United States v. Abbott Laboratories, a Corporation , 597 F.2d 672 ( 1979 )

SPRECHER, Circuit Judge.

The issue raised by this case is solely whether it is controlled by this circuit’s prior decision in Eli Lilly & Co. v. Staats, 574 F.2d 904 (7th Cir. 1978). We reject the appellant’s contention that Lilly is distinguishable and affirm the district court.

In 1973 defendant Abbott Laboratories entered into four contracts to supply pharmaceutical products to the government. The contracts, pursuant to procurement statutes, contained the following access-toreeords provision:

(b) This Contractor agrees that the Comptroller General of the United States or any of his duly authorized representatives shall, until the expiration of 3 years after final payment under this contract or such lesser time specified in either Appendix M of the Armed Services Procurement Regulations or the Federal Procurement Regulations Part 1-20, as appropriate, have access to and the right to examine any directly pertinent books, documents, papers, and records of the Contractor involving transactions related to this contract.

(c) The Contractor further agrees to include in all his subcontracts hereinunder a provision to the effect that the subcontractor agrees that the Comptroller General of the United States or any of his duly authorized representatives shall, until the expiration of 3 years after final payment under the subcontract or such lesser time specified in either Appendix M of the Armed Services Procurement Regulations Part 1-20, as appropriate, have access to and the right to examine any directly pertinent books, documents, papers, and records of such subcontractor involving transactions related to the subcontract.

See 10 U.S.C. § 2313(b) and 41 U.S.C. § 254(c).

In reliance on these provisions the Comptroller General made a formal demand, by a letter dated August 26, 1974, for access to

all books, documents, papers, and other records directly pertinent to the contracts, which include, but are not limited to (1) records of experienced costs including costs of direct materials, direct labor, overhead, and other pertinent corporate costs, (2) support for prices charged to the Government, and (3) such other information as may be necessary for us to review the reasonableness of the contract prices and the adequacy of the protection afforded the Government’s interests.

The demand was repeated by letter dated March 7, 1975, requesting access to

—Records relating to those costs assigned by the firm to the products purchased under the cited contracts. Discussions with your representátives have indicated that such assigned costs are limited essentially to direct manufacturing costs.

—Records relating to those costs which although they are incurred during the course of the firm’s activities relating to the supply of ethical pharmaceuticals (including those purchased under cited contracts), are not assigned by the firm to individual products. Such costs would include those incurred for activities such as research and development, marketing and promotion, distribution and administration.

—Records relating to the methodology, and decisions involved in the firm’s establishment of prices for the products purchased under the cited contracts.

Abbott refused these demands, and, as a result, the Comptroller General brought suit in district court to establish the right of the Government to gain access to the requested materials. The district court granted summary judgment on behalf of the government, concluding that this case was “identical” with the facts confronted by our opinion in Eli Lilly & Co. v. Staats, 574 F.2d 904 (7th Cir. 1978).

Indeed, these cases are identical. The contracts contained identical aceess-to-records provisions. See 574 F.2d at 906-07. The initial demand for information by the Comptroller General was phrased in exactly the same words as in this case, id. at 906, and was approved by this court in Lilly as-consistent with the statutory and contractual provisions. Id. at 912-14. Specifically, we construed the language “directly pertinent ... to the contract” to permit government access to information that “is a significant input in the cost of the product purchased in the contract.” Id. at 914-15. In so doing, we rejected contentions that this language limited the government’s inquiry to only those items specifically assigned by the company as costs of the contract or to information relating to possible improprieties in the negotiating process. Thus, the government’s demands for information relating to costs of research and development, marketing, promotion, distribution and administration were held to be proper.¹

Abbott Laboratories urges in this case that Lilly is distinguishable. The alleged distinction is that whereas in Lilly the district court made a factual finding that the government had two purposes in seeking information — viz., determining the full cost of producing the contract items and, second, performing a study of the operations of the pharmaceutical industry — the record in this case demonstrates that the government has only the latter, allegedly impermissible, purpose with regard to its inquiries directed to Abbott. We think that this distinction misconstrues the record before us. In the Comptroller General’s initial letter of demand, the Comptroller General stated that he was seeking the requested information in order to conduct “a review of the procurement of drugs by agencies of the federal government, including the pricing of drugs and pharmaceuticals procured under negotiated contracts.” This certainly would permit us to find that the government had the purpose that the defendant urges is missing from this record. The defendant attempts to avoid such a finding by citing a portion of a proposed order submitted by the government with its renewed motion for summary judgment. In that order the government proposed that the district court protect the defendant’s interests in the confidentiality of cost information through the following restriction: “Any document . shall be used . . . solely for the purpose of a study of the operations of the pharmaceutical industry. . . . ” The defendant construes this proposal as an abandonment of the government’s purpose mentioned in the initial letter of demand. However, since a study of costs involved in negotiated contracts would also properly be a part of any study of the operations of the industry, we do not see this language as in any way narrowing the dual purpose demonstrated in this record and in the record reviewed in Lilly.

Defendant forwards a further issue that it claims was not considered in Lilly and would mandate a different result in this case. Specifically, the defendant urges that we should decline to allow access to Abbott’s records since such an examination “will result in substantial injury to Abbott . while yielding little, if any, benefit to the Comptroller General.” This balancing of equities, however, was performed by Congress when it granted inspection authority to the Comptroller General (see 10 U.S.C. § 2313(b) and 41 U.S.C. § 254(c)), and it is not for this court to restrike the balance.

AFFIRMED.

1 . These items constituted a “significant input” in the cost of pharmaceutical products because the actual costs of manufacture, the only costs specifically assigned to products by the drug companies, was often as little as 9 percent of the products’ sale price. 574 F.2d at 913.

1 . 574 F.2d 904 (7th Cir. 1978), cert. denied, 99 S.Ct. 362.