Give It Back! Disgorgement – Another FTC Arrow against Reverse-Payment Settlements that Delay Generic Entry


If the uncertainty that the Supreme Court’s Actavis decision injected into the world of reverse-payment settlement litigation wasn’t enough to get your attention, then the FTC’s recent effort to obtain disgorgement from Cephalon in a reverse-payment case should do so.

Cephalon is arguing that the federal district court should dismiss the FTC’s near six-year-old complaint because the case is now moot in the wake of the generic entry. The FTC says it was Cephalon’s payments that delayed that entry. In its complaint, the FTC sought to enjoin Cephalon from enforcing its agreements with the generic companies, while also seeking unspecified “other equitable relief.”

Not so fast, says the FTC. It says that its prayer for relief and the district court’s inherent equitable power provide more than enough support for the district court to not only (1) enter an injunction preventing a recurrence of the same or similar conduct, but also (2) order equitable relief in the form of disgorgement, which is designed to force a defendant to give up the amount by which he was unjustly enriched. As a rough approximation of the potential amount involved, Cephalon’s former-CEO once said: “We were able to get six more years of patent protection. That’s $4 billion in sales that no one expected.”

If the FTC is successful in keeping its case against Cephalon alive, it won’t be the first time that disgorgement was on the table as a remedy. Back in 1998, the FTC sought disgorgement of $120 million from Mylan in a case challenging Mylan’s use of exclusive licenses to deny its competitors access to important ingredients necessary to make competing generics. That case settled for $100 million soon after the district court denied Mylan’s motion to dismiss.

Going forward, pharmaceutical manufacturers facing FTC investigations and lawsuits arising from reverse-payment settlements should take notice. With disgorgement potentially on the table, the stakes are even bigger.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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