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This article was originally published in The Tan Sheet

Executive Summary

ABBOTT INFANT FORMULA PRICE-RIGGING SETTLEMENT INCLUDES $ 79 MIL. PAYMENT to 21 wholesalers and retailers under a broad agreement announced on May 21, the week before a consolidated group of lawsuits was scheduled to go to trial in Tallahassee, Fla. federal court. The settlement closes the class action suit initiated in 1990 by 21 retailers and wholesalers, including Walgreens and Wal-Mart, that alleged Abbott's Ross Labs subsidiary had conspired with other infant formula manufacturers to violate state and federal antitrust laws and fix prices. Abbott also agreed to pay $ 8 mil. in a concurrent settlement with the state of Florida. The state had sued Abbott charging that Ross Labs had joined Bristol-Myers Squibb subsidiary Mead Johnson in rigging rebate bids on contracts to provide formula through the federal government's Special Supplemental Food Program for Women, Infants and Children (WIC). In addition to the WIC complaints, Florida assumed the damage claims of Winn-Dixie Stores, Publix Super Markets, and Toys R Us, which accounted for $ 3 mil of the settlement. At least four other plaintiffs received settlements from Abbott as well, but figures for those settlements were not made public. Abbott said that the Florida settlements "require no change in the company's marketing and business practices and contain no admission of guilt or wrongdoing." The company added that the settlements -- which reportedly total $ 140 mil. -- will not have an impact on reported net earnings. In July 1992, Bristol-Myers and American Home Products also settled respective claims with the 21 wholesalers and retailers of $ 39 mil. and $ 8 mil to end the class action suit brought against them. In December 1992, the two companies settled antitrust charges with the Florida attorney general for $ 4 mil. and $ 1 mil., respectively. The Abbott agreement brings the combined settlements from the three infant formula manufacturers to approximately $ 200 mil. Abbott is still involved in other antitrust cases nationwide, including administrative and federal court actions brought by the Federal Trade Commission, seven cases in California state court, as well as two cases in the Alabama and Texas state courts and five state investigations. The Texas attorney general filed suit against Abbott in September 1991, charging that the company had restrained, suppressed and eliminated "potential competition in the infant formula industry and in promotion and advertising of infant formula." The state alleged that the company had colluded with Bristol-Myers, AHP and the American Academy of Pediatricians through its detailing system, which featured donations to physicians of free samples that were given to parents who "incorrectly [perceived] the provision of samples as a prescription or medical device," according to the suit. Trial is pending. The two FTC complaints against Abbott for anti-competitive behavior remain unsettled nearly three years after the commission announced its inquiry into the infant formula industry before the Senate Judiciary Committee/antitrust subcommittee in May 1990. FTC charged that Abbott conspired with Bristol-Myers and AHP in formulating its marketing plans and discouraging direct-to- consumer advertising. It also alleged that Abbott was involved with the two other companies in defrauding the Puerto Rican WIC program. FTC filed a complaint against Abbott, Bristol-Myers and AHP in June 1992. Both Bristol-Myers and AHP signed consent decrees with FTC in July 1992 involving a combined donation of 3.6 mil. pounds of infant formula for distribution within the WIC program. In its initial complaint against the three companies, the Florida attorney general's office claimed that the wholesale price for infant formula rose 155% from December 1979 to December 1989 compared to 36% for milk, 42% for dairy products and 51% for groceries overall. The Florida AG acknowledged in a May 24 press release that the three companies' pricing had "stabilized" since the state first filed its civil suit in January 1991. In its 1992 complaint, FTC estimated that the three infant formula manufacturers controlled nearly 90% of the U.S. market in 1990. Abbott's sales accounted for approximately one-half of the $ 1.6 bil. market, Bristol Myers accounted for approximately one- third, and AHP for nearly one-tenth, according to FTC figures.

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