Recent court and agency rulings highlight important takeaways involving disgorgement in antitrust proceedings. Companies, especially those in the pharmaceutical industry, increasingly should ensure they properly calibrate the potential for disgorgement in their antitrust risk calculus.
Four actions over the last few months, including two in the last few weeks, suggest the risk surrounding disgorgement as a remedy in antitrust cases may be increasing.
- The FTC settlement with Cardinal Health: On April 20, 2015, the Federal Trade Commission reached a settlement with Cardinal Health Inc. that will require the health care company to disgorge $26.8 million because of allegations of ill-gotten gains from conduct surrounding the distribution of radiopharmaceuticals. The remedy is the FTC's second-highest disgorgement remedy ever and is the first disgorgement remedy in over a decade. The decision was not without its detractors, even within the Commission, as Commissioners Olhausen and Wright filed written dissents. The two dissenting Commissioners disagreed with applying disgorgement to Cardinal Health's conduct primarily because they were not convinced of the illegality of the underlying conduct and did not think adequate guidance had been provided to companies on when the agency would pursue disgorgement (the FTC revoked its disgorgement guidelines in 2012). Even with the dissent, however, the Commission voting to pursue disgorgement is noteworthy.
FTC v. Cephalon and King Drug Co. of Florence Inc. v. Cephalon: On April 15, 2015, a federal district court held that the FTC could pursue disgorgement of profits related to Cephalon's so called "reverse payment" agreements involving the drug Provigil. FTC v. Cephalon, Inc., No. 2:08-cv-2141 (E.D. Penn. Apr. 15, 2015). The judge's order potentially exposes Cephalon to the possibility of disgorging between $3.5 billion and $5.6 billion in allegedly ill-gotten profits, parts of which were accrued following the filing of the FTC's suit in 2008.
Less than a week later on April 20th, in litigation brought by direct purchasers of Provigil, Cephalon Inc., along with its parent company Teva Pharmaceutical Industries Ltd. and sister company Barr Pharmaceuticals Inc., agreed to a $512 million settlement. The settlement represents the largest ever for direct purchasers in a pay-for-delay case. The proximity of this settlement to the disgorgement order in the FTC case raises the question of whether there was some linkage between the two.
- United States v. Twin America: On March 16, 2015, the Department of Justice announced a settlement requiring Twin America, a tour bus joint venture in New York City, to disgorge $7.5 million. In connection with its settlement, Assistant Attorney General Bill Baer indicated that antitrust violators "shouldn't be able to pocket the dollars from [their] wrongdoing" and emphasized DOJ's commitment to disgorgement as a remedy.
- FTC's intent to seek disgorgement from companies involved in AndroGel: In September 2014, the FTC filed its first post-Actavis "reverse payment" case against AbbVie, Abbott Laboratories, Unimed Pharmaceuticals, Besins Healthcare, and Teva Pharmaceuticals involving AndroGel. The FTC stated in its press release that it would seek a court judgment, "ordering the companies to disgorge their ill-gotten gains."
The agencies' recent pursuit of disgorgement, which likely will only be emboldened by recent decisions and settlements, highlights the need for companies, especially in the pharmaceutical industry, to understand the risk of potential disgorgement remedies and how those remedies may impact their commercial and legal strategy.
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