UPDATE
Antitrust & Trade Regulation
DECEMBER 2003
The New FTC Disgorgement and Restitution Policy
Statement: “Exceptional” Remedies Could Lead to
Exceptional Penalties
In most civil antitrust cases instituted by the Federal
Trade Commission or the Antitrust Division of the
United States Department of Justice, the remedy sought
is limited to an injunction against unlawful conduct, a
cease-and-desist order, a divestiture of an offending
acquisition and, in some cases, a civil penalty. Over the
last few decades, however, the Federal Trade
Commission (“FTC” or “the Commission”) has sought
and obtained an equitable remedy of disgorgement or
restitution in a limited number of cases. Most recently,
the Commission secured disgorgement and restitution
through final orders and stipulated permanent
injunctions in two 2001 cases. The first case involved
alleged illegal exclusive licensing agreements between a
pharmaceutical manufacturer and suppliers of active
ingredients. The stipulated judgment included $100
million in restitution to be distributed to injured
consumers and state agencies. The second case
involved an alleged monopoly in the health care
information services industry, which resulted from a
pre-merger notification violation by a group of related
entities. The stipulated judgment included divestiture
of the acquired entity and disgorgement of $19 million
in illegally obtained profits, to be distributed directly to
customers who paid the resultant monopoly prices.1
Notably, the restitution and disgorgement imposed in
these two cases substantially exceeded the value of
similar remedies in the past.
Apparently reflecting both a recognition of the
precedent-setting nature of the remedies in these two
cases, as well as a predisposition to pursue such
remedies more frequently in the future, the FTC has
issued a formal statement of the conditions under which
it will pursue such remedies in antitrust enforcement
actions.2 While the policy statement does provide some
insight into the factors considered by the FTC when
seeking such remedies, it still leaves many questions
unanswered.
As a threshold matter, the FTC has made it clear that it
will not seek disgorgement or restitution as routine
antitrust remedies. The policy statement provides
explicit assurances that disgorgement or restitution will
be sought only in “exceptional cases” and that the FTC
will continue to rely primarily on more familiar
remedies, such as divestiture, civil penalties, private
damages, conduct remedies, and injunctive relief.
1 The antitrust claims in the pharmaceutical case arose from an alleged conspiracy to obtain a monopoly through illegal exclusive
licensing agreements, which allegedly had no legitimate business purpose. According to the FTC, the exclusive licensing agreements
permitted the drug manufacturer to control 90% of the supply of the active ingredient for one drug at issue and 100% for a second drug
at issue.
The anticompetitive conduct in the health care information services case involved an alleged anticompetitive merger that was permitted
to go forward as a result of a violation of pre-merger filing requirements. By acquiring its main competitor through the merger, the
group of related entities illegally gained a monopoly over an important drug information database used throughout the health care
industry. The disgorgement remedy was not a penalty for the pre-merger filing requirements, but rather for the extra profits earned
through higher prices levied after the merger had been effected.
2 All quotations are drawn from the Commission’s “Policy Statement on Monetary Equitable Remedies in Competition Cases” (July 25,
2003), available on the worldwide web at http://www.ftc.gov/os/2003/07/disgorgementfrn.htm.
Kirkpatrick & Lockhart LLP
Only when such traditional remedies prove inadequate
to the goals of deterrence and equity will the
Commission seek the “exceptional” remedies of
disgorgement and restitution. The policy statement
defines “disgorgement” as “an equitable monetary
remedy designed to deprive a wrongdoer of his unjust
enrichment and to deter others from future violations”2
and, citing to Supreme Court precedent,3 identifies this
principle as a necessary “element of antitrust remedies.”
“Restitution,” by contrast, focuses on victims rather
than the violator and “is intended to restore the victims
of a violation to the position they would have been in
without the violation, often by refunding overpayments
made as a result of the violation.”
When deciding to seek either disgorgement or restitution,
the FTC will consider three factors. First, such remedies
will be sought only when the underlying violation is clear.
According to the policy statement, “[a] violation is ‘clear’
when, based on existing precedent, a reasonable party
should expect, at the time the act occurs, that its conduct
would likely be found to be illegal.” By insisting that
“clearness” be measured at the time of the violation, the
FTC believes the use of disgorgement will better serve
the goal of deterrence. After all, if the violator could not
reasonably know that his conduct was illegal and placed
him at risk of having to pay back all potential gains, then
the threat of disgorgement would be ineffective as a
deterrent. “Clearness” is measured by an “objective,”
reasonable person, standard. Second, there must be a
reasonable basis for calculating the amount to be
disgorged, which includes all profits accruing from a
violation. The FTC notes that such a calculation does not
require “undue precision” and cites to Federal Trade
Commission v. Febre, 128 F.3d 530, 534-35 (7th Cir.
1997), in which the court upheld the Commission’s
calculation of the disgorgement amount even though the
calculation did not account for every sale. In essence, the
court found that where the Commission reasonably
estimated the disgorgement amount in spite of missing
information, the calculation would be deemed sufficient,
particularly if the additional information would have
increased the damage estimate. Third, the value added
by the Commission’s pursuit of equitable monetary relief
must be considered in light of other available remedies,
including private actions and criminal proceedings.
According to the policy statement, “[w]hen other
remedies are brought to bear and are likely to result in
complete relief, a Commission action for monetary
equitable relief might well be an unnecessary and unwise
expenditure of limited agency resources.” On the other
hand, where private damages actions may be hamstrung
by procedural technicalities (e.g., statutes of limitation) or
by market disincentives to private remedies such that a
violator is likely to retain some or all of the fruits of its
violation, then the Commission may seek disgorgement
in order to prevent the retention of any such ill-gotten
benefits. In other words, disgorgement or restitution is
appropriate when private litigation is unlikely to fully
compensate the real victims (such as indirect purchasers),
when private actions are likely to leave violators with a
meaningful portion of their illegal gains, or when cases
involve injuries to individual consumers that are too
small to justify private lawsuits.
None of these factors by itself will necessarily lead the
FTC to seek disgorgement, though a strong showing in
any one of these three areas may “tip the decision.”
The policy statement offers the following clarification:
in the case of a particularly egregious violation – i.e.,
when the violation was objectively “clear” –
disgorgement or restitution may be sought despite the
likelihood of private actions. On the other hand, where
numerous private actions are pending, the FTC may
choose not to seek disgorgement or restitution even if
the violation is “clear.”
The Commission purports to be “sensitive to the interest
in avoiding ‘excessive’ multiple payments by
defendants for the same injury,” but such awards are not
impossible. Indeed, the absence of a working definition
for “excessive” implies an undefined margin for
duplicative awards that the FTC ultimately leaves for
the courts to decide. The policy statement provides
only that “we believe that the courts considering
equitable remedies have sufficient flexibility to craft
orders to avoid unjust results.” In addition, the
Commission states that it will “take pains to ensure that
injured persons who recover losses through private
damage actions under the Clayton Act not recover
doubly for the same losses via FTC-obtained
2 Citing to Securities Exchange Comm’n v. First City Financial Corp., 890 F.2d 1215, 1230 (D.C. Cir. 1989) (internal quotations omitted).
3 United States v. Grinnell Corp., 384 U.S. 563, 577 (1966); Schine Chain Theatres, Inc. v. United States, 334 U.S. 110, 128 (1948).
2
KIRKPATRICK & LOCKHART LLP ANTITRUST & TRADE REGULATION UPDATE
restitution” and specifically notes its efforts to avoid
duplicative payments in two recent cases in which
claims administration procedures were being developed
in parallel state and private actions. According to the
policy statement, “in each of those cases the funds
recovered by the Commission were combined with
other recoveries and a single claims administration
process handled the administration of all the funds.”
The Commission notes that in some circumstances it
may also consider setting up an escrow fund and
seeking appointment of a special master to determine
the proper allocation of collected funds or to coordinate
parallel actions.
To a certain degree the policy statement clarifies the
rationale behind the FTC’s decisions to pursue the
remedies of disgorgement and restitution. Such
measures can fill perceived gaps in the antitrust
enforcement scheme and remove incentives to
knowingly engage in anticompetitive conduct – e.g.,
where the injury is diffuse or treble damages and other
avenues of relief fail to extract the full amount of the
defendant’s unjustly obtained gain.
context, the only mechanism for avoiding multiple
liabilities lies within existing institutional arrangements
by which the FTC defers to the DOJ and refrains from
bringing a separate action for monetary relief once the
DOJ has initiated a criminal prosecution. Moreover,
the FTC’s policy statement specifically disclaims any
intent to consider civil (and presumably also criminal)
fines and penalties as an offset to either disgorgement or
restitution.
In sum, the FTC’s new policy statement on
disgorgement signals that the aggregate disincentives
for antitrust violations may have increased. While the
policy statement attempts to allay fears that every
enforcement action by the Commission will contain a
disgorgement or restitution demand, nonetheless there is
no obvious restraint on the agency’s discretion to seek
such a remedy any time a per se or other “clear”
violation occurs. Thus the policy statement ultimately
provides one more incentive for companies to adopt
and utilize a “best practices” regime for antitrust
compliance, including regular antitrust educational
activities and periodic compliance audits.
Several questions, however, remain unanswered. First,
it remains unclear exactly how much precision is
required when calculating the remedial amount; the
policy statement not only fails to specify the acceptable
margin for understatement or overstatement of the
penalty, but it also fails to indicate whether any indirect
profits would or should enter into the calculation. If
indirect profits should be included in the calculation,
then it still remains unclear what constitutes a
“reasonable basis” for calculating such indirect gains
from anticompetitive conduct. Second, despite the
FTC’s confidence in the courts’ ability to avoid unjust
results, the policy statement provides little comfort that
defendants will not ultimately face multiple or
duplicative punishments, as claims may be pursued
under state or federal law by an array of plaintiffs at
different levels in the distribution chain as well as by the
Department of Justice (“DOJ”), which has discretion to
initiate criminal actions. The only mechanisms to
forestall such inequitable results in the context of
private actions are judicial discretion and a concomitant
knack for managing complex set-offs. In the criminal
WILLIAM D SEMINS
wsemins@kl.com
412.355.8973
JAMES E SCHEUERMANN
jscheuermann@kl.com
412.355.6215
K&L’s Antitrust and Trade Regulation practice provides
comprehensive antitrust counseling to clients on achieving business
objectives while complying with the antitrust laws. If you have any
questions regarding the subject matter discussed in this Alert, please
contact one of the following attorneys:
James E. Scheuermann
Thomas A. Donovan
412.355.6215
412.355.6466
jscheuermann@kl.com
tdonovan@kl.com
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This publication/newsletter is for informational purposes and does not contain or convey legal advice. The information herein
should not be used or relied upon in regard to any particular facts or circumstances without first consulting with a lawyer.
DECEMBER 2003
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© 2003 KIRKPATRICK & LOCKHART
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