Respondent, as assignee of more than 60 commercial pharmacies, brought this antitrust action against petitioner manufacturers, charging that by selling drugs to certain hospitals, each of which has a pharmacy, at prices lower than those charged to respondent's assignors, petitioners violated the Robinson-Patman Act, which makes it unlawful for one engaged in commerce to discriminate in price between different purchasers of like commodities where "the effect . . . may be substantially to lessen competition." 15 U.S.C. Section 13(a). Petitioners claimed that the challenged sales were exempt under the Nonprofit Institutions Act, which, inter alia, excludes from the application of the Robinson-Patman Act nonprofit hospitals' "purchases of their supplies for their own use." Section 13c. The District Court ruled on the basis of the evidence adduced that the hospitals involved were nonprofit and that their drug purchases were "for their own use" within the meaning of Section 13c, and granted summary judgment in favor of petitioners. The Court of Appeals vacated and remanded. While agreeing that the designated hospitals were nonprofit, that court concluded that a hospital's drugs are purchased for its "own use" only where the hospital can be said to be the consumer, i.e., where dispensations are to inpatients and emergency facility patients.
The U.S. Supreme Court held:
1. Section 13c does not exempt all of a nonprofit hospital's drug purchases from the Robinson-Patman Act but the exempting language must be construed as applying to what reasonably may be regarded as use by the hospital in the sense that such use is part of and promotes the hospital's intended institutional operation in the case of its patients.
2. Applying the foregoing rule, drug purchases by a nonprofit hospital are exempt as being for the hospital's "own use" if the drugs are dispensed:
(a) To the inpatient for use in his treatment at the hospital; to the patient admitted to the hospital's emergency facility for use in his treatment there; or to the outpatient for personal use on the hospital premises. Such dispensations are part of the hospital's basic function.
(b) To the inpatient, or to the emergency facility patient, upon his discharge, and to the outpatient, all for off-premises personal use, provided these take-home dispensations are for a limited and reasonable time, as a continuation of, or supplement to, hospital treatment.
(c) To the hospital employee or student for personal use, or for the use of his dependent. Each is a member of the hospital family and dispensation to him furthers the hospital's functions.
(d) To the physician staff member for his personal use or the use of his dependent. Here the considerations are similar to those in (c), supra.
3. Purchases for the following types of dispensation are not exempt since they are not for the hospital's "own use":
(a) To the former patient, by way of a renewal of a prescription given when he was an inpatient, an emergency facility patient, or an outpatient. The purpose of the exemption has been exceeded where the connection with the hospital has reached the refill stage.
(b) To nondependents of those covered in paragraphs 2(c) and (d), supra. Those relationships are too attenuated for the statutory benefit.
(c) To the walk-in customer, who has no present connection with the hospital or its pharmacy (except in the occasional emergency situation, which can be viewed as de minimis).
4. Under these standards the hospital can either put all the drugs it purchases to its "own use" exclusively, or can keep separate records for the drugs put to its "own use" and for those otherwise dispensed, making accounting submissions to the supplier for price adjustments. The supplier is protected from antitrust liability if he reasonably and noncollusively relies upon the hospital's certification as to its dispensation of drugs purchased from the supplier.
Return to Non-Profit Exemption Menu