s i o n s later in t h e
d i s c u s s i o n w h e n it m i g h t be a p p r o p r i a t e to say that a n y t h i n g said
w o u l d b e t r e a t e d a n o n y m o u s l y b o t h w i t h r e s p e c t t o the p e r s o n and
t h e c o m p a n y from w h e n c e i t c a m e . T h e giving o f t h e g u a r a n t e e s w a s
p l a y e d by ear. In fact, all i n f o r m a t i o n p r o v i d e d by r e s p o n d e n t s in
t h i s s t u d y has b e e n t r e a t e d a n o n y m o u s l y , and t h e identity o f t h e
c o m p a n y for w h i c h t h e r e s p o n d e n t w o r k e d is in a l m o s t all cases
s u p p r e s s e d . T h e only e x c e p t i o n t o t h e policy o f c o r p o r a t e a n o n y -
mity was w h e r e an executive was explaining the c o m p a n y ' s point of
v i e w on s o m e law v i o l a t i o n t h a t w a s a m a t t e r of p u b l i c r e c o r d . A n d
o f c o u r s e t h e policy w a s n e v e r b r e a c h e d i n s i t u a t i o n s w h e r e cor-
p o r a t e a n o n y m i t y was g u a r a n t e e d in the interview.

I found t h e m o s t useful i n f o r m a n t s to be p e o p l e w h o w e r e dis-


g r u n t l e d w i t h t h e c o m p a n y in s o m e w a y , and in t i m e I d e v e l o p e d a
n o s e for sniffing o u t d i s g r u n t l e d e m p l o y e e s . S o m e t i m e s r e s p o n -
d e n t s w o u l d tell m e a b o u t t h e t r o u b l e m a k e r w h o had b e e n i n his o r
h e r j o b b e f o r e , b u t w h o t h e c o m p a n y had got rid of. I w o u l d t h e n try
t o c h a s e u p t h e s e t r o u b l e m a k e r s . E v e n i f r e s p o n d e n t s w e r e not
d i s g r u n t l e d w i t h t h e i r p r e s e n t c o m p a n y , p e r h a p s t h e y w e r e dis-
g r u n t l e d w i t h o n e o f t h e i r f o r m e r e m p l o y e r s i n the p h a r m a c e u t i c a l
industry. M a n y senior pharmaceutical executives have been mobile

387
Appendix Getting interviews with corporate executives

d u r i n g t h e i r c a r e e r s , w o r k i n g for p e r h a p s t h r e e o f four different


p h a r m a c e u t i c a l c o m p a n i e s . W h e n I s e n s e d a d i s e n c h a n t m e n t with
o n e of t h e s e f o r m e r e m p l o y e r s , I w o u l d d i r e c t my line of q u e s t i o n -
ing at t h e old c o m p a n y . E x e c u t i v e s w e r e r e m a r k a b l y free with
s t a t e m e n t s i n t h e n a t u r e of: ' W e w o u l d n e v e r d o t h a t h e r e , but w h e n
I w o r k e d with C o m p a n y X. . . .'
I w e n t to the first i n t e r v i e w with a s e m i - s t r u c t u r e d i n t e r v i e w
s c h e d u l e . T w o i n t e r v i e w s later this w a s t h r o w n i n the w a s t e p a p e r
b a s k e t . U l t i m a t e l y , w h a t I did w a s simply to let the i n t e r v i e w flow in
a n y a n d e v e r y d i r e c t i o n and t a k e o p p o r t u n i t i e s a s they a r o s e t o ask
q u e s t i o n s r e l a t i n g to t h e r a n g e of t o p i c s discussed in this b o o k . I
soon d e v e l o p e d an appreciation of how narrow is the breadth of
k n o w l e d g e o f a n y o n e p e r s o n i n a large and c o m p l e x o r g a n i s a t i o n .
G e n e r a l l y it is p o i n t l e s s to ask a finance d i r e c t o r a b o u t unsafe
m a n u f a c t u r i n g practices or a manufacturing m a n a g e r about bribes.
It is s i m p l y a m a t t e r of g e t t i n g as m a n y i n t e r v i e w s as possible with
p e o p l e i n p o w e r f u l p o s i t i o n s , and t a i l o r i n g q u e s t i o n s t o their special
competences.

T h e m o s t c r u c i a l lesson from this r e s e a r c h has b e e n t h e i m p o r t -


a n c e o f k n o w i n g h o w the i n d u s t r y w o r k s . I f o n e i s well informed
a b o u t t h e i n d u s t r y , and a b o u t the forms t h a t l a w - b r e a k i n g t a k e s
w i t h i n it, o n e ' s d e m e a n o u r can b e t h a t o f a p e r s o n w h o i s ' n o b a b e i n
t h e w o o d s ' . U n l e s s k n o w l e d g e and s o p h i s t i c a t i o n c o n c e r n i n g t h e
s u b j e c t m a t t e r i s e s t a b l i s h e d early i n t h e i n t e r v i e w , t h e r e s p o n d e n t
will r e g a r d t h e i n t e r v i e w as a p u b l i c r e l a t i o n s exercise and n o t h i n g
b u t i n d u s t r y p r o p a g a n d a will c o m e o f t h e d i s c u s s i o n . O n t h e o t h e r
h a n d , e x e c u t i v e s d o n o t enjoy t h e d i s r e s p e c t that c o m e s from b e i n g
r e g a r d e d as an unthinking m o u t h p i e c e of industry d o g m a by some-
o n e w h o k n o w s t h e i n d u s t r y . T h e y , like e v e r y o n e e l s e , a r e k e e n t o
i m p r e s s e v e n s t r a n g e r s with t h e i r u n i q u e l y s o p h i s t i c a t e d u n d e r -
s t a n d i n g o f h o w t h e i n d u s t r y really w o r k s .

388
Notes

Chapter 1 Introduction: an industry case study of corporate crime

1 The decision concerned the fixed-ratio drug, Panalba. which the F D A


ultimately forced Upjohn to withdraw from the US market For a
discussion of the case see Mintz (1969) and Green (1978: 129-35). In
addition to 12 reported and many unreported deaths. Panalba was
estimated by the F D A to have caused 475.000 cases of blood dyscrasias.
9 million hypertensive reactions, and 475,000 liver disturbances (Green,
1978:130).
2 This applied to the control group of the study. More socially responsible
decisions resulted when the students were asked to role-play boards
which included public-interest directors and other structural modifi-
cations.
3 As Coffee (1980: 466-7) has pointed out, the group risky shift pheno-
menon is o n e reason to question the assumption of economic theorists of
corporate crime that corporate officials are risk averters (see particularly
Elzinga and Breit, 1973, 1976). Anyone who has interviewed corporate
criminals would c o m e to the conclusion that while business people might
generally be risk averters, those particular business people who become
involved in corporate crime are more likely to be risk preferrers.
4 In fact, LG. Farben was initially broken up into five companies:
Hoechst, B A S F , Bayer, Cassella and Huels. Bayer was given 100 per
cent of a sixth company, Agfa. Bayer also later absorbed Cassella and
took a controlling interest in Huels.
5 T h e LG. chemical empire also turned its talents to producing Z y k l o n B ,
the extermination gas used at Auschwitz.
6 For criticisms of this view, see Tappan (1947), Burgess (1950). Kadish
(1963) and Orland (1980). In suggesting that the focus of white-collar
crime be restricted to offences punished under criminal law, the critics
would constrain criminology within class-biased analyses. One of the
defining features of the ruling-class exercise of power is that it manages
to have ruling-class wrongs regulated and punished civilly, while

389
Notes to pages 6—40

working-class wrongs are placed under criminal jurisdiction. While to


countenance as corporate crime any corporate abuse of power, whether
legal or illegal, is to substitute polemics for scholarly rigour, to excise
civilly punished corporate illegalities from the study of corporate crime
is to succumb to tunnel vision conditioned by a ruling-class social con-
struction of criminality.

Chapter 2 Bribery
1 'Another industry source said "bribes" of a few thousand dollars were
all that was needed in Rome to get full copies from the Ministry of
Health of new drug registration files. This eased the way for "pirates",
usually small manufacturers, to deal in products based on patent
infringement' (New York Times, 21 March 1976, Section 3, p. 1, p. 6,
'Drugs in Europe: Collision of Interests').
2 To the extent that policing of such 'bath tub' operators does occur, it is
undertaken by the large companies who act to protect their interests by
occasionally collecting evidence of the failure of small competitors to
meet the regulations and placing this before the authorities.
3 Such leading questions of the 'have you stopped beating your wife?" type
have conventionally been regarded as methodologically unsound.
Kinsey's et al.'s (1948) justification for using leading questions to elicit
self-reports of masturbation and other sensitive behaviour provides a
rationale for exceptions from this methodological principle. The
problem is often one of the 'ordinary person' being intimidated into
telling the higher-status researcher what the latter wants to hear. In this
case, senior executives, some of them on a six-figure income, were not
about to be intimidated by a 'snivelling little Australian academic', as
one of them uncharitably referred to me.
4 US v. Olin-Mathieson Chemical Corp.. No. 63 Cr 21.7 (S.D.N.Y., 23
Sept. 1965).
5 Morton-Norwich also disclosed payments to employees' unions.
6 This type of offence has been reported in other countries. 'Again in Italy
according to a source familiar with the situation, one multinational got
authority, after bribing fiscal inspectors, to sell throat lozenges - at
import prices - that it men arranged to make locally at low c o s t The
practice was said to continue for around 15 years in the 1950's and 1960's
before the company decided it would "regularize" its position' (New
York Times, op. cit).
7 For a discussion of the role of the OA in orchestrating the coup which
brought Guatemala its present form of government see Horowitz (1971:
Chapter 10).
8 At the Crossroads of Destiny, 1977, Annual Report of (he Camara
National de la Industria de Laboratories Quimico Farmaceuticos,
Mexico City.
9 It may also have been bound up with a desire of the new regime to get rid
of certain Social Security bureaucrats which it did not like.
10 SEC v. American Hospital Supply Corporation, Unreported Final
Judgment of Permanent Injunction and Ancillary Relief, United States

390
Notes to pages 40-65

District Court for the District of Columbia. 28 Dec. 1976. Herlihy and
Levine (1976: 623) outline some of the other requirements which have
generally been mandated by the consent decrees:

Moreover, all consultants should be required to file affidavits with the


company indicating that the consultant will not remit any portion of
the fee received directly or indirectly to the company or its employees
or make illegal or improper payments to third parties. Checks made
payable to 'bearer' or to 'cash' should not be delivered to agents,
consultants or their representatives. These should be a system of
multiple approvals of all company disbursements above a certain
minimum level. Records of contacts between corporate and
governmental officials should be maintained and made available for
inspection. In the event of a deliberate or flagrant breach of these
policies by an employee, the employee should be dismissed promptly
by the m a n a g e m e n t

11 Gereffi (1979: 13) lists Lilly as only number 10 among all companies in
worldwide pharmaceutical sales.
12 For a critique of the lack of definition and certainty as to the inter-
pretation of the Foreign Corrupt Practices Act see Gustman (1979).
13 Because of the meaninglessness of subsidiaries' profits in the face of the
artificial transfer prices charged within pharmaceutical transnationals.
performance in many companies tends to be evaluated more in terms of
sales than profits.
14 See New York Times, op. cit., and also many of the oil industry dis-
closures.
15 See Rogow and Lasswell (1963). Wraith and Simpkins (1964), Heiden-
heimer (1978). Scott (1972), Jacoby et al. (1977), Rose-Ackerman
(1978).
16 This relationship may well be a reciprocal o n e , with impoverishment
fostering corruption as well. See Wraith and Simpkins (1964).
17 F o r a discussion of the extraterritoriality of Swedish anti-corruption law
see Bogdan (1979) and for extraterritoriality under the US Foreign
Corrupt Practices A c t see Lashbrooke (1979).
18 S e e , for example, UN Commission on Transnational Corporations
( D e c e m b e r 1978).

Chapter 3 Safety testing of drugs: from negligence to fraud


1 T h e details of the criminal action against Grunenthal will be discussed
later in this chapter. Laying manslaughter charges against a large cor-
poration has, of course, a more recent precedent in the United States
with the defeated case against Ford concerning the alleged lack of safety
of Pinto fuel tanks.
2 See Congressional Record, 27 July 1979. E3922-3.
3 US v Andreidas, 366 F.2d 423 (2d Cir. 1966). cert, denied, 385 US 1001
(1967).
4 S e e , for example, Jones (1979).
391
Notes to pages 68-92

5 Peripheral neuritis is a serious illness. It may occur anywhere in the


body. For example, it may begin with a prickly feeling in the toes,
followed by a sensation of numbness and cold. The numbness spreads,
often above the ankles, and eventually is followed by severe muscular
cramps, weakness of the limbs, and a lack of coordination. The
patient becomes unable to judge the position of his limbs by their feel,
and his gait becomes unbalanced and uncoordinated. Some of these
symptoms improve or disappear when the cause is removed, but much
of the damage is irreversible (Knightley et al., 1979: 32).

6 The case was that of Peggy McCarrick, heard in the Los Angeles County
Court between March and June, 1971. Richardson-Merrell had asked
that if the jury should find them liable, damages should not exceed
$187,000. The jury found Richardson-Merrell negligent and awarded
total general and punitive damages of $2.75 million.
7 I am grateful to James M. Denny. Senior Vice President of G. D. Searle,
for providing data on financial trends at Searle from a number of sources
including Value Line, Standard and Poors and 3-Trend Cycli-Graphs.
8 This was revealed in a letter to Richard D. Wilson, Deputy Assistant
Administrator for General Enforcement Environmental Protection
Agency on 25 August 1977 from A . J . Frisque, President of 1BT.
9 A large part of the problem is the tendency of many busy university
researchers to completely entrust day-to-day administration of their
laboratories to relatively junior and inexperienced staff.
10 Concomitantly, the minor manipulation may have produced some sur-
prising disadvantages over the parent which are not at first apparent
11 The purpose of giving a control group a placebo is to ensure that any
observed effect on the well-being of patients in the study is not simply a
psychological response to a belief that they are being 'given a pill to
make them better'.
12 21 A p p Div. 2d 495,251 N . Y . S . 2d 818. rev'd, 15 N . Y . 2d 317.206 N . E .
2d 3 3 8 , 2 5 8 N . Y . S . 2d 397 (1965).
13 Institutional Review Boards, or Institutional Review Committees as
they used to be called, are committees of professional peers who work in
an institution where clinical testing is being undertaken. The Boards are
rarely subjected to F D A inspection. Between 1971 and 1974, 25 IRBs
were inspected:

Of the 25 committees inspected by F D A . two had no deficiencies. Of


the remaining 23 inspections, F D A found that 13 committees had
approved faulty consent forms. In 11 of the 13 cases, exculpatory
language was used. In eight instances the form failed to advise test
subjects that they were free to withdraw from the experiment at any
time - a point that seems important when considering the potential for
abuse and exploitation of institutionalized test subjects.
F D A found that 8 of the 25 committees inspected did not review the
investigational drug study after initial approval: 5 kept no minutes of
meetings, records, or documents; and 4 had incomplete or extremely
sketchy records. Seventeen committees failed to include persons from
one or more of the backgrounds required by F D A regulation.

392
Notes to pages 92-110

F D A believes institutional review committees should be


independent of the drug firm sponsoring, or the individual
performing, the clinical investigation. Yet members of three of the
committees were paid for their services by the sponsor or clinical
investigator. At one prison the clinical investigator paid the
committee chairman $4,000 per year and each member of the
committee $2,000 per year. At two other prisons the committee
members were paid an unspecified amount by the sponsor or
investigator (Subcommittee on Health, 1976a: Part I I 3 7 5 ) .

14 This document written by Robert S. Janicki. Abbott's Vice-President of


Medical Affairs, was the basis of Janicki's testimony before Senate
oversight hearings on the FDA's process for approving drugs in July
1979. The testimony was before the Subcommittee on Science. Research
and Technology H o u s e Committee on Science and Technology.
15 In Australia, for example, the homicide rate in 1977-8 was 4.7 per
100,000 population, the serious assault rate 29.3 per 100,000 and the
robbery rate 25.3 per 100,000 (Biles, 1979).
16 Even in Britain, neither government approval nor notification is
required for Phase I studies - pilot testing on very small samples
(perhaps 10-30) of healthy humans.
17 More formally, in economic terms:
T h e operations of firms, or the doings of ordinary people, frequently
have significant effects on others of which no account need be taken
by the firms, or the individuals, responsible for them. Moreover,
inasmuch as the benefits conferred and the damages inflicted - or
'external economies' and 'external diseconomies' respectively - on
other members of society in the process of producing, or using, certain
goods do not enter the calculation of the market price, one can no
longer take it for granted that the market price of a good is an index of
its marginal value to society.
. . . It follows that an apparently efficiently working competitive
e c o n o m y , one in which outputs are quickly adjusted so that prices
everywhere tend to equal private marginal cost, may lead the economy
very far indeed from an optimal position as defined. Such an optimal
position in fact requires that in all sectors production be such that
prices are equal to social marginal cost (Mishan, 1969:82-3).

18 T h e prototypical matrix management system is the interdepartmental


committee. Where study directors are drawing on people from different
departments, some of which might have greater organisational power
than their own. their capacity to keep the lid on any problem is further
attenuated.

Chapter 4 Unsafe manufacturing practices


1 It is doubtful whether GMPs have any legal status in Australia. They are
promulgated as a voluntary code by the Commonwealth Health
D e p a r t m e n t States have the power to revoke licences to manufacture

393
Notes to pages 110—34

pharmaceutical products. Presumably states might use violation of


GMPs as the basis for such a revocation action. However, whether the
courts would regard such a voluntary code as relevant in a licence
revocation is yet to be tested.
2 In 1973 a district court initially threw out the indictment because of
prejudicial pre-trial publicity released by the F D A and the Justice
Department. This included reference to 'fifty deaths' alleged to have
been caused by the intravenous solutions. The defence asserted that
even if this were true, evidence that the solution had caused septicaemia
deaths would be inadmissible in a trial upon the charge of distributing
adulterated and misbranded drugs in interstate commerce. However,
the prosecution successfully appealed against this district court decision
and (he case proceeded (US v. Abbott Laboratories 505 F.2d 565 (4(h
Cir. 1974). cert, denied, 420 US 990 (1975)).
3 Pyrogens are fever-forming contaminants.
4 The fear of adverse consequences for the community at large is a
recurrent problem with the sanctioning of corporate crime. See. for
example. Boomer v. Atlantic Cement Co. 257 NE 2nd 870 (1970).
5 T h e US R I C O (Racketeer Influenced and Corrupt Organisations)
statute is one innovative attempt to break out of this reality. It provides
for putting many members of a corrupt organisation on trial at once. The
Court is invited to look at a pattern of offences within the organisation
rather than at a particular act. See Schmidt (1980).
6 Mr Loftus. former F D A Director of Drug Manufacturing, in his
criticisms of my draft, took exception to this reference:
I do believe your reference to the prospective defendant as a friend of
the [ F D A officer] is cruel, not important to your thesis, and terribly
misleading. In my opinion, his decision was in no way influenced by
his knowing the prospective defendant. I hope I am correct
I have no w a y of knowing whether the personal friendship between the
accused and the government official influenced the latter's judgment in
any way. Probably Mr Loftus's assessment of the integrity of the official
is absolutely correct It is important in such cases, however, that justice
not only is done but also is seen to be done.
7 Mr Loftus also argued that my use of the expression 'smoke-filled room'
is inappropriate, even though this was the very expression used by
another informant:

T h e term smoke filled room connotes secrecy, unrecorded activities.


An awful lot of that goes on in the political arena. Nothing like that
happened in the case history you discussed. Every meeting was
memorialized by very detailed memoranda which went into the
official files. No meeting was ever held with a representative of the
firm without a representative of the F D A District Office being
present

8 Footnote 40 in the quote refers to US Public Health Service. Centre for


Disease Control (1977), Morbidity and Mortality Weekly Report, 1
April.

394
Notes to pages 137-63

9 I asked one Guatemalan production manager: "Do you think of


the internal quality auditors from headquarters as adversaries or part of
the same team as you?" T h e production manager gave perhaps the
most succinct representation of the relationship between production
people and auditors when he replied: I think of them as a pain in the
ass.'
10 This is not to deny that the following statement from Crosby (1979:84) is
inaccurate. It simply means that there will be exceptional situations
where the "short-range" benefit will exceed the costs of the "long-range
headache".
Speaking of integrity, let me make a very exact statement I do not
know of a single product safety problem where the basic cause was
something other than a lack of integrity judgement on the part of some
management individual. Usually the objective was to achieve a
short-range goal by cutting corners. The result was a long-range and
unprofitable headache.
11 In Britain G M P s are not legally enforceable. Companies cannot be fined
for violating them. Nevertheless, the ultimate sanction of withdrawing
the company's licence to manufacture is available but never used.
12 US v Morton-Norwich Products. Inc. 461 F. Supp. 760 (N.D.N.Y.
1978).
13 Similar kinds of pressures can be placed on product development
managers before a new druggets to the production stage. One managing
director explained that the production division might come to the
product development manager with a request like 'Can't you make it
a little cheaper by including such and such an ingredient which is
less expensive', or. "That's difficult to make. Can't we cut a corner
here?'.
14 Crosby (1979: 11) argues for the use of tokens such as pins in these
programs: "Cash or financial awards are not personal enough to provide
effective recognition.'
15 Realising that F D A inspections of small companies are less frequent, the
Pharmaceutical Manufacturers' Association (representing the large
firms) has urged before Congressional committees that government
purchases of drugs should not be made from companies whose plants
have not had an F D A inspection in the previous twelve months.

Chapter 5 Antitrust
1 In Canada also in 1976. 36 Canadian pharmaceutical companies
expended 21.8 per cent of net sales on advertising and promotion
(Pharmaceutical Manufacturers Association of Canada. Marketing
Expenditures in the Pharmaceutical Industry, Ottawa, Canada, 1977). In
Australia the figure is about 19 per cent (Australian Department of
Health, 1978:67). Slatter( 1977: 102) found promotional expenditure as
a proportion of sales in 12 countries to range between 15 per cent and 22
per cent.
2 Italy is believed to be considering reversing its no-patent policy.
395
Notes to pages 165-86

3 Dr Solomon Garb has explained what would happen if drug


manufacturers were responsible for t h e marketing of baked
b e a n s : . . . T h e y would all stop using the word'beans'and each would
give the product a new coined name Picture the confusion in the
grocery store if beans were no longer named 'beans', but if each maker
gave a completely new name to his product Further, try to imagine
what would happen if there were 300 to 500 additional new names of
this type in the grocery store every year. This is approximately what is
happening in medicine, and it is becoming exceedingly difficult for
physicians to keep things clear (Quoted in Aftcrman, 1972: 38).

4 T h e Kefauver hearings showed that in the late 1960s the situation was, if
anything, worse. Serpasil sold for $39.50, while Modern Medical Supply
and Darby sold the product for $0.58 and $0.59 respectively (Subcom-
mittee on Monopoly, 1972: 10-11). Reserpine is an interesting example
of a bulk-supply monopoly. While finished reserpine is offered by at
least sixty suppliers, the sole manufacturer of the active ingredient is S.
B. Penick (Gereffi. 1979: 25).
5 Geis (1967) reported something similar among executives who partici-
pated in the heavy electrical equipment price-fixing conspiracy. They
did not see their illegal behaviour as harmful; they saw it rather as a
beneficial way of 'stabilising prices', a 'duty' to their corporation. See
also McCormick(1977).
6 For example, some have argued that the Australian market is so small
that economies of scale make it appropriate for an industry to be
monopolised by a single firm (e.g. Conlon, 1975; McGuinness, 1975). In
contrast Walker (1976: 571) has argued that ensuring domestic com-
petition through the Trade Practices A c t is more important in Australia
than in comparable countries because its geographic isolation reduces
competition from imports.
7 The Monopolies Commission (1973), Chlordiazepoxide and Diazepam,
H . C . Paper. 197.
8 Regulation of Prices (Tranquillizing Drugs) N o . 3 Order 1973, S. L

9 Hoffman-La Roche v. S. ofS. for Trade and Industry (1975) A. C. 295.


10 Between 1960 and 1965 Pfizer instituted 33 different infringement suits
to defend its tetracycline p a t e n t Apart from McKesson, in every case
the entrant w a s forced, at least initially, to withdraw from the market
because, as one executive explained, 'we do not have the financial
capability to fight such a giant as P f i z e r . . . and so we never had our day
in court' (Costello, 1968:34).
11 US v. Pfizer et al, 426 F.2d 32 (2 Cir. 1970).
12 US\. Pfizer etai, 404 US 548,92 S.Ct.731, 30 L.Ed. 2d 721 (1972).
13 USv. Pfizer et al., 367 F. Supp. 91 (S.D.N. Y. 1973).
14 US v.Morgan, 118 F. Supp. 621,634 ( S . D . N . Y. 1953).
15 US v. Buchalter, 88 F.2d 625, 626 (2 Cir.) cert, denied, 301 US 708
(1937).
16 American Cyanamid Co., 63 FTC. 1747, 1755 (1963).
17 American Cyanamid Co. v FTC, 363 F.2d 757 (6 Cir. 1966).
396
Notes to pages 186-211

18 American Cyanamid Co., 72 FTC, 623,694 (1967).


19 Pfizer v. f T C , 401 F.2d 574 (6th Cir. 1968). cert, denied. 394 US 920
(1969).
20 US v. Pfizer et al., US District Court for the Eastern District of
Pennsylvania. C.A. N o . 78-1155,18 August 1980.
21 The advantage of licensing the me-too competitor in this situation is
typically that the promotional activities of the competitor may tap a
different market to that canvassed by the patent-holder. For example,
the former may have large teams of detailers in countries in which the
latter has no presence.
22 Resale price maintenance means practices which discriminate against
resellers (generally retailers) who refuse to sell at the uniform price
recommended by the manufacturer.
23 This argument applies not only to the resources and talent of pharma-
ceutical companies. Universities spend more of their scarce resources in
training pharmacologists because pharmacology graduates can obtain
jobs as researchers in the pharmaceutical industry.
24 T h e Indian policy applies only to essential drugs, though exceptions are
made for patented and imported products. Trade names were abolished
entirely in Pakistan in 1972, but there was a retreat from this position in
1976 w h e n some brand names were allowed ( U N Centre on Trans-
national Corporations, 1979:48).
25 Of course in totalitarian societies, these arguments about the checks and
balances of political democracy do not apply. But then neither do
arguments about independence and procedural safeguards in the courts.
26 Clearly, 'political' and 'administrative' are not mutually exclusive
categories. There is a continuum At one extreme is administrative
discretion which is exercised in secret and without reference to, or
oversight by, elected officials. At the other pole are decisions voted in
the legislature. Between are various shades of monitored delegation to
administrators, administrative discretion subject to political over-ruling,
and detailed instructions from politicians to civil servants.

Chapter 6 The corporation as pusher


1 [An infectious disease seminar] was presented by McKesson
Laboratories. Those attending would stay at the Southampton
Bermuda Princess Hotel, Golf Beach Club. That is on the cover of it
It has the pictures of the swimming pool and golf course. It offers 5
nights and 6 days in Bermuda. It offers guest lectures and tells the site
of the meeting on one side, and tells you here what you do to take
advantage of it A n d it describes other 'side benefits': the round trip
air transportation with complimentary drinks, all gratuities and taxes,
a welcome rum swizzle, deluxe accommodations, and so on. It also
has seminar registration and a certificate of attendance, but these are
described in small print at the bottom of the pamphlet Neither
specifies that you must attend the courses in order to receive the
certificate. A l s o , you may include your wife (Senator Edward
Kennedy, Subcommittee on Health, 1974:754).

397
Notes to pages 213-66

2 One program that we carried at Pfizer was known as the 'Vistaril


Dinner.' Money was set aside from the budget to entertain a group
from the medical community at dinner. During this dinner we
attempted to direct the conversation to the subject of Vistaril and its
uses. At the conclusion of the evening our guests were presented with
a Vistaril Kit' which included a paper carrying case, a pen, perfume,
and s o m e clinical papers on VistarU. The object, of course, was to sell
the drug and also to get to know these people better so that we could
talk to them about our products the next time that we saw them
(Former Pfizer sales representative. Subcommittee on Health. 1974:
755).

3 Sainsbury Report (1967). London, Cmnd 3410. H M S O . : 66.


4 See, for example, the Diabinese case study in Afterman (1972:45).
5 Other regulators of advertising confront similar problems. Jack
Goldring informs me that advertisers in the US sometimes run
saturation one-day campaigns which blatantly contravene the law. By
the next day, when FTC acts to stop the advertising, the campaign is
over.
6 These and the following data were kindly provided by Dr Peter
Rheinstein, Director of the FDA's Division of Drug Advertising.
7 T h e British Medicines Act of 1968 does in fact in a general way prohibit
false and misleading drug advertisements. However, the act is not
enforced in this respect, reliance being placed on industry self-
regulation.
8 One advertising person expressed the unimportance of the small print in
an article entitled 'Ogilvy Tips: Creating Ads that Sell':

On the average, five times as many people read the headline as read
the body copy (in advertisements). It follows that, if you don'i sell the
product in your headline, you have wasted 80 percent of your money.
That is why most Ogilvy and Mather headlines include the brand
name and the promise (quoted in Medawar. 1979:66).

9 In the past patient labelling has been limited to special cases such as oral
contraceptives.
10 One suspects that the real concern among both the industry and doctors
is that the information in patient labelling might encourage product
liability and malpractice suits against them. On the other hand, some
suits might be avoided by the implied informed consent of the patient
deciding to take the drug having read the warnings and possible side-
effects.

Chapter 7 Drug companies and the Third World


1 A number of transnationals have the kind of function for the internal
regulation of promotion described above organised at a regional (e.g.
Asia and the Pacific) rather than corporate level
2 An executive of an American transnational explained: 'If they can see
that there are adverse reactions being widely recorded in Hong Kong.

398
Notes to pages 266-86

say. then they will save the expense of clinically testing the drug on
humans in the United States.'
3 Admittedly though. Third World countries have been loath to partici-
pate in the W H O adverse-reaction-reporting scheme partly because it is
perceived as concentrating on newer, 'rich man's drugs'.
4 For example, Egypt, Kuwait, the Sudan and all the Central American
countries require certificates of free sale.

Chapter 8 Fiddling
1 For the most complete of the many accounts of 'Coster's' life, see Keats
(1964).
2 Boyd (1973:137-8) illustrates how this can be done with the 'Confession
of an anonymous mergerer':
'A good merger is like marrying a rich woman and taking her money.
It's as sweet as that, sweeter even, because you can have as many of
these brides as you w a n t . . . Or it's like politics. You can often get
control and speak for the majority with only 10 percent of the voting
stock, because you're organized while the mass of stockholders are
strung out and don't pay much attention. Best of all, you do it with
borrowed money. Never use your own.
'You start out with control of a little fleabag company that's ready
for the receivers. Then you find a fat corporation that's been selling its
assets and is sitting on lots of cash. You send in a spy to find out where
the 'control stock' is; usually it's held by directors of the company.
Y o u bribe them, in a manner of speaking, by offering to buy the
company stock they hold at a price much higher than it's worth; in
return, they agree to resign and appoint your men in their places.
Then you go to your bank, let them in on the deal, offer their key men
personal stock options and other side deals - and they'll loan you all
you need to buy out the directors. Once you're in control of the new
company, you use some of its assets to pay off your bank and divvy up
what's left with your insiders. The only way you can do that legally, of
course, is to merge your new company with the old one you've just
about bankrupted. That way t h e new entity assumes all your old
debts.
'Stockholders? They don't know anything about it, really. You've
already bought out their leaders. All they see is what's on the proxy
statement - and you're the fellow w h o puts it out, because you're the
management now. Hide your old company's debts, doctor up the
figures, hire one of those N e w York evaluating firms to back you up.
and always promise the exact opposite of what you plan to do. Like I
said, it's just like politics.'
3 Overpricing was defined relative to average world prices for the product
4 T h e cost to the patient of most Australian prescription drug sales is
subsidised by the Pharmaceutical Benefits Scheme (PBS). PBS there-
fore has de facto price-fixing power over all companies w h o wish to sell
their products under the scheme.

399
Notes to pages 293-7

Chapter 9 Strategies for controlling corporate crime


1 In 1978. drugs approved by F D A which were classified as "important or
modest therapeutic gains' had taken an average of 22.4 months being
processed by the agency, while 'new molecular entities that are of little
or no therapeutic advance' took a mean 32.7 months. New drug applica-
tions which were not classified as new molecular entities took even
longer (figures supplied by the FDA's Bureau of Drugs).
2 A Business Roundtable study of 48 companies (including Lilly and
SmithKline) found that in 1977 incremental costs of $2.6 billion were
met under requirements imposed by six federal regulatory agencies. See
Arthur Andersen & Co, Cost of Government Regulation Study for the
Business Roundtable, March 1979. The PMA has completed a follow-up
to this study focusing specifically on the pharmaceutical industry; see
PMA. Economic Costs of FDA Regulations, March 1981.
3 Douglas M Costle, chairperson of President Carter's Regulatory
Council and Administrator of the Environmental Protection Agency,
has made an attempt:
Those benefits run from savings in lives at one end of the spectrum, to
aesthetic benefits at the other. In between, you find benefits ranging
from savings in property maintenance - not having to paint your house
or clean your clothes as often - to the protection of farm and timber
crops from saline soils and acid rains. Despite the difficulties, some
economists are beginning to measure the benefits of regulation. In
1977, for example, after evaluating existing studies, the American
Lung Association estimated that air pollution could be costing us
$10,000 million annually in health damages. Dr. Lester Lave,
chairman of the department of economics at Carnegie-Mellon
University, and Dr. Eugene Seskin, a senior research associate at
Resources for the Future, have published their study on Air Pollution
and Human Health. They estimate that the annual health benefits of
controlling pollution from factories could be as much as $20.2
thousand million in 1976 dollars. In a forthcoming study. Dr. Edwin
Mills of Princeton University has estimated the recreational, aesthetic
and ecological benefits of water quality improvements to be of
approximately the same magnitude.

T h u s , now that economists have been asked to look for figures, they
are beginning to find that health, safety and environmental
regulations have a sound economic base. To place such benefits on a
more human scale, let me quote examples cited by Dr. Stewart Lee,
chairman of the department of economics at Geneva College. He
finds that in the regulated products groups, safety packaging
requirements have produced a 40 percent drop in ingestion of poisons
by children over a four-year-period. Since the safety standards for
cribs became effective in 1974, crib deaths have fallen by half, and
injuries by 45 percent The Burn Institute in Boston reports that in
1971 - prior to the children's sleepwear standards - 34 percent of its
flamebum injuries involved sleepwear. In 1977 the figure was zero.
According to the U.S government's General Accounting Office,
400
Notes to pages 297-324

28,000 lives were saved between 1966 and 1974 because of federal
motor vehicle safety regulations. The same report showed that in one
state, where a detailed analysis was conducted, there was also a
substantial reduction in the frequency and severity of injuries. With
auto accidents the number one cause of paraplegia in the United
States, these figures are significant (Costle, 1979: 13).

4 One senior F D A official made the following comment on the way 'minor
violations' has been interpreted in practice:
Note that the expression 'minor violations' is not defined. In the
regulatory tradition that I came from, prosecutors always had the
right to use discretion. In US\. Dotterweich, one of the famous F D A
Supreme Court decisions, the Court said we should rely on the good
sense of prosecutors. (I would never rely on the good sense of a
prosecutor -1 use this reference to get across the point mat the
Supreme Court of the United States recognized the right of
prosecutors to not prosecute some violations.) In the FDA which
employed me for 29 years, the agency always used discretion and did
not worry itself about what a 'minor' violation was. If the
Commissioner, or the General Counsel, or a Compliance Chief at
Headquarters decided, for whatever reasons (they had to be ethical)
that a case was not to be prosecuted, it was not prosecuted.

5 For recent treatments of the questions of administrative discretion and


consistency within regulatory reform see Kagan (1978) and Yale Law
Journal (1980).
6 See Argyris (1978) for a discussion of the futility of this approach to
regulation.
7 USY. Park, 7 4 - 2 1 5 , 9 5 S. Ct 1903 (1975).
8 US\. Dotterweich, 320 US 277,64 S. Ct 134,88 L. Ed. 48 (1943).
9 Business Week magazine concluded (hat the Park decision, together
with the FDA's intensified efforts to notify chief executives of violations,
have 'succeeded spectacularly at "executive consciousness-raising" '.
(Business Week. 10 Mar., 1976, p. 111.)
10 For a detailed discussion of the relevant American law to all the issues
discussed in this paragraph see Harvard Law Review (1979: 1264-70).
11 Naturally, however, corporations should not be prosecuted for cor-
porate crimes committed by individual employees who violate the law
against the wishes of the corporation and when the corporation has
diligently taken every possible step to ensure that such individual crimes
do not occur. Individual criminal liability is appropriate for such cases.
12 Various commentators have recently argued that corporations do not
have a track record of effectively sanctioning guilty individual
employees following corporate crime convictions (e.g. Orland, 1980:
5 1 4 - 1 5 ; Coffee, 1980: 459). Executives found guilty of crimes in the
heavy-electrical equipment and Watergate investigations were generally
reappointed by their companies. In fact, however, it is more common for
individual employees convicted of corporate crimes not to be kept on by
their companies. W h e n the chairman and president of the Fruehauf

401
Notes to pages 324-7

Corporation were convicted of tax fraud, undertaken on behalf of the


corporation, Fruehauf conducted a survey of what other companies with
similar experiences had done. Twenty-five companies whose officials
had been prosecuted for crimes committed on behalf of the corporation
between 1971 and 1978 were studied. Only 'about a third' of these
executives retained their positions (Coffee, 1980:445).
T h e fact remains, however, that corporations will sometimes choose
not to discipline their own criminal employees. This is why courts must
force them to do so. Economists such as Posner (1977) w h o assume that
if courts sanction corporations, the latter can be trusted to automatically
impose effective sanctions on their individual employees, are naive. One
problem ignored by these writers is that sanctioned employees may
'blow the whistle' and bring new skeletons out of the corporate closet.
For example, w h e n Gulf and Western dismissed its general Counsel,
Joel Dolkart, for embezzling $2.4 million, Dolkart secured plea-
bargaining concessions by telling the SEC about various unrelated
corporate activities (Coffee, 1980:459).
13 Coffee (1980: 456-8) takes an opposite tack. He suggest that concen-
trating prosecutorial resources on individual executives is more efficient
because the expected benefit of the individual from a corporate crime is
lower than that of the corporation. 'Axiomatically, although the cor-
poration must act through its agents, the profit accrues primarily to the
firm and its owners. Thus, the cost of deterring the agent may be less
than that of detering the firm' (Coffee, 1980:456). The present book has
shown that this is not 'axiomatic' at all. Profit gains for the corporation
may be minor incentives compared to personal executive gains from
impressing superiors, meeting production targets, getting a promotion,
etc. Coffee (1980: 458) is also on shaky ground empirically when he
suggests that because individuals cannot call upon the legal resources of
a corporation, individual prosecutions will have lower transaction costs.
In practice, it takes more resources to attempt to convict individual
pharmaceutical executives than pharmaceutical corporations. One
reason for this is the demonstrated willingness of corporations to put all
their legal resources at the disposal of employees who are charged with
committing crimes on behalf of the corporation. See, for example, the
A b b o t t case study in Chapter 4.

14 Advocates of a 'just deserts' model might find this a compelling


argument, as might devotees of classical economic models. Unless the
monetary costs of getting caught can be set at a higher level than the
gains from the crime divided by the probability of getting caught, it will
be rational to continue committing the crime. H e n c e , the penalty for a
crime which nets $1 million and only attracts a 1 in 10 probability of
apprehension should be over $10 million. Since the collectability ceiling
of fines against individuals is lower than for corporations, the possibili-
ties for economically rational deterrents against individuals are less.
15 This happened in the Searle case study (Chapter 3) and also at Lockheed
after the foreign bribery scandal. As the interim chairman of Lockheed
conceded in 1977, 'People around here felt lower than snakes' (Kraar,
1977).

402
Notes to pages 330—40

16 Coffee (1980) may be correct when he points out that fining a wealthy
person a fixed percentage of his income is a lesser deterrent than fining a
poor person the same fixed percentage of his income even though the
wealthy person pays a larger fine. This is because the poor person is
taken closer to his bottom dollar by the fine and the utility of dollars
increases in inverse proportion to how many of them you have. Another
consideration is that the wealthy may be more adept at insulating them-
selves by securing assets in the hands of others. The more important fact
remains, however, that with wealthy persons we are more likely to be
able to collect a fine which is large enough to deter crimes with low risks
of apprehension and large pay-offs.
17 Not only does the white-collar offender have more to lose, but he or she
also has more to give back as restitution to the victim or reparation to the
community. A doctor convicted of medical benefits fraud can be required
to serve a rural community which has no physician for a specified period.
Such reparation cannot be exacted from an unskilled offender.
18 Because white-collar offenders are more likely to be older family men
with responsibilities for putting children through their education and
other family obligations, a loss of earning capacity may also have wider
social ramifications for them than for young traditional offenders wifh
no dependants. Traditional offenders who do have dependants are,
however, more vulnerable in this way than white-collar offenders
because they generally have lesser financial reserves.
19 The United States, with higher crime rates than any other developed
country, persists in sending its criminological experts to other countries
with low crime rates to show them how to solve their crime problem. The
American solution has been extraordinarily heavy use of imprisonment
by international standards. Most American states have an imprisonment
rate per 100,000 population more than ten times as high as the
Australian jurisdiction in which the author lives. Now we are seeing
American white-collar crime experts touting imprisonment as the means
of controlling white-collar crime.
20 An obvious exception to this is with an antitrust conviction in which all
(or most) members of the oligopoly are fined.
21 Hopkins' (1978: 12-13) conclusion that the conviction of Power
Machinery for false advertising under the Australian Trade Practices
Act produced favourable publicity for the company is an illustration.
22 For a more refined version of this general approach, see Fisse's (1973)
development of the idea of court-imposed 'preventive orders'.
23 Fisse (1980) notes the use of adjournment of sentence as a 'back-door to
enter the internal affairs of a corporate offender' by reference to Trade
Practices Commission v. Pye Industries Sales Pty. Ltd. A.T.P.R. 40-089
(1978).
24 SEC v. Allied Chemical Corp., Civil Action No. 77-0373, at 2 (D.D.C.
filed 4 March 1977).
25 For a thoughtful discussion of this question see Greenawalt and Noam
(1979).
26 US\. Morton Salt Co., 338 US 632,652 (1950); quoted with approval in
California Bankers Association v. Schultz, 416 US 21,65-6 (1974).

403
Notes to pages 340-52

27 Griswoldv. Connecticut. 381 US 479,484 (1965).


28 "While an individual may lawfully refuse to answer incriminating
questions. it does not follow that a corporation vested with special
privileges and franchises, may refuse to show its hand when charged with
an abuse of such privileges" (Hale v. Henkel. 201 US 4 3 , 75 (1906). See
also University of Pennsylvania Law Review (1964: 394).
29 Triplex Safety Glass Co. v. Lancegaye Safety Glass (1934) [1939] 2 K.B.
395.
30 Duncan v. Louisiana. 391 US 145 (1968).
31 Green v. US, 355 US 184, 187-8 (1957).
32 USv. Pfizeretal, 367 F. Supp. 91 ( S . D . N . Y . 1973).
33 Afterman (1972: 4 7 - 8 ) provides a variety of other examples which have
not been discussed in this book.
34 N e w Zealand is a notable exception where the compensation scheme is
funded from general government revenue.
35 As Goldring and Maher (1979:28) explain:
Although in Daniels v White and in some American cases,
evidence by the manufacturer of the "fool-proof nature of his
operation has been sufficient to rebut the inference of negligence,
and although judicial statements may be found (as in Daniels v
White) that the duty of the manufacturer under English law is
not to ensure that every article produced by him is perfect, but
merely that he has exercised reasonable care in setting up the
manufacturing process and supervising his employees, a plaintiff who
can show that he has been injured by a defect in goods is in a
reasonably strong position to establish a claim for damages in
negligence.

36 Conversely, it can be argued mat strict liability removes incentives for


the victim to invest in safety measures. This is a rather absurd objection
in the case of drugs, because it is only manufacturers who are in a
position to invest in safety. Another contrary argument is that strict
liability might encourage careful companies to switch investment to
industries where care avoids liability.
37 In fact, a somewhat ethnocentric view is being expressed here. Japanese
chief executive officers are far less crucial under the Japanese collegial
decision-making systems. As one Japanese businessman explained:
In America, decisions can be reached quickly because there is always a
guy w h o is in charge of some affair. There is none in Japan. There is
nobody in a Japanese company w h o is really 'in charge' of
anything - not even the president We do not have any very clear
concept of chief executive officer or chief operating officer (Fortune,
'Japanese managers tell how their system works', November 1977:
126,130).

38 Under the incentive compensation plan introduced following Allied


Chemical's Kepone disaster, 'about one-third of the plant managers' pay
is based on safety performance' (Hayes, "Complying with EPA Rules",
New York Times, 16 January 1980, D (Business).T).

404
Notes to pages 353-68

39 This is the essence of corporate decision-making defined by Kreisberg's


(1976) "bureaucratic politics model'.
40 Quite apart from the peculiar features of business organisations which
foster the filtering of bad news, there are more general principles
of cognitive dissonance theory: recipients of information normally
focus upon and relay only the information which conforms with
preconceptions, while conflicting information is filtered (Festinger,
1957).
Even absent the distorting impact of preexisting attitudes on
information flow, experimental evidence suggests that serial relay of
information results in significant information loss. Information
theorists have formulated the rule that each additional relay in a
communications system halves the message while doubling the
"noise'. Significantly, some corporations have today between twelve
and fifteen hierarchical levels between the first-line supervisor and the
company president, suggesting that much 'noise' and only a very
diluted message will reach the top through regular lines of
communication. The economist Kenneth Boulding has phrased the
problem the most pessimistically: 'the larger and more authoritarian
the organization, the better the chance that its top decision-makers
will be operating in purely imaginary worlds' (Coffee, 1977:1138).

41 Coffee (1977: 1142) suggests that the board 'performs the role of a
miniature capital market, rewarding efficient divisions and penalizing
inefficient ones - but thereby also encouraging lower echelons to avoid
sanctions by withholding adverse information from the top.'
42 See, for example, the reviews by Leech and Mundheim (1976) and
Sommer(1977).
43 Banking, Housing and Urban Affairs Committee, US Senate, Report of
the Securities and Exchange Commission on Questionable and Illegal
Corporate Payments and Practices. Washington D C , 94th Cong. 2D
S e s s . , 1976. See also De Mott's (1977) account of how the government
appointed Emergency Loan Guarantee Board failed to become aware of
Lockheed's foreign bribery escapades.
44 Nevertheless, it is worth pointing out that in the Coster-Musica case
study it was the full-time company treasurer w h o tracked down the
president's crimes while the board remained oblivious to them.
45 This is a dilemma comparable to that over Q A U reports being available
to government inspectors.
46 For example, James Q. Wilson, quoted in Demaris (1974:442).
47 Sommer (1977: 131) has made a beginning with an evaluation of such
minor examples of 'public interest directors' as already exist The most
famous instance is the court-mandated appointment of SEC-approved
unaffiliated directors to the board of Mattel, Inc.
48 T h e Australian government sold its pharmaceutical company,
Fawnmac, in late 1980.
49 W e l l c o m e , the British non-profit pharmaceutical enterprise, does
devote a significant proportion of its profits to research on tropical
diseases through the Wellcome Foundation.

405
Notes to pages 368-80

50 T h e socialist answer to this criticism is that the socialist manager is better


able to resist such pressures by open appeal to the wider public interest
Since all socialist organisations are justified ultimately by service to the
public interest, such appeals can be articulated to official goals. No
articulation of this sort is possible in the capitalist organisation where the
ultimate goal is profit
51 In 1967, United States research consumed 57,700 primates, 106,200
ungulates (horses, cattle, pigs etc.), 361,000 dogs and cats, 504,500
rabbits, 2 million birds, and 30 million rodents (National Research
Council, LEAR Survey of Laboratory Animal Facilities and Resources,
1968).
52 A study of transnationals operating in Brazil (Brandt and Hulbert, 1976)
found US firms to be more likely than both Japanese and European
companies to have their subsidiaries headed by Brazilians.
53 International Chamber of Commerce, Guidelines for International
Investment (Proposal adopted by the Council of the ICC at its 120(h
session, 29 November 1972); also. Extortion and Bribery in Business
Transactions (Report adopted by the 131st Session of the Council of the
I C C , 29 November 1977), ICC Publication N o . 315. See also Hellmann
(1977:68-73).
54 Organisation for Economic Cooperation and Development, 'Guidelines
for Multinational Enterprises', annexed to Declaration on International
Investment and Multinational Enterprises, OECD Press Release A(76)
2 0 , 2 1 June 1976; also available in 75 International Legal Materials 967
(1976).
55 Organisation of American States, Permanent Council Resolution on the
Behavior of Transnational Enterprises (10 July 1975); available in 14
International Legal Materials 1326 (1975).
56 T h e International Organisation of Consumers Unions now has over fifty
national member organizations. The Nader organisation's MuItinational
Monitor publication is also an important initiative to internationalise the
consumer movement.
57 Moreover, one finds this inevitability in many other areas of business
regulation. Schrag (1971) tells how when he took over the enforcement
division of the New York City Department of Consumer Affairs, he
imposed a litigious approach. In response to a variety of frustrations,
especially the use of delaying tactics by defendants' lawyers, a 'direct
action' model was eventually substituted for the 'judicial model'. Non-
litigious methods of pressuring companies into consumer redress
became increasingly important These included threats and use of
adverse publicity, revocation of licence, prosecution of technical
breaches of legislation, giving aggrieved consumers clout in restitution
negotiations, writing to consumers to warn them of company priorities
and exerting pressure on reputable financial institutions and suppliers to
withdraw support for the targeted company.
58 Jacobs (1974: 53) has suggested the following as a general postulate of
organisation theory: 'organizations are controlled by those w h o com-
prise or control the organizations' most problematic dependencies. In

406
Notes to pages 380-2

Blau's terms (1964) organisations 'give compliance to those upon whom


they are most d e p e n d e n t '
59 As Franklin Roosevelt once observed: 'Big business collectivism in
industry compels an ultimate collectivism in government' (quoted in
Nader e t a l . , 1976:262).

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427
Index

A b b o t t Laboratories: advertising A M A . s « American Medical


Placidyl. 217; backing Welch's Association
j o u r n a l s , 2 2 0 ; cost of F D A A m e r i c a . U n i t e d S t a t e s of. see U n i t e d
r e g u l a t i o n s , o n . 9 7 - 8 ; failure o f c a s e States
a g a i n s t , 3 7 6 ; i n v e s t m e n t a n d profits i n A m e r i c a n H o m e Products: advertising
P u e r t o R i c o , 2 8 5 ; p r o m o t i o n a l gifts expenditure. 207; disclosures to SEC.
from. 2 1 1 - 1 2 ; radioactive isotopes, 20. 37; F D A complaints about. ID;
p r o d u c i n g . 169; response to criticism. Inderal, promoting. 2 1 1 ; marketing
2 3 1 ; unsafe manufacturing practices. c o n t r a c e p t i v e s , 2 4 8 : profits. 1 5 9 - 6 0
114-18.342
American Hospital Supply Corporation
Abbott's Quality Alert Award Scheme. ( A H S ) : disclosures to S E C , 2 4 - 8 , 3 2 .
152 4 0 - 1 , 3 3 8 ; t a x - e v a s i o n in, 2 8 8
a c c o u n t a b i l i t y , 3 0 8 , 3 2 4 ; see also A m e r i c a n Medical A s s o c i a t i o n . 218
liability, responsibility aminopyrine. 250
A c h r o m y c i n . 177 aminopyrine-like butazones. 216
A c m e M a r k e t s . 320 a m p h e t a m i n e s . 207
Adams. Gordon, 16 A m p h o j e l , 113
A d a m s . Walter, 1% A - M - T , 113
advertisements: misleading, 214-16, analgesics, 1 6 2 , 2 1 6 . 2 3 0 , 2 5 0
2 1 7 - 1 9 . 2 3 1 ; remedial. 225. 232-4. anabolic steroids, 2 5 0 . 2 5 2
239 A n d e a n P a c t c o u n t r i e s , 156
advertising, drug: mass media. 2 0 7 . 2 4 0 ; Andre. John. 58
medical journal. 2 1 4 - 2 1 . 254; animals, laboratory: cancer testing on.
r e g u l a t i o n of. 2 3 5 - 8 , 2 9 5 9 5 ; d o g s . 6 2 . 8 4 ; d r u g t e s t i n g o n . 102,
Afterman, Leanna. 216. 2 2 3 , 2 3 3 . 2 3 4 406; hamsters, 77; m o n k e y s , 6 0 - 2 .
A g a r w a l . Aril, 160, 173, 2 7 2 , 2 7 5 3 7 1 ; N a p r o s y n t e s t s , in, 8 1 ; r a b b i t s .
agranulocytosis. 250 3 7 1 ; rats. 6 2 , 7 5 . 7 7 ; suffering of,
A h a r t , G r e g o r y . 84 370-1
A H S . iee A m e r i c a n Hospital Supply A n t h o n y . Dr Marc. 230
Corporation a n t i a n g i n a l d r u g s . 165
AHS/Mexico. 26.27.32 antiarthritics, 162.215
Alcon, 32 a n t i b i o t i c s : batch p r o c e s s e s , 168;
Aldactone. 75-6 chloramphenicol, 210; F D A ' s
A l d o m e t , 12 d i v i s i o n . 2 2 0 ; Latin A m e r i c a n use of.
allergic reaction. 344 2 5 3 ; m a r k e t for. 175; s a m p l e s
Allied Chemical, 338 r e j e c t e d , 141. 142; U S m a r k e t
a l p h a m e t h y l d o p a . 12 b r e a k d o w n . 162; ' w o n d e r d r u g s ' . 5
Al-Thakeb, Fahad. 6 antidiabetic drugs. 162. 2 4 6

428
Index
a n t i h i s t a m i n e . c o n t a m i n a t e d , 111 •behavioral drift. 2 0 8 - 9
antihistamine, US market breakdown, behavioural disorders, 249
162 Bern. D . J . . 3 - 4
antihypertensive drugs, 2 4 6 , 2 5 1 B e n n e t t . Sir F r e d e r i c k . 3 0 0
antipyretic analgesics. 250 Bequai. August. 40-1
Antitrust Division o f t h e US Justice beri-beri, prisoners given, 89
D e p a r t m e n t . 1%. 376 Best, William R . . 2 2 2
a n t i t r u s t lavv(s), 4 5 , 159. 1 6 6 . 2 8 7 B i b i l e , S e n a k a , 271
A n t i v e n i n . 169 Biometric T e s t i n g Inc.. 80. 107,308
aplastic anaemia. 2 1 0 . 2 4 7 B i o r e s e a r c h M o n i t o r i n g P r o g r a m , see
Applied Management Sciences, 234 FDA
Arendt. Hannah, 3 Bishop. John. 70
A r m s t r o n g . J. S c o t t , 2 Black. Justice. 340
A r n a u d . Dr. 22 B l a k e s l e e , A l t o n L.. 220
a r t h r i t i s , d r u g s for, 5 4 ; see also blood d a m a g e , drug-caused. 56
antiarthritics Blozan,CarIF.,82
A s a n t e . S . K. B.,47 B l u m b e r g . A b r a h a m S., 2 9 9
a s c o r b i c a c i d , 162 Board of R e g e n t s , N e w York. 91
Aspartame. 76-7 Bobst. Elmer. 206
aspirin, 2 0 7 . 2 1 6 Boehringer-lngelheim. 225.250.251
Asta W e r k e . 2 5 0 . 2 7 2 B o n d . R o n a l d S . . 165
A t o m i c Energy Commission, 90 bone marrow disease, drug-caused. 56
Auschwitz, 4 Bonger, Willem, 369
B o o t s , profits of, 160
A u s t r a l i a n H e a l t h D e p a r t m e n t , see
B o r k i n , J o s e p h , 4-5
Health Department, Australian
Boyd. J. R..241
Australian Law Reform C o m m i s s i o n
D i s c u s s i o n Paper. 347 Braithwaite, John. 4 9 . 1 3 8 . 2 7 6 . 3 0 5 . 3 1 4
Australian National Biological B r a i t h w a i t e . V a l e r i e . 1.14
S t a n d a r d s L a b o r a t o r y . 141 brand n a m e s . 6 6 - 7 . 1 6 5 . 198-9
A v a f o r t a n , 250 B r a z i l , d r u g i n s p e c t i o n s in. 2 7 5
Brandenburg, R . C . , 6 0
A v e n t y l . 208
B r e i t . W i l l i a m . 325
Avery. C. K..229
Brennan. Bruce. 322
A y a n i a n . R o b e r t . 160
Brenner. S. N.. 4 9 . 3 5 1
Brewin. Robert. 2 0 7 . 2 0 9 . 2 2 1 . 2 2 6 . 3 0 0 .
Baldwin. William H.. 281 316
Bandura. Albert, 3
barbiturates. 207 bribery. 1 1 , 1 3
Barnet. R. J.,375 Briloff. A b r a h a m J., 2 7 9
Barofsky, I..241 B r i s t a c y c l i n e , 177
B a r t s h . T h o m a s C , 189 Bristol-Myers: advertising expenditure.
BASF. 4 207; disclosures to S E C . 2 2 - 3 . 3 7 ;
Bass. M.. 243 m e r g e r w i t h M e a d J o h n s o n . 1%; t h e
'bathtub'manufacturers of drugs. 112. t e t r a c y c l i n e price-fixing s t o r y . 1 7 6 - 9 0
390 B r o a d y . J o h n G . . 182
B a u m a r t . R . C , 351 B r o m l e y , B r u c e . 317
B a x t e r - T r a v e n o l , 7 8 , 153 B r o u g h t o n State H o s p i t a l . 2 2 9
B a y e r : a p p o i n t m e n t of war-criminal by, B r o w n , C h a r l e s S., 231
5 ; B r i t i s h M P d i r e c t o r of. 3 0 0 : C u t t e r B r o w n , Dr Ernest C, 57
Laboratories and. 2 8 4 . 3 7 3 ; B r u u n . Kettil. 206
d e s c e n d e d from I . G . F a r b e n , 4 ; B u r a c k . R i c h a r d . 6 7 . 1 6 0 . 172
heroin, marketing, 207; owns Burnstein. E . , 3
Netherlands Antilles holding Burroughs-Wellcome, 250,251
company, 284 Buscopan C o m p o s i t u m , 250
B e a c h , B r e w s t e r S., 281 B u s h . D r V . , 164
Beall, S e n a t o r , 248 B u s i n e s s R e g u l a t i o n . D e p a r t m e n t of,
B e a m i s h . SirTufton H. 300 381-2
Becton-Dickinson. 32 Business Week. 199. 2 8 5
Beecham. 160.300 butazones. 216

429
Index
B u t c h e r . Sir H e r b e r t W . . 3 0 0 Clothier Report. 118-19
B u t t l e s . J o h n S . 11.285 c o c a i n e . 207
Byron. W. J, 50 C o c k s . D o u g l a s L . . 160. 2 9 2
C o d e o f C o n d u c t for T r a n s n a t i o n a l
Calvert. E . J . . 2 4 3 Corporations, 47,374-5
C a m p b e l l . Sir J o h n . 2 0 6 C o f f e e , J o h n C o l l i n s , Jr. 329. 3 3 4 - 5 .
Canadian Health Protection Branch. 338,357.363
137 C o l l i n s . L . J.. 2 6 4
Cancer Institute. US National. 105.341 C o l o m b i a t r a n s f e r pricing. 2 8 5
c a n c e r m o r t a l i t y i n N e w J e r s e y . 135 C o m a n o r . W i l l i a m S.. 169
cancer research experiments: animal. Commission ofthe European
95: human. 88.89 C o m m u n i t i e s . 191
C a n e l l a . J u d g e . 183. 342 C o m p a z i n e . 225
C a n t o n R o a d smuggling case. 206 c o m p l i a n c e staff, c o r p o r a t e . 1 3 7 - 9 .
Cantwell. Dr Nelson, 52-3 357-9
Cappalletti, M a u r o , 347 C o n o v e r p a t e n t , 189
Caroline. Queen, 90 C o n s e r v a t i v e P a r t y . B r i t i s h . 300
Carrtone Laboratories. 228. 229 Console. Dr Dale. 165.224.227.255
c a r t e l s . 180. 1 9 1 - 5 C o n s u m e r P r o d u c t Safety C o m m i s s i o n ,
C a r t e r - W a l l a c e . 3 7 . 160 380-1
Cartwright. D . . 3 Contac Mist, 359
Cass. Dr Leo J. . 5 8 - 9
Contergan (thalidomide). 6 6 . 6 8 , 6 9
Cass Research Associates. 59
c o n t r a c e p t i v e m a n u f a c t u r e , h e a l t h risks
C a t a p r e s . 251
in. 1 3 4 - 5
C e d a r s of L e b a n o n Hospital. 355 c o n t r a c e p t i v e s , oral. 2 4 1 - 2 . 2 4 8 , 2 5 8
C e n t e r . D r , 1 2 0 , 123 Conyers, Congressman, 55
C e n t e r for D i s e a s e C o n t r o l . U S , 116 C o o k C o u n t y Jail, 8 9
Centrafarm, 174-5,200 Cook. Jonathan D. 82,84
Certification S c h e m e on the Quality of C o o p e r . R i c h a r d . 311
Pharmaceutical Products M o v i n g in C o r d i s C o r p o r a t i o n , failure o f q u a l i t y
International C o m m e r c e , 275 c o n t r o l s t a n d a r d s at. 1 1 9 - 2 9 . 3 1 6
C h a n d l e r . Geoffrey, 348 c o r t i c o s t e r o i d s , s y n t h e t i c , 168
C h a s e . J u d g e , 183 c o r t i s o n e . 164
C h a y e s , A b r a m , 313. 314 C o s t a R i c a , high s t a n d a r d s in, 2 7 7 . 3 7 0
C h c m i e G r u n e n t h a l . see G r u n e n t h a l C o s t e l l o . P e t e r M . , 198
chloramphenicol: expired, 260; C o s i e r . D r F . D o n a l d , 2 7 9 - 8 1 . 288
p r o m o t i o n of. 2 1 0 . 2 5 0 ; s i d e - e f f e c t s C o u n c i l o n E c o n o m i c P r i o r i t i e s . 114
of. 2 1 0 . 2 4 7 ; s u b s t i t u t e d for C o u r t o f A p p e a l s , U S , 182. 186
tetracycline, 2 5 3 ; withheld in typhoid C o u r t o f J u s t i c e o f the E u r o p e a n
research. 89 C o m m u n i t i e s . 174
Chloromycetin, 210.222,23 9.248.253 C P S C , see C o n s u m e r P r o d u c t S a f e t y
C h l o r o s t r e p . 248 Commission
C h l o r t e t r a c y c l i n e . 1 7 5 . 185 Cranston, Ross, 3 2 5 , 3 3 3 - 4
Christian D e m o c r a t i c Party. 17 Criminal C o d e Reform Act. 347
Ciba, 222 c r i m i n a l law. see law
Ciba (Switzerland), 300 c r i m i n a l p r o s e c u t i o n , see p r o s e c u t i o n s
Ciba ( U K ) , 3 0 0 C r i m i n o l o g y . A u s t r a l i a n I n s t i t u t e of,
C i b a - G e i g y : clioquinol in diarrhoea 385
treatment. 253; marketing ofanabolic C r o s b y . P h i l i p B . . 140. 149
s t e r o i d s . 2 5 1 ; m e r g e r . 1%: price o f Crouch. David, 300
S e r p a s i l . 166: ' Q u a l i t y S e a l ' P r o g r a m . Ciout. Dr Richard. 209
1 5 3 ; w i t h d r a w a l from P a k i s t a n . 2 7 2 C u b a . N a t i o n a l M e d i c a l Library of. 2 6 3
C l a r k s o n . K e n n e t h W . , 160 C u l l i g a n . J o h n , 113
class actions, 3 4 6 - 8 C u p r i m i n e , 169
C l a y t o n A c t . 1 8 4 . 186 Cutter Laboratories. 2 8 4 . 3 7 3
Clinard. Marshall B.. 5. 15,329 c y c l a m a t e s , 231
clioquinol, 253,346 Cyanamid: disclosures to S E C , 3 2 , 3 7 ;
Clonidine,251 d o m i n a t i n g a n t i b i o t i c m a r k e t . 175; D r

430
Index
Fox and. 12-13: e m p l o y e d Dr Smith. E a t o n . J u d g e . 128. 129
5 3 ; p a t e n t e d C h l o r t e t r a c y c l i n e . 198; ECOSOC.47
the tetracycline price-fixing story. E d e l h e r t z . H e r b e r t . 192
175-90 Ehrlich. E u g c n . 342
Eisenberg. Melvin Aron. 363,365
D a l k o n Shield. 258 Eklund. L. H . . 2 4 3
Darvall, L. W . . 2 3 3 E l d e r , A l b e r t L . , 164
Darvon, 170,20 4.209.216 Elzinga. K e n n e t h , 1%, 325
Davies. Wyndham. 12-13.300 E m p l o y e e Bill o f R i g h t s . 3 4 3
Davis. K e n n e t h C . 306 Engelberg. Dr. 63
D a w e s L a b o r a t o r i e s , 134 Enterovioform. 253
d e a t h s from: c h l o r a m p h e n i c o l . 2 1 0 ; Environmental Defense Fund. 263
contaminated intravenous solutions. E n v i r o n m e n t a l Protection A g e n c y . 103.
3 2 . 116; D a r v o n . 2 0 9 : d i - e t h y l e n e 305.380-2
g l y c o l , 1 1 3 ; D o r n w a l , 5 6 ; elixir E P A . see E n v i r o n m e n t a l P r o t e c t i o n
s u l f a n i l a m i d e . 110; F l e x i n , 56; Agency
i n c o r r e c t l y l a b e l l e d t a b l e t s , 110; E p s t e i n . S a m u e l S.. 9 5 . 1 0 6 , 108, 1 3 4 - 5 ,
Librium, 2 0 9 ; O p r e n , 56; Sudoxican. 302
54; thalidomide. 69; Valium, 209 E r m a n n . D a v i d . 138
D e c a d u r a b o l i n . 250 Eslamizadeh. DrShaikol. 43
Delmas-Marty. Mireille. 284 e s t r a d i o l p r o g y n o n . 162
De L o r e a n . John Z.. 378 European Economic Community. 155.
D e p o - P r o v e r a . 258. 266 174
d e t a i l m e n . 212. 2 2 2 . 2 2 4 - 6 , 250 E u r o p e a n Free Trade Association. 156
Dianabol,251 Evans, Florence, 65
D i a n a v i t , 251 Evans, Liam, 65
d i a z e p a m , 172. 199 Evans Medical, 118-19
d i - e t h y l e n e g l y c o l , 113
digitalis tablets, c o n t a m i n a t e d . I l l Fair D e a l M o t o r s , 2 8 2
digoxin tablets, recalled. Ill Far E a s t I n t e r n a t i o n a l C o r p . . 2 2
d i h y d r o e s t r e p t o m i c i n e , 248 Farben, I . G . , 4 - 5 . 3 8 9
dipyrone, 250 Fay.Judge.126
director, public-interest. 365-6 Federal Register, 91.242.243,315
d i r e c t o r s , r o l e of, 3 6 2 - 7 Federal Trade C o m m i s s i o n , 186.380
Distaval (thalidomide), 70 F D A (Food and Drug Administration):
Distillers' Company. 6 9 - 7 0 , 7 4 , A b b o t t Laboratories and, 115-18;
106-7 advertising controls, 218; anonymous
diuretics. 162. 1 6 5 . 2 5 1 transnational case-history, 130-3;
dogs in laboratories. 6 2 . 8 4 antibiotics division. 220; Bioresearch
D o r s e n , N o r m a n , 301 Monitoring Program. 7 9 . 8 2 - 3 ;
Dotterweich, 321 B r i t i s h labs ask for i n s p e c t i o n by. 156.
D o u g l a s . Justice. 340 277; Bureau o f B i o l o g i e s . 85; Bureau
D o w , 196 of Drugs, 209; chloramphenicol
w a r n i n g , 2 1 0 ; Clinical Investigations
D o w i e , Mark, 257-9
Office of, 5 6 ; C o r d i s p a c e m a k e r s a n d ,
D r u c k e r , Peter F., 3 5 9 , 365
119-29; decisions on drug safety, 2 9 2 ,
drug abuse, 207
349; discovers dishonest doctors, 53;
D r u g A b u s e . N a t i o n a l I n s t i t u t e of. 2 0 9 Division of Drug Advertising. 235;
d r u g r e c a l l s . 148. 1 4 9 , 1 5 3 , 158 D i v i s i o n o f D r u g M a n u f a c t u r i n g , 112;
D r u g R e g u l a t i o n Reform Bills. 2 6 2 - 3 . d o c t r i n e o f ' i n f o r m e d consent"
294 formulated by. 9 0 - 1 ; D r u g A b u s e
Drug Research Corporation, 58 Staff. 2 0 9 ; D r u g P r o d u c t P r o b l e m
drugs: dumping. 2 5 8 - 6 1 , 3 6 9 ; expired, Reporting Program. 110;GLPs
2 6 0 ; m e - t o o , 164, 1 9 1 , 2 9 3 ; d r a w n u p by, 7 9 ; Industrial B i o t e s t
p r e s c r i p t i o n . 1 7 0 ; s e r v i c e , 169; i n v e s t i g a t i o n , 8 1 - 2 ; i n n o v a t i o n , role
s m u g g l i n g . 2 6 1 ; toxic effects. 208 in fostering, 96-7; inspections of
d r u g - t e s t i n g , fraud in, 5 2 , 5 7 t r a n s n a t i o n a l s , 157; i n s p e c t o r s
dry labelling'. 5 7 . 8 0 offered bribes. 3 3 ; M E R / 2 9
D u b o i s . P i e r r e . 152

431
Index
i n v e s t i g a t i o n . 6 0 - 5 ; patient labelling furosemide. 251
requirements. 2 4 2 ; relations with
industry, 3 0 0 - 1 . 3 0 3 - 4 . 3 5 9 - 6 2 . 3 7 7 ; Gabbay. Edmond. 306
role of g u a r d i n g world health. 277, Gadsden, Henry W., 18,216
3 7 0 ; Searle. case against, 7 5 - 8 ; Gaedeke, R. M.,264
seizures of R e g i m e n tablets, 57; Gaffin, B e n , a n d A s s o c i a t e s . 2 1 8
survey of G L P compliance. 82-6; G a l b r a i t h . John K e n n e t h . 332
training i n s p e c t o r s , 3 9 ; use of G a r d n e r . S h e r w i n . 108
i n j u n c t i o n s , 136; u s e o f p r o s e c u t i o n s . G e i g y , see C i b a - G e i g y
3 1 7 . 3 2 0 ; use o f s e i z u r e , 3 3 7 ; use o f Geis, Gilbert, 1 5 , 3 2 9 , 3 5 4
warnings, 307 G e n e r a l A c c o u n t i n g Office, 8 4 , 8 5
FDA Consumer, 335 G e r e f f i . G a r y , 2 0 , 160, 167, 168. 199.
272
fine a s p u n i s h m e n t i n c o r p o r a t e c r i m e ,
321,331-5 Gerovital, 32-3
Fine, Sam, 320 Gettinger, Stephen. 90
Finkel, Dr Marion, 81 Gilley. Dr E. Wayne, 229
Firma Paracelsia, 68 G l a x o , profits of, 160
Fisher, Nigel T.,300 Glover, Jonathan. 5
Fisse, W. B., 4 9 , 1 3 8 , 3 2 7 . 3 3 6 , 3 3 9 G L P s ( G o o d Laboratory Practices):
Flagyl, 76 c r i t i c i s m s of, 9 6 ; d r a w n u p b y F D A .
Flawn, A l e x a n d e r , 70-1 79, 108; F D A study of v i o l a t i o n s ,
Flawn, John, 70 8 2 - 5 ; required in contract labs, 103;
Flawn, Judith, 71 requirement f o r Q A U s , 99-100
Fletcher, G e o r g e , 323 G M P s ( G o o d Manufacturing Practices):
Flexin, 56 Australian, 141; British, 141;
F o e g e , William H., 247 i n t e r n a t i o n a l v a r i a t i o n s in, 110,
F o o d , Drug and Cosmetic Act (1938), 1 5 3 - 7 ; r e g u l a t i o n of, 3 1 5 ; v i o l a t i o n s
1 1 0 , 114 b y A b b o t t . 117; v i o l a t i o n s i n I n d i a ,
F o o d , Drug and Cosmetic Act (1962): 272
effect on n e w drug approvals, 2 9 3 ; Goddard, Commissioner (FDA), 51.88
fear of, 3 4 6 ; i n f l u e n c e o f M E R / 2 9 a n d Goldring. John, 346
t h a l i d o m i d e o n , 108; limits e x p o r t s , G o o d r i c h , W . W . , 115
2 6 0 ; Park d e c i s i o n , 3 2 0 - 1 ; p e n a l t i e s Gordon, Benjamin, 87
for m i s l e a d i n g a d v e r t i s i n g , 2 3 1 - 2 ; Gorring, Pam, 173,204-5,222
prosecutorial discretion in, 306; g o v e r n m e n t p r i c e c o n t r o l s , 171
p r o v i d e s for p u b l i c i t y , 3 3 5 ; g o v e r n m e n t s u b s i d y s c h e m e s , 170
r e g u l a t i o n s , 3 1 5 ; use of, 3 2 9 G r a b o w s k i , H e n r y G., 168, 1 6 9 , 2 6 6 ,
F o o d a n d D r u g A d m i n i s t r a t i o n . U S , see 292
FDA •graphiting', 57, 59
Ford, Betty, 204 G r e e n , Mark J. . 3 1 6 - 1 7
Foreign Corrupt Practices Act (1977), Griffin, J o h n P . , 5 5
40,42,44,46 Griggs, D r B o y c e P . , 2 2 9
Fortune Magazin e, 44 Gross, E., 95, 1 3 8 . 3 5 5 , 3 6 8 , 3 7 3
F o x , Dr Sidney Martin, 12-13 Gruenberg, Gladys W., 16
F r a n c e , i m p r o v i n g s t a n d a r d s in, 156 G r i i n e n t h a l . C h e m i e : c l a i m s for
F r a n k e l , J u d g e M a r v i n , 182 thalidomide, 257; delay publication of
F r a s e r , S., 4 t e s t r e s u l t s , 107; effect o f t h a l i d o m i d e
F r e e d o m of Information Laws, 100,106. c a s e o n c o m p a n y , 7 4 , 107; p r o d u c e
302 t h a l i d o m i d e . 6 7 - 8 ; p r o s e c u t i o n of, 5 5 ,
Frieberg, Arie, 6 7 2 - 3 ; withdraw thalidomide, 71
F r i e d m a n , H o w a r d M . , 341 G r u n s p o o n and Stringer, 222
Friedman, Milton, 294 G u a t e m a l a : ' b a t h t u b ' m a n u f a c t u r e r s in,
Frye, Dr William W., 228 1 1 2 ; b r i b e r y in, 12; l o w m a n u f a c t u r i n g
Froman, June, 54 s t a n d a r d s in, 1 5 3 - 4 ; r e g u l a t i o n s in,
F T C , see F e d e r a l T r a d e C o m m i s s i o n 274
Fuller, John G., 3 3 , 6 1 - 2 , 116-17.223 G w a n d o , 206
Fuller, Lon, 3 0 6 , 3 1 2
Functional B e h a v i o r P r o b l e m s , 222 H a g u e , S u p r e m e C o u r t i n t h e , 174

432
Index
H a l p e r i n , J e r o m e A . . 241 hormone solutions, contaminated. I l l
H a m b e r g , D a n i e l . 198 H o u s e of Lords Special Orders
Hamill, Richard, 78 C o m m i t t e e , 173
H a m m o n d . H o m e r . 179 H o x s e y Cancer Clinic v. F o l s o m , 234
h a m s t e r s , laboratory, 77 Hughes, Richard, 2 0 7 , 2 0 9 , 2 2 1 , 2 2 5 ,
Hansen, Judge, 316 300.316
H a n s e n . R o n a l d W . , 168 H u g s t a d , P a u l S . , 232
H a r r i s , R i c h a r d , 164 Humphrey, Senator. 57,58
Hart. Senator, 2 2 8 . 2 3 0 H u n t i n g t o n R e s e a r c h C e n t r e . 102
Harvard Business Review, 49 Hutt. F D A G e n e r a l - C o u n s e l , 337
Harvard Law Review, 138, 3 3 0 Hutton.E. F.,355
Harvard Law School Health Service, 59
H a r v e y , Sir A r t h u r V e r e , 3 0 0 imprisonment. 305,321-2, 328-30
Hazleton Laboratories, 76,79 I M S c o m p a n y , 195
Health Action International, 254 I n d i a , d r u g c o u n t e r f e i t i n g i n , 112
Health Department, Australian, 238, I n d i a n D r u g s and P h a r m a c e u t i c a l s L t d ,
239,244,286,317-18,384 270
Health Education and Welfare, Inderal, 211
Department of ( U S ) , 300 'Indianisation' of pharmaceutical
H e a l t h and H u m a n S e r v i c e s , industry, 2 7 0 . 2 7 2
Department of (US), 199.381 Indocid25,284
Health Protection Board, Canadian, Indocin.215,216
137 Indomethacin, 52-3
Health Research Group (US), 333 I n d u s t r i a l B i o - T e s t . 8 0 - 2 . 107
H e a l t h and Social Security. D e p a r t m e n t influenza, Haemophilus. 210
o f ( U K ) , 173 i n j u n c t i o n s , use of, 126
H e b e r g e r , A . I . , 179 inspectors, government/internal, 99,
Heller. T o m . 3 4 . 2 6 6 , 2 8 6 137-H), 146-7
H e l l m a n n , Rainer, 369 Institutional Review Boards, 9 2 , 3 7 8 .
H e l s i n k i , D e c l a r a t i o n of, 8 7 392
H e m m i n k i , Elina, 2 2 4 , 2 2 6 . 300 insulin s a m p l i n g . 142
H e n r y F o r d H o s p i t a l , 116 Internal R e v e n u e Service ( U S ) . 18.376
Hentoff,N.,222 International Chamber of Commerce.
H e r b e r t . L . L . . 179 374
H e r l i h y , E d w a r d D . , 15. 1 6 . 3 7 , 3 5 8 intravenous solutions, unsafe, 114-18
heroin, 204-7
I r a n , c o r r u p t i o n in, 4 3
H e r s h e n s o n ( o f C o r d i s ) . 1 2 2 , 125 I r e l a n d , tax a d v a n t a g e s of, 2 8 5
H e y d e n C h e m i c a l C o r p o r a t i o n , 184. Italy, bribery in, 12,17
186
H i n e s , Professor, 127-9 J a c o b , Dr Stanley W . , 53
H o e c h s t : a p p o i n t m e n t of war-criminal Jaehne, Friedrich, 5
b y , 5 ; d e s c e n d e d from I . G . F a r b e n , 4 ; Janis, J., 3
t e t r a c y c l i n e p r i c e - f i x i n g a n d , 181: J a p a n : G M P s t a n d a r d s in, 1 1 3 : N a t i o n a l
t e t r a c y c l i n e i n Sri L a n k a , 2 7 1 Redress Law. 346
H o f f m a n - L a R o c h e : bribery in Kenya, Japan Times, 57
3 4 ; contact with doctors, 226; Dr J a y e s E x p o r t , 281
S a v e r y a n d , 5 4 ; illegal d r u g t r a d e , Jayes H o l d i n g International. 281
i n v o l v e m e n t with. 2 0 6 ; international Jewish Chronic Disease Hospital, 88
standards, 278; manufactures Tigan, Johnson. Anita. 56,263
58; Moroccan executives jailed, 260; J o h n s o n and J o h n s o n : c o n t r a c e p t i v e
price o f L i b r i u m and V a l i u m , 172-4; trials, 2 6 5 ; d i s c l o s u r e s t o S E C , 3 7 ; D r
p r o f i t s from h e r o i n a n d m o r p h i n e , 5 ; Scheiner and, 53-4; McNeil
v i t a m i n C m a n u f a c t u r e r , 162 Laboratories and, 56; marketing of
H o g a n , Brian, 325 oral c o n t r a c e p t i v e s , 2 4 8 - 9 ; s u e s drug
H o o t e n , I n s p e c t o r . 122 c o m p a n i e s , 281
H o p k i n s . A n d r e w , 111 Jordan, Mrs Beulah, 6 0 - 1 , 357
h o r m o n a l products, health risks with, Journal of the American Medical
134-5 Association, 218, 234

433
Index
Journal of the Medical Society of New Lang. Dr Konrad. 68-9
Jersey, 63 Lang. Ronald W . . 3 0 0
J o w c l l . Jeffrey. 312. 313 Lantin.P.T.,Sr.89
Joyce. C. R . B . . 2 4 2 Largactil. 252
Jung. Dr. 67 Lasagna. Louis. 267
L a s i x a m p u l e s m i x u p . 113
Kalos company. 253 law: c o d i f i c a t i o n of. 3 1 0 - 1 9 ; c r i m i n a l ,
K a n a / a w a District Court. 346 2 9 2 . 3 0 8 - 1 0 : e n f o r c e m e n t , 2 9 0 : fines.
Kanouse. D. E.,243 3 2 1 , 3 3 1 - 5 ; prison s e n t e n c e s . 3 0 5 .
Kansas State Penitentiary. 90 321 - 2 . 3 2 8 - 3 0 , 3 4 1 ; reform. 3 7 8 ;
K a p p a m o d e l o f p a c e m a k e r . 128. 129 s u n s e t l e g i s l a t i o n . 2 9 5 - 6 ; use of.
K a s t o r . H i l t o n . C h e s l e y . C l i f f o r d and 2 9 0 - 1 : see also p r o s e c u t i o n s
A t h e r t o n . 58 Law Reform C o m m i s s i o n Discussion
K a t z , M u r r a y S., 241 Paper. Australian. 347
K e f a u v e r , S e n a t o r . 108. 1 6 3 . 3 0 0 League ofNations Opium Advisory
Kefauver hearings, 161.224 Committee. 206
K e f a u v e r investigation into tetracycline L e a n . D a v i d F . . 165
p r i c e - f i x i n g . 1 7 6 , 181 Lederle Laboratories. 12. 179-82
Kelscy. Dr Frances. 7 1 . 298 L e d o g a r . R o b e r t J.. 2 0 8 . 2 5 7
K e n n e d y . Commissioner Donald. 85. L e e , P h i l i p R., o n : A b b o t t c a s e . 1 1 4 ;
293 D o r n w a l case. 5 6 ; drug recalls.
Kennedy. Senator Edward. 2 0 8 . 2 1 1 . 1 1 1 - 1 2 : 1 m l i V i n c a s e . 2 1 5 ; Latin
224.246 America. 2 5 6 ; production costs. 1 6 1 :
Kennedy, Tom, 16 profits in t h e p h a r m a c e u t i c a l i n d u s t r y .
K e n n e d y Subcommittee: allegations 1 6 0 , 165
a g a i n s t G . D . S e a r l e at. 7 5 - 8 0 ; Lenz, Professor, 71
allegations of F D A pro-industry bias. Lepetit. 181.250
300; cross-examination discussed. letters. Dear Doctor. 2 3 2 . 2 3 3 . 2 3 9
3 1 1 : effect on H a z l e t o n Laboratories. Letters, Notice ofViolation. 233
7 9 ; gifts t o d o c t o r s , o n , 2 1 1 : I n d u s t r i a l Levine ( F D A C o u n s e l ) . 1 2 1 . 122. 125.
Biotest and. 8 1 - 2 ; prisoners' 1 2 6 . 129
affidavits t o . 9 0 ; transcripts. 8 L e v i n e . T h e o d o r e A . . 15. 16.37.358
K e p o n e pollution disaster. 339 L e y . D r H e r b e r t . 5 1 . 115
kickbacks. 281 Ley. P.. 242
K i n g C o u n t y H o s p i t a l . 180 liability, c o r p o r a t e / i n d i v i d u a l , 2 9 1 .
King, 'Dr' William. 6 1 . 6 4 3 1 9 - 2 8 ; see also a c c o u n t a b i l i t y .
K i n g Faisal Specialist H o s p i t a l . 25 responsibility
K i n s l o w R e p o r t , 142 liability, p r o d u c t , 3 4 4 - 6
Kline. T e d , 358 A
Librium. 172 ». 2 0 0 - 1 . 2 0 6 . 2 1 4 - 1 5
K l o c r . B a l d w i n E . . 1 1 1 . 158 L i d o f f ( p a t e n t e x a m i n e r ) . 189
Knight. Frank A . . 197-8 Lilly. Eli: A v e n t y l . p r o m o t i o n of. 2 0 8 ;
K n i g h t l e y et al., 6 4 - 7 5 . 257 buy Distillers' pharmaceutical assets.
K o g a n . N. 3
7 4 ; c o m m i t t e e d e c i s i o n - m a k i n g in.
K o r e a , d r u g c o u n t e r f e i t i n g in, 112: 358; D a r v o n . manufacture. 2 0 9 - 1 0 ;
e x a m i n a t i o n o f p r o m o t i o n a l c l a i m s in. Guidelines of Company Policy, 195:
249-50 i m p r o v e m e n t s to labelling. 2 5 6 ;
Krajick. K e v i n , 90 Mexican manager gaoled. 38; model
K r e i g . M a r g a r e t . 112. 2 1 2 , 3 7 6 o f e x c e l l e n c e , 1 7 . 4 4 . 1 5 7 : m u s t a r d gas
Kreisberg. S i m e o n M.. 307 kit. 169; no c o r r u p t p a y m e n t
Kugel. Yerachmiel. 16 d i s c l o s u r e s . 16; o b j e c t i o n s t o F o o d .
kwashiorkor, 250.251 D r u g and C o s m e t i c A c t . 2 6 0 ; O p r e n .
manufacture. 5 6 ; prices o f D a r v o n .
labelling, patient. 2 4 2 - 3 . 254 170; qualified sales reps. 2 2 7 ; strategy
laetrile. 3 2 - 3 in M e x i c o , 4 2 ; study on product
Lall. S a n j a y a . 160, 1 9 1 , 2 7 0 . 2 7 1 r e c a l l s . 158
L a m b e r t . J o h n , 175 liver d a m a g e . d r u g < a u s e d . 5 4 . 5 6 , 2 5 0
L a m b . Fred. 298 liver p r e p a r a t i o n , m i s l a b e l l e d . 111
Lancet, The 7 1 . 107 L o c k h e e d scandal. 11.40

434
Index
L o f t u s . B u d . 112. 1 1 7 . 3 9 4 Melrose. Dianna. 251. 252
L o h r . S t e v e , 153 Merit Pharmaceutical C o m p a n y Inc..
L o n g , S e n a t o r . 181 228
Lord, Judge. 187-9 M E R / 2 9 : fraud i n t e s t i n g , 6 0 - 5 . 2 8 8 :
Los Angeles Times. 32.33 p r o m o t i o n of. 2 2 2 - 3 . 2 2 6 : results o f
Louisiana State University School ol c a s e . 108. 3 4 6 : s t o c k b r o k e r s a w a r e o f
M e d i c i n e . 228 dangers. 355
L S D . 207 M e r c k : A l d o m e t s t o l e n f r o m . 12;
L u n d b e r g . Dr Per O l a v . 66 A u s t r a l i a n s u b s i d i a r y of. 144;
L u n d m a n . R i c h a r d J.. 138 contraceptive testing. 266; Cuprimine
L y d e c k e r , Mia. 256 p r o d u c e r . 169: d i s c l o s u r e s t o S E C .
17-20. 3 4 . 3 7 ; doctors' relationships
Mboya. Tom. 257 w i t h . 5 2 - 3 ; I n d o c i n a d v e r t i s i n g and
M c A d a m s . John P.. 1 3 8 . 3 3 2 p r o m o t i o n . 2 1 5 , 216; labelling
M c A d a m s . Tony. 332 i m p r o v e m e n t s . 2 5 6 ; p r o d u c t recalls
M c B r i d e . Dr William. 70. 71 by. 12; t e s t s M E R / 2 9 . 6 2 : transfer
McCallum. Alexander. 75 p r i c e s . 2 8 4 ; v i t a m i n p r o d u c e r . 162
McCallum. Morag. 74-5 Merck. Sharpe & D o h m e A G . . 18
M c C o y . Alfred W.. 205 M e r r e l l . W i l l i a m S.. 6 0 - 5
M a c D o n a l d and C o . , 206 Merrill. Richard. 316
Mace. M y l e s L . , 363 M e r t o n . R o b e r t K., 3 6 8
M c G a r i t y . T h o m a s O . . 106 m e s o r i d a z i n e . 225
McGuire. Matthew F. 64 M e t h a d o n e . 250
M c K e e . D r J o h n . Jr. 2 2 9 Mexaforma, 253
M c K e s s o n and R o b b i n s . 1 7 6 . 2 7 9 - 8 1 .
M e x i c o : b r i b e r y in. 3 6 - 4 0 , 4 2 ; c r u s a d e
289
a g a i n s t c o r r u p t i o n in, 3 7 - 4 0 : re-
McMaster (Associate Director of o r g a n i s a t i o n o f r e g u l a t i o n in. 3 8 2 :
Clinical R e s e a r c h at W i l l i a m S. t y p h o i d e p i d e m i c in. 2 4 9
Merrell). 62-5 m i g r a i n e . 251
McNeil Laboratories. 56 Migril,251
McTaggart, Lynne, 53 Miller. Arjay, 50
Madaras. G. R . . 4 M i l i t a r y M e d i c a l S u p p l y A g e n c y . 178
M a e s d a v . W a l t e r S.. 160 MIMS (Monthly Index of Medical
Maher.L. W..346 Specialities). 250.251.254.256
M a j o n e . G i a n d o m e n i c o . 310 m i n i s t e r s o f h e a l t h , bribery of. 3 4 - 5
malnutrition. 250 M i n t z . M o r t o n : d o c t o r s ' conflict o f
Mancil, 262 i n t e r e s t , o n , 2 2 8 - 3 0 ; drug p r i c i n g , o n .
Mann. Kenneth. 319.330 1 6 2 ; F D A r e f u s e t r a n s c r i p t s t o . 115:
M a n s f i e l d . E . . 169 Olin case, on the. 22; penicillin, o n .
m a r a s m u s . 251 164; p r o m o t i o n s , on. 2 1 3 . 2 2 0 :
marijuana. 207 t e t r a c y c l i n e c a s e , o n t h e . 182: w o r k
M a r i o n L a b o r a t o r i e s , 160 of. 5 7 - 6 0
Maronde. R. F..213 Mitchell C o m m i t t e e . 3 2 4 . 3 2 8
Marston. M. V..241 Modern Medicine. 22\
Maryland State Medical Journal 58 M o d y . A m r u t V . . 152
Massengill & C o . . 113-14 Molander. E. A.. 49.351
m a t r i x m a n a g e m e n t . 102, 3 5 8 M o n a h a n . John. 354
M a y o Clinic, Minnesota. 64 m o n k e y s , laboratory. 6 0 - 2 , 3 7 1
M e a d J o h n s o n , 169. 196 M o n o p o l i e s C o m m i s s i o n . B r i t i s h , 169.
Measurin. 59 173. 1 7 4 , 2 0 0 - 1
measles. 246 Monopoly. Subcommittee on, 248-9.
Medawar. Charles. 251. 2 6 0 . 2 7 3 . 3 4 8 252
Medicaid. 282-4 M o r e y . Richard S, 335
M e d i n a . J u d g e . 183 morphine. 111,206
M e d t r o n i c . 3 0 . 119. 124 Morris. L. A.. 243
M e e r . Fitz ter. 5 M o r r i s . L o u i s . 241
Mellaril. 225 Morris. N o r v a l . 307
M e l m o n . P r o f e s s o r K e n n e t h L . . 165 M o r s e . Dr. 124-5

435
Index
M o r i o n - N o r w i c h , 143 N y l e n . Stig. 155
Mother Jones. 5 4.2 5 8 - 9
M u h l e m a n . J. T . , 3 O c c u p a t i o n a l Safety and H e a l t h
Muller. Mike, 251. 260, 2 6 5 . 2 7 1 , 2 7 4 Administration. 134.380-2
Muller. R. E . . 375 O E C D , 374
M u n r o , C o l i n . 66. 344 oestrogen replacement therapy, 244
muscle relaxants. 216 O g l e s b a y . I n s p e c t o r . 122
M u s i c a . Phillip. 280 Ohio D e p a r t m e n t of Public Welfare.
Musto. David F.,207 283
Myers. E. D..243 O h i o State Penitentiary. 89
Myers, MavenJ.,230 Olin M a t h i e s o n Chemical Corporation.
M y e r s o n . Bess, 348 21-2
O M a l l e y . P a t , 159
Nader. Laura. 329 Ondasil (thalidomide). 67
N a d e r . R a l p h : e m p l o y e e rights, o n . 3 4 3 . ophthalmic ointments, contaminated.
3 5 3 : federal chartering p r o p o s a l s , Ill
3 8 2 : f i n e s , o n . 3 3 2 . 3 3 3 : profits, o n . Opinion Research Corporation, 49
160; p r o m o t i o n s , o n . 2 2 5 : public- opium. 205. 206
interest director suggestion. 365: O p i u m Advisory C o m m i t t e e . 206
V a l i u m s a l e s , o n . 172 O p p e n h e i m c r and C o . . 2 8 5
Nader's Health Research Group. 76 Opton.N.,2
Nagel. Trevor. 333 O r e g o n State P e n i t e n t i a r y , 9 0
Najman. Jackob M 233 Organisation of American States. 374
Naprosyn. 81 O r g a n o n . 250
nasal s p r a y s , c o n t a m i n a n t s in, 359 O r t h o - N o v u m b i r t h - c o n t r o l pills.
N a t i o n a l C a n c e r I n s t i t u t e ( U S ) . 105 281
National Health Service ( U K ) , 173,238. O S H A . see O c c u p a t i o n a l Safety and
377 Health Administration
N a t i o n a l H i g h w a y Traffic S a f e t y o s t e o p o r o s i s . 250
Administration. 354 O x a i n e - M . 113
N a t i o n a l I n s t i t u t e for O c c u p a t i o n a l o x y t e t r a e y e l i n e . 175
Safety and Health. 354
N e g r a m . 174 p a c e m a k e r s , heart. 2 7 , 3 0 , 119-29
N e l s o n . S e n a t o r G a y lord. 1 0 4 . 2 0 7 . 2 1 9 Packer, Herbert L. 341
N e l s o n S u b c o m m i t t e e . 210 Pan A m e r i c a n Health Organisation.
Nestor. D r J o h n . 58 275,297
N e t h e r l a n d s A n t i l l e s tax h a v e n . 2 8 4 Panalba. 3 1 6 . 3 8 9
Neurosedvn (thalidomide). 66 P a n m y c i n , 177
N e u s t a d t . R i c h a r d M.. 2 0 2 . 2 9 6 . 3 8 1 Pappworth.M. H..89
N e w Drug Regulation. Review Panel Park c a s e . 3 0 8 , 3 2 0 - 2 . 3 5 2
o n . 301 Park. J o h n , 3 2 0 - 1
New England Journal of Medicine, 115 P a r k e - D a v i s : back W e l c h ' s j o u r n a l , 2 2 0 ;
N e w J e r s e y , c a n c e r m o r t a l i t y in, 135 Chloromycetin promotion. 210,219,
New York Times, 221 222, 239, 247-8; chloramphenicol
N e w Y o r k U n i v e r s i t y L a w S c h o o l , 301 sales. 210, 255; cocaine, promoting.
N e w Z e a l a n d p r o d u c t liability c a s e s . 3 4 6 207; contraceptive marketing. 249;
Newsweek. 294 d i s c l o s u r e s t o S E C . 2 0 ; m e r g e r . 196
Nippon Chemiphar. 56-7 P a t e l . B . V . . 140. 148
nitroglycerin tablets. I l l P a t e n t O f f i c e , 186
N o e l . P e t e r , 102 patents, 163-6, 175-6. 183-6. 197-8
Norgesic. 59 patient labelling. 2 4 2 - 3 . 2 5 4
Norpace, 77 Paton. J..69
Norvedan. 56 P a u l s . I \ n i n - M . I l l , 158
N o r w i c h , profits of. 1 5 9 - 6 0 Paulson, P., 243
Novaco. Ray, 354 P D R . see P h y s i c i a n ' s D e s k R e f e r e n c e
N o w a k , N a n c y , 338 P c a r c e , F r a n k , 159
Noxidyn (thalidomide), 66 P e a r s o n C o m m i s s i o n , 345
Nulsen. D r R a y O . , 7 2 Pckkanen,John, 207.214.215,228

436
Index
p e n i c i l l a m i n e . 169 Primobolan D e p o t . 250
p e n i c i l l i n : a l l e r g y t o . 2 3 0 ; m a r k e t for. prisoners, experiments on. 89-90
1 7 5 ; p r o d u c t i o n d u r i n g W o r l d W a r II. p r o c a i n e b e n z y l p e n i c i l l i n . f a k e . 112
1 6 4 . 197; w a t e r s u b s t i t u t e d for. 1 1 2 ; product liability, 3 4 4 - 6
w i t h h e l d in syphilis research, 89 p r o s e c u t i o n s , c r i m i n a l : F D A u s e of,
Pepinsky. Harold E., 327 317; F o o d , D r u g and C o s m e t i c A c t ,
peripheral neuritis, 6 8 - 9 , 392 u n d e r . 1 3 0 , 2 3 1 - 2 ; M e x i c o , in, 1 4 3 ;
Perlmutter. Howard V.. 372-3 M o r t o n - N o r w i c h , of. 1 4 3 ; use of, 126,
P e s o n e n . Terttu, 224. 226. 300 130. 2 9 2 . 3 0 5 , 3 0 7 ; v i o l a t i o n s o f G M P
P e t e r s e n . D a n . 355 r e g u l a t i o n s , for, 136
Pfizer: b a c k s W e l c h ' s j o u r n a l s . 2 2 0 ; p s y c h o s t i m u l a n t d r u g s . 162
B o l i v i a n subsidiary. 2 6 1 ; British M P psychotropic drugs. 5 3 , 2 4 6
d i r e c t o r of, 3 0 0 ; d i s c l o s u r e s t o S E C , P u e r t o R i c o , tax h a v e n . 285
21; Mancil.262;Sudoxican Purcell, T h e o d o r e V . , 367
m a n u f a c t u r e r . 5 4 ; t e t r a c y c l i n e airlift.
2 7 1 ; the tetracycline price-fixing Quality Assurance Unit ( Q A U ) ,
story. 1 7 5 - 9 0 . 1 9 8 ; tranquilliser 99-100,361
advertising, 215; videotape q u a l i t y c o n t r o l as a p r o f e s s i o n , 150—1
p r o m o t i o n . 209; vitamin producer. quality control managers, 2 , 1 3 9 , 143-9,
162 327-8
P f u n d e r . M a l c o l m R . , 196 q u a l i t y c o n t r o l staff, 149; see also
Pharmaceutical Benefits Scheme.'286, c o m p l i a n c e staff
300 Q u e e n ' s University of Belfast. 217
Pharmaceutical Manufacturers q u i n i n e d i h y d r o c h l o r i d e m i x u p , 113
Association(s): Australian. 233,235: Q u i n n e y . R i c h a r d . 150
British, 233. 299; International
F e d e r a t i o n of, 2 5 4 , 2 5 7 ; i n t e r v i e w e d , R a n g n e k a r . M . K., 112
9, 3 8 5 ; links with A M A , 2 1 9 ; lobby in rats, l a b o r a t o r y . 6 2 , 7 5 , 7 7
U S A , 174; s u b c o m m i t t e e structures, r e c a l l i n g d r u g s , 1 4 6 - 9 , 1 5 3 , 158
195 R e e k i e , W . D u n c a n . 169
p h e n o t h i z i n e , 225 Regimen tablets. 57-8
phenylpropanolamine hydrochloride, regulatorv agencies. 2 9 8 - 3 0 5 . 3 7 7 - 8 .
57 380
P h i l a d e l p h i a C o l l e g e of P h a r m a c y and Reisman, W. Michael. 1 1 , 3 7 . 4 0 . 4 3 , 4 9
Science, 230 Research Industries Inc., 53
Phillip Bauer C o . , 22 r c s e r p i n e . I l l , 166
Physician's Desk Reference. 247,248 r e s p o n s i b i l i t y in c o m p a n i e s for law
P h y s i c i a n s ' R a d i o N e t w o r k . 221 v i o l a t i o n s . 1 3 8 - 9 . 3 0 8 . 3 2 2 . 3 2 8 ; see
Pines. W a y n e L.. 335 also a c c o u n t a b i l i t y , liability
placebo(s).87.91,392 restitution to victims. 291
Placidyl. 2 1 2 . 2 1 7 R e v c o M e d i c a i d fraud. 2 8 2 - 4
plague, infecting prisoners with, 89 Rheinstein, Peter H, 2 3 2 , 2 3 5
P l o u g h m e r g e r w i t h S c h e r i n g . 196 Rice. Thomas M., 61
P M A , see P h a r m a c e u t i c a l R i c h a r d s o n - M e r r e l l : cost of M E R / 2 9
Manufacturers Association case. 346; disclosures to S E C , 32;
Polanyi. Michael. 312 d i s t r i b u t o r o f t h a l i d o m i d e for t e s t i n g .
polio. 247 7 2 ; effect o f t h a l i d o m i d e c a s e o n . 7 4 .
P o l y c y c l i n e , 177 1 0 7 , 1 0 8 ; merger with D o w . 1%;
Portillo, President (of M e x i c o ) , 3 8 - 9 . M E R / 2 9 and William S. Merrell.
155 6 0 - 5 . 1 0 1 . 355; promoting M E R / 2 9 .
Posner. Richard A.. 193.195, 196.314 2 2 2 . 2 2 6 ; settlement with thalidomide
P o w e r s ( o f P f i z e r ) , 185 victims. 73-4
p r e d n i s o n e . I l l , 164 R I C O statute. 310
PreeM.T.,233 Riker (pharmaceutical company). 94
Prensa, La, 32 Ritalin. 222
Price. D a v i d E . C . , 300 Roberts, Dr Kathleen E., 57
Price W a t e r h o u s e , 280 Robin. Dr Bennett A., 58
price-fixing, 5, 175-83 Robins, A. H.,32,160,258

437
Index
R o c h e , see H o f f m a n - L a R o c h e 285; Puerto Rico contraceptives
R o h r e r p r o f i t s , 160 trials. 2 6 5
R o n - A m e r Pharmaceutical C o . , 33 S e c u r i t i e s and E x c h a n g e C o m m i s s i o n
Rorer-Amchen, 28 (SEC): consent decrees, 1 5 . 2 5 , 4 0 - 1 ;
R o s e n t h a l , A l e k A . . 169 disclosures to, 1 3 - 1 4 , 1 7 - 2 4 , 3 0 - 2 . 3 4 ,
R o s e n t h a l , Sherri, 16 37; Merck's disclosures to. 17-20;
Rotstein. Dr Jerome. 54 voluntary disclosure p r o g r a m m e .
R o u s s e l . 162 14-17
Rumsfeld, Donald, 78.352 Sedin ( t h a l i d o m i d e ) . 67
s e p t i c a e m i a from i n t r a v e n o u s s o l u t i o n s .
s a b o t a g e , i n d u s t r i a l . 152 114. 115
Sackett, D. L.,241 Seralis ( t h a l i d o m i d e ) . 67
S a f e t y o f D r u g s , British C o m m i t t e e o n , Scrax.217
110 Serentil. 225
Sainsbury C o m m i t t e e , 217 S e r p a s i l . 166
S t A n t h o n y ' s H o s p i t a l , D e n v e r , 116 s e r v i c e d r u g s . 169
sales representatives (pharmaceutical). Sessor. Stanford N. 2 1 6
2 1 3 , 2 2 2 - 7 . 2 5 0; see also d e t a i l m e n Shapiro. Sidney A.. 106.208
S a m m o n s . Dr James H.. 219 S h a p o . M a r s h a l l S.. 8 8 . 9 3 . 106. 2 2 6 .
Sampei. Dr Harcio. 56 241-2
s a m p l e s , free, 212 Shaw. M., 3
Sandoz.53.225.249 S h e r m a n A c t , 1 8 2 , 186
Sanfer c o m p a n y . 253 S h o r t . J a m e s F . . 138
S a r a b h a i C h e m i c a l s . 271 Shulman.J.S..369
Sarett. L e w e i s H . , 2 7 0 s i d e - e f f e c t s , harmful: a t t i t u d e s t o , 6 - 7 ;
Sargatz. John W . . 7 7 failure t o d i s c l o s e , 2 2 3
Savery. Dr Francois. 54 s i d e - e f f e c t s of: A l d a c t o n e . 7 5 - 6 ;
S a x o n . M i r i a m S.. 3 4 6 - 7 , 381 anabolic steroids. 250;
scapegoats, 44,324 chloramphenicol, 210,241-8;
Scheiner, Dr James. 53-4 contraceptives. 241-2. 249,258;
S c h e r i n g - P l o u g h : buy estradiol D o r n w a l . 56; Flexin, 56;
p r o g y n o n . 162; British M P director, Indomethacin, 52-3; M E R / 2 9 , 6 0 - 5 ;
3 0 0 ; c o n t r a c t w i t h s c i e n t i s t s , 107; thalidomide, 65-75
disclosures to S E C . 2 4 ; drug Silanes, Juan Lopez, 37
marketing in Africa. 250; investment Silva. R a f a e l N. 181
a n d profits i n P u e r t o R i c o . 2 8 5 ; Silverman, Milton, on: A b b o t t case,
m e r g e r . 1 % ; profits of, 1 5 9 - 6 0 , 114; d o c t o r s ' p e r k s , 2 1 1 ; D o r n w a l
285 c a s e . 5 6 ; drug r e c a l l s . 1 1 1 . 112; 7Vi«r
schistosomiasis. 262 Drugging of the Americas. 247-50,
s c h i z o p h r e n i a , 225 2 5 3 - 6 , 3 7 2 ; I n d o c i n c a s e . 2 1 5 ; Latin
Schmaltz. D r G u s t a v , 6 8 A m e r i c a , 2 5 2 , 2 5 6 ; production costs,
Schmidt (head of F D A ) . 75. 76. 103-4, 1 6 1 ; profits in p h a r m a c e u t i c a l
300 i n d u s t r y . 160. 165
S c h m i d t . W h i t n e y L., 3 1 0 Simon. Charles E., 16
S c h r a g e r , L a u r a H i l l , 138 Sine-off, 3 5 9
S c h u b e r t , P r o f e s s o r J a c k , 231 Sjostrom and Nilsson, 6 6 , 6 9
S c h w a r t z ( o f B r i s t o l ) , 185 S l a t t e r . Stuart S t P . , 160. 162. 165. 190
S c h w a r t z m a n , D a v i d . 160, 1 6 2 . 2 9 2 Slip ( t h a l i d o m i d e ) . 6 7
S c i e n t i f i c R e s e a r c h . US Office of. 164 S l o a n e . Sir H a n s , 9 0
Scott. Joseph E., 6 smallpox vaccination, 90
SCRIP (newssheet). 43 Smith. D u d l e y . 300
Searle. G. D: Aldactone. 75-6; Smith. J. C. 325
appointment of Rumsfeld. 352; S m i t h K l i n e & F r e n c h . 160
Aspartame. 76-7; contraceptives Smith, Dr R o n a l d C , 53
marketing. 248; disclosures to SEC. SmithKline. 2 2 0 . 2 2 5 . 2 2 8 . 2 8 5 . 300.359
3 2 ; F D A investigation. 99; Flagyl, 76; S M O N , 253
K e n n e d y hearing and, 7 5 - 8 0 , 1 0 7 ,
Snyder. R a y m o n d E . , 19
1 0 8 ; N o r p a c e . 7 7 ; profits of. 1 5 9 - 6 0 ,
S o l o m o n . Lewis D . , 338

438
Index
S o m e r s , D r . 106 Taussig, Helen B., 66
SOPs (Standard Operating tax e v a s i o n . 2 8 4 - 8
Procedures). 118-19.291.325-6.331. Teff. H a r v e y . 66. 3 4 4
348-50 tetanus. 247
Southam, Dr Chester, 88,91 t e t r a c y c l i n e : airlifted, 2 7 1 :
Spellman, M. S..242 c h l o r a m p h e n i c o l s u b s t i t u t e d for, 2 5 3 ;
S q u i b b : B r i t i s h M P d i r e c t o r of, 3 0 0 ; t h e price-fixing s t o r y . 1 7 5 - 9 0 , 192,
d e v e l o p m e n t o f m e - t o o d r u g s , 165; 198.317.342
disclosures to SEC, 2 1 - 2 , 3 7 ; T e t r a c y n , 177
endorsement, obtaining, 227; thalidomide: brand n a m e s problem,
marketing chloramphenicol, 255; 6 5 - 6 . 199; disaster, 6 5 - 7 5 . 1 0 1 , 2 9 4 ;
profits i n P u e r t o R i c o . 2 8 5 ; t h e Dr Somers's e x p e r i m e n t s , 106-7;
tetracycline price-fixing story, 176-90 F D A ' s attitude to, 7 1 , 2 9 3 . 2 9 8 ;
Sri L a n k a . 2 7 1 - 2 prosecution of Grunenthal
S t a t e P h a r m a c e u t i c a l C o r p o r a t i o n (Sri e x e c u t i v e s . 5 5 ; results o f d i s a s t e r . 108.
L a n k a ) . 271 231.344.371
state-owned pharmaceutical companies, thiomidazine,225
367-9 T h o m a s . Dr Joseph A . , 229
S t a u f f e r , T h o m a s R.. 160 T h o r a z i n e . 164
S t e c l i n , 177. 179 3M Corporation. 94
Stelazine, 225 thyroid disease, 252
Stendin, 59 T i e d e m a n n , Klaus. 284
S t e r l i n g , 3 2 . 3 7 . 1 5 9 - 6 0 . 174 Tigan, 58
S t e r n e r . D r . 122 Time m a g a z i n e , 89
steroids, 216, 2 5 0 , 2 5 2 Tocus. Dr Edward. 209
Stetler, J o s e p h , 299 Todd. Harry F . , 3 2 9
Stolley, P. D . . 2 1 3 T o w e r , Buck, 332
S t o n e . C h r i s t o p h e r D . . on: awards. t r a d e n a m e s for d r u g s . 6 5 , 6 6
304-5; communication blockage. tranquillisers: D o r n w a l , 56; Largactil.
1 0 0 - 1 . 3 5 5 - 6 ; diffused responsibility, 2 5 2 ; Librium, 1 7 2 - 1 ; Mellaril, 249;
1 3 8 . 3 6 1 ; public-interest directors, p a r e n t s ' u s e of, 2 0 7 ; U S m a r k e t
365 b r e a k d o w n , 162; Valium. 172-4
Stone, Julius, 317 transfer pricing, 2 8 4 - 8 , 2 8 9
S t o n e r , J a m e s A. F., 3 transnational corporations: abuses in
Stormont, Dr Robert T.. 64 Third W o r l d . 2 4 5 ; G M P compliance
S t r a i n , Dr T . E . . 2 2 9 s y s t e m s . 157; o p p o r t u n i t i e s for l a w -
streptomycin. 248 evasion. 372; UN Centre on. 160-1.
Strong, Colonel, 89 167, 1 9 9 , 2 7 0 , 2 7 5 ; U N C o d e o f
Sudoxican, 54 C o n d u c t for, 3 7 4 - 5 ; U N C o m m i s s i o n
sulfa d r u g s , c o n t a m i n a t e d , 111 on. 4 7 . 4 8 , 5 0
s u l f a n i l a m i d e , elixir, 110, 1 1 3 - 1 4 Treda. 253
S u l i i i n t a b l e t s , 281 trial by j u r y , 3 4 0
Sunday Times. 56 trials, c l i n i c a l , 2 6 5 - 8
sunset legislation. 2 9 5 - 6 t r i m e t h o b e n z a m i d e , 58
S u p r e m e C o u r t i n the H a g u e , 174 t r i p a r a n o l , 60
S u p r e m e Court o f t h e U n i t e d States. 318 Trythall, I. R . , 2 6 1
Sutherland, Edwin H., 6,7 Turner. C. W . , 4
Sutton. A d a m . 314 T u r n e r , D o n a l d F.. 194
S u v e g e s , L.. 243 T u r n e r . J a m e s S.. 1 4 2 . 2 2 0 , 2 3 1
Swedish Medical Journal, 66 typhoid fever, 89, 2 1 0 , 2 4 8
Syntex: c o n t r a c e p t i v e trials. 2 6 5 - 6 ;
disclosures to S E C , 2 9 - 3 0 ; labelling
Udo-Aka.U.,264
improvements, 256; Naprosyn
u l c e r s , t h e r a p y for, 2 2 8
t e s t i n g , 8 1 - 2 ; profits, 160
U N C T A D , 275
U N D P . 275
T a g a m e t , 228 U n g a r . S a n f o r d J.. 6 2 . 6 4
Talbot. Dr (of F D A ) . 63 U N I C E F . 275
T a n z a n i a , p r o m o t i o n o f d r u g s in, 2 5 0 UNIDO.275

439
Index
U n i t e d Nations Centre on 285; marketing contraceptives, 248;
Transnational Corporations, 160-1. m e r g e r w i t h P a r k e D a v i s . 196. 2 1 0 .
167, 1 9 9 , 2 7 0 , 2 7 5 president Elmer Bobst. 206
U n i t e d N a t i o n s C o d e o f C o n d u c t for Washington Post. 3 2 . 115
Transnational Corporations, 374-5 Washington Wholesale Drug Exchange.
United Nations Commission on 281
Transnational Corporations. 47,48. W e a v e r . Paul H . 3 8 0 . 381
50 W e b e r . M i c h a e l H . . 169
University Clinic, B o n n . 69 W e g m a r , Dr. 248
U n i v e r s i t y of California. 385 Weibert. R.,243
University of Oregon Medical School. Weiner, Judge. 189-90
53 W e l c h , Henry, 220
U n i v e r s i t y of Pittsburgh, 231 Welt am Sonntag. 71
University of Q u e e n s l a n d , 386 W e r n e r (Vice-President of William S.
U n i v e r s i t y of S o u t h e r n California Merrell). 64
Medical Center, 213 Wessling, A . . 2 4 3
University of Virginia Medical Hospital. W e s t m e a d H o s p i t a l . 153
116 Whistle Blowers' Protection Act, 343
U p j o h n : backs Welch's journals, 220; W h i t t e n . Ira T a y l o r , 165
D e p o - P r o v e r a and. 258; disclosures W H O . see W o r l d H e a l t h O r g a n i s a t i o n
to S E C , 2 1 ; e m p l o y e d Dr Smith. 53; w h o o p i n g cough. 247
marketing dangerous drug, 2 - 3 , 3 1 6 ; Wiggins, Steven Neil, 292
profits, 160; tests M E R / 2 9 , 6 2 ; the W i l c o x . K. R.. 103
tetracycline price-fixing story, Wild. Ron. 314
176-90 W i l l i a m s . G l a n v i l l e . 371
W i l s o n . F r a n k P . . 181
V a i t s o s , Constantine V., 285 W i l s o n . Larry C. 371
V a l i u m : a d d i c t i o n t o . 2 0 4 , 2 0 6 ; brand W i l s o n ' s d i s e a s e . 169
n a m e of. 1 9 9 ; B r i t i s h M o n o p o l i e s Winkler, R o b i n C . 230.240
C o m m i s s i o n intervention on, 173-4, Winstrol. 250
2 0 0 , 2 0 1 ; p r i c e of, 1 7 2 - 4 ; p r o m o t i o n W i n t h r o p , 1 7 4 . 2 5 0 , 300
of, 2 0 9 , 2 1 4 Wolf. H e r b e r t G.. 2 2
Van Dusen Wishard. W.. 362 W o l f e . D r S i d n e y M . , 87, 1 1 9 , 3 0 2
van M a a n e n . Dr Evert. 6 1 . 6 4 W o l f r a m . C h a r l e s W . . 187, 188. 189
V a u g h a n . D i a n e . 282. 283 W o r l d H e a l t h O r g a n i s a t i o n : C e n t e r for
Verdil (thalidomide). 67 Monitoring Adverse Reactions to
Vernon. John M.. 168.266 D r u g s , 3 7 1 ; Certification S c h e m e ,
Vinokur. A., 3 156; d e v e l o p i n g s i m p l e drug t e s t s ,
Vistaril.215 2 7 5 ; l e a d e r s h i p r o l e , 3 7 0 ; list o f
von Hirsch, A n d r e w , 306 essential drugs, 272; survey on
Voss, Dr Ralph, 68 legislation, 2 2 3 ; Third World access to
drugs, on. 270
W a d e and E l m e s survey, 217 W r i g h t . J. P a t r i c k . 3 7 9
W a l d r o n , Ingrid. 215 W y a t t . J u d g e . 187
Walker. Hugh D.. 197.213.214 Wyeth ( A H P subsidiary). 113. 169.249
W a l k e r ( B r i s t o l c o u n s e l ) . 185
Wall Street Journal, 56 Yakowitz.M. L..275
W a l l a c e L a b o r a t o r i e s , 231 Yale Law Journal. 138,323,338
Wallace andTiernan. 56 Y o d e r , Stephen A., 336
Wallach.M. A.. 3 Y o d o z o n o , 253
W a r P r o d u c t i o n B o a r d . 164 Yudkin, JohnS.. 34.250
Wardell. William M.. 2 6 7 . 2 9 2
W a r n e r - L a m b e r t : charged with Zanartu. J..266
h o m i c i d e . 133; disclosures to S E C . Z a n d e r . P r o f e s s o r a n d M r s . 248
2 0 , 3 7 ; investment in Puerto Rico.

440

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