October 19, 2021

Volume XI, Number 292

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October 18, 2021

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Third Circuit Rules That Disgorgement Is Not an Available Remedy Under the FTC Act

On September 30, 2020, the Third Circuit reversed a decision by the Eastern District of Pennsylvania ordering AbbieVie, Inc. (“AbbieVie”) and Besins Healthcare Inc. (“Besins”) to pay $448 million in disgorgement of ill-gotten profits for allegedly filing sham patent lawsuits to stifle competition. AbbieVie and Besins had filed patent infringement lawsuits against two developers of generic alternatives to its brand-name testosterone gel product AndroGel. The FTC sued AbbieVie and Besins in 2014 alleging that the patent suits were baseless and brought for no other reason than to block competition.

In reversing the District Court, the Third Circuit held that disgorgement is not an available remedy under Section 13(b) of the FTC Act, relying on the Supreme Court’s decision Liu v. SEC, 140 S. Ct. 1936, 1942 (2020). Among other things, the Third Circuit noted that Section 13(b) authorizes a court to enjoin antitrust violations, but says nothing about disgorgement, which is a form of restitution, not injunctive relief. The Third Circuit rejected the FTC’s contention that Section 13(b) “impliedly” empowers district courts to order disgorgement as well as injunctive relief, concluding that a district court’s jurisdiction in equity under Section 13(b) is limited to ordering injunctive relief.

Circuit Split

The FTC has used disgorgement with incredible success since the 1980’s and, until recently, federal courts were not troubled by the fact that the remedy is not expressly mentioned in the FTC Act. However, as the federal judiciary continues to drift rightward and more judges adopt a textualist approach, a Circuit split has emerged.

In AMG Capital Management, LLC v. FTC, the U.S. Court of Appeals for the Ninth Circuit held that disgorgement was an available remedy under Section 13(b). The Ninth Circuit reasoned that Section 13(b) “empowers district courts to grant any ancillary relief necessary to accomplish justice, including restitution.”  910 F.3d 417, 426-27 (9th Cir. 2018), cert. granted, No. 19-508, 2020 WL 3865250 (U.S. July 9, 2020).

Less than a year later, the Seventh Circuit reached the opposite conclusion in FTC v. Credit Bureau Center, LLC, holding that Section 13(b)’s permanent-injunction provision does not authorize monetary relief.  937 F.3d 764, 786 (7th Cir. 2019), cert. granted, No. 19-825, 2020 WL 3865251 (U.S. July 9, 2020), and cert. denied, No. 19-914, 2020 WL 3865255 (U.S. July 9, 2020). On July 9, 2020, the Supreme Court granted certiorari in both Credit Bureau Center and AMG Capital Management and consolidated the cases, teeing up the issue for resolution by the US Supreme Court.

The Upshot—A Weakened FTC? Not Necessarily

The FTC has fairly circumscribed authority to obtain money judgments from defendants in enforcement actions. The agency is typically restricted to civil penalties in limited circumstances and it has traditionally used Section 13(b) to get around these limitations and seek equitable monetary remedies such as restitution and disgorgement.

If the Supreme Court sides with the Third and Seventh Circuit decisions, as seems likely given the recent passing of Justice Ruth Bader Ginsberg and likely confirmation of Amy Coney Barrett, the FTC will lose the ability to obtain money from enforcement actions brought in federal court under its broadest statutory powers. Such a result will likely impact how the FTC investigates and prosecutes cases as well as the settlement positions of companies under investigation.

Before representatives of industry get too excited, however, if the Democrats win the Presidency (which also seems likely, but given what happened in 2016, far from certain) and are able gain a majority in Congress, it would not be surprising to see legislation enacted to amend the FTC Act and formally grant the FTC the enforcement powers that it has enjoyed by implication for over 40 years.

©2021 Epstein Becker & Green, P.C. All rights reserved.National Law Review, Volume X, Number 307
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About this Author

Theodora McCormick Health Care and Life Sciences Attorney Epstein Becker & Green Princeton, NJ
Member of the Firm

THEODORA McCORMICK is a Member of the Firm in the Litigation and Health Care and Life Sciences practices, in the Princeton and Newark offices of Epstein Becker Green. Her practice focuses on representing hospitals, physician practices, medical device manufacturers, supermarkets, food distributors, pharmaceutical companies, and other Fortune 500 and 200 companies in complex litigation matters.

Selected by her peers for inclusion in The Best Lawyers in America©...

609-455-1546
Jack Wenik Health Care Litigation Attorney Epstein Becker & Green Newark, NJ
Member of the Firm

Jack  Wenik is a Member of the Firm in the Health Care and Life Sciences and Litigation practices, in the Newark office of Epstein Becker Green, and serves on the firm's National Health Care and Life Sciences Steering Committee. Drawing on significant experience in health care investigations, litigation, and regulatory compliance matters, Mr. Wenik represents various health care clients, including health care systems and hospitals, long-term care facilities, physicians, pharmacies, and other health care providers, in various regulatory compliance matters and litigation, including state and...

973-639-5221
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