District Judge Tosses States’ Disgorgement Claim Under Section 16 Of Clayton Act In Pricing Fixing Litigation
06/14/2022On June 7, 2022, Judge Cynthia M. Rufe of the United States District Court of the Eastern District of Pennsylvania partially granted and partially denied a motion to dismiss a claim for disgorgement under Section 16 of the Clayton Act brought by state attorney generals against 20 generic drug manufacturers alleging price fixing in generic drugs. In re Generic Pharmaceuticals Pricing Antitrust Litigation, 16-MDL-2724 (E.D. Pa. June 7, 2022). The Court dismissed the state enforcers’ disgorgement claim, holding that Section 16 of the Clayton Act does not allow for relief for past conduct. The Court denied the motion as to plaintiffs’ claims for prospective, non-monetary equitable relief, concluding that plaintiffs had parens patriae standing to pursue injunctive relief on behalf of their citizens, but not damages.
Plaintiffs purported to bring their claim for disgorgement under Section 16 of the Clayton Act, which is the primary federal statute providing for injunctive relief in price-fixing cases. In assessing this disgorgement claim, the Court utilized the two-part framework established by the Third Circuit in U.S. v. Lane Labs-USA Inc., 427 F.3d 219 (3d Cir. 2005) for determining the contours of a court’s equitable power under statute. Under this framework, a district court may order restitution so long as: (1) there is not a clear statutory limit on the court’s “equitable jurisdiction and powers”; and (2) the relief would further the purpose of the relevant statute. The court noted that the Supreme Court opinion in AMG Capital Management, LLC v. FTC, 141 S. Ct. 1341 (2021) and the Third Circuit’s decision in FTC v. AbbVie Inc., 976 F.3d 327 (3d Cir. 2020) had recently tracked “the Third Circuit’s Lane Labs analytical course” in finding that disgorgement is not a form of injunctive relief permitted under Section 13(b) of the Federal Trade Commission Act. Applying these principles to the Clayton Act analysis, the Court noted first that the words “monetary damage,” “restitution,” and “disgorgement” do not appear in Section 16. Second, monetary relief is explicitly provided for under Section 4 of the Clayton Act for both direct purchasers and states representing direct purchasers as parens patriae. Thus, awarding disgorgement under Section 16 would undercut rather than further the enforcement of the federal antitrust regime. Third, injunctive relief is forward looking in that it provides relief to ongoing or future harm, while disgorgement is a backward-looking remedy used to redress past harms.
The Court also found that awarding disgorgement under Section 16 would also run afoul of the principles underlying the Supreme Court’s decision in Illinois Brick Co. V. Illinois, 431 U.S. 720 (1977), by allowing for duplicative recoveries. The Court explained that “permitting private, indirect purchasers to pursue and obtain disgorgement under § 16 contemporaneously with monetary damages under § 4 would sanction an ‘impermissible attempt to circumvent Supreme Court precedent [in Illinois Brick].’ As Illinois Brick’s indirect-purchaser rule applies equally to private and public litigants, the structure of the overall enforcement scheme supports the conclusion that disgorgement should not be permitted under § 16. Otherwise, § 16 might simply devolve into an end run around the indirect-purchaser rule.”
With regard to the state’s claim for forward-looking injunctive relief, the Court found that the states possess an adequate “quasi-sovereign interest” in “preventing antitrust harms to a state’s citizenry” based on the economic interests of its residents because the facts alleged in the complaint were sufficient to support a reasonable inference that “a sufficiently substantial segment of its population” was affected by the alleged conduct. In doing so, the Court rejected defendants’ argument that this result risked “duplicative recovery,” finding that, because it had already rejected the states’ claims for monetary disgorgement or restitution, there was “little risk” of duplicative recovery.
This decision is entirely consistent with the Supreme Court’s recent rejection of disgorgement as a remedy under Section 13(b) of the FTC Act and its consistent rejection of attempts to circumvent the standing requirements of Illinois Brick. It will be interesting to see whether this decision reduces the interest of state attorney generals in pursuing parens patriae actions in cases where they cannot obtain either damages or monetary equitable relief and forward-looking injunctive relief is unavailable or unnecessary, for example, where the alleged conduct has ceased.