Mr. FORT. Well, because of drug bootlegging and other practices. For example, if the proper label was not on the medication, it may be old. If it is the type of drug that has a limited shelf life, in addition to that--you can't buy that type of pharmaceutical and guarantee your customer that he is going to get what he is paying for, or that he is getting what his doctor prescribed, both because of the bootlegging operation, and also because of the other factors which involve the potency of the drug, et cetera, especially the time element. So we wouldn't think of that, even though we would like to compete with competitors who, as a general rule, can buy better with us on a volume basis. We wouldn't be able to professionally provide it to our customers with any guarantee.

Even in the relative position of my company in the small business community, we would not survive without the availability of full service wholsale drug companies. In my opinion, many drug manufacturers would welcome specific legislation to relieve them of the pressure by hospitals and clinics to provide discriminatory prices. The fact that those institutions are tax free is no justification for them to get a better price.

Of course, we are all interested in charity, but it is a little hard to get it at home under these conditions.

The distribution of generic name drugs-established names. The present practice of the distribution of generic name drugs places the small drugstore operator at great disadvantage, especially if the physi cian chooses to prescribe by generic name only. Generally, there are three types of prescriptions: (1) generic name only; (2) generic name with manufacturer specified; and (3) trademarked pharmaceutical. Since No. 2 and No. 3 are specific, the pharmacist is not faced with the great responsibility of selecting the manufacturer, as he must do when dispensing a generic name only prescription.

As a final link in the distribution of a generic name drug which is not guaranteed by Government inspection, the community pharmacist must assume the legal and professional responsibility of choosing a manufacturer whose integrity may be suspect. Usually, you not have the time or means, of the thorough analysis, and certainly he will not have the laboratory facilities for chemical analysis.

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Not only does the procedure rob the physician of his right to specify exact medication, but it is a hazard no small professional businessman should be forced to assume. This practice now exists and indications are that it will expand. That a gamble exists is indicated by the statement of Dr. James L. Goddard published in March 1967:

I think it is going to require very careful study before anyone could assume that there is such a thing as generic equivalency on a broad scale in our drug field today. There will have to be better methods of determination of equivalency than we now have, and more attention paid to the entire problem. It is not a simple issue. We well appreciate this.

This is very significant in retail drug distribution facing the independent drugstore operator or even a small operation of our size, because it is a chemical jungle in which you cannot buy to compete with the big manufacturer and the big distributors who can guarantee the quality by chemical analysis or by purchase specifications. So we are not able to compete for that reason.

Dr. Goddard's description of the steps taken by the U.S. Department of Defense on the question of generic equivalency reflects the inadequacy of any one-pharmacist drugstore, or even larger operations, to meet the generic name responsibility in drug distribution:

Their methods of assuring quality drugs purchased by the Department of Defense are most impressive. They carry out factory inspections. They sample the products that are involved, and in general, I think that they have a system that has a lot of merit in terms of making certain that the Department of Defense, the members of the Armed Forces, and the dependents who are served by the system do get drug quality regardless of the source of the drug. It is a very impressive program.

Until the U.S. Government by continuous or batch-by-batch inspection can guarantee the quality of nontrademarked drugs, physicians and small drugstore pharmacists must be protected against compulsory generic name prescribing and dispensing. He cannot guarantee that his customer is getting what he is paying for. It is a dangerous practice.

Mr. POTVIN. You feel that if certain FDA practices were altered, the smaller retailer could then compete?

Mr. FORT. It would improve the situation. However, I am not a chemist or pharmacist. But it is my life's work and I am interested in it. In my investigation, it has been indicated that if a chemist I followed every step of production of the complicated pharmaceutical it would be difficult for him to actually guarantee the contents of that pharmaceutical.

As an example now, as you may know, the Food and Drug Administration by necessity must permit a certain amount of penicillin dust in every drug made by a manufacturer who produces penicillin. That indicates how complex and how difficult it is to produce the chemical that is indicated on the label.

Does that answer your question?

Mr. POTVIN. Yes.

Mr. FORT. Price fixing, fair trade-retail price maintenance, et cetera. A distribution practice, compelled by approximately one-half the States, empowers manufacturers to fix prices, usually at every step in the distributive system. These laws deprive the small businessman of one of his very best weapons-the right to lower the price on presold merchandise and especially to compete with powerful private brands.

For the purpose of reducing consumer prices nationwide and to aid small businessmen in drug distribution, Congress should consider legislation under the interstate commerce clause to make price fixing by manufacturers illegal. This works to the disadvantage of the small business.

I know the record of Congressman Dingell on that subject. Our experience from the very smallest to the biggest competitors has proven what is experienced by about half of the small businesses almost in the Nation. A situation in which the big distributors, the big retailers, are, in effect, beating the small man's brains out with what they call equivalency at a price the small man can never meet.

If he is in this position, he has nothing with which to compete. If he wants to give it away at cost, he should have prices to compete with these big distributors.

Now, the Borden case. In 1965, the U.S. court of appeals at New Orleans held that it was not a violation of the price discrimination provision of section 2(a) of the Robinson-Patman Act for the Borden Co. to sell private brand evaporated milk to wholesalers or retailers at prices lower than it charged for the Borden brand, even though they were chemically identical.

When applied to drug distribution, which is made up of so many small wholesalers and retailers, the decision establishing the commercially different theory to justify price discrimination benefits the big business competitor. Only large volume distributors can buy in large enough quantity and absorb the cost of packaging, labeling, and advertising while the small distributor can obtain only the brand name at a higher price. In many instances, the public appeal at retail of the brand name will tend to compensate for the price differential, if the price difference is not too great. However, in the hands of a large national retailer with a heavy advertising budget to create intense public demand, a private brand may be converted into a brand name at a lower price for comparable quality and grade.

As an example of this situation, at this time Walgreen and Rexalland I am not criticizing their right to do it; I am only pointing out the problem involved here-can sell drugs and pharmaceuticals at a drastic price. For example, a sale going on now in our part of the country, you buy 100 and get 100 for a penny.

The independent man-it is impossible for him to meet that type of competition because of the fact that these pharmaceuticals or these vitamins can be supplied in quantity at a much lower cost. If these were available to the independent man, so if he bought something under his own private brand, he knew that he was giving his customers chemically what the label says is in the bottle, he could compete. Mr. POTVIN. Mr. Chairman.

Mr. Fort, the Supreme Court reversed the circuit court on this point and held that the private brand question is not within the purview of 2(a) of the Robinson-Patman Act.

Mr. FORT. I had hoped I would learn something today, and I have learned something already.

Mr. POTVIN. Do you know the extent to which major trade name manufacturers are today making the same pharmaceuticals under private brands?

Mr. FORT. Well, not specifically. Rexall is a good example.
Mr. POTVIN. They own Riker?

Mr. FORT. That is not available to competing pharmacists, but to Rexall members. I don't have any details or statistics.

Mr. POTVIN. Riker also sells to full-line wholesalers from whom you may buy with their usual 15-percent markup?

Mr. FORT. Some items; yes.

Mr. POTVIN. But you have no way of knowing-it is an internal matter as to what price the Riker firm sells to a parent corporation, Rexall?

Mr. FORT. That is correct.

Distribution limited by franchise and right to refuse to sell. In the General Motors decision of 1966, the U.S. Supreme Court reaffirmed the manufacturer has a right to select the customers to whom he sells his merchandise. The Court clearly held that the manufacturer did

not have the right to do so by arrangement or conspiracy with someone else.

In wholesale and retail drug distribution many small businessmen hailed this decision as a break in eliminating franchise abuses by some manufacturers, especially in the cosmetic field. Whether employing a direct, wholesale, or dual distribution system, many of these manufacturers issue franchises to sell their merchandise only to retailers and/or wholesalers approved by the retail or wholesale competition. That is not something that is done legally or by contract, but if the retailers or wholesalers in the area are not happy with new competition, even if the price-even if the other competitors agree to a retail price, we get the same excuse Mr. Shaffer mentioned-we get the reply that our distribution is sufficient at the present time. Mr. POTVIN. Mr. Chairman.

Mr. Fort, are you alleging, in effect, sir, that as a practical matter your competitors at retail level would be allowed to pass on your right to obtain a franchise from the manufacturers you refer to later your statement?

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Mr. FORT. I would say that is a factor, to keep a happy situation in the market.

Mr. PoTVIN. You are saying that while this would not appear in a written document, their salesmen would make a discreet tour, so to speak, of the competition, and if one voted "no," you would not be allowed to carry the line?

Mr. FORT. That is true. We are in a situation with Coty at this time in which we cannot buy Coty merchandise at all, even after agreeing we would maintain a retail price.

Mr. POTVIN. What reason was given for the refusal, sir?

Mr. FORT. That "our distribution is sufficient at present." That it is sufficient in the area. Now, we bought Coty all over the United States from every buying organization possible every wholesaler, anywhere we could get Coty merchandise. Then the policy was changed so Coty wholesalers cannot handle Coty any more, for the purpose of cutting off that supply. It has to be a direct account.

We are unable to buy it now. I am using this as an example of what can happen and frequently happens in the abuse of the refusal of the right to sell.

Now, I am of the opinion that a man should have the righta company should have the right to pick his customers but there should be some regulation or some way of umpiring that field so that it won't be to the disadvantage of the small retailer.

Mr. DINGELL. How many people does Coty sell to direct, and how many does it not sell to direct? Do you have any idea?

Mr. FORT. I am sorry, I don't.

Mr. DINGELL. Can you give us information as to how many would be in your particular area?

Mr. FORT. I don't know how many. There are many retailers in our area who buy it direct.

Mr. DINGELL. Are there many who do not?

Mr. FORT. I would think there are not many who do not. I would have to try to get that information.

Mr. DINGELL. I am not asking you to submit it if it would be unduly difficult. I think it would be interesting to have such information.

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Mr. FORT. We are planning to go to court over it. I may get some information for the record. We are doing that as soon as we can afford it.

Even though the General Motors decision was expected to ease the flow of merchandise price-fixed by franchise and distribution-controlled by franchise the discriminating system still exists.

This continuous refusal exists even after we agreed to maintain their retail price and not sell to any other retailer. As Mr. Shaffer suggested, many are not approved for direct shipment. It involves, in effect, an agreement arrangement or conspiracy with the trade.

To indicate the need of small business for remedial legislation to provide instant relief, the U.S. Department of Justice has been working on the Revlon case for many years with respect to restrictive and restraining use of the franchise system to control prices and retail competition.

Trial of this Revlon case in the district court in New York began on April 3, 1967. Consent judgments exist with Coty, Max Factor, and possibly others. Scheduled to testify as a witness, I first complained to the U.S. Department of Justice in 1956. That was 11 years ago. In the interim we did business with Revlon and we are on direct again at a stipulated retail price. As I say, we first complained in 1956 when we were a very small business threatened with failure because Revlon and others refused to sell to us or had cut us off because of our low retail prices.

Many small drugstores need legislation to assure that they can buy needed merchandise. These businesses should be protected from the damaging effects of manufacturers who abuse the right to refuse to sell and who set up schemes to close all other sources of supply.

Mr. William Hood, professor of small business at the University of Michigan, stated recently, "Nearly all States refrain from doing what spokesmen for the small business urge that the Federal Government do; namely, enforce vigorously the statutes prohibiting restraints of competition."

In my opinion, specific Federal legislation is advisable to expedite assistance to small business.

The problem of price differentials is related to volume. American abundance is based to a great degree on mass production and volume sales. Cheaper by the dozen, gross, or carload describes the system which has been so successful in providing the consumer with the greatest quality and quantity at the lowest price. In the field of drug distribution, as in others, it creates a problem for the small businessman that seems to defy a solution. If he can't buy in the largest quantity, he can't buy at the lowest price. That is a very real problem. The solution is very difficult to arrive at because in my opinion we can't interfere with the volume distribution of merchandise, but still the man who can't buy the volume has a problem just to stay in business.

Mr. POTVIN. Mr. Fort, you are not now referring to a case where the retailer cannot buy more than, say, 50 packages because of the arbitrary rule of the supplier. You are referring to a case where your volume will not allow you to buy in a large quantity?

Mr. FORT. That is right. From my experience and in my opinion, the drug manufacturers and the manufacturers in general in the United States are not violating the concept of the antitrust philosophy.