The Third Circuit handed down a precedential decision this week in the case of Federal Trade Commission v. AbbVie Inc., et al., Case No. 18- 2621 (3rd Cir. Sept. 30, 2020), ruling that the District Court for the Eastern District of Pennsylvania erred in requiring AbbVie and Besins to disgorge $448 million in the FTC’s case involving reverse payments under the Hatch-Waxman Act, and outright rejecting the FTC’s authority to seek disgorgement under 13(b) of the FTC Act. This precise issue of 13(b) disgorgement is being heard by the Supreme Court this term in FTC v. Credit Bureau Center and AMG Capital Management v. FTC. The Third Circuit decision is consistent with the Seventh Circuit’s decision in Credit Bureau Center, 937 F.3d 764, 775 (7th Cir. 2019), and two judges on the Ninth Circuit in AMG Capital Management, 910 F.3d 417, 429 (9th Cir. 2018) (O’Scainlon, J., concurring). See our previous posts here and here for more information about the cases at the Supreme Court.
As a brief aside, while this blog post focuses on the disgorgement aspect of this 99-page decision, many of our readers will be interested in the Court’s analyses of the FTC’s reverse payment theory and sham litigation under Noerr-Pennington.
And now back to disgorgement. The Third Circuit analyzed the text of Section 13(b) and found it lacking: “Section 13(b) authorizes a court to ‘enjoin’ antitrust violations. It says nothing about disgorgement, which is a form of restitution, not injunctive relief.” (internal citations omitted). The Court also looks at the statute contextually, indicating that Section 13(b) applies to antitrust violations that are believed to be imminent or ongoing. If there nothing imminent or ongoing, there is nothing to enjoin, and the FTC cannot sue under Section 13(b). Disgorgement, on the other hand, is intended to deprive a wrongdoer of past gains, which is not the focus of 13(b). 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.”
As we noted in our post discussing the Supreme Court’s June 2020 decision in Liu v. Securities and Exchange Commission, the Securities Exchange Act, 15 U.S.C. § 78u(d)(5), includes explicit language giving courts the power to grant “any equitable relief” for securities violations, and the Supreme Court threw the SEC a lifeline and vacated and remanded that case for consideration whether disgorgement fell under the principles of equitable relief. Unfortunately, Section 13(b) of the FTC Act does not include such specific language, nor does the Food Drug & Cosmetic Act. The FDA simply relies on the vague statement that courts can “restrain violations” of the FDC Act to support its demand for disgorgement and/or restitution: “The district courts of the United States and the United States courts of the Territories shall have jurisdiction, for cause shown to restrain violations of section 301 . . . .” 21 U.S.C. § 332(a).
As we eagerly await a date for oral arguments in the FTC cases, consider whether the decisions out of the 3rd and 7th Circuits (and two judges on the 9th circuit) reflect a more current view of Section 13(b) than the years of decisions holding that courts may order disgorgement under Section 13(b). A similar consideration would apply to the Food Drug and Cosmetic Act. As the 3rd Circuit pointed out in its decision, quoting the 7th Circuit, “until recently, ‘[n]o circuit ha[d] examined whether reading a restitution remedy into section 13(b) comports with the FTCA’s text and structure.’” And the Supreme Court will be examining just that issue shortly. Stay tuned.