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Disgorgement debunked: Third Circuit sets precedent rejecting courts’ authority to award monetary relief under Section 13(b) of the FTC Act

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Home Perspectives Disgorgement debunked: Third Circuit sets precedent rejecting courts’ authority to award monetary relief under Section 13(b) of the FTC Act
On September 30, 2020, the United States Court of Appeals for the Third Circuit reversed a historic district court award ordering disgorgement of $448 million in profits to consumers of testosterone replacement drugs under Section 13(b) of the Federal Trade Commission (FTC) Act. In FTC v. AbbVie Inc.,1 the court held that Section 13(b) does not authorize the FTC to equate “injunctions” with monetary relief.

Background

After AbbVie, Inc. (AbbVie) and its partner, Besins Healthcare, Inc. (Besins) filed patent infringement lawsuits against two developers of generic alternatives to its brand-name testosterone replacement drug, the FTC sued them for allegedly violating Section 5(a) of the FTC Act. The FTC alleged that the patent infringement lawsuits were shams and that anticompetitive conduct by AbbVie and Besins blocked the two potential competitors from entering the market with cheaper generics in order to maintain monopoly power to the detriment of consumers. The FTC petitioned for permanent injunctive and other equitable relief pursuant to Section 13(b).2

On summary judgment, the United States District Court for the Eastern District of Pennsylvania ruled that both lawsuits were objectively baseless, but the issues of subjective intent and monopoly power went to a bench trial. At trial, the district court agreed with the FTC, holding that AbbVie and Besins had monopoly power in the relevant market and filed the patent infringement lawsuits with the subjective intent to block competition from generic alternatives. Upon finding AbbVie and Besins liable, the district court denied the FTC’s request for injunctive relief, but awarded $448 million in profits – the largest monetary award ever in a litigated FTC antitrust case – to represent disgorgement of AbbVie and Besins’s ill-gotten profits.3

The parties appealed the disgorgement order. While the FTC contended that the district court abused its discretion in calculating the amount of disgorged profits, AbbVie and Besins argued that Section 13(b) of the FTC Act does not authorize disgorgement.

On appeal

The significance of this opinion centers on the Third Circuit’s holding that Section 13(b) of the FTC Act does not empower district courts to order disgorgement. In doing so, the court cited the Supreme Court’s decision in Liu v. SEC,4 noting that “Section 13(b) authorizes a court to ‘enjoin’ antitrust violations[,]” but that “[i]t says nothing about disgorgement, which is a form of restitution, not injunctive relief.”

In support of its conclusion, the court noted that Section 13(b) requires an antitrust violation to be imminent or ongoing in order to sue given that injunctive relief “prevents or mandates a future action.” Conversely, disgorgement may be appropriate even where anticompetitive conduct is not imminent or ongoing because it awards profits from past gains. As further support for its interpretation, the court pointed to other sections of the FTC Act that specifically “distinguish between injunctions and other forms of equitable relief.” The court reasoned that “[i]f Congress contemplated the FTC could sue for disgorgement under Section 13(b), it probably would not have required the FTC to show an imminent or ongoing violation.” Ultimately, the Third Circuit reversed the district court’s disgorgement order, voiding the $448 million award.