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Third Circuit Limits FTC Ability to Recoup Profits From AbbVie (1)

Sept. 30, 2020, 4:09 PMUpdated: Sept. 30, 2020, 8:32 PM

Federal district courts can’t allow the FTC to reclaim profits from companies that benefited from unfair competition, the Third Circuit ruled in a case over AbbVie’s control of a testosterone gel patent.

The appeals court Wednesday reversed a district court decision ordering AbbVie and Besins Healthcare Inc. to pay $448 million for allegedly filing sham patent lawsuits to stifle competition.

Section 13(b) of the FTC Act doesn’t give courts the power to order disgorgement, which would enable the Federal Trade Commission to claw back money from companies engaged in anticompetitive behavior, the U.S. Court of Appeals for the Third Circuit said.

It’s the third recent circuit decision to weigh in on an issue that the U.S. Supreme Court will consider this term—whether the FTC can pursue disgorgement via the courts.

“Disgorgement is a crucial tool in the tool kit that the FTC relies on and if it no longer has that tool, that will weaken the remedies it could get,” said Michael Carrier, a professor at Rutgers Law who specializes in antitrust and intellectual property issues.

While the FTC can seek an administrative trial to get approval for recouping ill-gotten gains, it “is a much more long, involved and unproven route” for disgorgement than going through the federal courts, said Stephen Calkins, former general counsel for the FTC and a law professor at Wayne State University in Detroit.

“I cannot overstate the importance of 13(b) in the day-to-day operation of the Federal Trade Commission,” he said. “Elimination of that power would eliminate the authority that is used in the majority of cases that FTC files.”

Sham Lawsuits

The FTC sued AbbVie and Besins in 2014, alleging they filed sham infringement suits. The U.S. District Court for the Eastern District of Pennsylvania ruled the two companies, which share a patent for AbbVie’s testosterone drug AndroGel, pursued lawsuits against rivals for no other reason than to block competition.

The Third Circuit also held the district court erred when it concluded one of the defendants’ patent cases against Teva Pharmaceuticals was a sham. However, the appeals court upheld the lower court’s finding that a separate patent lawsuit against Irish drugmaker Perrigo was a sham.

The appeals court reinstated the FTC’s dismissed claims and remanded the case to the district court for further proceedings consistent with the latest opinion.

The companies had asked the court to reverse the judgments against them, remove the FTC’s disgorgement authority, and reverse the district court’s ruling that they used sham litigation to extend their monopoly on the drug.

Circuit Split

The FTC has used disgorgement via the courts to redress consumer harm “with incredible success since the Reagan Administration,” Calkins said.

Federal courts have long “universally supported” disgorgement, but judges have become increasingly conservative in recent years—with more describing themselves as textualists who are now reading section 13(b) more literally, he said. A circuit split emerged as a result.

In Amg CAPITAL Management, LLC v. FTC, the U.S. Court of Appeals for the Ninth Circuit delivered a 3-0 win for the FTC on disgorgement in a case over allegedly deceptive lending practices.

But a concurring opinion by Judge Diarmuid O’Scannlain said the majority’s interpretation on the matter was “unfortunate” and “no longer tenable” because it construed Section 13(b) as empowering district courts to “compel defendants to pay monetary judgments styled as ‘restitution.’”

Meanwhile, in FTC v. Credit Bureau Center LLC, a conservative panel of the U.S. Court of Appeals for the Seventh Circuit said Section 13(b) didn’t permit disgorgement. The two cases have been consolidated, and the Supreme Court will likely hear arguments early next year.

“If the FTC loses, there will be a fundamental reworking of how the FTC operates,” Calkins said. “Either the FTC will have to get relief from Congress, or it will have to reinvigorate some under-used authority. But its way of life will be fundamentally changed.”

“A betting person with the passing of Justice [Ruth Bader] Ginsburg is probably betting against the FTC,” he added.

The case is FTC v. AbbVie, 3d Cir., No. 18-02748, 9/30/20.

(Updated with additional reporting throughout)

To contact the reporter on this story: Valerie Bauman in Washington at vbauman@bloomberglaw.com

To contact the editors responsible for this story: Fawn Johnson at fjohnson@bloomberglaw.com; Alexis Kramer at akramer@bloomberglaw.com

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