Last week, in FTC v. AbbVie et al., the Third Circuit joined the Seventh Circuit in holding that the Federal Trade Commission (FTC) was not authorized to seek disgorgement as a remedy under Section 13(b) of the FTC Act – deepening a circuit split ahead of the Supreme Court’s upcoming consideration of this issue. The holding will make it exceedingly difficult for the FTC to obtain monetary remedies in many of its enforcement actions in the Third Circuit, in both antitrust and consumer protection cases. And ultimately, as we have previewed, the Supreme Court is expected to have the final say on this question this Term.
The Third Circuit Held that The FTC Cannot Seek Disgorgement of Profits Under Section 13(b) of the FTC Act.
The AbbVie decision stemmed from an FTC antitrust lawsuit over a testosterone replacement therapy called AndroGel. The FTC accused the owners of AndroGel (Defendants) of engaging in anticompetitive conduct to strengthen their monopoly power over the AndroGel patent. In particular, the FTC alleged that the Defendants filed “sham patent infringement suits” against generic drug manufacturers and entered into “an anticompetitive reverse-payment agreement” with a competing manufacturer when settling a patent infringement suit. The FTC argued that this conduct was anticompetitive and violated the FTC Act.
In the district court, the FTC prevailed in part on its claims, and sought and obtained $448 million in disgorgement from the profits of these actions. The district court found that it had authority to order disgorgement under Section 13(b) of the FTC Act, which provides that courts may “enjoin” violations of the FTC Act. Importantly, Section 13(b) provides the FTC remedial authority in both consumer protection and competition actions brought under the FTC Act. The district court found that (i) Section 13(b)’s authorization for injunctive relief “includes the full range of equitable remedies,” including disgorgement, (ii) many other courts had adopted the same conclusion, and (iii) a contrary interpretation would “eviscerate” the FTC’s enforcement powers.
The Third Circuit disagreed for three reasons. First, it found that (i) Section 13(b) provides district courts authority only to “enjoin” antitrust violations, and (ii) disgorgement is not injunctive relief. According to the court, this omission removed any textual hook for the FTC to seek disgorgement. Second, the court found that other structural clues supported its plain-text interpretation. In particular, it explained that Section 13(b) authorizes relief only where the FTC suspects an ongoing or imminent antitrust violation, a requirement that “makes perfect sense as applied to injunctive relief, which prevents or mandates a future action”—but which makes “little sense as applied to a disgorgement remedy,” which deprives the “wrongdoer of past gains.” Third, the court found support in the structure of the FTC Act, observing that the statute conditioned monetary relief on significant “procedural protections” not present in Section 13(b). The court thus concluded that its interpretation “harmonize[d]” these provisions by upholding Congress’s dichotomy between (i) injunctive relief, which is available without administrative adjudication or rulemaking, and (ii) monetary relief, available only after slow-moving administrative protections.
The Third Circuit rejected four counterarguments from the FTC. First, it held that the FTC Act’s savings clause in Section 19b(e)—which provides that the “[r]emedies provided in this section are in addition to, and not in lieu of,” other statutory remedies—did not authorize disgorgement. The court explained that the savings clause could preserve “only those remedies that exist,” and thus did not resolve whether Section 13(b) grants a particular remedy in the first instance. Second, it found that other circuit courts that had authorized disgorgement in previous cases had not directly confronted the arguments raised in this case. It noted that the Seventh Circuit—which did thoroughly address the issue—found that Section 13(b) did not authorize disgorgement. Third, the court rejected the argument that subsequent acts of Congress “ratified” prior judicial interpretations of Section 13(b) that allowed the FTC to seek disgorgement, finding that the subsequent legislation was immaterial to the question at hand.
Fourth, the court found that the outcome was not controlled by a pair of Supreme Court decisions: Porter v. Warner Holding Co. and Mitchell v. Robert DeMario Jewelry, Inc. Porter found that a statute authorized restitution where it allowed an agency to seek “a permanent or temporary injunction, restraining order, or other order,” relying on the “other order” provision. Mitchell found that a statute made available an equitable reimbursement remedy where it authorized courts “to restrain violations.” The Third Circuit found that these cases did not suggest that Section 13(b) authorized disgorgement because (i) those cases were interpreting broad remedial provisions that did not limit the scope of a court’s equitable jurisdiction (i.e., “other order,” “restrain violations”), whereas (ii) Section 13(b) authorizes only one specific type of equitable relief: injunctive relief. Accordingly, the Third Circuit found that neither Porter nor Mitchell upset its reading of Section 13(b).
The Third Circuit’s Holding is the Latest in a Series of Decisions that Will Make It Difficult for the FTC to Obtain Monetary Remedies.
As we have previously explained, the FTC has relatively circumscribed authority to obtain money from defendants in its enforcement actions. The agency is typically restricted to civil penalties in limited circumstances, such as when companies violate a preexisting rule or order or when the FTC is given authority in a specific statute, such as the Children’s Online Privacy Protection Act. The FTC has used Section 13(b) as a way around these limitations to seek equitable monetary remedies when it brings enforcement actions.
The courts have generally agreed with the FTC’s reading of Section 13(b), but the Third Circuit’s decision comes on the heels of two major challenges to that previous consensus. First, in June, the Supreme Court decided Liu v. SEC, a case that upheld—but placed several limits on—the Securities and Exchange Commission’s ability to collect equitable monetary relief. As we explained at the time, the Court’s reasoning appeared to clearly put in the crosshairs the scope of the FTC’s ability to obtain monetary remedies. Then, in July, the Seventh Circuit decided FTC v. Credit Bureau Center. Like the Third Circuit, the Credit Bureau Center court found that the authority to “enjoin” did not include the power to seek disgorgement.
The Supreme Court Will Have The Final Say on This Issue – But May Leave Further Questions Unresolved.
As we previewed over the summer, the Supreme Court granted certiorari to review the Seventh Circuit’s decision in Credit Bureau Center, as well as another case out of the Ninth Circuit—AMG Capital Management v. FTC—in which that court held that Section 13(b) did authorize equitable monetary relief under existing circuit precedent. The resolution of these consolidated cases at the Supreme Court will undoubtedly implicate the Third Circuit’s decision in AbbVie and the FTC’s enforcement powers more broadly.
If the Court sides with the Third and Seventh Circuits positions, the FTC will lose the ability to obtain money from enforcement actions brought in federal court under its broadest statutory powers. The remedial constraint would likely change how the FTC investigates and prosecutes cases, as well as private parties’ posture in settlement negotiations – and indeed the ongoing uncertainty may already be impacting the agency. However, even if the FTC prevails, barring a sweeping decision, cases like the Liu decision show that it will face further challenges to the scope of its authority to obtain monetary relief. Even as Congress debates whether to give the FTC a greater role in enforcing a federal privacy law, disputes over the agency’s remedial authority will remain front and center.