Third Circuit Reverses $448 Million FTC Penalty Imposed Against Generic Pharmaceutical Manufacturers
On September 30, 2020, a panel of the United States Court of Appeals for the Third Circuit made up of Judges Thomas M. Hardiman, David J. Porter, and Peter J. Phipps reversed a court-ordered disgorgement penalty of $448 million, holding that disgorgement is not an available remedy under Section 13(b) of the Federal Trade Commission (“FTC”) Act. Fed. Trade Comm’n v. AbbVie Inc., No. 18-2621, 2020 WL 5807873 (3d Cir. Sept. 30, 2020). Respondents AbbVie, Inc., Abbott Laboratories, Unimed Pharmaceuticals LLC, and Besins Healthcare, Inc. (collectively “Respondents”) are patent owners of a testosterone replacement therapy drug called AndroGel. Appellant FTC sued Respondents in the United States District Court for the Eastern District of Pennsylvania under Section 13(b) of the FTC Act (15 U.S.C. Sec. 53(b)), which provides a mechanism for the FTC to seek injunctive relief in connection with Respondents’ lucrative sale of AndroGel.
Specifically, the FTC alleged that Respondents monopolized the market for transdermal testosterone replacement therapies (“TTRT”) in the United States. The FTC argued that Respondents filed sham patent infringement litigation actions against Teva Pharmaceuticals USA, Inc. (“Teva”) and Perrigo Company (“Perrigo”) to slow their entry into the market to sell generic TTRT and that certain Respondents entered into an anticompetitive reverse-payment agreement with Teva. The district court dismissed the FTC’s reverse-payment claim and granted the FTC summary judgment on one element of its sham litigation claim. After succeeding at trial on its sham litigation claim, the FTC requested the lower court to enjoin Respondents from engaging in this anticompetitive behavior and for a disgorgement penalty. The district court denied the request for an injunction but ordered a $448 million disgorgement penalty.
Both sides appealed to the Third Circuit. The FTC claimed that the lower court abused its discretion in denying injunctive relief, miscalculating the disgorgement penalty, and erred in dismissing its reverse-payment claim. Respondents, in turn, argued that the lower court erred in finding against them on the sham litigation theories, and in ordering disgorgement.
On appeal, the panel affirmed the lower court’s finding that Respondents’ litigation against Perrigo was a sham and that Respondents had monopoly power in the TTRT market but held that the lower court erred in finding the Teva litigation was a sham. As to the Perrigo litigation, the panel agreed with the lower court that Respondents’ patent suit was objectively baseless because there was no realistic chance of prevailing and was pursued solely to hinder Perrigo. In contrast, the panel held that the lower court erred as to the Teva litigation because the FTC failed to show that Respondents’ action was objectively baseless. The panel also found that the district court had erred in dismissing the FTC’s reverse-payment claim because, while Respondents did not pay cash to the allegedly infringing generic manufacturer to end the patent infringement lawsuit, it did agree to assist the generic manufacturer in entering the market to sell a different drug. The Third Circuit held that this was an exchange of value flowing from the patent owner to the alleged infringer and therefore should be treated the same as a cash payment. The panel affirmed the denial of the FTC’s request for injunctive relief because the FTC failed to establish that the filing of sham litigation actions was likely to reoccur.
As to the disgorgement penalty, the panel held that Section 13(b) of the FTC Act empowers a court to enjoin antitrust violations, but it does not authorize disgorgement penalties because disgorgement is a form of restitution, not injunctive relief. “This requirement makes perfect sense as applied to injunctive relief, which prevents or mandates a future action. . .. So if a violator’s conduct is neither imminent nor ongoing, there is nothing to enjoin, and the FTC cannot sue under Section 13(b). By contrast, the requirement makes little sense as applied to a disgorgement remedy. Disgorgement deprives a wrongdoer of past gains[.]” AbbVie Inc., 2020 WL 5807873, at *33 (emphasis in original).
There is a split of authority over the question of whether Section 13(b) of the FTC Act includes the authority to issue monetary relief such as disgorgement as the issue is currently pending before the Supreme Court of the United States in AMG Capital Management, LLC v. Federal Trade Commission. AMG Capital Management arises out of an appeal from the Ninth Circuit’s holding that disgorgement is available under Section 13(b) and is consolidated with Federal Trade Commission v. Credit Bureau Center, LLC, an appeal from the Seventh Circuit’s conclusion that Section 13(b) does not authorize restitutionary relief. The Supreme Court will turn to these consolidated appeals in the October term.