Digesting an opinion by The Honorable Thomas M. Hardiman
U.S. Court of Appeals for the Third Circuit, Case Nos. 18-2621, 18-2748, and 18-2758
Decided September 30, 2020
Judge Hardiman had no role in WLF’s selecting or editing this opinion for our CIRCULATING OPINION feature.
Introduction to the Opinion: The Federal Trade Commission (FTC) alleged that the patent owners of a testosterone therapy unlawfully brought a sham patent infringement suit against the manufacturers of a generic copy. FTC also alleged that the parties’ settlement of that litigation violated the Federal Trade Commission Act (FTC Act). The district court dismissed FTC’s claims as to the patent settlement but found defendants liable for monopolization on the sham-litigation theory. The court ordered the parties to disgorge $448 million under § 13(b) of the FTC Act.
Although the Third Circuit reinstated FTC’s claims on the patent settlement’s legality, it also held that the district court lacks authority under FTC Act § 13(b) to order disgorgement of “ill-gotten gains.” Judge Hardiman rejected the conclusion of seven other circuit courts, refusing to read a restitution remedy into § 13(b), whose text and structure grants FTC only the power to seek an injunction.
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HARDIMAN, Circuit Judge:
The District Court ordered AbbVie and Besins to disgorge $448 million in ill-gotten profits. It reasoned “[t]he weight of authority … supports the conclusion that the grant of authority in section 13(b) to provide injunctive relief includes the full range of equitable remedies, including the power to order a defendant to disgorge illegally obtained funds.” AbbVie, 329 F. Supp. 3d at 137 (citation omitted). It also said a contrary interpretation would “eviscerate the FTC Act” because a monopolist would “be able to retain its ill-gotten gains and simply face an injunction against future wrongdoing.” Id.
Reviewing the District Court’s interpretation de novo, see Kaufman v. Allstate N.J. Ins. Co., 561 F.3d 144, 151 (3d Cir. 2009), we conclude it erred in ordering disgorgement because district courts lack the power to do so under Section 13(b).
“The FTC has multiple instruments in its toolbox to combat unfair methods of competition” and unfair or deceptive acts or practices. FTC v. Shire ViroPharma, Inc., 917 F.3d 147, 155 (3d Cir. 2019). First is the FTC’s “traditional enforcement tool,” Section 5 of the FTC Act. Id. (citing 15 U.S.C. § 45(b)). That section allows the FTC to initiate an administrative proceeding to obtain a cease-and-desist order against an unfair method of competition or an unfair or deceptive act or practice. See 15 U.S.C. § 45(b). The FTC can then sue in federal district court to get “limited monetary remedies” for violations of the order. Shire, 917 F.3d at 155. A respondent who violates an order is liable for no more than $10,000 per violation. See 15 U.S.C. § 45(l). The FTC can also seek “mandatory injunctions” and “such other and further equitable relief” as the court deems appropriate. Id. Violators other than the respondent are also liable for up to $10,000 per violation, but only if they violate the order knowingly. See id. § 45(m)(1)(A).
Second, under Section 19 of the FTC Act, the FTC can promulgate “rules which define with specificity acts or practices which are unfair or deceptive.” Id. § 57a(a)(1)(B). Alternatively, it can initiate an administrative proceeding to obtain a cease-and-desist order. Id. § 57a(a)(2). In either case, it can sue violators in federal district court. See id. § 57a(a)(1)–(2). ***
A third enforcement tool is Section 13(b) of the FTC Act. “Unlike Section 5, Section 13 was not part of the original FTC Act.” Shire, 917 F.3d at 155. “Rather, [it] was added later [in 1973] in an effort to solve one of the main problems of the FTC’s relatively slow-moving administrative regime—the need to quickly enjoin ongoing or imminent illegal conduct.” Id.
The question presented in this appeal is whether a district court has the power to order disgorgement under Section 13(b). We start with the text, for where “the words of the statute are unambiguous, the judicial inquiry is complete.” Desert Palace, Inc. v. Costa, 539 U.S. 90, 91, (2003) (internal quotation marks and citation omitted).
Section 13(b) authorizes a court to “enjoin” antitrust violations. It says nothing about disgorgement, which is a form of restitution, see Liu v. SEC, 140 S. Ct. 1936, 1940–41, not injunctive relief. *** Thus, Section 13(b) does not explicitly empower district courts to order disgorgement.
This interpretation is even stronger in context. Section 13(b) says that, in order to sue, the FTC must have reason to believe an antitrust violation is imminent or ongoing. See Shire, 917 F.3d at 156 (holding requirement applies to request for permanent injunction). This requirement makes perfect sense as applied to injunctive relief, which prevents or mandates a future action. See Injunction, Black’s Law Dictionary (rev. 4th ed. 1968). 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, see Liu, 140 S. Ct. at 1940–41, meaning that even if a wrongdoer’s conduct is not imminent or ongoing, he may have gains to disgorge. If Congress contemplated the FTC could sue for disgorgement under Section 13(b), it probably would not have required the FTC to show an imminent or ongoing violation. That requirement suggests Section 13(b) does not empower district courts to order disgorgement.
The FTC’s other enforcement powers also support our interpretation. Both distinguish between injunctions and other forms of equitable relief. See 15 U.S.C. § 45(l) (FTC can seek “mandatory injunctions” and “such other and further equitable relief” as the court deems appropriate); Id. § 57b(b) (court can “grant such relief as the court finds necessary to redress injury,” including but not limited to “the refund of money or return of property” and “the payment of damages”). The timing of the enactment of these powers is also instructive. Congress amended Section 5 to allow “such other and further equitable relief” at the same time it enacted Section 13(b). See Trans-Alaska Pipeline Authorization Act, Pub. L. No. 93-153, § 408, 87 Stat. 576, 591 (1973). And it enacted Section 19—which allows disgorgement only under certain conditions—after Section 13(b). See Magnuson-Moss Warranty Act, Pub. L. No. 93-637, § 206, 88 Stat. 2183, 2201–02 (1975). Thus, Sections 5 and 19 both show that when Congress wants to empower a district court to order more expansive equitable relief than injunctions, it does so. Yet Congress did not do so in Section 13(b).
A contrary conclusion would undermine the FTC Act’s statutory scheme. Section 13(b) was added in 1973 because the FTC’s administrative regime moved slowly. See Shire, 917 F.3d at 155. But it is slow-moving for a reason: it affords defendants valuable procedural protections. For example, Section 5 conditions relief to defendants on an administrative proceeding and a cease-and-desist order. See 15 U.S.C. § 45(b). It also limits the monetary relief the FTC can obtain. See 15 U.S.C. § 45(l); see also id. § 45(m)(1)(A). Section 19 likewise requires the FTC to promulgate “rules which define with specificity acts or practices which are unfair,” or initiate an administrative proceeding to obtain a cease-and-desist order. Id. § 57a(a)(1)(B)–(2). By contrast, Section 13(b) does not incorporate these same protections: it grants the FTC a cause of action to seek a preliminary injunction in federal court without first pursuing administrative adjudication or rulemaking; and it imposes no limits on the amount of any monetary relief the FTC may be able to obtain. Thus, our interpretation does not “eviscerate” the FTC Act; it harmonizes its provisions. ***
The FTC argues the interpretation we adopt goes against the weight of precedent. It notes that seven of our sister courts have held courts may order disgorgement under Section 13(b), and we acknowledged as much in the footnote of a not-precedential decision. FTC Reply Br. 88 (quoting FTC v. Magazine Sols., LLC, 432 F. App’x 155, 158 n.2 (3d Cir. 2011)). That is true, but until recently, “[n]o circuit ha[d] examined whether reading a restitution remedy into section 13(b) comports with the FTCA’s text and structure.” Credit Bureau, 937 F.3d at 785 (describing the precedents); see also id. (quoting United States v. Hill, 48 F.3d 228, 232 (7th Cir. 1995) (“We are not merely to count noses. The parties are entitled to our independent judgment.”)). Moreover, today’s result is consistent with the recent ruling of the United States Court of Appeals for the Seventh Circuit, which, in a thorough and well-reasoned opinion, overturned its precedent authorizing restitution under Section 13(b). Credit Bureau Center, 937 F.3d at 764. ***
Next, the FTC argues Congress has “twice ratified the consistent understanding of the courts of appeals”—first in 1994, when Congress expanded the venue and service-of-process provisions of Section 13(b), see FTC Act Amendments of 1994, Pub. L. No. 103-312, § 10, 108 Stat. 1691, 1695–96 (1994); and second in 2006, when Congress made “[a]ll remedies available to the Commission … including restitution to domestic or foreign victims” available for certain unfair practices abroad, see U.S. Safe Web Act of 2006, Pub. L. No. 109-455, § 3, 120 Stat. 3372, 3372 (2006) (amending 15 U.S.C. § 45(a)(4)(B)) (emphasis added). FTC Reply Br. 93. We disagree. The 1994 amendment did not change the remedies available to the Commission. So it can hardly be seen as ratifying our sister courts’ precedents on that issue. ***
The crux of the FTC’s counterargument is a pair of Supreme Court decisions on which our sister courts and the District Court relied—Porter v. Warner Holding Co., 328 U.S. 395 (1946), and Mitchell v. Robert DeMario Jewelry, Inc., 361 U.S. 288 (1960). According to the FTC, these decisions mean Section 13(b)’s use of the word “injunction” impliedly empowers district courts to order equitable relief in addition to injunctions. Once again, we disagree.
In Porter, the Supreme Court held a district court could order restitution under the Emergency Price Control Act of 1942, which authorized the Administrator of the Office of Price Administration to seek “a permanent or temporary injunction, restraining order, or other order” in court. 328 U.S. at 397 (emphasis added). The Court reasoned:
Unless otherwise provided by statute, all the inherent equitable powers of the District Court are available for the proper and complete exercise of that jurisdiction. And since the public interest is involved …, those equitable powers assume an even broader and more flexible character than when only a private controversy is at stake. Power is thereby resident in the District Court, in exercising this jurisdiction to do equity and to mould each decree to the necessities of the particular case. It may act so as … to accord full justice to all the real parties in interest …. In addition, the court may … give whatever other relief may be necessary under the circumstances. Only in that way can equity do complete rather than truncated justice.
Moreover, the comprehensiveness of this equitable jurisdiction is not to be denied or limited in the absence of a clear and valid legislative command. Unless a statute in so many words, or by a necessary and inescapable inference, restricts the court’s jurisdiction in equity, the full scope of that jurisdiction is to be recognized and applied.
Id. at 398 (internal citations and quotations omitted). The Court concluded that “the term ‘other order’ contemplates a remedy other than that of an injunction or restraining order, a remedy entered in the exercise of the District Court’s equitable discretion.” Id. at 399. It noted that no “other provision of the Act … expressly or impliedly precludes a court from ordering restitution.” Id. at 403.
In Mitchell, the Supreme Court extended Porter. The Court held a district court could order wage reimbursement under the Fair Labor Standards Act, which gave courts jurisdiction “to restrain violations” of the Act. Mitchell, 361 U.S. at 289. The Court said:
When Congress entrusts to an equity court the enforcement of prohibitions contained in a regulatory enactment, it must be taken to have acted cognizant of the historic power of equity to provide complete relief in light of the statutory purposes. As this Court long ago recognized, there is inherent in the Courts of Equity a jurisdiction to … give effect to the policy of the legislature.
Id. at 291–92 (alteration in original) (citation and internal quotations omitted). It was immaterial that the Act lacked language, like “other order” in Porter, that confirmed the court’s power to order reimbursement. See id. at 291 (citations omitted).
We interpreted Porter and Mitchell in United States v. Lane Labs-USA Inc., 427 F.3d 219 (3d Cir. 2005). There, we held a court could order restitution under the FDC Act in part because the Act empowered district courts to “restrain violations.” See id. at 223; 21 U.S.C. § 332(a). We explained Porter and Mitchell “charted an analytical course that seems fairly easy to follow: (1) a district court sitting in equity may order restitution unless there is a clear statutory limitation on the district court’s equitable jurisdiction and powers; and (2) restitution is permitted only where it furthers the purposes of the statute.” Id. at 225. We noted “[n]umerous courts have followed this approach in opining about a court’s power to order … disgorgement under several different statutes.” Id. In support, we cited, among other authorities, a decision holding disgorgement is available under Section 13(b). See id. (citing FTC v. Gem Merch. Corp., 87 F.3d 466, 470 (11th Cir. 1996)).
Following the analytical course that Lane Labs described, we conclude Section 13(b) does not implicitly empower district courts to order disgorgement. Unlike the statutes at issue in Porter, Mitchell, and Lane Labs, Section 13(b) limits the district court’s equitable jurisdiction and powers because it specifies the form of equitable relief a court may order. Compare Porter, 328 U.S. at 397–98 (“a permanent or temporary injunction, restraining order, or other order” in court), Mitchell, 361 U.S. at 289 (“restrain violations”), and Lane Labs, 427 F.3d at 223 (same) with 15 U.S.C. § 53(b) (“enjoin”). Moreover, as we have explained, the context of Section 13(b) and the FTC Act’s broader statutory scheme both support “a necessary and inescapable inference” that a district court’s jurisdiction in equity under Section 13(b) is limited to ordering injunctive relief. Porter, 328 U.S. at 398. So our interpretation is consistent with Lane Labs and faithful to Porter and Mitchell.
The FTC counters that in Lane Labs, we cited Gem Merchandising, which held disgorgement is available under Section 13(b). But we cited that case solely to support our approach to applying Porter and Mitchell, and the other cases we cited involved three different statutes. Lane Labs, 427 F.3d at 225. We were not interpreting statutes en masse.
For these reasons, we hold district courts lack the power to order disgorgement under Section 13(b) of the FTC Act. So the District Court erred in requiring AbbVie and Besins to disgorge $448 million.