Sunday, November 11, 2012

On Beyond Holcombe: United States Pharmacal Company

On Beyond Holcombe, by Malcolm A. Goldstein, appears on Sundays at 1898 Revenues.

As Monty Python would say: “and now for something completely different.”  One immediate apparent difference is that the impetus for this article about the United States Pharmacal Co (USPCo) arises from a documentary battleship stamp cancel, one found on a company check, rather than a proprietary battleship cancel.  Not that USPCo proprietary cancels do not exist.  Mustacich and Giacomelli identify several different ones that the company employed, including both printed and hand-stamped, and one of the printed varieties is also illustrated here.  The company obviously had a sufficient volume of business to warrant use of enough stamps to cause the different cancels, although its name is now principally identified with IXL Hair Restorer and New Century Scalp Tonic.

However, the real point of distinction between USPCo and the other manufacturers previously discussed in this column is in its ownership.  The success of the proprietary medicine companies heretofore examined has largely been driven by the aspirations of some shrewd businessperson/huckster (ala Radam) who, having fixated on the idea that his or her elixir would vanquish disease, strove to convert that vision into a fortune.  USPCo was born of a more practical goal: to build the fortunes, not of the creators, but rather the ultimate sellers of those nostrums to the public.  The Illinois Pharmaceutical Association (IPA), an association of retail druggists, authorized the formation of the company in a resolution passed at its meeting held in Peoria, IL, in July, 1894.  IPA’s idea was to create a “mutual or cooperative manufacturing pharmaceutical company owned, operated and controlled directly by retail druggists.”  By organizing and owning their own pharmaceutical supply source, the IPA’s members hoped to attain perfect retail price control maintenance for their products. Establishing a single set of prices would guarantee a larger profit margin to the retailer by conserving a larger percentage of the consumer’s fixed final cost to the retailer.  After all, money not owned to the manufacturers or the wholesalers for the basic cost of their products was money in the retailers’ pockets.  However, because of the large number of nostrums and patent  medicines potentially available, and the need for continuous, heavy barrage of advertising then thought necessary to keep any brand fixed in the public’s mind - normally a cost borne by the manufacturer of the product  - cooperatives were formed only by a distinct minority of retailers.

USPCo was one of the most long-lived and successful of these retail owned cooperatives. The method that IPA devised for the operation of USPCo was as harsh and restrictive as any devised by the manufacturers and the wholesalers themselves, for the IPA adopted a price control plan (IPA Plan) called the Direct Contract and Serial Number plan (DCSN plan). IPA even prided itself on being the organization that introduced this particular scheme to the United States. If IPA was, indeed, the first to adopt it, the DCSN plan was quickly and widely copied thereafter by manufacturers and retailers themselves.  A DCSN Plan provided that the manufacturer signed an individual contract with each retailer to supply product already priced for retail sale that also bore a unique serial number traceable to the individual retailer.  If the manufacturer’s product was purchased thereafter at any price other than the printed price or from anyone other than the retailer to whom the serial number had been allocated, the leak in the closed system could be traced immediately by consulting the manufacturer’s master list of serial numbers.  The manufacturer enforced its plan by issuing periodic “cut-lists,” usually monthly, of those retailers who had undersold the marked price or who had let product stray from their stock (such that it was ultimately vended by someone else for less than the marked price), and these offending retailers were barred from further purchases of goods from any member of the plan, until they pledged again to uphold the plan.

Because of USPCo’s success, its representatives were given a place of honor among the speakers at one of the sessions attendant to the Convention held in St. Louis in 1904 by the National Association of Retail Druggists (NARD) to explain the IPA Plan’s workings to all of the assembled retailers.  The IPA Plan operated so well that IPA celebrated its tenth anniversary of actual operation in 1906 with special resolutions asking each retail member to institute a special advertising promotion called “U S P Co week” during the first weeks of September, December, March and June of that year, and each subsequent year, where member pharmacists would “give the goods of the U. S. Pharmacal Co. special advertising, special display in their stores, special window space, and in other ways extra and unusual prominence, with a view to increasing the sales on their goods.”  Shortly after the passage of these resolution, the NARD’s Notes trade circular reported that the September, 1906 “U S P Co” week was extremely successful.  On the very same page, the circular published a complete list of all those companies and organizations that had adopted DCSN plans.  It summarized the then successful current state of affairs created by DCSN plans by saying: “The preparations of these manufacturers, protected as they are by direct contract and serial numbering identification marks, are being successfully kept out of the hands of mail order houses and other price demoralization agencies by their respective makers and retail profits on the sale thereof are being maintained on a healthy basis.”

The only potential shadow on USPCo’s future was the possibility that the legality of DCSN plans might successfully be challenged in the courts. For twenty years those “mail order houses and other price demoralization agencies,” whose names regularly appeared on the monthly “cut-lists” of DCSN plans kept arguing that these DCSN plans were an illegal restraint of trade.  They continually sued, asking the courts to “specifically compel” by injunction the sponsors of DCSN plans to sell to them on the same basis as plan members. These excluded wholesalers and retailers insisted that DCSN plans prevented competition because they could not freely sell the products protected under these plans (no matter how they acquired them) for less than the sponsors’ required retail prices, even though they were satisfied to receive from their sales a smaller profit margin than plan members.

This line of reasoning consistently puzzled the state courts to whom it was argued.  At their most friendly, courts are always reluctant to issue orders compelling parties to do specific acts - so-called “mandatory” injunctions - because they are accustomed to remedying harm by awarding sums of money as damages, figuring that such monetary damage awards compensate for actions not performed.  Courts issue injunctions only where circumstances are irreversible. For example, if there were questions surrounding ownership of a historic house, and the house was about to be torn down, a court might enjoin the demolition, pending a full review of the circumstances, on the theory that the house, once demolished, cannot be reassembled, and so is “irreparable.”  Even this kind of injunction is not “mandatory” but “preventative,” preserving the house intact only until the disputed issue is resolved. A mandatory injunction compels an unwilling party to act when it would otherwise not act.   Courts could never find such “irreparable” harm in the exclusion of “cut-listed” retailers by sponsors of DCSN’s plans.  Citing defendant manufacturers’ “liberty” to sell only to those with whom they chose to do business, and treating the plaintiff wholesalers and retailers as interlopers who had somehow unfairly meddled with the harmony of the DCSN plans by procuring the protected products under shady circumstances, the courts fairly consistently upheld the legality of DCSN plans, endorsing them as legitimate business models. 

However, with the advent of President Theodore Roosevelt’s attempts to control the overreaching of manufacturing trusts of all stripes by having the US Justice Department enforce the federal Sherman Act, the legality of DCSN plans began to come under attack.  Building on success in earlier antitrust suits brought against other industries, in May, 1907, the federal government achieved in the drug industry the “Indianapolis Decree,” the settlement of an Sherman Act antitrust suit against the Proprietary Association of America representing manufacturers, the National Wholesale Drug Association representing the wholesale druggists, and the NARD representing retailers (as well as specifically named companies, such as Gilbert Bros & Co, previously mentioned in an earlier column), which began to erode the control manufacturers could exercise on retail prices through DCSN plans.  Nevertheless, within months after this settlement was negotiated an article in the Pacific Pharmacist, a new drug trade journal, flatly asserted: “The D.C. and S.N. plan is not affected [by the settlement], provided the manufacturer will put the plan into effect individually, and not “in collusion” with other manufacturers, or any other agency or agencies” (italics in original).

This viewpoint proved to be wishful thinking.  Focusing upon the result that consumers were forced to buy at the single price set in retail price maintenance plans, which it found to be maintained artificially higher than it otherwise would have been had the cut-rate retailers sold at the price they chose (rather than adhering to the state court rulings favoring the “liberty” of manufacturers to sell only to those whom they liked), in 1911, the Supreme Court of the United States ruled retail price maintenance plans, such as the DCSN plan, illegal restraints upon trade pursuant to the provisions of the Sherman Act. (Since analyzing the nuances of all the cases which led to the 1911 decision, both pro and con, is extremely complex, the various court decisions will be examined in greater detail as this column visits the specific companies involved in them).

The IPA Plan itself was never ruled illegal in a specific court decision, and it is unclear when USPCo finally discarded it, although presumably it was shortly after the Supreme Court’s ruling in 1911. Other questions not answered in the extant records are when or whether IPA’s members ever separated themselves from ownership of USPCO, and exactly when USPCo manufactured the IXL Hair Restorer and New Century Scalp Tonic.  USPCo was still listed in trade indexes as late as 1927 as a Chicago based manufacturer of household patent medicines, and these products probably date from the teens or the twenties. Whether this company actually still exists cannot be proven from the extant records.  The name, however, has continued to exist.

At some date after 1927, the USPCo name appears to have unmoored from the IPA and the Chicago location. In 1940, a company with the USPCo name was to be located in Newark, NJ.  In 1942, the federal government seized as misbranded a shipment of citrate of magnesia, a patent medicine staple, manufactured by the USPCo in Newark, NJ and released it to a Philadelphia company for re-branding.  In 1959, a USPCo registered its ownership of the trademark Syr-Tane for use on cough syrup. In 1963 USPCo showed up in a drug trade listing as a corporation located in Brooklyn, NY.  In a 1976 trade compilation, the USPCo name was associated with a product called Ban-Itch (a product name which was later itself associated with Sheffield Laboratories, the successor to another company that cancelled battleship proprietary stamps - but that is a story for another day).  In 1980, a USPCo is listed as a division of another pharmaceutical company, and in 1988, the Syr-Tane trademark expired without being renewed.  A website named Bizapedia lists the United States Pharmacal Co name as “active” as of January 3, 2012, in connection with a address listed broadly as Philadelphia, PA and taken from a filing made in Pennsylvania in 1958.   Another website, Manta, shows that a United States Pharmacal Co, LLC, incorporated in Colorado in 2005, is located in Erie, CO, just outside of Boulder, CO.  This USPCo presently maintains its own website and advertises a product called Cann-Ease Nasal Moisterizing Gel on several websites.  Yet another website, Cotera, shows the USPCo as a testing laboratory incorporated in 2003 and headquartered Lafayette, CO, next door to Erie, CO. Although the Colorado company has no direct connection to the namesake Chicago company, its own website continues the tradition of building its sales upon testimonials from satisfied customers, now posted on line instead of reproduced in print ads.  The spirit of over-the-counter cures soldiers on.

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